International trade is widely acknowledged as an essential force behind economic expansion. It enhances resource allocation efficiency, facilitates job creation, and drives income generation. However, its impact is not uniformly experienced across all countries, especially in smaller, resource-limited economies like Lesotho. Here, the role of micro, small and medium enterprises (MSMEs) becomes particularly significant. These businesses form the backbone of Lesotho’s private sector and are crucial for stimulating economic growth, providing employment, and alleviating poverty. Typically employing fewer than 50 people and generating modest annual revenues, SMEs contribute meaningfully to the national GDP and labour market.
The global importance of SMEs is well established. Across sub-Saharan Africa, they account for the majority of businesses and employ a large share of the workforce. In South Africa, for example, SMEs significantly outnumber larger firms and are a major source of employment. Lesotho follows a similar pattern, with many of its SMEs operating in the garment and textile industry. These enterprises have leveraged preferential trade agreements like the African Growth and Opportunity Act (AGOA) to participate in international markets, particularly through exports to the United States.
Despite this progress, Lesotho’s SMEs still face steep barriers to expanding their international footprint. The complexity of trade regulations, unpredictable customs procedures, high transportation costs and limited access to finance often stand in the way. Tariffs and non-tariff barriers further hinder trade, even within regional agreements like the Southern African Customs Union (SACU) and the Southern African Development Community (SADC). Although reforms have been implemented to simplify procedures and reduce documentation, many challenges persist, including inefficient infrastructure and bureaucratic delays at the border.
Trade data for Lesotho reveal a chronic trade deficit, with imports consistently outweighing exports. While exports, especially diamonds and textiles, have grown over the years, they remain concentrated in a few products and destinations. Lesotho is heavily reliant on South Africa for imports and depends on a narrow range of export partners, namely Belgium, the United States and South Africa. As a landlocked country, Lesotho also faces logistical disadvantages that impact both its import and export capabilities. This leaves the economy vulnerable to external shocks, particularly when global demand falters or trade agreements expire.
Over the years, Lesotho has developed several national strategies aimed at boosting trade and economic development. Vision 2020 and the National Strategic Development Plans (NSDP I and II) have all emphasised the importance of trade facilitation and export diversification. These plans identify the need to improve infrastructure, streamline regulations and integrate SMEs into global value chains. The country’s trade policies are closely aligned with SACU protocols and other regional initiatives, and Lesotho benefits from various preferential trade arrangements, including those with the European Union and the United States.
Research indicates that administrative inefficiencies and non-tariff measures continue to limit Lesotho’s export potential. Although recent improvements in customs efficiency and documentation requirements have improved the country’s ranking in the World Bank’s Trading Across Borders indicator, systemic issues remain. Import restrictions based on health, safety and economic concerns are still in place, and certain agricultural goods are subject to quantity controls.
The country’s reliance on AGOA has enabled the growth of its textile industry, attracting investment and creating jobs. However, with AGOA set to expire in 2025, Lesotho must prepare for a post-AGOA environment. There is a pressing need to broaden its export base, improve competitiveness, and enhance service sector efficiency. Policy measures such as the draft National Quality Policy and new competition and consumer protection bills aim to address these challenges by improving standards, enforcing intellectual property rights, and promoting fair competition.
A key finding from recent empirical research is the extent to which trade constraints affect SME participation and overall trade performance. Export constraints, particularly those related to regulatory compliance and limited competitiveness, have a negative impact on SME engagement in international markets. On the other hand, import constraints, though typically seen as barriers, may sometimes stimulate domestic production and innovation. The data suggest that easing trade conditions through simplified customs procedures and improved infrastructure can significantly boost trade performance.
Structural equation modelling was used to explore the relationships between trade constraints, SME participation and trade outcomes. The analysis revealed strong connections between export and import challenges, ease of doing trade and SME performance. Specifically, high export constraints reduce SME participation, while efficient trade facilitation increases trade outcomes. These results reinforce the importance of coordinated policy interventions aimed at reducing administrative burdens, enhancing trade infrastructure and supporting SME integration into value chains.
Lesotho’s trade competitiveness has also been shaped by its external partnerships and regional affiliations. SACU membership has granted access to regional markets, while AGOA and the Generalised System of Preferences (GSP) have opened up opportunities in the US and Europe. However, many of these benefits are temporary or conditional, and Lesotho needs to build more sustainable, self-reliant trade capacity. Continued investment in trade facilitation, regulatory reform and SME support is essential.
While Lesotho has made progress in improving its trade framework, challenges related to institutional capacity, political stability and resource limitations remain. A comprehensive approach that addresses both the internal and external barriers to trade is essential for boosting economic resilience and ensuring long-term growth. Strengthening trade-related institutions, investing in infrastructure, and creating a more predictable regulatory environment will enable Lesotho’s SMEs to thrive and compete more effectively in regional and global markets.
Ultimately, trade facilitation is not just about reducing paperwork or speeding up customs clearance. It is about building an ecosystem where businesses, especially small ones, can grow, innovate and connect with the world. For Lesotho, this means not only taking advantage of trade agreements and international partnerships but also investing in its people, institutions and infrastructure to create a more inclusive and competitive economy.