Guest Speaker: Minister of Finance, Government of Lesotho – Dr Timothy Thahane

7^th May, 2010 speaking in the Davenport Hotel, Merrion Square, Dublin.

Hosted by Trinity College Dublin.

Dr Timothy Thahane began his talk by paying tribute to Dr Garrett Fitzgerald whom he met in Brussels in 1973, and who desired to form a relationship with Lesotho and the EEC as it was known then: Lesotho and Ireland would develop diplomatic relations which have lasted until this day. Initially, Dr Fitzgerald recognised the need for training in Lesotho and is accredited with establishing, for instance, the Centre for Accounting Studies in Lesotho.

Dr Timothy Thahane then turned his attention to the title of his talk: ‘Managing Economies in Turbulent Times’. He opened his address with a reflection, ‘if we look at the world, it has become interdependent, bound by technology, trade and finance as well as communications’.

He cited recent examples too of how fragile these links can be, when such things as the recent volcanic ash can disrupt global dependency by grounding flights, and with it, passengers stranded in different parts of the globe; businesses suffered as a result of planes not flying and foodstuffs not making their destinations in a timely fashion, affecting trade. Indeed, the flower and bulb trade was badly affected too together with the fresh fruit and vegetable trade, to mention but two industries dependent on exports and air travel.

Ironically, Dr Thahane then pointed out that the global economic crisis experienced in recent times, began in one of the most developed economies in this world: the USA. Originating in the banking sector, the financial crisis quickly spread to most other industries (and countries) linked with the banking sector, most notably, the property sector, especially housing.  Dr Thahane then turned his attention to how this worldwide economic crisis impacted on Africa and other developing countries. He said, ‘when you look at what happened in the US, you have to appreciate the role of the finance sector and more importantly, the importance of regulation’. He cited both Ireland and Iceland as two economies which over-borrowed money on the strength of countries who saved, such as Germany and Japan. When credit dried up, such giant corporations such as GM in the USA could no longer sell cars. In developing countries like Lesotho, the textile and clothing industry were greatly affected. Exports sales – predominately to the USA – which had climbed to $450 million dollars at its peak, fell as Americans began to economise on their clothing needs. In Thahane’s words, ‘when they [the American public] couldn’t service their mortgages and cares, they realised they didn’t have to change their jeans every year’. This was the reality of the financial crisis on the ground in Lesotho. As a result of the fall in revenue and sales, 10% of textile workers lost their jobs in Lesotho, affecting families and communities often in already impoverished circumstances.

Similarly, the mining sector in Lesotho also suffered. South African exports minerals. However, when they could not sell their copper or gold, job loses and pay cuts ensued. As Lesotho has a strong migrant community who work in South Africa, such remittances are vital for the rural economies in Lesotho. These remittances have being greatly cut or reduced in recent times.

In Lesotho, the prices for a diamond carat has fallen from $4,000 to $850, this has similarly had an impact on job security, wages and resulted in job losses. Consequently, customs revenue has also fallen greatly from 52 Billion Rand to 39 Billion Rand. Needless to say, this has also had a big impact on every aspect of financing with Lesotho’s government. This gap has now to be filled, and is, in the words of Dr Thahane, ‘a tough call’. Inevitably, this has led to a deficit in the budget, and the finance minister asked the audience the rhetorical question, ‘how do you respond to it?’

As Minister for Finance, he laid out his priorities which is to focus on ‘the fundamentals’ and ‘promote high, sustainable economic growth’, pointing out that ‘no country has succeeded without high economic growth’ and cites examples of India, China and Ireland. High growth, he believes equates to high investment. He feels Lesotho needs to examine its competitiveness and its business environment, and especially examine constraints to investment. It is his opinion that encouraging business is a priority. The government depends on taxes to support its programmes. The private sector has both the money and the skills to enable countries such as Lesotho to progress. The private sector, therefore, needs to be encouraged to invest, and in turn, the Lesotho Government has to make the environment conducive towards inward investment.

His second concern in Lesotho’s developing economy is: ‘how do we protect the poor?’ The Minister had to look at areas that can be taxed but ‘that tax has to be fair’. In highlighting the issue of ‘fairness’ within taxing laws, the challenge for the Minister as he saw it, is how to mobilise domestic revenue so as not to disadvantage the poor.

His third priority is how to cut non-productive expenditures. In order to achieve this, expenditures need to be prioritised. Managing economies in tough times means that he has to make tough choices. The Minister asks, what is required for the long term – a minimum infrastructure involving skills and education. These need to be prioritised.

The Minister then began to look at the option of having more public-private partnerships, where the former group have the will and the second group have the means, and together they can build ‘for profit’ partnerships to the benefit of both businesses and the public. He cited the example of putting a hospital out to tender, and with a PPP, it can achieve 5 times its original capacity: offering more beds and specialities than originally planned for or envisaged. This is an example of where such PPPs can be successful in delivering a decent service to the poor, as well as being profitable.

In Lesotho, attempts have been made to offset the impact of the recent downturn, by introducing a social pension for those over 70 years of age. They have recently introduced free primary education, protecting what is fundamental to Lesotho. They now are focusing on expanding teacher training, particularly for secondary school. He also emphasised the need to examine the curriculum and training of the youth of Lesotho, to ensure it is suitable for today’s economy.

Minister Thahane made reference to the HIV/AIDS virus which is currently having a huge impact on the Basotho nation. Again, he emphasised the importance of education and its role in combating this deadly disease. A dynamic education, he felt, would involve a rounded approach, including tackling the curriculum, the training of teachers, and to address further vocational education needs, etc. He also felt that education was critical in supporting the private sector, providing people with suitable knowledge competencies and skills.

Lesotho has also introduced a feeding programme for those attending school which is vital for some children who have been orphaned due to the HIV/AIDs pandemic, and such as meal may be their only access to food for the day. In any case, it is difficult to learn on an empty stomach. Poverty can and does have a stunting effect on education and learning. Such orphaned families now also get an allowance. However, they encourage that such OVCs stay within their own families and communities, rather than house them separately. Of late, testing for HIV/AIDS is also free. However, Lesotho has a long road ahead in facing both its social and economic commitments, however, the Minister is hopeful that with the help of outside benevolent agencies, such as Irish Aid, they will soon be on the road to recovery and economic growth, becoming a self-sustaining, modern economy.

The Minister reiterated a recurring theme in his talk, that ‘managing economies in turbulent times’ requires a commitment beyond self – to the public, to country and to others. Taking such tough decisions will ensure that countries will survive the current downturn. The Minister also highlighted the importance of developing a framework for taking such tough decisions in a way that is both transparent and accountable. In his opinion, quoting an Irish man he met on the aeroplane en route to Ireland, ‘to be a business leader in these times one needs to ensure accountability, transparency and truthfulness’. That is what it Dr Timothy Thahane believes is required, ending his talk on this positive note.

The Minister then thanked the distinguished audience for attending his talk. Questions and Answers followed, covering topics such as ‘the brain drain’ from Lesotho (when SA offers higher salaries and better prospects, how this can be offset?) And also, the ‘brain drain’ from the public sector to the private sector, and how can this be prevented; other issues such as the liberalisation of the telecommunications sector to enable easier inward investment (from CGDE Director), and issues arising from the difficulties Lesotho faces on this front; again, the Finance Minister took onboard the points made and such issues will be addressed by his government in the near future. Finally, Her Excellency, Ms Manette Ramaili was commended on her effectiveness as Lesotho’s Ambassador to Ireland, and she is also wished well and much continued success.

Overall, this talk was very well received and very well attended. CGDE Director would like to thank and commend TIDI for inviting her to such a successful and interesting event. TIDI is wished much continued success.