Working Paper 206 - Growth and Distributional Impact of Agriculture, Textiles and Mining Sectors in Lesotho

The objective of this study is to understand the relative importance of Agriculture, Textile and Diamond sectors in Lesotho by examining their growth and istributional impact.The results show that agriculture and textiles are important as key sectors of the economy. These sectors are highly integrated with relatively high forward and backward linkages. Diamonds, however, remains a backward oriented sector mainly having strong linkages as a purchaser of inputs from other sectors which limits its influence on the rest of the economy. This means that investment in highly integrated sectors of agriculture and textiles has a relatively higher potential to spur growth in other sectors of the economy. Additionally, agriculture has the greatest impact on value added further underlining its relativeimportance and centrality in generating growth.In terms of distribution, it emerges that there is a huge gap between the rural and urban areas and the greatest benefits accrue to the later. The istribution of income is skewed towards the urban household groups which call for policies to redress the inequalities in order to benefit the rural areas which harbour the majority of the poor households.Cognizant that unemployment is likely to hit those in the lower income distribution than others, it has an inequality generating effect. In this respect, agriculture which employs majority of the poor has the greatest impact on improving the incomes of the rural households given that it has the highest pure indirect effects. Given that agriculture has high backward and forward linkages as well as a relatively higher impact on value added compared to its counterparts, progressive redistribution and growth are not in conflict.In view of this, part of the support should be tailored towards removing the critical constraints in the sector. This will allow the sector to quickly respond to exogenous increase in demand. Doing nothing to eliminating constraints to agriculture will have economy wide impact to sectors benefiting from its extensive backward and forward linkages as well as on distribution. Similarly, textile remains better placed compared to diamonds to simultaneously support growth and distribution. The present pattern of sector support tends to make income distribution skewed because it is an outcome of sector spending and notthe multiplier system.