significant volumes to the European Union, are the same that Lesotho experienced under EBA – which already granted a very liberal “single transformation” rule of origin to Lesotho as an LDC since 2011. Therefore, the potential for the EPA to stimulate diversification of exports to the European Union is uncertain.

# 5. Conclusion

Lesotho’s trade-led economic development faces numerous challenges. The rapidly changing nature of trade, production and work, the maturation of GVCs and rapid improvements in information and communications technologies are changing where international lead firms and investors locate production and threaten disruptions in employment. Global trade volumes are stagnating and concerns about protectionism in many of Lesotho’s main export destinations are increasing.

Furthermore, the country’s export-led growth model has only had a small impact on poverty reduction – something that Lesotho has had in common with many other countries in Sub-Saharan Africa. While trade can drive poverty reduction through increased growth, this is not an inevitable outcome or a uniform process and is mediated by a number of channels, including the extent to which trade opens up new employment opportunities, provides better access to external markets for the goods that the poor produce and through structural changes that increase the employment of low-skilled, poor workers in the informal sector. A recent WTO/World Bank report (2016) focuses on this relationship and argues that the impact on poverty reduction will come through a coherent approach that lowers trade costs in ways that maximize the gains for the extreme poor. This includes i) lowering trade costs for deeper integration of markets; ii) improving the enabling environment and cross-sector coordination; iii) bringing a greater focus on the poverty impact of integration policies to facilitate activities of poor and small traders, which can help improve gains for the poor, especially in rural areas; and iv) managing and mitigating risks faced by the poor through better data collection on the nature of the informal economy, the participation of women in trade, and of the traderelated constraints in general, which many countries face and continue to be large.

The challenges caused by a changing global economy and a growth model that has not done enough for the poor are exacerbated by the uncertainty surrounding the future of Lesotho’s AGOA privileges. This underscores the need for reform and a renewed sense of urgency. Future export growth will be challenged by the emergence of new low-wage competitors in Asia and Africa and the expected erosion of preferential market access in main export destinations over the next decade. Moreover, while Lesotho has made great strides in using trade and investment as a driver for growth, its growth has not been sufficiently inclusive.

Five main findings emerge from this analysis:

1. Lesotho remains reliant on very few products and markets for exports. Apparel and diamonds accounted for 77% of total exports in 2015 and these two sectors account for 98% of exports to the United States and the European Union. Exports to South Africa are more diversified, encompassing several hundred products.

2. The immediate loss of AGOA preferences would have a significant economic impact that far exceeds that of a hypothetical US-Vietnam FTA. If these preferences were suspended in 2018, the 17