Chapter four: Economic governance and management and a third lives in abject poverty. The incidence of poverty is higher in rural areas, in larger households with more children and older people, and in households headed by women. The lack of employment opportunities for retrenched workers returning to Lesotho worsened poverty in the rural areas. Here nonpoor households, which were mostly dependent on remittances as a primary source of household income, slipped below the poverty line. Wage employment opportunities in the LHWP and the garment industry were insufficient to absorb the returning miners. Unemployment remains high in Lesotho, while inequality is one of the highest in Africa. 330. Food security, low incomes, HIV and AIDS. Low incomes and the HIV and AIDS pandemic have combined to worsen food insecurity among the Basotho. Lesotho produces only 30 per cent of the food it requires to feed its people in a normal year. The agricultural sector is vulnerable to the vagaries of the weather. The country therefore needs additional food assistance in drought years. The high incidence of HIV and AIDS in Lesotho has become a major cause of poverty (it is estimated that about 23.2 per cent of adults are living with HIV and AIDS). Although the economic consequences of the pandemic have not been analysed fully, preliminary estimates suggest that the costs to the economy and the public sector are quite high. 331. Unique constraints. Lesotho faces some unique constraints to its development. These include its size, its dependence on South Africa, stiff competition from South African firms, and poor and inadequate infrastructure. 332. The size of the economy and dependence on South Africa. Lesotho remains limited by its small size and its location within South Africa. This discourages foreign investors who might otherwise be interested in locating in Lesotho to service their domestic markets. Almost half of Lesotho’s GNP had been generated in South Africa until about 1980. However, by the end of the 1990s, this trend had been reversed. Lesotho now produces nearly 80 per cent of its GNP, while many of its exports, comprising 40 per cent of GNP in 2003, came from the foreign direct investment (FDI)driven garments sector that is independent of South Africa. Lesotho, however, relies on South Africa for many critical services like banking, medical referrals and higher education. 333. Stiff competition from established South African companies. As a member of the Southern African Customs Union (SACU), Lesotho has a fairly liberal trade regime under a common tariff structure. Although the movement of goods and services is relatively easy across the border, local producers face intense competition from well-established companies in South Africa. This might be detrimental to the establishment and growth of locally owned enterprises in the long run. Furthermore, because a large percentage of the South African population and its economic activity are concentrated close to the borders, some of the nontradable items, which would otherwise be produced in Lesotho, are imported. The challenge facing policy makers is to exploit this proximity to an advanced neighbour and tailor the spillover to its advantage. This question is discussed in greater detail below under the government’s response to the current global economic crisis. 334. Poor and inadequate infrastructure. One of the major constraints facing Lesotho is its poor and inadequate infrastructure. There are no good roads in most of the districts and inadequate infrastructure constrains investment and growth, especially in remote mountain areas. The Country Self-Assessment Report (CSAR) indicates that, even in the capital city, the neglect of the railhead at Maseru station is hampering the development of sandstone quarrying and other manufacturing sectors. 95