Contents 1 Background 2

lesotho –
Country Profile
Contents
1
Background 2
1.1
Background 2
2Population
2
2.1
Population figures
2
2.2
Population growth rate
2
2.3
Age structures (2011 estimates)
2
2.4
Gender ratios (2011 estimates)
2
2.5
Life expectancy (2011 estimates)
2
2.6
Ethnic groups
2
2.7Religions
2
2.8Language
2
2.9Education
3
2.10Healthcare
3
3Economy
3
3.1
Latest Economic indicators
4
3.2
Two-year forecast summary
4
3.3
Natural resources
5
3.4
Energy provision
5
4
Government and Politics
5
4.1
Political structure
5
5
Transport and Communications
6.1
Openness to foreign investment
7
6.2
Conversion and transfer policies
7
6.3
Expropriation and compensation
7
6.4
Dispute settlement
7
6.5
Performance requirements and incentives
7
6.6
Right to private ownership and investment
7
6.7
Protection of property rights
7
6.8
Transparency of the regulatory system
7
6.9
Efficient capital markets and portfolio investment
8
6.10 Competition from State-owned Enterprises (SOEs)
8
6.11 Political violence
8
6.12Corruption
8
6.13 Bilateral investment agreements
8
6.14Labour
8
6.15 Foreign trade zones / free ports
8
6.16 Foreign direct investment
8
6.17 Step-by-step procedures for starting a business in Benin 8
7
Country Outlook 7.1Overview
9
9
7.2
Domestic politics
9
7.3
International relations
9
6
7.4
Policy trends
5.1Railways
6
7.5
Economic growth
5.2Roads
6
7.6Inflation
10
5.3Ports
6
7.7
Exchange rates
11
5.4
6
7.8
External account
11
A
Appendix – sources of information
11
Air transport
5.5Telecommunications
6
6
7
Doing busines in Benin
© 2012 KPMG Services Proprietary Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
9
10
1
1Background
2.4 Gender ratios (2012 estimates)
1.1Background
Basutoland was renamed
the Kingdom of Lesotho
upon independence
from the UK in 1966.
The Basuto National
Party ruled for the first
two decades. King
Moshoeshoe was exiled
in 1990, but returned to
Lesotho in 1992 and was
reinstated in 1995 and
subsequently succeeded
by his son, King Letsie III,
in 1996.
0.97 male / female
Under 15 years
1.01 male / female
15 – 64 years
0.95 male / female
65 years and over
0.99 male / female
Source: CIA World Factbook
2.5 Life expectancy (2011 estimates)
Total Population
51.86 years
Male
51.77 years
Female
51.95 years
Source: CIA World Factbook
Constitutional government was restored in 1993 after seven years of
military rule. In 1998, violent protests and a military mutiny following
a contentious election prompted a brief but bloody intervention by
South African and Botswana military forces under the aegis of the
Southern African Development Community.
Subsequent constitutional reforms restored relative political stability.
Peaceful parliamentary elections were held in 2002, but the National
Assembly elections of February 2007 were hotly contested and
aggrieved parties continue to dispute how the electoral law was
applied to award proportional seats in the Assembly.
2Population
2.6 Ethnic groups
Lesotho’s ethno-linguistic structure consists almost entirely of the
Basotho, a Bantu-speaking people: an estimate of 99.7% of the
people identify as Basotho. Other ethnic groups include Europeans,
numbering in the thousands, and an estimated 5,000 Chinese.
Basotho subgroups include the Bakuena (Kuena), Batloung (the Tlou),
Baphuthi (the Phuti), Bafokeng, Bataung (the Tau), Batšoeneng (the
Tšoene), Matebele, etc.
2.7Religions
The population of Lesotho is estimated to be around 90% Christian.
Protestants represent 45% of the population (Evangelicals 26%, and
Anglican and other Protestant groups an additional 19%), and Roman
Catholics represent 45 percent of the population. Members of other
religions (Muslims, Hindus, Buddhists, Baha’i, and members of
traditional indigenous religions) comprise the remaining 10% of the
population.
2.8Language
The main language, Sesotho (or Sotho), is also the first official and
administrative language, and it is what Basotho speak on an ordinary
basis. English is the other official and administrative language.
2.1 Population figure
Lesotho has a population of 1,930,493 (July 2012 est.).
2.2 Population growth rate
0.332% (2012 est.).
2.3 Age structures (2012 estimates)
Total percentage
Male
Female
0 – 14 years
33.5%
323,934
321,727
15 – 64 years
61.1%
573,773
602,443
65 years and
over
5.4%
50,956
52,053
Source: CIA World Factbook
Total Population
2.9Education
An estimated 85% of the population 15 and over is literate, according
to recent estimates. As such, Lesotho boasts one of the highest
literacy rates in Africa, in part because Lesotho invests over 12%
of its GDP in education. Contrary to most countries, in Lesotho
female literacy (94.5%) is higher than male literacy. According to a
study by the Southern and Eastern Africa Consortium for Monitoring
Educational Quality in 2000, 37% of grade 6 pupils in Lesotho
(average age 14 years) are at or above reading level 4, “Reading for
Meaning.” A pupil at this level of literacy can read ahead or backwards
through various parts of text to link and interpret information.
Although education is not compulsory, the Government of Lesotho is
incrementally implementing a program for free primary education.
Despite having a highly literate population, Lesotho’s residents
struggle to access vital services, such as healthcare, travel,
and educational resources, as according to the International
Telecommunication Union, only 3.4% of the population use the
Internet. A service from Econet Telecom Lesotho expanded the
country’s access to email via entry level, low end mobile phones
and consequently improved access to educational information. The
African Library Project works to establish school and village libraries
in partnership with US Peace Corps Lesotho and the Butha Buthe
District of Education.
© 2012 KPMG Services Proprietary Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
2
2.10Health
Lesotho health care sector is primarily administered by the Health
Service Areas (HSA). Each HSA has got a central hospital. The central
hospital looks after the health problems of people living in a number
of Lesotho villages. There are village health centres that have medical
practitioners to take care of the patient. Local clinics are also playing
an important role in immunization.
A number of international organisations and public and private bodies
have been providing financial aid for the betterment of the heath
sector of Lesotho.
The role played by the World Health Organisation (WHO) in the
development of the health care system in Lesotho is commendable.
The key roles of WHO are:
• Planning and management of health services in Lesotho
• Formulating family health programs
• Controlling AIDS
The “Know Your Status” campaign boosted the number of people
being tested for HIV to 229,092 by the end of 2007, 12 percent of
the population and three times the number tested in 2005. The
programme is funded by the Clinton Foundation and started in June
2006. Bill Clinton and Microsoft chairman Bill Gates visited Lesotho
in July 2006 to assess its fight against AIDS. As a result, the annual
rate at which adults in the population who are HIV-negative become
HIV-positive declined from 2.9 percent in 2005 to 2.3 percent in 2007,
lowering the estimated annual number of new infections
from 26,000 to 21,560. These are the first signs of a decline in
the HIV epidemic.
The Apparel Lesotho Alliance to Fight AIDS (ALAFA) is an industrywide programme providing prevention and treatment, including ARVs
when these are necessary, for the 46,000 mainly women workers
in the Lesotho apparel industry. It was launched in May 2006. The
program is helping to combat two of the key drivers of the HIV/AIDS
epidemic: poverty and gender inequality. Surveys within the industry
by ALAFA show that 43% of the employees have HIV.
• Developing human resources
The overall contribution made by various sectors has led to the
control of dreaded disease like polio. The three district hospitals of
Lesotho located at Berea, Mokhotlong and Qacha’s Nek and other
general and military hospital have been trying to set a high health
standard in Lesotho.
One of the best health services is provided by the Maseru Private
Hospital at Thetsane. It has an emergency unit and maternity unit
where qualified doctors from Bloemfontein, South Africa, pay visit.
Lesotho Flying Doctor Service is very popular which provides
emergency services to the remotest areas of Lesotho. A team of
medical practitioners visit these areas by Cessna 206 single engine
planes. These planes are equipped with stretchers and first aid kits.
For emergency ambulance service in Lesotho, one has to dial 121.
Lesotho is severely afflicted by HIV/AIDS. According to 2009
estimates, the prevalence is about 23.6%, one of the highest in the
world. In urban areas, about 50% of women under 40 have HIV. The
UNDP stated that in 2006 life expectancy in Lesotho was estimated
at 42 years for men and women.
The country regards HIV as one of its most important development
issues, and the Government is addressing the pandemic through its
HIV/AIDS National Strategic Plan. Coverage of some key HIV/AIDS
interventions has improved, including prevention of mother to child
transmission and antiretroviral therapy. Prevention of mother to child
transmission coverage increased from about 5 percent in 2005, to 31
percent in 2007. The roll-out of antiretroviral therapy has made good
progress, with 38,586 people receiving treatment by 2008.
3Economy
Small, landlocked, and mountainous, Lesotho relies on remittances
from Basotho employed in South Africa, customs duties from the
Southern Africa Customs Union (SACU), and export revenue for
the majority of government revenue. However, the government
has recently strengthened its tax system to reduce dependency on
customs duties.
Completion of a major hydropower facility in January 1998 permitted
the sale of water to South Africa and generated royalties for Lesotho.
Lesotho produces about 90% of its own electrical power needs.
As the number of mineworkers has declined steadily over the past
several years, a small manufacturing base has developed based on
farm products that support the milling, canning, leather, and jute
industries, as well as an apparel-assembly sector.
Despite Lesotho’s market-based economy being heavily tied to its
neighbour South Africa, the US is an important trade partner because
of the export sector’s heavy dependence on apparel exports. Exports
have grown significantly because of the trade benefits contained
in the Africa Growth and Opportunity Act. Most of the labour force
is engaged in subsistence agriculture, especially livestock herding,
although drought has decreased agricultural activity.
The extreme inequality in the distribution of income remains a
major drawback. Lesotho has signed an Interim Poverty Reduction
and Growth Facility with the IMF. In July 2007, Lesotho signed
a Millennium Challenge Account Compact with the US worth
US$362.5 million. Economic growth dropped in 2009, due mainly to
the effects of the global economic crisis as demand for the country’s
exports declined and SACU revenue fell precipitously when South
Africa - the primary contributor to the SACU revenue pool - went into
recession, but growth returned to 3.6% in 2010 and 5.2% in 2011.
© 2012 KPMG Services Proprietary Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
3
3.1 Latest economic indicators
2010
1 Qtr
Government finance (M m)
Revenue & grants
Expenditure & net lending
Balance
Employment, wages & prices
Basotho miners in South Africa
Employed (av)
Remittances (M '000)
Consumer prices (av; 2005=100)
Consumer prices (% change, year on year)
Consumer prices (% change, year on year)
Financial indicators
Exchange rate M:US$ (av)
Exchange rate M:US$ (end-period)
Exchange rate; nominal effective (2005=100)
Exchange rate; real effective (2005=100)
Treasury bill rate (end-period; %)
Lending rate (end-period; %)
M1 (end-period; M m)
M1 (% change, year on year)
M2 (end-period; M m)
M2 (% change, year on year)
Foreign trade and payments ($ m)
Exports fob
Imports fob
Trade balance
Services balance
Income balance
Current transfers
SACU non-duty receipts
Current-account balance
2 Qtr
2011
3 Qtr
4 Qtr
1 Qtr
2 Qtr
3 Qtr
4 Qtr
2,315
2,619
-304
1,723
2,698
-975
2,757
2,620
137
2,122
1,942
181
2,216
2,943
-727
2,033
1,948
85
n/a
n/a
n/a
n/a
n/a
n/a
44,284
9,408
139.1
4.1
4.2
43,092
10,828
140.5
3.8
3.8
42,252
10,852
141.4
3.3
3.3
41,555
11,096
142.2
3.1
3.1
40,681
12,506
143.8
3.4
3.4
40,478
13,666
146.6
4.4
4.4
n/a
n/a
149
5.4
5.3
n/a
n/a
152
6.9
6.9
7.51
7.34
83.7
79.3
6.6
11.9
4,602.8
4.6
6,123.1
11.5
7.55
7.64
84.5
80.6
6.4
11.2
4,558.3
7.6
6,198.8
11.1
7.32
6.98
86.3
82.5
6.2
11.2
4,915.8
1.3
6,559.1
2.3
6.91
6.63
89.4
85.2
5.8
10.6
4,986.0
19.4
6,574.8
14.8
7.01
6.79
87.8
83.9
5.4
10.3
4,682.7
1.7
6,263.3
2.3
6.8
6.82
88.9
85.7
5.4
10.4
4,753.9
4.3
6,386.5
3
7.15
8.08
85.5
83.1
5.3
10.5
n/a
n/a
n/a
n/a
8.09
8.14
77.7
76.6
5.3
10.5
n/a
n/a
n/a
n/a
187.3
-466.2
-278.9
-130
131.6
223.2
160.8
-54.1
190.2
-447.4
-257.2
-104.1
129.8
120.3
68.8
-111.1
231.7
-528.6
-296.9
-116.2
130.4
186.8
134.6
-96
268.5
-527.9
-259.4
-118.8
140.3
132.8
75.1
-105.2
264.6
-525.5
-261
-139.9
129.4
148.5
74.1
-122.9
306.7
-555.5
-248.8
-150.7
134.5
156.9
98
-108.1
0
0
0
0
0
n/a
n/a
0
n/a
n/a
n/a
n/a
n/a
0
n/a
0
Source: Economist Intelligence Unit
3.2 Two-year forecast summary
(% unless otherwise indicated)
2010 (a)
2011 (b)
2012 (c)
2013 (c)
Real GDP growth
5.6
4
4.7
5.9
Consumer price inflation (av)
3.6
5
6.4
4.8
Short-term interbank rate
11.2
10.4
13
13
Government balance (% of GDP)
-5.1
-12.3
-0.9
-1.5
Exports of goods fob (US$ m)
851.8
1,009.9
1,101.1
1,274.7
Imports of goods fob (US$ m)
1,998.3
2,289.7
2,505.9
2,742.8
-421.4
-544.6
-322.6
-474.5
-19.3
-23.8
-13.9
-19
0.7
0.7
0.7
0.7
7.32
7.26
7.9
8.17
Current-account balance (US$ m)
Current-account balance (% of GDP)
External debt (year-end; US$ bn)
Exchange rate M:US$ (av)
Exchange rate M:US$ (end-period)
6.63
8.14
7.85
8.03
Exchange rate M:¥100 (av)
8.31
9.07
9.51
9.49
Exchange rate M:€ (av)
9.73
10.09
10.35
10.53
a) Actual; b) Economist Intelligence Unit estimates; c) Economist Intelligence Unit forecasts
Source: Economist Intelligence Unit
© 2012 KPMG Services Proprietary Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
4
• Basotho Congress Party (BCP)
• Marematlou Freedom Party (MFP)
• Lesotho People’s Congress (LPC)
Key ministers
• Prime Minister, Defence and National Security: Thomas Thabane
• Deputy Prime Minister, Local Government and Chieftainship:
Mothetjoa Metsing
• Agriculture and Food Security: Litsoane Litsoane
• Communications, Science and Technology: Tseliso Mokhosi
• Development Planning: Maboee Moletsane
• Education and Training: Makabelo Mosothoane
4Government and Politics
4.1 Political structure
Official name
Kingdom of Lesotho
Form of state
Constitutional monarchy
Legal system
The legal system is based on Roman-Dutch law.
National legislature
Bicameral parliament. Following an agreement reached in March
2001 and subsequent enabling legislation, the 80-member National
Assembly (the lower house), which is elected on a constituency basis
according to the terms of the 1993 constitution, was expanded by
40 members – elected by proportional representation. The upper
house (Senate) consists of 33 non-elected members, 11 of whom are
nominated by the King on the advice of the Prime Minister, plus the
22 principal chiefs of Lesotho.
National elections
The last legislative elections were held in May 2012 . The next
election is due to be held by May 2017.
Head of state
The Head of State is the monarch; the succession is governed
by custom. King Letsie III was sworn in on 7 February 1996 and
crowned on 31 October 1997.
National government
Prime Minister and a 22-member cabinet, appointed in June 2012.
Main political parties
Party political organisation was legalised in May 1991; of the 18
political parties that contested the 2012 election, 12 are represented
in parliament:
• Democratic Congress (DC)
• All Basotho Convention (ABC)
• Lesotho Congress for Democracy (LCD)
• Basotho National Party (BNP)
• Popular Front for Democracy (PFD)
• Employment and Labour: Lebesa Maloi
• Energy, Meteorology and Water Affairs: Timothy Thahane
• Finance and Development Planning: Leketekete Ketso
• Foreign Affairs: Mohlabi Tsekoa
• Forestry and Land Reclamation: Khotso Matla
• Gender, Youth, Sports and Recreation: Thesele ‘Maseribane
• Health: Pinkie Rosemary Manamolela
• Home Affairs: Joang Molapo
• Justice, Human Rights, Correctional Services, Law and
Constitutional Affairs: Haae Phoofolo
• Mining: Tlali Khasu
• Prime Minister’s Office: Molobeli Soulo; Mophato Monyake
• Public Service: Motloheloa Phooko
• Public Works and Transport: Keketso Rantso
• Tourism, Environment and Culture: Mamahele Radebe
• Trade and Industry: Temeki Tsolo
• Central Bank Governor: Rets’elisitsoe Matlanyane
International organisation participation
• ACP
• AfDB
• AUFAO
• G-77
• IAEA
• IBRD
• ICAO
• ICRM
• IDA
• IFAD
• IFC
• IFRCS
• ILO
• IMF
• Interpol
• IOC
• IOM
• IPU
• ISO (correspondent)
• ITU
• MIGA
• NAM
• OPCW
• SACU
• SADC
• UN
• UNAMID
• UNCTAD
• UNESCO
• UNHCR
• UNIDO
• UNWTO
• UPU
• WCO
• WFTU
• WHO
• WIPO
• WMO
• WTO
• National Independent Party (NIP)
• Lesotho Workers’ Party (LWP)
• Basotho Batho Democratic Party (BBDP)
• Basotho Democratic National Party (BDNP)
© 2012 KPMG Services Proprietary Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
5
5Transport and
Communications
The development of Lesotho’s infrastructure takes account of its
land-locked position and strong economic ties to South Africa, and
the country is therefore strongly interconnected with its neighbour.
However, there is scope to improve the transport network as well as
access to telecommunications.
5.1Railways
Lesotho does not have any railways, although freight being exported
from the capital, Maseru, is loaded at the nearby railway station at
Ficksburg, in South Africa. In 2007 the governments of Lesotho and
South Africa agreed to promote plans for a railway system crossing
Lesotho from east to west, which will be linked in to South Africa’s
railway network.
5.2Roads
There are nearly 800 km of tarred roads, which mainly link Maseru
with Butha-Buthe in the north and Mohale’s Hoek in the south.
Roads into the interior have improved with the implementation of
the Lesotho Highlands Water Project (LHWP), and there are about
1,600 km of gravel roads of reasonable quality. Lesotho’s roads link
with the South African network at various points; the border posts at
Caledonspoort, Ficksburg and Maseru are open 24 hours a day. The
Sani Pass, a very steep gravel road in the Drakensburg Mountains
that links eastern Lesotho and South Africa, is currently being
upgraded.
5.3 Air transport
A South African airline, SA Airlink, operates direct flights from
Johannesburg to Moshoeshoe I International Airport, which is
located south-west of Maseru and is capable of handling mediumsized aircraft. There are 31 airstrips around the country, served mainly
by charter flights. All scheduled flights to Lesotho are via South
Africa. There are plans to upgrade the airport near Maseru so that
it can handle more freight transport, with the hope that it can be
developed as a regional hub, including for the export of agricultural
products.
5.4Telecommunications
Telecommunications in this small Southern African country has
undergone transformation from a state-owned monopoly to a
privatised national operator, with competition in the mobile subsector between two networks, South Africa-based Vodacom and
Econet. However, mobile market penetration is still well below the
African average.
Econet also controls the national fixed-line operator, Telecom
Lesotho. Fixed-line teledensity is low, but the network gained more
value when ADSL broadband technology was deployed in 2007. In
parallel, Telecom Lesotho is rolling out a CDMA2000 fixed-wireless
network to provide fixed-line replacements and wireless broadband
services, following an upgrade to EV-DO technology. In addition, the
company has introduced a fixed-mobile convergence product based
on its GSM network.
Vodafone on the other hand was first to introduce 3G HSDPA mobile
broadband services in the country. In parallel, the company is rolling
out a WiMAX wireless broadband network. Several other Internet
service providers have rolled out their own wireless infrastructure.
Although landlocked, Lesotho is set to benefit from the greater
choice of international bandwidth sources that the recent landing
of several new submarine fibre optic cables on the African east and
west coasts has brought, with more cables planned to arrive in 2012.
6Doing business in Lesotho
6.1 Openness to, and restrictions upon, foreign investment
Lesotho is committed to private investment and generally open to
foreign direct investment (FDI). The country does not have a specific
FDI policy. The policy instruments guiding FDI are the Companies
Act of 1967, updated by the Companies Act of 2011, as well as
various sector-specific pieces of legislation. These covered mining,
tourism, and the industrial sector, with a particular focus on textile
manufacturing.
The lack of strong local entrepreneurs has meant the government
of Lesotho (GOL) has received no pressure to exclude foreign
investment to the advantage of local investors. Therefore virtually
all business sectors are open to foreign investors that are screened
in a routine, non-discriminatory manner. No government approval is
required, and there are almost no restrictions on the form or extent
of foreign investment beyond the ownership of small-scale retail and
services businesses, which are restricted to domestic ownership
only.
No foreign ownership, or even board directorship, by a non-citizen
is permitted at any level in these restricted businesses. These
restrictions on small-scale services and manufacturing businesses
are instruments of immigration control. Lesotho is sensitive to the
entry of small business owner-operators from abroad, especially
from China and West Africa. Controlling such businesses is a means
of controlling economic migration. Residents and non-residents
may hold foreign exchange accounts with some restrictions. Some
payments and transfers are subject to prior government approval and
limitations. Many capital transactions face restrictions or quantitative
limits.
The Lesotho National Development Corporation (LNDC), part of the
Ministry of Trade and Industry, Cooperatives and Marketing (MTICM),
is the main parastatal charged with implementation of the country’s
industrial development policies. The LNDC provides a range of
supportive services for foreign investors and publishes information
on the investment opportunities and services it offers to foreign
investors. It also offers incentives, assistance with work permits and
licenses, and logistical support for relocation. For more information,
please visit http://www.lndc.org.ls.
To complement LNDC’s activities in assisting foreign investors, the
MTICM has established a “One Stop Business Facilitation Centre”
(OBFC) where all services required for the issuance of licenses,
permits, imports, and exports clearances are placed under one roof.
The OBFC’s services, along with the implementation of the new
Companies Act of 2011, have reduced the number of days it takes to
start a business from 40 days to 16 days.
Lesotho’s performance in attracting FDI has been creditable by
regional standards. Notably, the bulk of FDI is channelled into the
manufacturing sector. Most investment currently originates from
Taiwan, Hong Kong, Singapore and South Africa. While unofficial,
the single largest investment is believed to be the US$120 million
in capital infrastructure by the Taiwanese Nien Hsing Group. Ninety
percent of FDI flows into export-oriented manufacturing, specifically
textiles and apparel for the U.S. market and increasingly South
Africa. There are 40 factories specialising in a very narrow range of
woven and knit garments. Foreign affiliates have also invested small
amounts in footwear, compact fluorescent light bulbs, electronics,
food processing, plastics, and cardboard. South African FDI is
also present in footwear factories, hotels, air travel, insurance and
telecommunications, financial services, and mining.
Foreign investors in the apparel industry have created jobs,
particularly for women, and contributed to poverty reduction, creating
a generally positive view of FDI.
© 2012 KPMG Services Proprietary Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
6
Current business taxation regulations only partially address
investor needs because they predominantly favour investment in
manufacturing for export to countries outside the South African
Customs Union (SACU). The Government of Lesotho (GOL) is
under pressure to revise relevant laws affecting investors in various
sectors. In most aspects of “normal business,” foreign investors are
on an equal footing with local investors. The investment climate is
favourable with regards to currency conversion, monetary transfer
policies, and lack of undue burdens to investors.
Measure
Year
Index/Ranking
TI Corruption Index
2010
3.5/78
Heritage Economic Freedom
2011
47.5/156
World Bank Doing Business
2012
143
MCC Government
Effectiveness
2012
0.49 (92%)
MCC Rule of Law
2012
0.63 (93%)
The telecommunications sector in Lesotho has also attracted
FDI. The consortium of ESKOM, Zimbabwe’s Econet Wireless
International, and Mauritius Telecom has a 70% share of Lesotho
Telecom. Vodacom Lesotho is a competitor and is wholly owned by
Vodacom South Africa. Lesotho has a high penetration of telephony
relative to per capita income. Such services have been extensively
modernised and expanded in recent years.
MCC Control of Corruption
2012
0.97 (98%)
MCC Fiscal Policy
2012
0.1 (84%)
MCC Trade Policy
2012
69.1 (50%)
MCC Regulatory Quality
2012
0.11 (56%)
MCC Business Start Up
2012
0.949 (68%)
MCC Land Rights Access
2012
0.614 (43%)
FDI in diamond mining has been revived by the reopening of three
commercial diamond mines, namely Lets’eng Diamonds, Liqhobong,
and Kao diamond mines. Lets’eng Diamonds is a partnership
between a South African-owned company and the GOL. Liqhobong
and Kao diamond mines are partnerships between the GOL and
a European and Gibraltan mining company, respectively. In its
attempt to attract FDI to the mining industry, the GOL has offered a
number of concessions, including VAT exemptions on inputs used
during construction and exemptions from withholding taxes on
dividends and interest payments. In return, the GOL is granted 8%
of gross sales royalties and a share of dividends from to its equity
shareholding in the three mines.
MCC Natural Resource
Management
2012
2.2 (7%)
The main weakness of the investment climate is an under-developed
legal framework for investors. The country’s FDI policy and legal
framework need development to enhance transparency and
consistency. Generally, the GOL continues to recognise the need for
the country to be competitive in regional and international markets.
To achieve this goal, the government has embarked on structural
reforms that aim at improving the investment climate. Initiatives
include private sector competitiveness programmes under the
Millennium Challenge Compact (MCC) and the World Bank, as well
as modernising customs processes through technical assistance
from the USAID-funded Southern Africa Trade Hub. Specific activities
include modernising bank payment systems; introducing national
IDs; creating a credit facility for manufacturers; and modernising land
tenure systems.
Customs process improvements will include minimising the number
of procedures required to clear consignments for exports and
imports. One of the main challenges for foreign investors has been
the prohibition on ownership of land lease titles by foreign investors.
It is being addressed through the Land Administration Reform Project
as part of the MCC Compact. The Land Act 2010 allows for land
ownership by foreign investors if local investors hold at least 20%
shares in the enterprise.
Lesotho has no legal provisions that discriminate among home
countries. It is a member of SADC, but does not provide preferential
treatment for investors from these countries. Lesotho’s standards of
treatment and protection of specific interest to foreign investors are
good in practice, although the legal framework guaranteeing these
norms is weakly developed.
6.2
Conversion and transfer policies
Lesotho’s fiscal and monetary policies are bound by its membership
in the Common Monetary Area (CMA). The CMA consists of
Southern African Customs Union members Namibia, Swaziland,
and South Africa. Under the CMA agreement, the national currency,
the Loti, is fixed at par to the South African rand, which is also a legal
tender and co-circulates throughout the country. To maintain the
Rand/Loti peg, Lesotho must hold reserves in Rand and other foreign
currencies. There are no exchange controls between Lesotho and
South Africa but CMA members agree to have exchange controls
with third parties.
South Africa has recently relaxed its foreign exchange controls in
an attempt to weaken the strength of its currency, and since South
Africa has a decisive influence on the exchange rate and a monetary
policy of the rest of the CMA, Lesotho is expected to relax its foreign
exchange controls as well.
There is no discrimination against imports, exports, or foreign
exchange transactions by foreign investors. The three commercial
banks in Lesotho are authorised dealers in foreign exchange. These
banks offer foreign exchange services during the week days only;
there are no foreign exchange services on weekends and public
holidays. In addition, there is one licensed and operational private
bureau de change.
Lesotho has partly liberalised the capital account. Controls on the
current account were abolished in 1998 while limited controls on the
capital account were adopted in 1993.
Commercial banks have been delegated authority to undertake
current account transactions and Lesotho acceded to Article VIII of
the International Monetary Fund. Dividends payments, however,
still require the Central Bank of Lesotho’s (CBL) approval. The
CBL maintains direct power of approval over foreign exchange
requirements for all capital account transactions including FDI, capital
disinvestment, and contracting and servicing of offshore debt. There
has never been a case of blockage of such transfers, and shortages
of foreign exchange that could lead to blockage are unlikely given net
international reserves of US$825 million.
Lesotho is a member of the Southern African Common Policy on
approval of foreign loans. Policies on foreign borrowing, however, are
not strongly developed as there is little foreign borrowing by resident
businesses. The CBL and the LNDC monitor international capital
inflows.
© 2012 KPMG Services Proprietary Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
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7
There are no restrictions on converting or transferring funds
associated with an investment into a freely usable currency at a legal
market clearing rate. For loan repayments, however, an investor must
notify the bank at the beginning of an investment that the capital
for that investment is a loan. They must also disclose the terms of
the loan. The current average delay period is two days for remitting
investment returns such as dividends, return of capital, interest
and principal on private foreign debt, lease payments, royalties, and
management fees through normal, legal channels, provided the
investor has submitted all the necessary documentation related to
the remittance.
6.3 Expropriation and compensation
The constitution provides that the acquisition of private property by
the state can only occur for specified public purposes. Further, the
law provides for full and prompt compensation. Affected persons
may appeal to the High Court as to whether the action is legal and
compensation is adequate. The constitution is silent on whether
compensation may be paid abroad in the case of a non-resident.
6.4 Dispute settlement
Lesotho is a member of the International Centre for the Settlement
of Investment Disputes (ICSID) and has expressed its readiness to
accept binding international arbitration of investment disputes. The
government has no history of investment disputes involving foreign
investors or contractors in Lesotho. Foreign investors have full and
equal recourse to the Lesotho courts for commercial and labour
disputes.
Courts are regarded as fair and impartial in cases involving foreign
investors. Complex commercial cases may be heard by foreign
judges. A Commercial Court was established in 2010 in an effort
to improve the country’s capacity to resolve commercial cases.
Privatisation has introduced a number of investment agreements
and these provide for international arbitration to settle disputes. For
instance, under the Bilateral Investment Treaty with United Kingdom,
an investor may take a dispute with the GOL to international
arbitration.
Lesotho is a member of the Multilateral Investment Guarantee
Agency and has acceded to the Convention on the Settlement
of Investment Disputes between States and Nationals of Other
States and the New York Convention of 1958 on the Recognition
and Enforcement of Foreign Arbitral Awards. Currently there is
no legislation providing specifically for the enforcement of these
conventions.
6.5 Performance requirements and incentives
The GOL does not maintain any measures that it has notified the
WTO to be inconsistent with Trade Related Investment Measures
(TRIMs) requirements or that have been alleged to violate the WTO’s
TRIMs obligations. There are no incentives for and no performance
requirements imposed specifically on foreign investors as a condition
of investment. There are, however, a number of financial incentives
available to manufacturing companies establishing themselves in
Lesotho, such as unimpeded access to foreign exchange, an export
finance facility, and long-term loans. These incentives are applied
uniformly to both domestic and foreign investors and are specified in
law or regulations.
The Lesotho tax system also heavily favours investment in
manufacturing. Corporate income generated from exporting
manufactured goods outside the Southern African Customs
Union (SACU) is taxed at 0%. There is a permanent maximum
manufacturing tax rate of 10% on profits and there is no withholding
tax on dividends paid to non-residents from manufacturing profits.
There is also free repatriation of profits derived from manufacturing
companies.
Corporate income in all other sectors is taxed at 29% and there is a
further 25% withholding tax on non-resident dividends.
There is a credit facility for value added tax (VAT) on imports, which
provides input tax credit upon importation and local purchasing of
raw materials and capital goods for manufactures. Moreover, only
industrial buildings and mining qualify for depreciation allowances
for taxation. Buildings for services, tourism, farming, etc., are not
depreciable. Infrastructure such as land improvements and site
services also do not qualify.
Lesotho has double taxation agreements with the Federal Republic
of Germany, the Republic of South Africa, Mauritius, and the United
Kingdom.
6.6 Right to private ownership and establishment
The right to private property is protected under the law. All foreign
and domestic private entities may freely establish, acquire, and
dispose of interests in business enterprises. Lesotho has no
competition law or overall competition regulator. Instead, under
the industrial and trading licenses system, a business can apply for
protection from competition for up to 10 years.
6.7 Protection of property rights
Lesotho respects international intellectual property laws and is a
member of the World Intellectual Property Organisation and the
African Regional Intellectual Property Organisation. Secured interests
in property, both movable and real, are recognised and enforced in
Lesotho. The concept of a mortgage exists; mortgages are protected
under the Deeds Registry Act, 1967.
Secured interests, including mortgages, are recorded and filed by the
deeds registry. Patents are rarely issued in Lesotho but trademark
protection is often sought and granted. Intellectual property
protection is regulated by the Industrial Property Order 1989 and
the Copyright Act of 1989, which conform to the standards set out
in both Paris and Berne conventions, respectively. The law protects
patents, industrial designs, trademarks, and grant of copyright, but
does not protect trade secrets and semiconductor chip layout design.
The Law Office is responsible for enforcement of copyrights.
The Land Act, 2010 protects and facilitates acquisition and disposition
of land, while the Deeds Registry Act, 1967 protects and facilitates
acquisition and disposition of buildings and mortgages.
Lesotho has not been able to fully use the provisions of the TRIPS
Agreement because of supply-side constraints and the lack of
knowledge of the existence of such provisions. However, Lesotho
has received technical cooperation (training and workshops) from
developed countries such as France and the United States to assist in
the implementation of the WTO TRIPS agreement. Lesotho has not
signed and ratified the WIPO internet treaties.
6.8 Transparency of the regulatory system
Although Lesotho’s regulatory system is generally weak, it does not
hinder competition, nor inordinately distort business or investment
practices. Businesses in Lesotho are regulated by the Companies
Act of 1967 and the Companies Amendment Act of 1984. Those have
been superseded by the Companies Act of 2011. The new Companies
Act provides for significant changes to the form and processes of
the registration of private and public shareholding companies in
Lesotho. A key purpose of the new Act is to significantly reduce
the time required for the registration of companies by: abolishing
the requirement to hire a registered legal practitioner to prepare
documents and register a company; automating the manual
companies names search process; and replacing the public health
pre-inspection with a post-registration inspection. The public health
inspection alone added up to 14 days to the process. Through
these improvements in the Act and the centralisation of processes
at OBFC, it is anticipated that the registration of a company will
now take no more than two days, compared to more than 40 days
required previously.
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entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
8
Every person and business intending to engage in business must
have one of more than 200 types of traders’ license. The Trading
Enterprises Order of 1993, as amended in 1996, and the Trading
Enterprises Regulations, 1999, as amended in 2011, govern the
issuance of traders’ licenses. Manufacturing licenses are covered by
the Industrial Licensing Act of 1969 (currently under reconsideration)
and the Pioneer Industries Encouragement Act of 1969. For the
majority of manufacturing license applications, environmental
certificates issued by the National Environmental Secretariat
(NES) are sufficient. Where manufacturing activities are assumed
to have actual or potential environmental impacts, however, an
Environmental Impact Assessment is required, which must to be
approved by the NES.
The industrial and trading license system has been improved with
the introduction of the OBFC. Trading licenses are required for a wide
range of services. Some enterprises can require up to four licenses
for one location. The bureaucratic procedures, including those for
licenses and permits, have been sufficiently streamlined and are
transparent. Developments will extend to simplifying and expediting
the issuance of work and residence permits to reduce the turnaround
time.
The regulatory framework for utilities is modernised although the
institutions would benefit from strengthening.
The telecommunications sector is regulated by the Lesotho
Telecommunications Authority, which is an independent regulator.
The authority sets conditions for the entry of new competitive
operators. Currently it allows Lesotho Telecom to maintain a
monopoly for fixed-line and international services. The energy sector
and water sector are regulated by the Lesotho Electricity (and Water)
Authority (LE(W)A).
The Mines and Minerals Act of 2005, the Precious Stones Order
(1970), and the Mine Safety Act (1981), provide a regulatory
framework for the mining industry. The Commissioner of Mines in
the Ministry of Natural Resources, supported by the Mining Board,
is authorised to issue mineral rights to both foreigners and local
investors. On approval, it takes approximately one month for both
prospecting and mining licenses to be issued.
Financial services regulation is up to date. Banks and other financial
services are regulated by the CBL. By design banking regulations,
however, do not give the CBL the power to give directions on
interest rates, exchange rates, margins, or the spread of services
offered; with the peg to South Africa, Lesotho intentionally gave
up its leverage on monetary policy in order to maintain control over
its capital account. This creates a low political risk environment for
banking investment.
Explicit procedures for securing tourism licenses are limited to those
provided in the Accommodation, Catering, and Tourism Enterprise
Act of 1997 and the Liquor Licensing Act of 1998. The Act provides
for a Tourism Licensing Board that is responsible for the issuance and
renewal of licenses for camp sites, hotels, lodges, restaurants, selfcatering establishments, bed and breakfasts, youth hostels, resorts,
motels, catering and guest houses. Applicants for any of the above
licenses are required to apply to the Board three months before its
sitting.
A number of government departments, specifically the Ministries
of Health and Tourism, the Police and the Maseru City Council, are
required to carry out inspections and to submit inspection reports
to the Board on prescribed forms. Licenses are granted for one year
from their date of issuance and can be renewed.
6.9 Efficient capital markets and portfolio investment
Lesotho has a small financial system with a relatively
underdeveloped capital market. The GOL issued treasury bonds for
the first time at the end of 2010, which is expected to lead to broader
development of the capital market in Lesotho. Lesotho’s financial
market is closely tied to South Africa through the CMA. There are
three South African-owned banks: First National Bank; Ned Bank; and
Standard Lesotho Bank, which bought a 70% share in state-owned
Lesotho Bank. There is also Lesotho PostBank, which is government
owned.
The South African banks dominate the sector, accounting for almost
90% of the country’s banking assets, which totalled over M8.2 billion
(US$1.1 billion) in September 2011. The CBL regulates all the financial
and the non-financial institutions through the Financial Institutions
Act 1999 and Insurance Act 1976. More information on the banking
industry may be obtained from the CBL at www.centralbank.org.ls.
According to the CBL, the banking system is sound; the commercial
banks in Lesotho are well capitalised, very liquid, and comply with
international banking standards. The CBL is concerned that the banks
have poor credit extension, particularly to the private sector. This is
evidenced by a liquidity ratio of 76.8% at the end of 2009. Structural
reforms under the private sector development component of the
MCC Compact, which includes the establishment of a credit bureau,
are expected to alleviate the credit extension problem. Industrial and
commercial credit is provided by the LNDC and foreign investors are
able to get credit on the local market.
Lesotho’s monetary policies operate within the context of its
membership in the CMA. Within the limits of CMA provisions,
policies facilitate the free flow of financial resources to support the
flow product and factor market resources. Credit is allocated on
market terms, and foreign investors get credit on the local market.
Lesotho’s capital market is relatively underdeveloped. The private
sector has access to credit instruments. Although the GOL issued
bonds in 2010, there is no secondary market. The lack of a stock
market affects the free flow of assets in the financial system.
6.10Competition from state-owned enterprises (SOEs)
Lesotho privatised all state-owned enterprises (SOEs) including
telecommunications, banks, utilities, government transportation, and
radio following the adoption of the Privatisation Act of 1995. In 2004,
however, the GOL established a government-owned bank mandated
to provide financial services to citizens who do not have bank
accounts. In 2008, the government also introduced state-owned
buses in the public transportation sector. In Lesotho, SOEs do not
exercise delegated governmental powers, and there are no laws that
seek to ensure a primary or leading role for SOEs in certain sectors or
industries.
Private enterprises are allowed to compete with public enterprises
under the same terms and conditions with respect to access to
markets, credit, and other business operations, such as licenses and
supplies. SOEs are subject to hard budget constraints under the law
and these are enforced in practice. The SOEs’ senior management
reports to an independent board of directors. They are required by law
to publish an annual report and to submit their books to independent
audit. SOEs are subject to the same domestic accounting standards
and rules as other private investors, and these standards are
comparable to international financial reporting standards.
There is no sovereign wealth fund (SWF) or asset management
bureau (AMB) in Lesotho.
Proposed laws and regulations are published in draft form for public
comment. Public gatherings are also held to explain the contents
of the proposed laws, providing opportunities for comment on
proposed laws and regulations. There are no private sector and/
or government efforts to restrict foreign participation in industry
standards-setting consortia or organisations.
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entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
9
6.11Corporate social responsibility
There is a general awareness of corporate social responsibility (CSR)
among both producers and consumers. Most efforts occur during the
winter season and during the “Festive Season” around Christmas.
Foreign and local enterprises tend to follow generally accepted CSR
principles such as the OECD Guidelines for Multinational Enterprises.
Firms who pursue CSR are viewed favourably by society but not
necessarily by government.
6.12Political violence
The overall political environment is stable. Though Lesotho has a
history of politically-motivated violence, as exemplified in the rioting
that followed the 1998 elections, the current threat of violence is low.
6.13Corruption
Anti-corruption legislation was passed in 1999 and provides criminal
penalties for official corruption. The Directorate on Corruption and
Economic Offenses (DCEO) is the primary anticorruption body and
investigates corruption complaints against public sector officials. The
DCEO is under the supervision of the Ministry of Justice and Human
Rights. The Amendment of Prevention of Corruption and Economic
Offences Act of 2006 first subjected public officers to financial
disclosure laws. Yet, the disclosure form to be used is still yet to be
determined. If deemed necessary by the DCEO, the law may also
be applied to private citizens. Lesotho signed and ratified the UN
Anticorruption Convention in 2005 but is not yet a signatory to the
OECD Convention on Combating Bribery.
According to the DCEO, there is no baseline to measure the level of
corruption in any sector including the executive, legislative, or judicial
branches. The media has occasionally raised allegations of corruption
in the mentioned sectors. Corruption exists in all sectors, but to
what extent is not currently known. Giving or accepting a bribe is a
criminal act; according to the Prevention of Corruption and Economic
Offences Act of 2006, the penalty for such is a minimum of M10,000
(US$1,428) or 10 years imprisonment. Local companies cannot
deduct a bribe to a foreign official from taxes. The GOL encourages
companies to establish internal codes of conduct that, among other
things, prohibit bribery of public officials. Most companies have
effective internal controls, ethics, and compliance programmes to
detect and prevent bribery.
There were isolated reports of government officials’ corruption
during the year; there was, however, one high-profile report of
corruption and fraud within Lesotho’s Block Farming Programme.
After investigation, the Office of the Ombudsman released a report
alleging corruption by the Minister of Finance, the Minister of
Forestry, and the Assistant Minister of Agriculture and Food Security.
Together, the three officials personally owed more than US$2.7
million in loans guaranteed by the government and directly overseen
by their Ministries. No action has been taken on these allegations.
International nongovernmental “watchdog” organizations operate
in the country. Under the Transparency International’s Corruption
Perceptions Index for 2010, Lesotho scored 3.5 and ranks 78 out of
178 countries and sixth in sub-Saharan Africa.
6.14Bilateral investment agreements
Lesotho has bilateral investment protection agreements with
the United Kingdom and Germany that entered into force in 1981
and 1985, respectively. In 2004, Lesotho also signed a bilateral
investment agreement with Switzerland for the promotion and
protection of investment. This agreement has not yet entered into
force. The three agreements have already been posted in full on the
UNCTAD website.
6.15Labour
Lesotho is a member of the International Labour Organisation (ILO)
since 1966 and has ratified 23 international labour conventions,
including all the eight fundamental human rights instruments of the
ILO. In addition, Lesotho is a signatory to the following Conventions
which enable social dialogue to take place:
• Freedom of Association and Protection of the Right to Organise
Convention, 1947 (No. 87)
• Right to Organise and Collective Bargaining Convention,
1949 (No. 98)
• Workers’ Representatives Convention, 1971 (No. 135)
• Tripartite Consultation Convention, 1976 (No. 144)
• Labour Administration Convention, 1978 (No. 150)
Lesotho has also ratified the Prohibition and Elimination of the Worst
Forms of Child Labour Convention (No. 182) and the Minimum Age of
Employment Convention (No.138).
Lesotho’s Labour Code Order of 1992 and its subsequent
amendments are the principal laws governing terms and conditions
of employment in Lesotho. The Labour Code regulates terms of
employment and conditions and for worker health, safety, and
welfare. It was amended in 2004 to include HIV/AIDS policies in the
workplace. Union organisation is permitted.
Statutory minimum wages are fixed annually by the Ministry of
Labour and Employment (MOLE) with recommendations from
a tripartite Wages Advisory Board. Minimum wage setting is
sensitive to the textile and garment industry’s need to maintain
competitiveness. The Labour Court and the Labour Court of Appeal
are the key judiciary entities dealing with labour disputes.
Two institutions, the LNDC and the Directorate of Industrial
Dispute Prevention and Resolution (DDPR) at the MOLE, were
established for labour dispute resolution. The LNDC aims to bring
parties together before any formal process is set in motion. The
DDPR is a semi-autonomous labour tribunal, which is independent
of the government, political parties, trade unions, employers and
employers’ organisations. For example, the LNDC intervenes in
strikes and tries to reconcile workers and employers. If this informal
process fails, the more formal process of the DDPR can be engaged.
There is surplus unskilled labour available, but special labour skills
are in limited supply. To augment this limited supply, the Labour
Code allows hiring of non-citizens but requires them to have a work
permit. A work permit is issued based on a labour quota formula by
the Labour Commissioner, who must be satisfied that no qualified
Lesotho citizen is available for the position.
Generally a company can employ one expatriate worker for every
20 Basotho workers. The statutory maximum duration of a work
permit is two years. A work permit may be cancelled before term or
renewed.
The 2003 UNCTAD Investment Policy Review has concluded that
labour policy and administration is a commendable feature of the
Lesotho investment framework; it has developed proactively and
has focused on sustaining a competitive advantage for Lesotho over
alternative nearby locations for FDI.
6.16Foreign trade zones/ free trade zones
There are no areas designated as duty-free import zones in Lesotho.
6.17Foreign direct investment statistics
Foreign direct investment (FDI) data is readily available; the
compilation currently has a two year lag. The Embassy relies mostly
on the Private Capital Flows (PCF) Survey report produced by the
CBL for FDI data. The CBL has adopted an international framework
for monitoring private capital flows and investor’s perceptions
through annual surveys. The latest Private Capital Flows (PCF)
Survey report is for 2008. Data represent actual investment,
excluding announced but not completed investment.
© 2012 KPMG Services Proprietary Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
10
Year-end stock of foreign direct investment in Lesotho for 2008:
2008 direct investment abroad by country of destination:
6.17Step-by-step procedures for starting a business in Benin
FDI Stock
Million Maloti
1,462.25
Million USD
169.91
In millions of
USD
% of GDP
Country
Millions
Maloti
Millions
USD
South Africa
131.76
15.31
% of
GDP
1.00
China
109.39
12.71
0.83
Taiwan
107.84
12.53
0.82
Switzerland
13.87
1.61
0.11
Netherlands
13.55
1.57
0.10
Mining and Quarrying
56.52
3.69
Belgium
1.7
0.20
0.01
Manufacturing
90.78
5.93
Total Claims Abroad
378.09
43.94
2.87
Building and Construction
0.39
0.03
Wholesale and Retail Trade
14.27
0.93
Transport and
Communications
5.03
0.33
Finance and Insurance
2.47
0.16
Real Estate and Business
0.45
0.03
Total Capital Flows
169.91
11.10
2008 direct investment capital flows by country of origin:
In millions of
USD
6.18Step-by-step procedures for starting a business in
Lesotho
No. Procedure
Time
1.
Search company name
1 – 2 days
2.
Hire a registered legal
practitioner to prepares and
register company documents
20 days
3.
Have land lease stamped and
pay the stamp duty.
1 day
4.
Receive an inspection by the
Public Health Inspector
14 days
5.
1 day
Apply for operation license
and register for taxes with the
OSS at the Ministry of Trade
and Industry.
6.
Open a bank account and pay
the required initial capital in
a bank
3 days
(simultaneous
with previous
procedure)
No charge
7.
File for workman’s
compensation with an
insurance company
1 day
(simultaneous
with previous
procedure)
No charge
% of GDP
United Kingdom
54.91
3.59
Taiwan
51.10
3.34
South Africa
42.65
2.79
China
8.43
0.55
Netherlands
6.14
0.40
United States
3.46
0.23
Switzerland
2.70
0.18
Belgium
0.45
0.03
Germany
0.06
0.00
Total Capital Flows
169.91
11.10
2008 direct investment abroad:
Stock in Million Maloti
378.09
Stock in Million USD
43.93
Stock as Percentage of GDP
2.87%
2008 direct investment abroad by industry sector:
Sector
Millions
Maloti
Millions
USD
Manufacturing
330.51
38.40
% of
GDP
Cost
LSL 5
LSL 1,112
0.8% on
sublease
rent,
assuming
the
sublease
rent is 10%
of initial
capital
and it is a
5-10 years
agreement
LSL 30-60
LSL 1000
2.51
Building and Construction
0.73
0.08
0.01
Wholesale and Retail
23.21
2.70
0.18
Transport and
Communication
8.15
0.95
0.06
Real Estate and business
services
0.61
0.07
0.00
Total Claims Abroad
378.09
43.93
2.87
© 2012 KPMG Services Proprietary Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
11
7Country Outlook for 2012
– 2016
7.1Overview
The ruling Lesotho Congress for Democracy (LCD) took control of
69 of the 77 contested councils in local elections held in October.
The future of Pakalitha Mosisili as Prime Minister is uncertain as he
grapples with rising factionalism in the party. Lesotho’s score on the
Economist Intelligence Unit’s Democracy Index has improved slightly
– as public support for democracy appears to be on the rise. The
IMF has issued a positive review of Lesotho’s performance under
the Extended Credit Facility (ECF). The government plans to provide
M100m (US$11.9m) over the next two years to support the struggling
textile industry.
The authorities seem to have finally won their four-year legal battle
to close down and liquidate the MKM group of companies, which
had run a series of Ponzi (pyramid) schemes. A number of positive
developments have occurred in the diamond-mining sector, including
the approval by the board of London-listed Gem Diamonds of the
US$280m planned expansion of the Letseng mine.
7.2 Domestic politics
The ruling LCD virtually swept the board in local council elections
held on 1 October, taking control of 69 of the 77 contested councils.
Of the remainder, three were won by the All Basotho Convention
(ABC), one by the Basotho National Party (BNP) and one by the
Popular Movement for Democracy. The remaining two were tied
between the LCD and the ABC, prompting fresh elections at the end
of November, together with voting in 16 other areas where the polls
could not take place as planned owing to inadequate preparations or
candidates’ deaths. The LCD won in ten of the 18 councils, while the
ABC won in two, independent candidates in four and the Lesotho
People’s Congress in one (the results in the final council have not
been confirmed).
It is clear that despite the bitter in-fighting that almost paralysed
the LCD throughout 2011 it remains the party of choice for many
Basotho, who see it as offering the best chance of securing local
development, especially in rural areas. Despite the opposition’s
earlier misgivings about participating in the polls, amid allegations
of inadequate preparations and political bias on the part of the
Independent Electoral Commission (IEC), it appears largely to have
accepted the results. Tom Thabane, the ABC leader, who had earlier
called for a boycott of the elections, claimed to be “elated” by his
party’s performance. However, he was also quick to resume his
attacks on the IEC, reiterating previous demands that problems with
the electoral roll be addressed before the next general election. Since
the election is due in February 2012, this is unlikely to happen, and
Mr. Thabane may be laying further groundwork for possible legal
challenges to the results of the general election.
Two MPs have defected from the ABC to join the LCD. While it
remains the largest opposition party in parliament, the ABC now
has only 12 MPs, compared with the 17 seats that it won at the
2007 general election. To some extent the trickle of departures has
reflected disenchantment with Mr. Thabane, whose intolerance
of dissent has alienated many ABC members. However, it is also
due in part to the LCD’s powers of patronage. This latter factor was
abundantly clear in the latest defection, when Thabang Nchai, who
began his political career in the BNP, stated that his constituency
would “enjoy more development” if he were to join the ruling party.
The Economist Intelligence Unit’s index ranks Lesotho 64th out of
167 countries. Lesotho’s overall score improved from 6.02 (out of
10) in 2010 to 6.33 in 2011, owing to an increase in public support for
democracy, as indicated by a recent Afrobarometer survey. Lesotho
nevertheless remains among the 53 countries categorised as
“flawed democracies”.
Although in many respects a well-functioning democracy, Lesotho’s
democratic credentials are held back by the dominance of the ruling
party, persisting flaws in the electoral roll, insufficient mechanisms
to hold the government to account in between elections and limited
political participation. Lesotho scores best on electoral process.
Democratic processes have been established in the past decade
after a long period of autocratic rule. However, the rules are not
always clear and the results not necessarily accepted. The 1998
election was followed by unrest, and the results of both the 2002 and
the 2007 legislative elections were legally challenged. Some of the
opposition’s concerns have now been addressed, and while points of
contention remain the reforms have been just about sufficient to give
the system credibility in the eyes of the public.
Lesotho also scores relatively well on civil liberties, although there
are concerns that some of the government’s critics and political rivals
are being intimidated. Despite some increase in public support for
democracy, Lesotho scores least well on political culture, largely
because there is still much room for the development of a dynamic
multiparty democracy.
7.3 International relations
There are currently no external threats to Lesotho. Despite
superficial signs of improvement, cross-border security continues
to overshadow the bilateral relationship with South Africa, which
surrounds Lesotho. The deployment of South African soldiers
to patrol the joint border is expected to be supplemented by the
construction of a security fence to deter stock theft and drugsmuggling. There are also concerns that economic relations with
South Africa, although inevitably dominated by the larger country, are
too one-sided, as the Joint Bilateral Commission for Co-operation,
which was established in 2001, hardly functions. Such frustrations
appear to be behind renewed calls from some in Lesotho for the
country to be incorporated into South Africa, although the two
governments are expected to prefer the status quo, despite the
attendant problems.
The government is working hard to maintain its largely amicable
relations with donors, although corruption remains a sticking point.
It is trying to improve Lesotho’s international image, which has been
marred by alleged human rights abuses, political interference with
the judiciary and restrictions on the media. However, a clampdown
on a strike by textile workers and other groups in August 2011 has
raised questions about its commitment to these efforts.
7.4 Policy trends
A Fund team visited Lesotho from December 2nd-14th to carry out
the second and third reviews of Lesotho’s performance under its ECF
(2010-13), to consider the authorities’ request for higher financing
under the ECF and to carry out the 2011 Article IV consultations. The
Fund issued a broadly positive review, noting that all targets under
the ECF had been met. In its press statement following the review it
said that strict expenditure control had led to an improvement in the
fiscal position, with the deficit for fiscal year 2011/12 (April-March)
now estimated at 13.9% of GDP (compared with a previous forecast
of 15% of GDP). Real GDP growth is estimated at 4.3% in 2011 and
is expected to stay robust in 2012, although the Fund notes that that
the worsening global economic outlook and the possibility of adverse
weather pose risks. This is broadly in line with our views on Lesotho’s
economic outlook.
The Fund also pointed to the need for further steps to lower the
fiscal deficit, although it noted that the decision of the Lesotho
government to save a large share of the country’s receipts from the
Southern African Customs Union (SACU) in 2006-09, when revenue
flows were at their peak, has provided a critical cushion against the
significant drop in SACU revenues in 2010/11-2011/12. In line with the
review, the Fund is expected to release the next two disbursements
under the ECF, worth a total of SDR11.36m (US$12.9m), over the next
few months, and is also likely to accept the authorities’ request for
higher funding under the ECF.
© 2012 KPMG Services Proprietary Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
12
The monetary policy committee (MPC) of the Central Bank of
Lesotho (CBL) has met twice during the past three months, in
mid-October and then again in November. This close proximity of
meetings is not unprecedented and does not signal any particular
urgency. At the first meeting the MPC reduced the target for net
international reserves by US$40m to US$825m (roughly 4.3 months
of import cover). This is in line with the ECF, agreed in mid-2010 to
support the deteriorating government finances. An adequate stock of
reserves is essential to support the parity of Lesotho’s currency, the
loti, to the South African rand. This, in turn, is the cornerstone of the
CBL’s policies to control inflation. In mid-December net international
reserves remained comfortably above target, at US$933m.
In late November the government announced plans to provide
M100m over the next two years to support the struggling textile
industry. Details of the form of assistance have not been revealed,
although Timothy Thahane, the minister of finance and development
planning, has indicated that it could take the form of capital injections.
The government will also assist in trying to identify new markets; the
minister of trade, industry, co-operatives and marketing, Leketekete
Ketso, visited Canada with a delegation of six industrialists and three
trade officials in early November to meet prospective buyers.
Although Mr. Thahane suggested that financial support would
be provided only on a temporary basis, until the global economic
recovery strengthens, this seems optimistic given the structural
problems that the industry faces. Textile producers have struggled
in recent years to compete with low-cost Asian producers. They
have been further hampered by the strength of the exchange rate
as well as the withdrawal of duty rebates for imported raw materials
by SACU. As a result, employment has fallen from a peak of over
50,000 in the mid-2000s to just over 30,000, although the sector still
contributes roughly 20% to total GDP and is a significant source of
employment in a country where unemployment approaches 40%.
There are also concerns that the US Congress may decide not to
renew the African Growth and Opportunities Act, under which most
producers in Lesotho benefit and which is due to expire in 2015.
7.5 Economic growth
Moeketse Malebo, the leader of the opposition Marematlou
Freedom Party, has expressed alarm at the extent of corruption in the
civil service. His comments came in early December, following the
release of a report by the parliamentary public accounts committee
(PAC), which he chairs, that highlighted the extent of embezzlement
of public funds. Mr. Malebo blamed a mixture of mismanagement
and incompetence and, not surprisingly as a member of the
opposition, was quick to accuse the government of complacency. Mr.
Malebo has committed the PAC to taking a more pro-active role in the
future, moving beyond merely commenting on reports by the auditorgeneral to requiring government accounting officers to identify and
disclose abuses of office.
Lesotho was recently ranked 77th out of 182 countries in the
annual Corruption Perceptions Index prepared by a Berlin-based
non-governmental organisation, Transparency International. Earlier
in 2011 the government had retained De Speville & Associates,
an international consultancy based in the UK that specialises in
combating corruption, to develop a national anti-corruption strategy.
In November the government bowed to pressure from opposition
parties and, more importantly, the South African government, and
reversed the appointment of Masupha Sole, the convicted former
chief executive of the Lesotho Highlands Development Authority, to
a senior position in the Lesotho Highlands Water Commission. Mr.
Sole had been released from prison in May after serving one-half of
his 18-year sentence for multiple counts of corruption in the awarding
of contracts in the project’s first phase.
A Court of Appeal ruling in late October appears to have finally ended
a four-year battle by the authorities to close down and liquidate the
operations of the MKM group of companies, which had run a series
of Ponzi schemes that enticed an estimated 400,000 Basotho to
“invest” M400m in its products. In May the High Court finally ruled
in favour of liquidation, and the CBL appointed liquidators. MKM
appealed on the grounds that the former CBL governor, Moeketsi
Senaoana, who died in March 2011, was not legally empowered
to petition for liquidation, but the court ruled that, although the
governor had made procedural errors in claiming that he was also the
commissioner of insurance, he had been empowered to act in this
capacity by the CBL board. Although this appears to be the end of the
road for MKM, the prospect of any substantial recovery of lost funds
remains dim given that the courts have previously ruled against a
move to attach the personal wealth of MKM’s owner, Simon Thebeea-Khale, who is believed to have registered many of the company’s
assets in his own name.
7.6Inflation
Inflation has increased over the first nine months of 2011, reaching
6.2% in October – double the rate in December 2010. This is being
driven primarily by food prices although rising costs of electricity,
gas and transport have also contributed. Inflation is expected to
moderate from 2011 levels underpinned by a decline in international
food prices. Following a 39% increase in 2011, global fuel prices are
also expected to fall.
7.7 Exchange reates
The South African rand, to which the loti is expected to stay
pegged at parity, will be weaker and more volatile than previously
expected, owing to an increase in global economic uncertainty and
a consequent shift in sentiment away from the euro and emergingmarket currencies. As South Africa’s current-account deficit widens
the rand is expected to weaken from the R7.27:US$1 held in
2011. Exogenous shocks or unwelcome policy shifts could lead to a
faster decline.
7.8 External account
In late November the board of Gem Diamonds approved plans, first
announced earlier in the year, to invest US$280m in its Letseng mine
in Lesotho. Project Kholo, which is to commence in January 2012, is
expected to double capacity at the mine by mid-2014 to an estimated
200,000 carats/year. This output is not large in terms of carats but it is
heavily concentrated in large, high-value stones, which have resulted
in rough diamonds becoming Lesotho’s second-largest export after
textiles. Since 2004 the mine has produced four of the world’s 20
largest diamonds, including, most recently, the 550-carat “Letseng
Star”, which was recovered in August.
In the nine months to September 2011, production at Letseng
rose by 39% to 83,000 carats, while sales increased by 97% to
US$215m. Prices rose by 67% to an average of US$2,400/carat (this
is with the exclusion of the Letseng Star, which sold for US$30,000/
carat). Two other diamond-mining companies that are developing
mines in Lesotho, Lucara Diamonds and Firestone Diamonds,
have also announced positive outcomes from sales towards the
end of 2011, possibly indicating a greater degree of stability in the
market after prices had earlier retreated from mid-year highs. In
addition, Guernsey-registered Paragon Diamonds announced that
Botle Mining, its 85%-owned Lesotho subsidiary, had been granted
prospecting rights to a second prospect. This is close to its existing
Lemphane concession, which is currently undergoing bulk sampling,
with results expected in the first quarter of 2012.
© 2012 KPMG Services Proprietary Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
13
AAppendix - sources of
information
• Economist Intelligence Unit
• CIA World Factbook
• Bloomberg
• World Bank
• Wikipedia
• US Department of State
© 2012 KPMG Services Proprietary Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. MC7204 KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. The foregoing information is for general use only. NKC does
not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon such information or opinions.
14