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2012 Investment Climate Statement - Lesotho


2012 Investment Climate Statement
Bureau of Economic and Business Affairs
June 2012
Report
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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 channeled 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 $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 specializing 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..Current business taxation regulations only partially address investor needs because they predominantly favor 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 favorable with regards to currency conversion, monetary transfer policies, and lack of undue burdens to investors.

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 modernized and expanded in recent years. 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.

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 recognize 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 programs under the Millennium Challenge Compact (MCC) and the World Bank, as well as modernizing customs processes through technical assistance from the USAID-funded Southern Africa Trade Hub. Specific activities include modernizing bank payment systems; introducing national IDs; creating a credit facility for manufacturers; and modernizing land tenure systems. Customs process improvements will include minimizing 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.

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%)

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%)

MCC Natural Resource Mgmt

2012

2.2 (7%)

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 authorized 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 liberalized 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 $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.

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.

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. There have not been any expropriatory actions in the recent past and government has no history of discriminating against U.S. investments, companies, or representatives in expropriation.

Dispute Settlement

Lesotho is a member of the International Center 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 U.S. or other foreign investors or contractors in Lesotho. Foreign investors have full and equal recourse to the Lesotho courts for commercial and labor 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. Privatization 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.

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. (See: www.lndc.org.ls)

The Lesotho tax system also heavily favors 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.

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.

Protection of Property Rights

Lesotho respects international intellectual property laws and is a member of the World Intellectual Property Organization and the African Regional Intellectual Property Organization. Secured interests in property, both movable and real, are recognized 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.

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 centralization 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.

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 modernized 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 authorized 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, self-catering 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.

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 organizations.

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 totaled over M8.2 billion ($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 capitalized, 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.

Competition from State Owned Enterprises (SOEs)

Lesotho privatized all state-owned enterprises (SOEs) including telecommunications, banks, utilities, government transportation, and radio following the adoption of the Privatization 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.

Corporate 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 favorably by society but not necessarily by government.

Political 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.

Corruption

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.

No U.S. firms have identified corruption as an obstacle to foreign direct investment in Lesotho. 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 ($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 programs 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 Program. 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 $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.

Bilateral 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.

Lesotho does not have a bilateral investment treaty or a bilateral taxation treaty with the U.S. There are no taxation issues of concern to U.S. investors.

OPIC and Other Investment Insurance Programs

OPIC insured one American-owned company, Seaboard Corporation, in its joint venture with Lesotho Flour Mills. Seaboard started operations in 1998 and currently employs approximately 300 people. OPIC can encourage United States investors to consider exploring new investment opportunities in other sectors. The Embassy purchases its local currency on the open market and, on an annual basis, spends more than $3.5 million in local currency. There is no serious exchange rate risk of either devaluation or depreciation, given the currency’s peg to the South African Rand.

Lesotho is a member of the Multilateral Investment Guarantee Agency (MIGA). In 2000, MIGA issued guarantees to Imperial Group (Proprietary) Limited of South Africa for its investment in the partial privatization (60%) of the government's Plant and Vehicle Pool Service Unit.

Labor

Lesotho is a member of the International Labor Organization (ILO) since 1966 and has ratified 23 international labor 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 Organize Convention, 1947 (No. 87); Right to Organize and Collective Bargaining Convention, 1949 (No. 98); Workers’ Representatives Convention, 1971 (No. 135); Tripartite Consultation Convention, 1976 (No. 144); and Labor Administration Convention, 1978 (No. 150). Lesotho has also ratified the Prohibition and Elimination of the Worst Forms of Child Labor Convention (No. 182) and the Minimum Age of Employment Convention (No.138).

Lesotho's Labor Code Order of 1992 and its subsequent amendments are the principal laws governing terms and conditions of employment in Lesotho. The Labor 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 organization is permitted. Statutory minimum wages are fixed annually by the Ministry of Labor 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 Labor Court and the Labor Court of Appeal are the key judiciary entities dealing with labor disputes. Two institutions, the LNDC and the Directorate of Industrial Dispute Prevention and Resolution (DDPR) at the MOLE, were established for labor dispute resolution. The LNDC aims to bring parties together before any formal process is set in motion. The DDPR is a semi-autonomous labor tribunal, which is independent of the government, political parties, trade unions, employers and employers’ organizations. 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 labor available, but special labor skills are in limited supply. To augment this limited supply, the Labor Code allows hiring of non-citizens but requires them to have a work permit. A work permit is issued based on a labor quota formula by the Labor 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 labor 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.

Foreign Trade Zones/ Free Trade Zones

There are no areas designated as duty-free import zones in Lesotho.

Foreign 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. The CBL does not provide data on major foreign direct investment by U.S. companies and other nations' companies. This makes it difficult to track the United States' and other countries' FDI position in Lesotho on an annual basis.

Table A: Year-end Stock of Foreign Direct Investment in Lesotho for 2008

 

FDI Stock

in Million Maloti

1,462.25

in Million USD

169.91

GDP in Million USD 1,530.90 (GDP at 2008 current prices)

Stock as % of GDP 11.1%

Table B: 2008 Direct Investment Capital Flows by Industry Sector

 

In millions of USD

% of GDP

Mining and Quarrying

56.52

3.69

Manufacturing

90.78

5.93

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

Table C: 2008 Direct Investment Capital Flows by Country of Origin

 

In millions of USD

% 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

Table D: 2008 Direct Investment Abroad

Stock in Million Maloti

378.09

Stock in Million USD

43.93

Stock as Percentage of GDP

2.87%

Table E: 2008 Direct Investment Abroad by Industry Sector

Sector

in Millions Maloti

in Millions USD

% of GDP

Manufacturing

330.51

38.40

2.51

Building and Constr.

0.73

0.08

0.01

Wholesale & Retail

23.21

2.70

0.18

Transport & Comm.

8.15

0.95

0.06

Finance & Insurance

14.88

1.73

0.11

Real Est. & Bus. Services

0.61

0.07

0.00

Total Claims Abroad

378.09

43.93

2.87

Table F: 2008 Direct Investment Abroad by Country of Destination

Country

in Millions Maloti

in Millions USD

% of GDP

South Africa

131.76

15.31

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

Belgium

1.7

0.20

0.01

Total Claims Abroad

378.09

43.94

2.87

Data sources:

FDI: Central Bank of Lesotho; Report on Private Capital Flows Survey 2008

GDP: Bureau of Statistics; 1999-2008 National Accounts Publications

Exchange rate period; 2008 average 1USD = M 8.606



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