Transparency of the Regulatory System
Business regulations in Lesotho are on the whole reasonable, but variable—modern and flexible in some areas and outdated and retrogressive in others—due to the government’s piecemeal approach to reform. For example, the regulatory framework for utilities and the financial sector is modern, but mining regulation and the industrial and trading licensing system are in need improvements. The regulatory environment is generally weak, but it neither hinders competition, nor distorts business or investment practices. The legal, regulatory, and accounting systems are transparent and consistent with international norms.
Businesses in Lesotho are regulated by the Companies Act of 2011, which amended previously cumbersome processes for registering private and public shareholding companies. The act has made business registration easier by abolishing the requirement for an inspection of the proposed company premises before the company is registered, eliminating the need for a legal representative when registering a business, and providing standard articles of incorporation. The act also envisages electronic company registration as well as electronic regulatory filing. In December 2014, Lesotho launched an Online Companies Registry System, which has simplified company registration. The act also allows foreign companies to register, stipulating that companies must do so with within 10 days of opening a business in Lesotho. The company must nominate a person who is either resident or maintains a full-time office within Lesotho upon whom notices and processes can be served and register the principal place of business of the company in the country.
All firms intending to engage in business must obtain a trader’s license. The issuance of traders’ licenses is governed by the Trading Enterprises Order of 1993, as amended in 1996, and the Trading Enterprises Regulations of 1999, as amended in 2011. Trading licenses are required for a wide range of services; some enterprises can require up to four licenses for one location. Manufacturing licenses are covered by the Industrial Licensing Act of 1969 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 be approved by the NES. The introduction of the OBFC improved the industrial and trading license system, as well as streamlining other bureaucratic procedures, including those for licenses and permits.
The GOL modernized the regulatory framework for utilities through the establishment of the independent Lesotho Telecommunications Authority (LTA), which regulates the telecommunications sector, and the Lesotho Electricity and Water Authority (LEWA), which regulates both the energy and water sectors. The two authorities set the conditions for entry of new competitive operators. Currently, the LTA allows Lesotho Telecom to maintain a monopoly for fixed-line and international services, while permitting competition in mobile telephone services. The LEWA allows both the Lesotho Electricity Company and the Water and Sewerage Company to maintain monopolies in their respective sectors.
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 Mines, supported by the Mining Board, is authorized to issue mineral rights to both foreigners and local investors. On approval, it takes about a month for both prospecting and mining licenses to be issued.
The Central Bank of Lesotho (CBL) regulates financial services under the Financial Institutions Act of 2012.
Tourism enterprises are required to secure licenses under the Accommodation, Catering and Tourism Enterprise Act of 1997. The Act provides for a Tourism Licensing Board that issues and renews 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 must apply to the Board three months before its next meeting. A number of government departments, specifically the Ministries of Health and Tourism, the police and, when the property is in Maseru, the Maseru City Council, must inspect properties and submit inspection reports to the Board on prescribed forms. Licenses are granted for one year and can be renewed.
Parliamentary committees may, but are not required to, publish proposed laws and regulations in draft form for public comment. Parliament may also hold public gatherings to explain the contents of the proposed laws, and these provide opportunities for comment on proposed laws and regulations. The committees generally hold such consultations for laws that are perceived to be sensitive, such as the Land Act, the Penal Code and the Children’s Welfare and Protection Act.
There are no private sector or government efforts to restrict foreign participation in consortia or organization that set industry standards.
International Regulatory Considerations
Lesotho is a member of SADC and SACU. SADC aspires to deepen regional integration and sustainable development through four successive phases: a SADC Free Trade Area (FTA), Customs Union, Common Market and the Monetary Union. The SADC FTA was fully implemented in 2012 within twelve SADC Member States, when the maximum tariff liberalization was completed. Lesotho’s products enjoy duty free access to SADC countries, which has a total population of 277 million. More information is available on the SADC website.
Lesotho is a member of the World Trade Organization (WTO) and there is a new National Notification Authority within the Department of Trade that is charged with notifying the WTO Committee on Technical Barriers to Trade of all draft technical regulations. The Notification Authority is not yet operational, but its launch is planned for the 2017/18 fiscal year, pending the establishment of all the necessary supporting and coordinating structures.
Legal System and Judicial Independence
Lesotho’s independent judicial system is an effective means for enforcing property and contractual rights, and Lesotho has a written and consistently applied commercial law. The judicial system is procedurally and substantively fair, upholds the sanctity of contracts, and enforces contracts in accordance with their terms and on a non-discriminatory basis. The government enforces judicial decisions through officers of the court, and, if necessary, through criminal proceedings. The judicial system is, however, inefficient—courts are overburdened, and cases can take years to resolve. Freedom House Southern Africa notes that politicization, chronic underfunding, and structural problems constrain the Lesotho’s judicial system in its 2012 report “Politics of Judicial Independence in Lesotho” – characterizations that remain largely true today.
A Commercial Court was established in 2010 in an effort to improve the country’s capacity to resolve commercial cases. Foreign investors have equal treatment before the courts in disputes with national parties or the government. The SADC Protocol on Finance and Investment enables investors to refer a dispute with the State to international arbitration if domestic remedies have been exhausted. Lesotho is a signatory of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID) and also accepts ad hoc arbitration. Lesotho is a member of the International Center for the Settlement of Investment Disputes, and the Arbitration International Investment Disputes Act of 1974 commits Lesotho to accept binding international arbitration of investment disputes.
The legal system is a mixture of Roman-Dutch and English Common Law. The judicial system consists of the High Court, the Court of Appeal, subordinate courts, and the Judicial Service Commission (JSC). The High Court has unlimited original jurisdiction over civil and criminal matters, as well as appellate jurisdiction from subordinate courts. Subordinate courts, comprising resident magistrate's courts, judicial commissioner's courts, and central and local courts, administer statute laws, while chiefs administer customary and tribal laws. There is no trial by jury. Lesotho has accepted compulsory International Court of Justice jurisdiction with reservations.
Laws and Regulations on Foreign Direct Investment
Lesotho does not currently have a specific and overarching FDI policy, rather the government’s regulation of FDI is governed through various acts. FDI policy instruments include the Companies Act of 2011 and the Financial Institutions Act of 2012, as well as legislation covering mining, tourism, and manufacturing—particularly the textile industry. The Companies Act and the Financial Institutions Act are the principal laws that regulate incoming foreign investment through acquisitions, mergers, takeovers, purchases of securities and other financial contracts and greenfield investments. There is no investment law per se. Instead, a licensing regime and established practice, supplemented by investment treaties, govern conduct towards the entry of foreign investment. The OBFC hosts the Lesotho Trade Information Portal, a single online authoritative source of all laws, regulations, and procedures for importing and exporting. The portal, accessible online, provides transparency and predictability to trade transactions and reduces the time and cost of trading across borders.
Competition and Anti-Trust Laws
The government has a draft competition bill focused on improving the regulation of investments. Its goal is to “provide the legal basis for undistorted competition and thus contribute to transparency and predictability in domestic markets.” The bill has not yet been passed or implemented. Due to a recent vote of no confidence in the government and pending elections on June 3, 2017, a newly elected government would have to reintroduce a bill for it to advance.
Expropriation and Compensation
The constitution provides that the acquisition and expropriation of private property by the state can only occur for specified public purposes. Further, the law provides for full and prompt compensation at fair market value. 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; such an additional provision would usually be contained in a foreign investment law. The government has no history of discrimination against U.S. or other foreign investments, companies, or representatives in expropriation. The only local ownership law is the Trading Enterprises Act.
ICSID Convention and New York Convention
Lesotho is a member of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.
Investor-State Dispute Settlement
The government has little history of investment disputes involving U.S. or other foreign investors or contractors. However, in the past three years, an American company managing the government fleet of vehicles had its contract abruptly terminated and an Israeli firm with a contract to print identification documents had a contractual dispute with the government. The Directorate on Corruption and Economic Offences (DCEO) recently launched an investigation against the later for alleged corruption. 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.
International Commercial Arbitration and Foreign Courts
Lesotho readily accepts binding international arbitration of investment disputes. Lesotho has entered into a number of bilateral investment agreements that provide for international arbitration. For instance, under the Bilateral Investment Treaty with U.K. an investor may take a dispute with the government to international arbitration. Lesotho does not have a bilateral investment treaty with the U.S. The government has stated that Lesotho’s courts would readily accept and enforce foreign arbitral award—there have been no such awards to date.
The Companies Act is the principal commercial and bankruptcy law. According to the law, creditors, equity shareholders, and holders of other financial contracts of a bankrupt company have a right to nominate a person to be liquidator, and if the creditors and the shareholders nominate different persons, the person nominated by the creditors shall be the liquidator. All claims against a bankrupt company shall be proved at a meeting of creditors, equity shareholders, and the court, or the liquidator may fix a time or times within which creditors of the company are to prove their claims. If the claim is rejected by the liquidator, the claimant may apply to the court by motion to set aside the rejection. Creditors who will act as witnesses are entitled to witness fees, to be paid out of the funds of the company, as they would be entitled to if they were witnesses in any civil proceedings. Creditors are paid first in a bankruptcy; equity shareholders and holders of other financial contracts then follow. According to the Labor Code, workers have the right to recover pay and benefits from local and foreign firms in bankruptcy before creditors, equity shareholders, and holder of other financial contracts, regardless of the provisions of any other law in Lesotho. Monetary judgments are usually made in the local currency, the Lesotho loti (denoted as LSL). An amount of a claim based on a debt or liability denominated in a foreign currency shall be converted into loti at the rate of exchange on the date of commencement of the liquidation.