Lesotho

Bureau of Economic and Business Affairs
Report
June 29, 2017

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Executive SummaryShare    

The Government of Lesotho (GOL), through its National Strategic Development Plan, recognizes the critical role that domestic and foreign investment and the development of the private sector play in driving shared economic growth. The government actively encourages foreign direct investment (FDI) in all areas of the economy, with limited restrictions on foreign ownership of small businesses. Foreign investors enjoy the same rights and protections as Basotho investors. Lesotho’s standards of treatment and protection of foreign investors are good in practice, but the legal framework guaranteeing these norms remains weak. There is no foreign investment law, and there are limited bilateral investment treaties (BITs) to protect foreign investors and ensure their fair treatment.

Lesotho’s performance in attracting FDI has been credible by regional standards, particularly for a landlocked nation. In recent years, FDI inflows have been primarily driven by investments in the mining sector. Despite some political uncertainty, the investment climate is reasonably conducive to U.S. investment. Lesotho, a relatively small market of only 2 million people, is a member of the Southern African Customs Union (SACU) and the Southern African Development Community (SADC) market. These memberships allow foreign businesses to use Lesotho as a gateway to larger regional markets.

The commercial legal, regulatory, and accounting systems are transparent and consistent with international norms. The judicial system is an effective means for enforcing property and contractual rights, though case backlogs often result in slow processes. Lesotho has a written and consistently applied commercial law. A Commercial Court was established in 2010 with the support of a U.S. government-funded Millennium Challenge Corporation grant 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 government has little history of investment disputes involving U.S. or other foreign investors or contractors in Lesotho, though in the past three years two foreign companies with government contracts have lodged formal disputes with the government.

Though corruption remains a problem in Lesotho, U.S. firms have not identified corruption as a significant obstacle to FDI. Giving or accepting a bribe is a criminal act under the Prevention of Corruption and Economic Offences Act of 2006.

Lesotho is a member of the International Labor Organization (ILO) and has ratified 23 international labor conventions, including all eight fundamental human rights instruments. Lesotho's Labor Code Order of 1992 and its subsequent amendments are the principal laws governing terms and conditions of employment in Lesotho. The law provides for freedom of association and the right to collective bargaining. The law stipulates that employers must allow union officials reasonable facilities for conferring with employees.

Lesotho has accomplished significant recent policy reforms, and the government plans to undertake further reforms. The Land Act of 2010 reformed the land tenure system, allowing foreign investors to hold land titles as long as 20 percent of the company is owned by local investors. The Land Act has also allowed the use of land as collateral, which has expanded access to credit. The Companies Act of 2011 reduced the time it takes to start a business from 40 days to five days and strengthened investor protections. In 2016, Lesotho launched a credit information bureau to improve credit market conditions and facilitate effective credit risk management by registered credit providers. As a result of these reforms, Lesotho’s rank in the World Bank’s Doing Business report improved from 153 in 2012 to 136 in 2014 to 100 in 2016.

On March 1, 2017, the government lost a vote of no-confidence for the first time in Lesotho’s history, prompting a snap election. The June 3, 2017 election will be Lesotho’s third election in five years.

Table 1

Measure

Year

Index/Rank

Website Address

TI Corruption Perceptions Index

2016

83 of 176

http://www.transparency.org/
research/cpi/overview

World Bank’s Doing Business Report “Ease of Doing Business”

2016

100 of 190

doingbusiness.org/rankings

Global Innovation Index

2016

118 of 141

https://www.globalinnovationindex.org/
analysis-indicator

U.S. FDI in partner country ($M USD, stock positions)

2015

USD 5 million

http://www.bea.gov/
international/factsheet/

World Bank GNI per capita

2015

USD 1,280

http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign InvestmentShare    

Policies Towards Foreign Direct Investment

The GOL maintains a strong commitment to private investment and is generally open to FDI, with the exception of limited restrictions on foreign ownership of small businesses. The GOL welcomes foreign investments that:

  • Create jobs and open new markets and industries in accordance with the national objective of diversifying Lesotho’s industrial base;
  • Improve skills and productivity of the workforce and nurture local business suppliers and partners;
  • Support knowledge and technology transfer and diffusion;
  • Improve the quality and accessibility of infrastructure.

Foreign investors enjoy the same rights and protections as Basotho investors. The government is aware of the challenges it faces as a small, landlocked, and least developed country in facilitating investment and is committed to improving the climate for investment.

The GOL has undertaken several policy reforms in recent years to improve the investment climate in Lesotho. The Land Act of 2010 allows foreign investors to hold land titles so long as the local investors own at least 20 percent of the enterprise. The GOL also enacted the Companies Act of 2011, which strengthened investor protections by increasing the disclosure requirements for related-party transactions and improving the liability regime for company directors in cases of abuse of power related-party transactions. In 2013, the government launched the Consumer Protection Policy.

Limits on Foreign Control and Right to Private Ownership and Establishment

Lesotho is open to foreign investment without case-by-case approval or a requirement for partial national ownership, with the exception of a defined number of small-scale businesses in certain sectors that are reserved exclusively for Lesotho citizens to encourage local entrepreneurship. The activities reserved for local ownership under the Trading Enterprises Regulations of 2011 include: agent of a foreign firm; barber; butcher; snack-bar; domestic fuel dealer; dairy shop; general café or dealer; greengrocer; broker; mini supermarket (floor area < 250m2); and hair and beauty salon. Foreigners are not permitted to own or sit on the boards of these businesses. Foreign firms must have at least 20 percent local ownership to title land. Enforcement of the Trading Enterprises Regulations 2011 is weak, and there appear to be a significant number of foreign-owned shops operating in reserved industries.

The Mines and Minerals Act No.4 of 2005 restricts mineral permits for small-scale mining operations on less than 100m2 to local ownership. Diamond mining, regardless of the size of the operation, is subject to the large-scale mines licensing regime, which has no restrictions on foreign ownership. However, the Government reserves the right to acquire at least 20 percent ownership in any large-scale mine.

The Ministry of Trade and Industry screens foreign investments in a routine, non-discriminatory manner to ensure consistency with national interests. Due to a limited pool of local entrepreneurs, the government is not under pressure from voters to exclude foreign investment to the advantage of local investment. However, some foreign companies have reported difficulties in obtaining work permits for expatriate staff. No government approval is required, and there are almost no restrictions on the form or extent of foreign investment, except investment in small-scale retail and services businesses as cited above.

Other Investment Policy Reviews

Lesotho’s investment policy was approved by Cabinet and became law in early 2016. The policy was developed with assistance from the United Nations Conference on Trade and Development, with more information available on the UNCTAD website.

Business Facilitation

To make it easier to do business and facilitate FDI, the government established a "One Stop Business Facilitation Centre" (OBFC), centralizing all services and processes required for the issuance of licenses, permits, and imports and exports clearances under one roof. OBFC services, coupled with the implementation of the Companies Act of 2011, have reduced the number of days it takes to start a business from 40 days to five days. The OBFC also hosts the Lesotho Trade Information Portal, a single online authoritative source of all laws, regulations, and procedures for importing and exporting. The portal provides transparency and predictability to trade transactions and reduces the time and cost of trading across borders. The OBFC website provides additional information on these measures.

Outward Investment

There are no incentives for or restrictions on outward investment. Due to the small size of Lesotho’s economy, the country is not a significant source of outward investment.

2. Bilateral Investment Agreements and Taxation TreatiesShare    

Lesotho does not have a bilateral investment treaty or a free trade agreement with an investment chapter with the U.S. Lesotho does have bilateral investment protection agreements with the United Kingdom (1981), Germany (1985), and Switzerland (2010). The three agreements are posted in full on the UNCTAD website. In 2008, SACU member states and the United States signed a Trade, Investment, and Development Cooperative Agreement (TIDCA). In addition, Lesotho signed an Economic Partnership Agreement (EPA) with the European Union in June 2016. Lesotho does not have a bilateral taxation treaty with the United States. There is no record of past taxation issues that are of concern to U.S. investors.

3. Legal RegimeShare    

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.

Dispute Settlement

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.

Bankruptcy Regulations

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.

4. Industrial PoliciesShare    

Investment Incentives

Through the Lesotho National Development Corporation (LNDC), the government actively encourages investment in the following sectors: chemicals, petrochemicals, plastics and composites; energy and mining; environmental technologies; health technologies; textile, apparel and sporting goods; and travel. LNDC is responsible for the implementation of the country’s industrial development policies. LNDC also provides assistance through supportive services to foreign investors and publishes information on investment opportunities and the services it offers to foreign investors. It also offers incentives such as long-term loans, tax incentives, factory space at discounted rental rates, assistance with work permits and licenses, and logistical support for relocation. More information is available online at the LNDC website. The LNDC Board was recently dismissed by the Minister of Trade save for the members representing the ministries of Finance and Development Planning. This dismissal is unlikely to have an effect on prospective FDI or the government’s stance towards foreign investors.

There are no incentives for, and no performance requirements imposed on, foreign investors as a condition of investment. However, there are tax, factory space, and financial incentives available to manufacturing companies establishing themselves in Lesotho, such as: no withholding tax on dividends distributed by manufacturing firms to local or foreign shareholders, unimpeded access to foreign exchange, export finance facility, and long-term loans. These incentives are applied uniformly to both domestic and foreign investors. For more information, see http://www.lndc.org.ls. The incentives are specified in government administrative policies and regulations.

U.S. and other foreign firms are able to participate in government financed and/or subsidized research and development programs on a national treatment basis, although such programs are rare in Lesotho.

Foreign Trade Zones/Free Ports/Trade Facilitation

Lesotho does not have any free or foreign trade zones. The labor-intensive textile manufacturing companies that export beyond the SACU market, however, enjoy the benefits of free trade zones since they can import raw materials then export finished products duty and tax free. The LNDC maintains five industrial areas with direct road links to attract foreign investors. These areas are mainly occupied by foreign manufacturing firms which enjoy the same investment opportunities as local entities. Construction of a sixth industrial area at the Belo Industrial Estate in Botha Bothe District will proceed when consultants have completed the feasibility studies.

Performance and Data Localization Requirements

With the exception of textile companies that export to the U.S. under the African Growth and Opportunity Act (AGOA), which are bound by SACU regulations to export all their products, there is no requirement that investors purchase from local sources or export a certain percentage of output, or only have access to foreign exchange in relation to their exports. The GOL does not impose "offset" requirements, whereby major procurements are approved only if the foreign supplier invests in manufacturing, research and development, or service facilities in the country related to the items being procured. The GOL does not impose conditions on permission to invest, with the exception of land titling, which requires the entity to have at least 20 percent local ownership.

Requirements for visas and residence permits are neither discriminatory nor excessively onerous. For executive positions, work permits to foreign nationals are generally issued and renewed without significant delay; for technical positions, firms have to provide justification based on local skill shortage. The procedures for obtaining permits are transparent although foreign investors complain about excessive fees charged and long delays in processing. Work permits for the manufacturing sector are issued at the OBFC, while all other sectors need to lodge their applications with the office of the Labor Commissioner. More information on the requirements for visas, residence permits, and work permits is available on the OBFC website.

The GOL does not follow a policy of “forced localization” designed to require foreign investors to increase investment and/or employment in the local economy. The government does not force foreign investors to establish and maintain data storage within Lesotho; however, foreign investors are required to keep records of local sales and employees’ remuneration locally for tax purposes.

5. Protection of Property RightsShare    

Real Property

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. Under the Land Act of 2010, foreign nationals are permitted to buy and hold land provided they have a local partner with at least 20 percent ownership. Lesotho has no competition law or overall competition regulator. The Industrial Licensing Act 1969, which allowed businesses to apply for protection against competition for up to 10 years, was repealed in 2014.

Secured interests in property, both movable and real, are recognized and enforced under the Land Act 2010. The concept of a mortgage exists; and mortgages are protected under the Deeds Registry Act of 1967. Secured interests, including mortgages, are recorded and filed by the Deeds Registry. Through the support of the Millennium Challenge Corporation, the government of Lesotho significantly improved the process of registering land titles; ranking 88th under the “Registering Property” index of the World Bank’s Doing Business Report in 2014. However Lesotho’s ranking in registering property has since fallen in consecutive years and ranked 106th in 2016.

Intellectual Property Rights

Legal structures to protect intellectual property rights are relatively strong. Investors complain that enforcement is somewhat weak, although infringements and theft are not common. Lesotho respects international intellectual property laws, and is a member of the World Intellectual Property Organization (WIPO) as well as the African Intellectual Property Organization. Intellectual property protection is regulated by the Industrial Property Order of 1989 and the Copyright Act of 1989, which conform to the standards set out in the Paris Convention and Berne Convention. The law protects patents, industrial designs, trademarks, and grant of copyright, but does not protect trade secrets or semi-conductor chip lay-out design. The Law Office is responsible for enforcement of the Industrial Property Order, while the Ministry of Tourism, Sports and Culture is responsible for enforcement of copyright (reflecting the law’s focus on protection of artistic works). The Deeds Registry carries out registration.

Lesotho is not listed in the U.S. Trade Representative’s (USTR) Special 301 Report, nor does it host a Notorious Market.

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/.

Resources for Rights Holders

Contact at Mission:
Daniel Kobayashi
Political and Economic Officer
+266 2231-2666
MaseruCommercial@state.gov

6. Financial SectorShare    

Capital Markets and Portfolio Investment

The regulatory system is effectively established to encourage and facilitate portfolio investment. The GOL issued treasury bonds at the end of 2010 to more broadly develop the country’s capital markets. The stock of portfolio investment liabilities amounted to USD $28.5 million at the end of 2010 and comprised mostly bonds. Lesotho’s capital market is relatively underdeveloped, with no secondary market for capital market transactions. On December 12, 2014, the Central Bank of Lesotho (CBL) published the Capital Markets Regulations, which are contained in the Government Gazette No. 76, and will govern operations of the stock market. Although the stock market was formally launched on January 22, 2016, there are not yet any companies listed or securities currently being traded. The stock market will increase the ability of businesses to raise medium to long-term capital. The trading of government bonds; corporate bonds and company shares is strictly electronic—there is no physical building—and will be initially operated by CBL until the private sector can take over.

The government accepted the obligations of IMF Article VIII in 1997, and continues to refrain from imposing restrictions on the making of payments and transfers for current international transactions.

Credit is allocated on market terms, and foreign investors can obtain credit on the local market. However, the banking sector is characterized by conservative lending guidelines, high interest rates, and large collateral requirements. In January 2016, a credit bureau was also launched, the latest in a long series of incremental steps by the government to further improve access to finance for the private sector. The credit bureau, run by Compuscan, a South African credit bureau, will facilitate the exchange of consumer credit information among credit providers to enable them to make better assessments of risk and promote responsible borrowing and lending practices. According to the International Monetary Fund (IMF), as a result of structural reforms implemented under the first Millennium Challenge Corporation program, private sector credit is growing. LNDC does not provide credit to foreign investors but can acquire equity in foreign companies investing in strategic economic sectors. The private sector has access to a limited number of credit instruments, such as credit cards, loans, overdrafts, checks, and letters of credit.

Money and Banking System

Lesotho has a central bank and four banks—three subsidiaries of South African banks and the government-owned Lesotho Post Bank (LPB)— which serve about 435,000 Basotho, approximately 38 percent of the adult population, through 44 branches. The number of bank branches and ATMs are distributed unevenly across the country. In Maseru, the capital, there are about 10 branches and ATM locations for every 100,000 people, whereas in Mokhotlong, located in the mountainous northeast, for example, there are only two branches and ATM locations for every 100,000 people. According to the CBL, the banking system is sound—commercial banks in Lesotho are well-capitalized, liquid, and compliant with international banking standards. Three South African banks account for almost 95 percent of the country's banking assets, which totaled over LSL 142.61 billion (USD $1082.8 million) in February 2017. The share of bank nonperforming loans to total gross loans is about 3.9 percent. Foreigners are allowed to establish a bank account and may hold foreign currency accounts in local banks; however, they are required to provide a residence permit as a precondition for opening a bank account to comply with the “know your customer” requirements.

Foreign Exchange and Remittances

Foreign Exchange

There are no restrictions on converting or transferring funds associated with an investment into a freely usable currency and at a legal market-clearing rate. Subject to foreign exchange control rules, Lesotho’s policy is that foreign investors may access foreign exchange for day-to-day business purposes and can remit capital and profits overseas. Investors may hold foreign currency accounts in local banks. Lesotho has acceded to Article VIII of the IMF charter, which provides for foreign exchange convertibility of current account transactions. For loan repayments, investors must notify the CBL at the outset of an investment that the capital for that investment is a loan and must disclose the terms of the loan. Lesotho is a member of the Southern African Common Policy on approval of foreign loans.

The CBL has authorized three commercial banks and two private money exchange bureaus in Lesotho to deal in foreign exchange; however, the CBL still retains the power to approve foreign exchange requirements for all capital account transactions including FDI, capital disinvestment, and contracting and servicing offshore debt. The procedures for approving dividend remittances are somewhat bureaucratic, similar to other countries that have foreign exchange control regimes. Copies of audited company accounts are required for final dividend payments; interim dividends require only management accounts. Tax clearance certificates are required for both interim and final dividend payments.

Lesotho’s fiscal and monetary policies operate within the context of its membership of the Common Monetary Area (CMA). The CMA is made up of the following SACU countries: Namibia, Swaziland, and South Africa. Under the CMA, the national currency, the loti, is pegged at par to the South African rand, which is also accepted as legal tender in Lesotho. As a member of the CMA, Lesotho has free convertibility of transactions with Namibia, South Africa, and Swaziland. Under this regime, Lesotho has effectively surrendered its monetary policy to the South African reserve bank, and, therefore, cannot engage in currency manipulation. To maintain the rand/loti peg, Lesotho maintains reserves in rand and other foreign currencies. Lesotho’s prudent management of its reserves enables it to offer free foreign exchange convertibility for all current account transactions.

Remittance Policies

According to the CBL, there are no plans to change remittance policies in the near future. The current average delay period 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 is two days, provided the investor has submitted all the necessary documentation related to the remittance. There has never been a case of blockage of such transfers, and shortages of foreign exchange that could lead to blockage are unlikely given that the CBL maintains net international reserves at a target of six months of import cover.

Sovereign Wealth Funds

There is no sovereign wealth fund or asset management bureau in Lesotho.

7. State-Owned EnterprisesShare    

Lesotho privatized most state owned enterprises (SOEs) following the adoption of the Privatization Act of 1995, including telecommunications, banks, and the government vehicle fleet. The government did not privatize the electricity and water utility companies, which enjoy monopolies in their respective sectors. In 2004, the government established the Lesotho Postbank, which is mandated to provide Basotho greater access to financial services. The government also introduced state-owned buses in the public transportation sector in 2008, with a mandate of providing public transport to underserved areas of the country. The government also has stakes in private companies in utilities and the telecommunications, mining, and manufacturing sectors. There is a significant level of competition within these sectors—SOEs do not play a leading role. There are no laws that seek to ensure a primary or leading role for SOEs in certain sectors/industries. SOEs operate under the same tax law, value added tax rebate policies, regulatory, and policy environment as other private business, including foreign businesses.

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. Private enterprises have the same access to financing as SOEs and on the same terms as SOEs, including access to financing commercial banks and government credit guarantee schemes.

SOEs are subject to hard budget constraints under the law and these provisions are enforced in practice. SOE senior management reports to an independent board of directors; some of the directors may be politically-affiliated. SOEs are required by law to publish an annual report and to submit their accounts 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.

SOEs do not exercise delegated governmental powers. U.S. firms have not reported any commercial activity by government departments or quasi-government institution that has an adverse commercial impact on their operations. There are no reported cases of SOEs being involved in investment disputes. Lesotho’s judicial system is fairly independent; court processes are transparent and non-discriminatory.

Privatization Program

There is no ongoing privatization program in Lesotho, nor has the government expressed any intentions to begin a privatization program.

8. Responsible Business ConductShare    

There is a general awareness of responsible business conduct (RBC) and corporate social responsibility (CSR) among both producers and consumers. The government maintains and enforces domestic laws with respect to labor and employment rights, consumer protections, and environmental protections. Labor laws and regulations are rarely waived in order to attract investment, and the government does not compromise on environmental laws. Since 2013, the Policy Analysis and Research Institute of Lesotho has monitored mining companies on CSR. Additionally, Lesotho’s Consumer Protection Association and the Media Institute of Southern Africa (MISA) have developed a comprehensive monitoring program that will assess CSR in a variety of economic sectors. They planned to publish their inaugural joint report in 2016, but failed to do so due to financial constraints.

Foreign and local enterprises tend to follow generally accepted CSR principles such as those contained in OECD Guidelines for Multinational Enterprises and the United Nations’ Guiding Principles on Business and Human Rights, although the government does not actively promote adherence to these principles. Firms that pursue CSR are viewed favorably by society, but CSR does not necessarily provide any advantages in dealing with the government.

Lesotho is not a part of the Extractive Industries Transparency Initiative.

9. CorruptionShare    

Lesotho has laws, regulations, and penalties to combat corruption of public officials. Parliament passed anti-corruption legislation in 1999 that provides criminal penalties for official corruption. The Directorate on Corruption and Economic Offenses (DCEO) is the primary anticorruption organ and investigates corruption complaints against public sector officials. The Amendment of Prevention of Corruption and Economic Offences Act of 2006 enacted the first financial disclosure laws for public officials. On February 5, 2016, the government issued regulations to initiate implementation of the financial disclosure laws for public officials who must file their declarations annually by April 30, 2016. The law may also be applied to private citizens if deemed necessary by the DCEO. The law prohibits direct or indirect bribery of public officials, including payments to family members of officials and political parties. While the government made significant efforts to implement the law, some officials have engaged in corrupt practices with impunity. The DCEO has claimed it cannot effectively implement the law because it lacks adequate resources. Corruption is pervasive in government procurement.

In 2013, the DCEO indicted both a sitting minister and a former minister for separate incidents of corruption. A court case regarding a sitting Minister (since resigned) was recently dismissed due to a missing police docket while the other case has not yet had a final resolution. In an effort to prevent corruption and economic offences, the DCEO encourages companies to establish internal codes of conduct that, among other things, prohibit bribery of public officials. Many companies have effective internal controls, ethics, and programs to detect and prevent bribery.

No U.S. firms have identified corruption as an obstacle to FDI in Lesotho. Giving or accepting a bribe is a criminal act under the Prevention of Corruption and Economic Offences Act of 2006, the penalty for which is a minimum of LSL10,000 ($667) or 10 years imprisonment. Local companies cannot deduct a bribe to a foreign official from taxes. Transparency International’s 2016 Corruption Perception Index ranked Lesotho 83rd of 176 countries globally.

Lesotho acceded to the UN Anticorruption Convention in 2005, but it is not yet a signatory to the OECD Convention on Combating Bribery. Lesotho acceded to the African Union Convention on Preventing and Combating Corruption in 2003. Lesotho is also a member of the African Peer Review Mechanism (APRM), and the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG).

Resources to Report Corruption

Contact at government agency responsible for combating corruption:
Sefako Seema
Prosecutor, Directorate on Corruption and Economic Offenses
P.O. Box 16060, Maseru, 100 Lesotho
+266 2231-3713
info@dceo.org.ls

10. Political and Security EnvironmentShare    

In August 2014, there were clashes between the army and the police that left one police officer dead. As a result of the clashes, the then Prime Minister, a number of Cabinet members, and some police officers crossed the border into South Africa. Following the clashes, SADC provided police support and facilitated a process that led to a snap election on February 28, 2015. The elections were peaceful and were widely regarded as free and fair, and a new seven-party coalition government emerged. Since the 2015 elections, more than 50 soldiers were detained in connection with an alleged mutiny and appear to have been tortured, and on June 25, 2015 a former army commander was killed by soldiers under controversial circumstances leading to a SADC investigation, which made recommendations concerning the need for reforms including recommending a change in the army command. . On December 1, 2016 the head of the army retired; however, there has been limited progress on implementing the other SADC recommendations. On March 1, 2017, the government lost a vote of no-confidence for the first time in Lesotho’s history, prompting a snap election. The June 3, 2017 election will be Lesotho’s third election in five years.

Businesses and foreign investors are generally not targets of political violence.

11. Labor Policies and PracticesShare    

While Lesotho has abundant supply of unskilled labor, the supply of skilled labor is limited. The official unemployment rate is 25.3 percent, and youth unemployment is widespread. To augment the limited supply of skilled labor, the Labor Code allows firms to hire of non-citizens with 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. Within the textile and garments sector, an informal policy permits a company to 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 government is aware that Lesotho needs to preserve its competitive labor costs while affording workers fair wages and conditions. Statutory minimum wages are fixed annually by the Ministry of Labor and Employment with recommendations from a tripartite Wages Advisory Board, representing the government, employers, and employees.

The law provides for freedom of association and the right to bargain collectively. However, collective bargaining at the factory level is restricted in practice because the law requires that any union entering into negotiations with management represent 50 percent of workers at a factory, and only a few unions meet that condition. The labor movement is also fragmented, with multiple unions competing for membership among workers. Most unions focus on organizing apparel workers. All worker organizations are independent of the government and political parties except the Factory Workers Union, which is affiliated with the Lesotho Workers Party. The Labor Commissioner’s Office reported that the fragmented union movement did not influence labor market decisions. The law provides for a limited right to strike. In the private sector, the law requires workers and employers to follow a series of procedures designed to resolve disputes before the Directorate of Dispute Prevention and Resolution, an independent government body, authorizes a strike. The law does not permit civil servants to strike, and therefore all public sector strikes are illegal. In practice, strikes are rare in Lesotho.

Lesotho has been 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 for worker health, safety, and welfare. The law permits union organization. The Labor Court and the Labor Court of Appeal are the key judiciary entities dealing with labor disputes. In addition, the Labor Code Amendment Act of 2000 established the Directorate of Industrial Dispute Prevention and Resolution (DDPR), which is a semi-autonomous labor tribunal independent of the government, political parties, trade unions, employers and employers’ organizations. LNDC is another key institution that deals with labor disputes. The function of LNDC in this realm is to bring parties together before any formal process is set in motion. For example, LNDC intervenes in strikes and tries to reconcile workers and employers. When this informal process fails, the more formal process of the DDPR can be engaged which can consist of conciliation and arbitration.

Lesotho’s high HIV/AIDS prevalence, estimated at 24.6 percent of the adult population, has heavily impacted the labor market; companies need to take the health of their workforce into account when making management decisions. With the support of external donors, such as the Global Fund and the U.S. government’s PEPFAR (The President’s Emergency Plan for AIDS Relief), anti-retroviral drugs are easily accessible to HIV positive workers.

On September 19, 2016 the government published a comprehensive draft national labor policy which incorporates all existing labor market policies for the different areas of labor administration. The new draft labor policy does not include significant changes to current laws that would impact current or prospective U.S. investments. Given pending elections, it is unclear when the law will be passed.

12. OPIC and Other Investment Insurance ProgramsShare    

Lesotho does not have an OPIC agreement with the United States. OPIC insured one American-owned company: Lesotho Flour Mills, Seaboard Corporation's joint venture with the Lesotho government. Seaboard started operations in 1998 and currently employs 242 people.

With the implementation of the second phase of the $1.75 billion Lesotho Highlands Water Project, which South Africa is funding in order to deliver water to its Gauteng province, , there is potential OPIC programming in Lesotho. The project involves construction of a dam, expansion of the water delivery system to South Africa, and the construction of a 1,000MW pump storage hydropower plant. OPIC can provide political risk insurance or finance for equipment to U.S. companies interested to bid in the project.

13. Foreign Direct Investment and Foreign Portfolio Investment StatisticsShare    

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

 

Host Country Statistical Source

USG or International Statistical Source

USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other

Economic Data

Year

Amount

Year

Amount

 

Host Country Gross Domestic Product (GDP) ($M USD)

2014

$2,539

2015

$2,278

www.worldbank.org/en/country

Foreign Direct Investment

Host Country Statistical Source

USG or International Statistical Source

USG or international Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other

U.S. FDI in partner country ($M USD, stock positions)

2010

$18.4

2015

$5

BEA data available at http://bea.gov/international/direct_investment_
multinational_companies_comprehensive_data.htm

Total inbound stock of FDI as % host GDP

2010

0.72

2015

0.22

N/A


Table 3: Sources and Destination of FDI

Direct Investment from/in Counterpart Economy Data

From Top Five Sources/To Top Five Destinations (US Dollars, Millions)

Inward Direct Investment

Outward Direct Investment

Total Inward

$1416.62

100%

Total Outward

$19.6

100%

South Africa

$756.56

53.4%

South Africa

$19.6

100%

UK

$305.86

21.6%

     

Taiwan

$288.09

20.3%

     

British Virgin Islands

$45.19

3.2%

     

China

$20.92

1.5%

     

"0" reflects amounts rounded to +/- USD 500,000.


Table 4: Sources of Portfolio Investment

Data not available.

14. Contact for More InformationShare    

Political/Economic Officer
U.S Embassy-Maseru
254 Kingsway
Maseru 100 Lesotho
+266 2231 2666 ext 4104
MaseruCommercial@state.gov