Lesotho

Bureau of Economic and Business Affairs
Report
July 19, 2018

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Executive SummaryShare    

The Government of Lesotho (GOL), through its National Strategic Development Plan (NSDP), 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 mainly 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 can lead to a slow process. 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 (MCC) grant in an effort to improve the country’s capacity in resolving 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 year two foreign companies with government contracts have had disputes.

Corruption remains a problem in Lesotho. 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 bargain collectively. 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 Act recognizes the right of women to hold title to land. Furthermore, under the Married Person’s Equality Act 2006, women are provided equal access to investment development and protections. The Equality Act repeals the marital power that a husband had over his wife and her property, and confers equal powers on both spouses married in community of property.

The Companies Act of 1967, amended in 2011, also enables women to become promoters or directors of companies without having to seek their husbands’ consent. The Act further 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 such reforms, Lesotho’s rank in the World Bank’s Doing Business report has improved from 153 in 2012 to 104 in 2017.

The government plans to relaunch the Investment Climate Reform Committee in 2018. The Committee, to be comprised of technical and policy players, will aim to make it easier to invest in Lesotho.

Table 1

Measure

Year

Index/Rank

Website Address

TI Corruption Perceptions Index

2017

74 of 175

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

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

2017

104 of 190

http://www.doingbusiness.org/rankings

Global Innovation Index

2017

N/A

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

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

2016

USD 5

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

World Bank GNI per capita

2016

USD 1270

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

1. Openness To, and Restrictions Upon, Foreign InvestmentShare    

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.

Industrial Promotion

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 & Sporting Goods; and Travel. LNDC implements 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. Furthermore, it 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. For more information, please visit: http://www.lndc.org.ls.

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 land title. Despite the Trading Enterprises Regulations 2011, there appear to be a significant number of foreign-owned shops 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. The lack of local entrepreneurs has meant the government is under no pressure to exclude foreign investment to the advantage of local investment, though 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 (see above).

Competition Law

The government has plans to reintroduce a 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.”

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 (UNCTAD http://unctad.org/en/pages/PublicationArchive.aspx?publicationid=503).

Business Facilitation

To make it easier to do business and facilitate FDI, the government established a "One Stop Business Facilitation Centre" (OBFC), placing all services 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 web site is http://www.obfc.org.ls/business/default.php.

In 2015, Lesotho established a platform to facilitate for equitable treatment of women and underrepresented minorities-- the financial inclusion project run by the Ministry of Finance and the Central Bank of Lesotho. The project assists beneficiaries to form and register co-operations/associations, access finance, link them with relevant service providers, and negotiate tax incentives on their behalf.

The Ministry of Finance, together with UNDP and local network providers, drafted the Financial Sector Strategy Development policy to help facilitate access to finance through mobile banking. The project started in 2016 as one of government’s financial inclusion mechanisms.

Outward Investment

There are no incentives for or restrictions on 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, however, 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 are no taxation issues of concern to U.S. investors. However, Lesotho has a bilateral taxation treaty, the Double Taxation Agreement (DTA), with the United Kingdom (UK). Although the DTA was signed in November 2016, Lesotho has yet to ratify its re-negotiation with the UK.

3. Legal RegimeShare    

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 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 changed the process of registering private and public shareholding companies in Lesotho. 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, and companies must do so 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 Lesotho.

Every firm 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. To repeal the current Trade Enterprise Order, the GOL has drafted the Business Licensing and Registration Bureau bill. The bill, which is yet to be presented in Parliament, would address licensing and registration areas that hinder economic development. 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. The OBFC has also streamlined other bureaucratic procedures, including those for licenses and permits.

The GOL modernized the regulatory framework for utilities through the establishment of the independent Lesotho Communications Authority (LCA), 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 LCA has permitted Econet Telecom Lesotho (ETL) to maintain a monopoly on 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. Lesotho has a centralized online location where key regulatory actions are published. However, the website is poorly maintained and rarely updated – https://lesotholii.org/.

International Regulatory Considerations

Lesotho is a member of the Southern African Development Community (SADC) and the Southern African Customs Union (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. For more information about SADC, visit: www.sadc.int.

Lesotho is a member of the World Trade Organization 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.

Lesotho ratified the Trade Facilitation Agreement (TFA) on January 4, 2016. To date, there has been a 0 percent rate of implementation commitment. https://www.tfadatabase.org/members/lesotho.

Legal System and Judicial Independence

The legal system in Lesotho is based on Roman–Dutch law and English Common Law, combined with customary law. The judicial system is made up of the High Court, the Court of Appeal, subordinate courts and the Judicial Service Commission (JSC). The High Court has jurisdiction to hear the most serious civil and criminal cases and appeals from the lower courts. It has supervisory jurisdiction over all the courts in Lesotho. The Court consists of the Chief Justice, who is appointed by the chief of state on the advice of the prime minister, and a number of puisne judges, appointed by the chief of state on the advice of the JSC. Appeals from the High Court come before the Court of Appeal, which meets twice a year.

There is no trial by jury. Rather, judges make rulings alone, or in criminal trials with two other judges as observers. There are magistrates’ courts in each of the 10 districts, and more than 70 central and local courts. General laws in Lesotho operate alongside customary laws. Customary law consists of the customs of the Basotho, written and codified in the Laws of Lerotholi, which are applied in local customary courts. Whether customary or general law will be applied in a case is generally determined by the nature of the case, criminal or civil, and the people involved. It is usual for common law to be implemented in urban areas, while customary law is more often found in rural areas. Local courts, or Basotho Courts, are the courts of first instance for any matter involving customary law. Appeals from local courts come before the central courts, and appeals from the central or local courts come before the judicial commissioners’ courts, from which further appeals may be made to the High Court. Lesotho has accepted compulsory International Court of Justice jurisdiction.

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 noted politicization, chronic underfunding, and structural problems in its 2012 report “Politics of Judicial Independence in Lesotho.”

A Commercial Court was established in 2010 in an effort to improve the country’s capacity in resolving 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.

Laws and Regulations on Foreign Direct Investment

Lesotho does not currently have a specific and overarching FDI policy. 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 of 2011 and the Financial Institutions Act of 2012 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 "One Stop Business Facilitation Centre" (OBFC) 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 web site is http://www.obfc.org.ls/business/default.php.

Competition and Anti-Trust Laws

The government proposed 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.” However, the bill did not pass prior to the previous government losing a vote of no confidence, and itis being reintroduced by the new government. The bill is awaiting approval by the Attorney General. Since the bill is still pending, there are, therefore, no agencies established to review transactions for competition-related concerns. However, various government sectors deal with competition-related issues through use of available institutional guidelines and procedures.

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 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 discriminating 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 in Lesotho. However, in the last year, one case has arisen in which the government has publicly alleged the parent U.S. firm of a local subsidiary has failed to pay dividends it owes the government, which has a 49 percent stake in the venture No legal action thus far been taken. Within the past four years, a foreign company managing the government fleet of vehicles had its contract abruptly terminated and a foreign 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 latter 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 United Kingdom, an investor may take a dispute with the government to international arbitration. However, Lesotho does not have a bilateral investment treaty with the United States. 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 a 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. An amount of a claim based on a debt or liability denominated in a foreign currency shall be converted into Lesotho currency at the rate of exchange on the date of commencement of the liquidation. The country’s credit bureau is operated by a South African company called Compuscan. Compuscan Lesotho was established in 2014 with the mandate to improve access to credit by facilitating the exchange on prospective debtors. The process is two-fold: lenders are seeking easier and faster access to competitively priced loans, while credit providers hope to make safer and more reliable financial decisions in order to drive their growth.

4. Industrial PoliciesShare    

Investment Incentives

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.

Foreign Trade Zones/Free Ports/Trade Facilitation

Although Lesotho does not have any free or foreign trade zones, on March 21, 2018, the country signed the declaration, not the agreement, on the African Continental Free Trade Area (AfCTA). The main objective of the AfCTA is to create a single continental market for goods and services, with free movement of business persons and investments, and thus pave the way for the establishment of the Continental Customs Union and the African Customs Union. 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. Feasibility studies for the construction of a sixth industrial area at the Belo Industrial Estate in Botha-Bothe district have been conducted, and the construction of shells is currently underway.

Performance and Data Localization Requirements

With the exception of textile companies that export to the United States 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 One Stop Business Facilitation Centre (OBFC), while all other sectors need to lodge their applications with the office of the Labor Commissioner. For more information on requirements for visas, residence permits and work permits, please visit: http://www.obfc.org.ls/business/default.php.

Data Storage

The GOL does not follow a policy of “forced localization” designed to force 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 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; peaking at 88 under the “Registering Property” index of the World Bank’s Doing Business Report in 2014. However, since then Lesotho’s ranking in registering property has fallen in consecutive years and is now 104.

Commercial banks are the only financial mechanisms/sources available in Lesotho for securitization of properties for lending purposes. In cases in which land is accepted as collateral, the banks work with the Land Administration of Authority (LAA) to develop secured lending capabilities for investors. LAA is an autonomous government body established to modernize and improve land administration and to reduce land transactions costs and the time it takes to acquire or dispose of a leasehold title to land.

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 USTR’s Special 301 Report, nor does it host a Notorious Market.

Two bills with IP related regulations are yet to be passed in Lesotho Parliament. The Ministry of Communications, Science and Technology in liaison with the Lesotho Communications Authority (LCA) have finalized the drafting of the Computer Crime and Cyber Security bill, and the Electronic Transactions and Commerce bill. Both bills if enacted will improve the protection of IP rights by addressing cyber-crime and protecting electronic transactions. Furthermore, there are two proposed policies in the pipeline, the Lesotho Broadband and Digital Migration policies. However, these are yet to be approved by cabinet.

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:

Matt Jamrisko
Political and Economic Officer
+266 2231-2666
MaseruCommercial@state.gov

Local Lawyers List:

NALEDI CHAMBERS INCORPORATED
1st Floor, Metropolitan Building
Kingsway
MASERU
Lesotho
Tel. : +266 22 314 986
Fax : +266 22 310521
e-mail: naledichambersinc@tlmail.co.ls

6. Financial SectorShare    

Capital Markets and Portfolio Investment

The regulatory system is effectively established to encourage and facilitate portfolio investment. Through the Central Bank of Lesotho (CBL), the GOL promotes the development of financial markets in Lesotho through managing official foreign reserves, implementation of monetary policy through Open Market Operations, and contracting and managing the Government’s domestic debt through issuance and redemption of treasury securities. Financial markets in Lesotho have been developed in phases. The first phase focused on money markets development (treasury bills) in 2008 by increasing the frequency of auctions and increasing the number of tenors. To broadly develop capital markets, this was followed by the introduction of government bonds in 2010, with the last phase being the development of a corporate bonds and equities market. The stock of portfolio investment liabilities amounted to USD28.5 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. Through publication of the Capital Markets Regulations of 2014, the government established and launched the Maseru Securities Market, the country’s stock market, in January 2016. The Regulations, documented in the Government Gazette No. 76, provide for the operation of a market that is fair, orderly, secure, and transparent. The Regulations further provide for investor protection and the licensing of all market players. Although the stock market was formally launched two years back, there are neither companies listed nor securities being traded as yet. The registering of companies in 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. For now, bond trading is operated by the Central Bank of Lesotho, with the hope that the private sector will take over when fully capacitated.

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 are able to get 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, Lesotho’s first credit bureau was 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, facilitates 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 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 commercial 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 49 branches. The number of bank branches and automated teller machines (ATMs) are distributed unevenly across the country. In Maseru, there are about 16 branches and ATM locations for every 100,000 people, whereas in Mokhotlong, for example, there are only three 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 92 percent of the country's banking assets, which totaled over M16.07 billion (USD1.09 million) by December 2017. The share of bank nonperforming loans to total gross loans is about 3.6 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 Policies

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 (forex) control rules, Lesotho’s policy is that foreign investors may access forex 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 Central Bank of Lesotho (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 forex. However, the CBL still retains the power to approve forex 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 forex control regimes. Copies of audited company accounts are required for final dividend payments, while 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 consists of the following SACU countries: Lesotho, 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 forex convertibility for all current account transactions.

The country, through its central bank, issued a statement on November 2017, to announce its position on emerging block-chain technologies, in particular cryptocurrencies. In its statement, the bank highlighted that cryptocurrencies do not fall under the purview of its regulatory scope, and the nature of cryptocurrency transactions violate existing laws, exchange laws, and anti-money laundering/combatting of terrorist financing laws.

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 forex 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 further 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 (VAT) 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 finance from commercial banks and government credit guarantee schemes.

OECD Guidelines on Corporate Governance of SOEs

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 whom are political appointees. 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.

8. Responsible Business ConductShare    

There is a general awareness of responsible business conduct (RBC) and corporate social responsibility 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 corporate social responsibility. Additionally, Lesotho’s Consumer Protection Association (CPA) and the Media Institute of Southern Africa (MISA) have been planning to develop a comprehensive monitoring program that will assess corporate social responsibility (CSR) in a variety of economic sectors. However, the process is incomplete as the two organizations have not been able to collect data from all districts. Their initial plan to publish the inaugural joint report in 2016 has been postponed indefinitely.

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.

Although Lesotho has an extractive/mining industry, it does not participate in the Extractive Industries Transparency Initiative (EITI), since it does not extract/produce any of the minerals supported through the 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. 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. The Money Laundering and Proceeds of Crime Act of 2008 was amended in 2017.

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 foreign direct investment in Lesotho. One U.S. firm recently claimed a solicitation of a bribe in a government tendering process. The investigation of the case is ongoing. 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 10,000 maloti (USD667) or 10 years imprisonment. Local companies cannot deduct a bribe to a foreign official from taxes. Corruption is pervasive in government procurement.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

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. The country is also a member of the Southern African Development Community Protocol against corruption, Southern African Forum against corruption, African Peer Review Mechanism (APRM), and the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG).

Resources to Report Corruption

Contact at government agency or agencies are responsible for combating corruption:

Sefako Seema
Prosecutor
DCEO
P.O. Box 16060, Maseru, 100 Lesotho
+266 2231-3713
info@dceo.org.ls

10. Political and Security EnvironmentShare    

In August 2014, the army attacked three police stations and killed one police officer. The then Prime Minister, some ministers, and police officers fled to South Africa. Following the incident, the Southern African Development Community (SADC) provided VIP protection for the Prime Minister and former Minister of Gender and Youth, Sports and Recreation; also Leader of the Basotho National Party (BNP); and facilitated the February 28, 2015 snap elections. The elections were peaceful and widely regarded as free and fair, and a seven-party coalition government emerged. In May and June 2015, more than 20 soldiers were detained and tortured in connection with an alleged mutiny. On June 25, 2015 a former army commander was killed by other soldiers, leading to a SADC Commission of Inquiry which concluded that excessive use of force was used in an attempt to arrest him and recommended that those involved in the killing and other crimes should be prosecuted. The Commission also found no evidence of alleged mutiny. It further recommended constitutional, public service, judicial, parliamentary and security reforms. In fulfillment of one of the SADC recommendations, the then army commander retired on December 1, 2016. He is currently facing charges for January 2014 bombings at the now First Lady’s, her neighbor’s and former police commissioner’s residences, as well as the killing of a police officer in August 2014. Over 30 soldiers are facing charges for various crimes including the 2015 killing of the army commander. On March 1, 2017, the government lost a vote of no-confidence in parliament for the first time in Lesotho’s history, prompting a snap election. The June 3, 2017 elections (third in five years) were declared free and fair. A new four-party coalition was formed. In September 2017, the army commander at that time was also killed in his office following a confrontation over the handing over of army suspects to the police. The perpetrators, also army soldiers, were immediately killed by bodyguards and one more suspect is facing a court martial. In response, the government invited SADC troops, police, intelligence, and civilian personnel to Lesotho as a stabilization and training mission. The contingent arrived on December 2, 2017 and its mandate expires in June 2018.

In August and September 2017, three opposition politicians including the former Deputy Prime Minister and Leader of the Lesotho Congress for Democracy (LCD) fled the country citing security concerns. One of them has returned, while the Directorate on Corruption and Economic Offences (DCEO) has started extradition processes against the LCD leader on corruption allegations.

11. Labor Policies and PracticesShare    

Lesotho has abundant supply of unskilled labor but a limited supply of skilled labor. The official unemployment rate is 27.42 percent, and youth unemployment is widespread. To augment the limited supply of skilled labor, the Labor Code allows firms to hire 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. Most unions focus on organizing apparel workers. Although the labor movement used to be fragmented, with multiple unions competing for membership among workers, the situation is currently improving. Through support from IndustriALL and its Swedish affiliate IF Metall, unions have worked on building unity amongst workers and merging to form an Independent Democratic Union of Lesotho (IDUL). All worker unions are independent of the government and political parties except the Factory Workers Union (FAWU), which is affiliated with the Lesotho Workers Party. The Labor Commissioner’s Office reported that the fragmented union movement could not previously influence labor market decisions, hence the merge to form IDUL. 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), the 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. In April 2018, the Minister of Labor and Employment launched a National Labor Migration Policy. The policy seeks to protect national migrant laborers in foreign countries, and foreign migrant laborers in Lesotho. Furthermore, the ILO is currently assisting the GOL to draft the labor law reform.

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 USD2 billion Lesotho Highlands Water Project second phase, there is potential for operation of OPIC’s programs 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    

The Central Bank of Lesotho (Modeling and Forecasting Division) collects the provided data and publicly distributes them. Although it takes a while to publish the data, the division readily provides them on request.

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)

2016

USD 2,333

2016

USD 2,291

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)

2016

USD 494

2015

USD 5

BEA data available at
http://bea.gov/international/direct_
investment_multinational_
companies_comprehensive_data.htm

Host country’s FDI in the United States (M USD, stock positions)

2016

N/A

2016

N/A

BEA data available at
http://bea.gov/international/direct_
investment_multinational_
companies_comprehensive_data.htm

Total inbound stock of FDI as % host GDP

2016

USD 21

2016

USD 0.22

https://www.centralbank.org.ls/


Table 3: Sources and Destination of FDI

Data on Lesotho not available from the IMF Website.


Table 4: Sources of Portfolio Investment

Lesotho is not one of the economies reporting on the IMF’s CPIS data.

14. Contact for More InformationShare    

Matt Jamrisko
Political and Economic Officer
+266 2231-2666
MaseruCommercial@state.gov