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Lesotho

Executive Summary

The Kingdom of Lesotho is a country open to and eagerly seeking foreign direct investment (FDI). Government, business, labor, and civil society leaders all strongly agree that attracting FDI is vital to Lesotho’s future. In 2021 the government of the Kingdom of Lesotho (GOKL) undertook many promising initiatives to make doing business in Lesotho easier. However, in 2020 GOKL took or proposed measures that concerned foreign entrepreneurs and investors. These included measures that treat foreign-owned businesses differently than in the past and which suggest to some foreign observers a turn towards economic nationalism.

Among the important reforms undertaken in 2020, GOKL introduced new e-licensing and e-registration platforms that promise to greatly reduce the time for business creation and licensing. New protocols for customs procedures promise to streamline importing and exporting. And at the highest levels GOKL has announced that to help Lesotho recover from the COVID-19 pandemic, GOKL will focus on making Lesotho an attractive destination for FDI.

While GOKL clearly recognizes the importance of FDI and has continued to enact policies to make foreign investment easier, 2020 also saw the rollout of rules intended to protect local entrepreneurs from foreign competition in designated sectors. In recent years, many migrants from Asia and other parts of Africa have started businesses in these designated sectors and the current government has announced aggressive measures to reverse this trend. These sectors—such as small retail food sales and basic auto repair—are dominated by local small and micro enterprises but some do have participation by medium-sized foreign-owned firms.

Although these regulations will have a negative effect on some foreign investors, they will have low impact on overall FDI because most businesses in the designated sectors are relatively small. However, the government has also enacted other regulations, such as requiring foreign investors to renew their business licenses yearly instead of every three years, a condition that many foreign investors describe as onerous to the point of impossibility given the bureaucratic challenges.

Moreover, recent policy debates within the government around proposals to mandate a minimum percentage of local ownership enterprises earmarked for the locals have caused real concern. In February, the government implemented the regulations in the used car motor dealership sector causing barriers to entry for investors. Uncertainty concerning the execution of the regulations in other sectors remains.

Lesotho’s economy and FDI were badly affected by COVID-19 in 2021, with several foreign-owned textile factories closing or cutting back on operations due to the global downtrend in demand. The government introduced measures to reduce the impact of COVID-19 on the private sector. Other challenges included corruption; while not pervasive, corruption is a problem with Transparency International’s Corruption Perceptions Index ranking Lesotho as 83rd out of 180 countries. Foreign investors are requested to adhere to international labor standards, however, there were reported instances of Gender Based Violence and Harassment (GBVH) in some textiles factories. The government, in collaboration with the stakeholders, is working to address GBV. Despite these challenges, GOKL is refining the services it offers foreign investors, and Lesotho retains advantages such as ready access to the South African and regional markets as well as lower labor, electricity, and communications costs than neighboring countries. Lesotho also has a government that remains focused on providing jobs to its citizens, and which has publicly proclaimed its eagerness to work with foreign investors—especially those ready to partner with locals.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perception Index 2021 96 of 180 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2015 118 of 141 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2019 $3 million https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2021 $11,067 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD

 

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

8. Responsible Business Conduct

In Lesotho, responsible business conduct (RBC) is understood as technical business culture which adheres to environmental, social and governance principles that improve the ease of doing business, levels the playing field and manages risk to attract and keep investors. There is a general awareness of 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.

The Government of Lesotho through the LNDC (which is the Government of Lesotho’s Investment Promotion Agency) subscribes and implements globally accepted due diligence standards as prescribed by the OECD as well as UNCTAD. The government through the assistance of UNCTAD reviewed Lesotho Investment Policy of 2003 and has developed the Investment Policy of 2016. Foreign and local enterprises tend to follow generally accepted corporate social responsibility principles such as those contained in OECD Guidelines for Multinational Enterprises and the United Nations’ Guiding Principles on Business and Human Rights.  Firms that pursue CSR are viewed favorably by society, but CSR does not necessarily provide any advantages in dealing with the government.

The country has limited tools to protect human rights, labor rights, consumer rights and the environment. The Labor Court has been established to address labor issues. The Consumer Protection Unit is established under the Ministry of Trade and Industry. However, the offices of this unit are only available in one district. The country is yet to establish Human Rights Commission and the Tribunal on Environment matters.

The Lesotho Companies Act of 2011 provides for standard and adaptable requirements for incorporation, organization, operation, and liquidation of companies to encourage efficient and responsible management of companies to protect shareholders and other key stakeholders. Furthermore, the government has assisted the Lesotho Institute of Directors (IoD) in the development of the Mohlomi Corporate Governance Code sponsored by the African Development Bank (ADB). The code was launched in September 2021. This code will provide universal best practices guidance for good corporate governance for Lesotho.

The IoD promotes and monitors responsible business conduct. The local NGO, the Transformation Resource Centre (TRC), also monitors and advocates for responsible business conduct.

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.

Additional Resources

Department of State

Country Reports on Human Rights Practices;

Trafficking in Persons Report;

Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;

U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;

Xinjiang Supply Chain Business Advisory

Department of the Treasury

OFAC Recent Actions

Department of Labor

Findings on the Worst Forms of Child Labor Report;

List of Goods Produced by Child Labor or Forced Labor;

Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World and;

Comply Chain

Climate Issues

The Government of the Kingdom of Lesotho (GOKL) has a climate Change Strategy. In 2018, the governemnt prepared the Nationally Determined Contribution (NDC) which sets a 35 % reduction target in Green House Gases (GHG) emission by 2030. The private sector is expected to reduce net GHG emissions by 10% by 2030. The GOKL developed its National Climate Change Policy (NCCP) 2017-2027 to preserve biodiversity. Lesotho’s procurement policies do not include environmental or green growth considerations.

9. Corruption

Lesotho’s Directorate on Corruption and Economic Offences (DCEO) is mandated to prevent and to combat corruption.  The country has laws, regulations, and penalties to combat corruption of public officials.  Parliament passed anticorruption legislation in 1999 that provides criminal penalties for official corruption.  The 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.  On June 25, 2020, the parliament passed the amendment on Prevention of Corruption and Economic Offences Act of 2006, which will allow the DCEO to investigate money laundering issues beyond national boundaries. This amendment provides the DCEO with the power to work together with similar institutions from other countries in combating corruption.

The Money Laundering and Proceeds of Crime Act of 2008 (amended in 2017) and Public Financial Management and Accountability Act of 2011 serve as additional anti-corruption laws.  The Prevention of Corruption and Economic Offences Act (section 14 (1)) and Public Procurement Regulations of 2007 have provisions that address conflicts-of-interest in awarding government procurement contracts.  Section 6 (g) (h) (i) of the Prevention of Corruption and Economic Offences Act of 1999 encourages private companies to develop internal controls to prevent corruption.  Corruption is most pervasive in government procurement, awarding licenses, and customs fraud.

While the GOKL has made significant efforts to implement its laws, many officials continue to engage in corruption with impunity.  The DCEO claims it cannot effectively undertake its mission because it lacks adequate resources. The country does not have instruments to protect NGOs investigating corruption. Corruption is pervasive in government procurement, provision of licenses, work permits, and residence permits. The 2020 Afrobarometer survey reflected increasing perceptions of government official corruption from 28% in 2017 to 46% in 2020. The study also showed increasing perception of members of parliament corruption increasing from 22% in 2017 to 45% in 2020.

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.  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 (USD 667) or 10 years imprisonment.  Local companies cannot deduct a bribe to a foreign official from taxes.

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, the Southern African Forum against corruption, the African Peer Review Mechanism (APRM), and the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG).

10. Political and Security Environment

Since 2012, Lesotho has been governed through coalition governments which did not last beyond three years resulting in snap elections.  In April 2020, the National Assembly passed the Ninth Amendment to the Constitution which curtailed the Prime Minister’s power to call snap elections. (Note: The constitution states that elections should be held every five years and the next elections are scheduled for October 2022. End Note.) The impulsion of the main political party in the current coalition has left the National Assembly increasingly polarized, and the political environment is very unpredictable.

On May 14, 2021, textiles factory workers country-wide engaged on a massive violent protest which claimed two lives. They blocked roads and vandalized the buildings to put pressure on the government to publish 2020 and 2021 gazettes. The workers requested wages to be increased by 20 percent while employers offered to provide an increase between 3 and 5 percent. On June 7, the workers ended their three weeks protest following Lesotho Textile Exporter’s Association (LTEA) letter of June 4 to the trade unions which warned workers would be dismissed for participating in an illegal protest. On June 16, the government published a gazette on minimum wage increase reflecting 14 percent increment for the textiles workers and 9 percent for other private sector workers for the 2021/22 financial year. The increment was implemented with effect on July 1.

11. Labor Policies and Practices

Lesotho’s 2019 Labor Force Survey reflected official unemployment rate as 22.5 percent and youth unemployment at 29.1 percent. The report reflected the formal sector represented 41.1 percent of the of the total employment while the informal sector and household sector represented 40.5 percent and 18.4 percent, respectively. Males constituted 52.8 percent of those employed while females constituted 47.2 percent. About 77.3 percent of international migrant workers were females working in elementary occupations. The report reflected most international migrants were from South Africa, followed by Zimbabwe and China.

Lesotho has embarked on its first Critical Skills Assessment survey to determine skills surplus and shortage. The results of the survey will be released in June. The data from the Ministry of Labor and Employment reflected engineers, doctors, and academia represented scarce skills while lawyers, teachers, nurses, and business administrators are considered to be surplus skills.

The IMF estimated the informal economy comprises of 30 percent of the Gross Domestic Product (GDP). Informal sector constitutes companies that are not registered and do not pay taxes. The informal economy is characterized by labor standards deficits. There are no employment contracts or formal relationships. The government has not enforced the formal registration of these businesses.

Collective bargaining is not yet a commonly practiced phenomenon. In the private sector, there are very few trade unions and even where they exist the law does not require that collective bargaining agreements should be registered. The majority of active unions are in the textile and manufacturing sector however, they do not have the capacity to bargain with employers.

To address this shortfall, the Ministry has included legal provisions relating to the establishment of bargaining councils in the Labor Code Draft Bill section 135.

During the reporting period the textiles factory workers and nurses embarked on strikes. Issues of gender-based violence and harassment (GBVH) were reported in one textile factory. The Ministry of Labor together with social partners have decided to ratify the International Labor Organization (ILO) Convention 190 on gender-based violence and harassment as a first step towards ensuring that frameworks are reviewed to adequately address GBV in the workplace.

The International Labor Organization has identified gaps in the following international labor standards:

ILO Freedom of Association and Protection of the Right to Organize Convention No. 87: the ILO requested the Public Service Act to be amended to ensure public officers can establish and join federations and confederations and affiliate with international organizations.

ILO Convention on Minimum Age No. 132 requires member states to set completion of free and compulsory primary education at 15 years in line with the minimum age into employment to close the gap between minimum age of employment and completion of primary education. In Lesotho, the completion of primary education is at 13 years of age.

The Labor Code Order of 1992 and the Constitution of 1993 require hiring of citizens; however, non-citizens can be hired with a work permit. The Labor Code No. 24 of 1992 Section 79 (2) only puts a restriction on employees who have been fairly dismissed for misconduct that they are not entitled to claim for payment of severance upon termination of their contract of employment. Furthermore, the Labor Code (Code of Good Practice) Notice, 2003 provides for fair dismissals and grounds that may warrant for dismissals and layoffs.

In Lesotho there are currently no economic zones; however, the law permits waivers in order to attract investment. The law provides for freedom of association and the right to bargain collectively.

The country has various labor dispute resolution mechanisms in place.  This includes both formal and informal mechanisms.  LNDC is one key institution that deals with labor disputes.  For example, LNDC intervenes in strikes and tries to reconcile workers and employers.  When this informal process fails, the more formal process of the Directorate of Dispute Prevention & Resolution (DDPR) can be engaged which can consist of conciliation and arbitration.  The Labor Code Amendment Act of 2000 established the DDPR, which serves as a semi-autonomous labor tribunal independent of the government, political parties, trade unions, and employers and employer organizations.  The Labor Court and the Labor Court of Appeal are the key judiciary entities dealing with labor disputes. The Labor Court reviews the decisions of the DDPR while the Labor Appeal Court reviews the decisions of the Labor Court.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

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) 2019 $2,486 2020 $1,880 www.worldbank.org/en/country
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2021 $1,430 2020 $3 BEA data available at https://apps.bea.gov/international/
factsheet/
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A N/A N/A BEA data available at https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
Total inbound stock of FDI as % host GDP 2018 32.7 2020 19.9 UNCTAD data available at

https://unctad.org/topic/investment/
world-investment-report
  

* Source for Host Country Data: Central Bank of Lesotho

Table 3: Sources and Destination of FDI

Data not available.

14. Contact for More Information

Erika Lewis
Political & Economic Affairs Chief
254 Kingsway Avenue
Maseru, Lesotho
Tel: +266 2231-2666
Fax: +266 22310116
MaseruCommercial@state.gov

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