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 2020, the government of Lesotho (GOL) undertook many promising initiatives to make doing business in Lesotho easier. That said, during the same period GOL 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. Which trend leads in 2021 will have tremendous impact on Lesotho’s attractiveness as a destination for FDI.
Among the important reforms undertaken in 2020, GOL 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 GOL has announced that to help Lesotho recover from the COVID-19 pandemic, GOL will focus on making Lesotho an attractive destination for FDI.
While GOL 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 business 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 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 of all enterprises have caused real concern. While some foreign entrepreneurs and investors operating in Lesotho dismiss the likelihood of such regulations being enacted, others remain wary. The overall uncertainty has had a chilling effect on FDI as potential investors wait for clarity on the regulatory framework.
Lesotho’s economy and FDI were badly affected by COVID-19 in 2020, with several foreign-owned textile factories closing or cutting back on operations due to the global downtrend in demand. Other challenges include corruption; while not pervasive, corruption is a problem with Transparency International’s Corruption Perceptions Index ranking Lesotho as 83rd out of 180 countries. Despite these challenges, GOL 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.
|TI Corruption Perceptions Index||2020||83 of 175||http://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report||2019||122 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2018||130 of 140||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||2019||N/A||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The Government of Lesotho (GOL) is generally open to FDI and successive governments have tried to attract FDI as a key component of national development. However, recent years have seen increasing critiques in Lesotho’s press and politics of foreign investors who repatriate their profits rather than reinvesting in Lesotho. This has resulted in a series of populist polices and policy proposals intended to protect opportunities for local investors and entrepreneurs, but which may inadvertently dampen Lesotho’s attractiveness as a destination for foreign investment. Lesotho follows World Trade Organization (WTO) laws and regulations, but the law makes some distinctions between local and foreign investors in some industries (see “Limits on Foreign Control and Right to Private Ownership and Establishment”).
Lesotho’s investment promotion agency, the Lesotho National Development Corporation (LNDC), is responsible for the initiation, facilitation, and promotion of Lesotho as an attractive investment destination. LNDC also undertakes investment project appraisals, provides pre-investment and after-care services, risk management, trade and investment research, and strategic planning. It also ensures investors’ compliance with the country’s legal frameworks. Through LNDC, the government actively encourages investment in manufacturing and agriculture sectors. LNDC also implements the country’s industrial development policies.
LNDC provides the support services described above to foreign investors and regularly publishes information on investment opportunities and the services it offers to foreign investors. Furthermore, LNCDC 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. LNDC maintains an ongoing dialogue with foreign and domestic investors by attending annual trade and investment forums both locally and internationally. For more information on LNDC, please visit: http://www.lndc.org.ls .
Limits on Foreign Control and Right to Private Ownership and Establishment
Lesotho is open to foreign investment and there are no economy-wide restrictions applied to foreign ownership and control. However, GOL has passed laws and regulations intended to limit foreign ownership to large scale businesses in complex sectors while reserving small scale businesses in designated sectors exclusively for the indigenous citizens of Lesotho (“Basotho”). The Trading Enterprises Regulations of 2011 (TER 2011) and the Business Licensing and Registration Regulations of 2020 (BLRR 2020) reserve certain businesses for Basotho and limit foreign investors to operating these businesses as minority shareholders with a maximum of 49 percent shareholding. The reserved 47 businesses include acting as an agent of a foreign firm, barber, butcher, snack-bar operator, domestic fuel dealer, dairy shop proprietor, general café or dealer, greengrocer, broker, mini supermarket (floor area < 250m2), and hair and beauty salon. Most businesses affected by these regulations are micro or small enterprises, but some mid-sized foreign owned firms will be affected.
The Business Licensing and Registration Act 2019 (BLRA 2019) requires foreign investors to provide a capital of $123,152 or provide proof of investment of $123,152 during registration or renewal of their traders’ licenses or to have deposited $123,152 with a local institution. However, the Central Bank of Lesotho Act of 2000 stipulates a foreign investment minimum threshold of $250,000. While pleased that the new law indicates a reduction in the minimum sum that they must invest, many foreign investors are concerned that this discrepancy was not clarified in the BLRA 2019 legislation.
BLRA 2019 requires foreign investors to renew their business identification card annually while locals are only required to renew their business identification cards after three years. Some foreign entrepreneurs operating in Lesotho have complained that the process of renewing their business identification cards annually is extremely onerous. BLRA 2019 also requires foreign investors to transfer technology and business expertise to local investors. Many foreign entrepreneurs operating in Lesotho complain that this requirement is poorly articulated and arbitrarily enforced.
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, GOL reserves the right to acquire at least 20-35 percent ownership in any large-scale mine. By law, the Ministry of Trade and Industry is instructed to screen foreign investments in a routine, nondiscriminatory manner to ensure consistency with national interests.
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 ) . The government has not undertaken any third-party investment policy reviews in the past three years.
In 2016, the government launched a “One Stop Business Facilitation Centre” (OBFC), to make it easier to do business and facilitate FDI. OBFC places all services required for the issuance of licenses, permits, and imports and exports clearances under one roof. 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 .
The process of company registration includes: a work permit application with the Ministry of Labor and Employment, a visa application and resident permit with the Ministry of Home Affairs, a trader’s license with the Ministry of Trade and Industry, tax clearance with Lesotho Revenue Authority, a police clearance with the Ministry of Police and Public Safety, and a medical clearance with the Ministry of Health.
In November 2020, the OBFC held a twin launch of e-Regulations and e-Licensing. The e-Regulations provides a clear step by step process to register a business. This also stipulates requirements, costs, time and contact details for registering a business. The e-Licensing allows foreign investors to apply online for obtaining a business license. This initiative has reduced instances of fraud and manipulation. It takes a maximum of 5 days to issue both industrial and traders licenses. For more information on e -licenses, please visit: www.Lesotho.elicenses.org . For more information on e-regulations please visit: http://www.lesotho.eregulations.org .
Lesotho provides incentives to investors who export outside the country. Export manufacturers obtain a full rebate of customs duty paid on their inputs imported to produce for markets outside Southern African Customs Union (SACU). The government does not restrict domestic investors from investing abroad.
The government facilitates quality standard processes and export permits for outward investment. For AGOA exports, the Ministry of Trade and Industry, LNDC, and Lesotho Revenue Authority provide support including on export requirements. Other agencies such as the U.S. Agency for International Development Southern Africa Trade Hub provide capacity to the government for the implementation of AGOA. The government has assigned Lesotho Standards Authority to assist investors who export to the Republic of South Africa (RSA).
3. Legal Regime
Transparency of the Regulatory System
Regulatory enforcement is generally weak and has moderate impact by hindering competition and distorting business and investment practices. The legal, regulatory, and accounting systems are transparent and consistent with international norms. The accounting systems for companies are regulated by the Companies Act of 2011 and Financial Institutions of 2012. International Financial Reporting System (IFRS) is the current financial system used by companies. Rule-making and regulatory mechanisms exist at the local, national, and supra-national levels although the most relevant for foreign investors is the national level. There are no informal regulatory processes managed by the private sector or non-governmental organizations.
There are no private sector or government efforts to restrict foreign participation in consortia or organizations 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/ . The government printing office also publishes government gazettes which can be purchased by the public.
Businesses in Lesotho are regulated by the Companies Act of 2011. 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, as well as the Business Licensing and Registration Act of 2019. 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 most 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 the energy and water sectors. The two authorities set the conditions for entry of new competitive operators. 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.
Under the Financial Institutions Act of 2012 the Central Bank of Lesotho (CBL) regulates financial services.
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. Several 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.
Regulations are developed to enforce the law, to implement objectives of legal frameworks, and to ensure compliance. The following steps are followed when regulations are developed:
The initiating ministry or agency writes a cabinet memo reflecting objectives and benefits of the regulations. The cabinet memo is then widely circulated to relevant stakeholders to reflect how the regulations will impact them and to seek concurrence. The initiating agency then makes a cabinet presentation to seek cabinet approval to draft the regulations. The initiating agency drafts regulations and holds meetings with relevant stakeholders to obtain their input. The initiating ministry or agency holds workshops with relevant stakeholders to validate regulations. Draft regulations are submitted to the Attorney General for certification. A Parliamentary presentation is held and updates to the draft are made. A presentation to the Senate is held and updates of the regulations are made. Parliament tables the regulations, and a provision of royal ascent is made by His Majesty King Letsie III. The regulations are published, and the public is given a period of 14 days to review the regulations after which their comments are incorporated, and the regulations are finalized and gazetted. The last step is to sensitize the public on the new regulations.
Information on debt obligations is publicly available, including online. The government produces an Annual Public Debt Bulletin, which covers debt management operations, debt portfolio, debt service, and loan guarantees. The government also publishes a Medium-Term Debt Strategy paper. More information is available at: www.finance.gov.ls/ .
International Regulatory Considerations
Lesotho is a member of the Southern African Development Community (SADC) and the Southern African Customs Union (SACU). SACU strives to promote integration of Member States into the global economy through enhanced trade and investment. SADC aspires to deepen regional integration and sustainable development. 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 .
In January 2021, the GoL ratified the African Continental Free Trade Area (AfCFTA) agreement. 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. The agreement has been signed by 54 out 55 countries. To date, 35 countries have ratified the agreement. The agreement would provide a market access of over 1 billion people to Lesotho’s products with a combined Gross Domestic Product (GDP) estimated at $3.4 trillion.
Lesotho is a member of the World Trade Organization (WTO). Lesotho’s regulatory systems are independent and not intertwined with regional regulations. In cases where there are gaps with national regulations, the country uses regional regulations to close them. The government does not reference or incorporate U.S. or another country’s regulatory systems. The government strives to provide notification of Technical Barriers to Trade (TBT). More information is located at: 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 precolonial Customary Law. The judicial system is made up of the High Court, the Court of Appeal, subordinate courts, and the Judicial Service Commission (JSC).
There is no trial by jury, instead, judges make rulings alone. There are magistrates’ courts in each of the 10 districts, and more than 70 central and local courts. With U.S. support, a Commercial Court was established in 2010 to improve the country’s capacity in resolving commercial cases though backlogs continue to delay processing times. 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 International 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 have any investment laws. The overarching FDI policy is the 2015 National Investment Policy of Lesotho, produced with the assistance of UNCTAD. 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. The investment treaties also govern conduct toward the entry of foreign investment. In 2020, there were no major cases relating to foreign investment and the 2020 judgments are available at: https://lesotholii.org/courtnames/high-court/2020 .
The OBFC hosts the Lesotho Trade Information Portal, a single online authoritative source of all laws, regulations, and procedures for importing and exporting. The OBFC web site is: http://www.obfc.org.ls/business/default.php . The OBFC portal provides information on company registration and export and import regulations as well as information and links to key laws and 23 ministries.
The government has produced but not yet passed a draft competition bill to improve 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 are 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. These include the Commercial Court, the Ministry of Trade and Industry and the Ministry of Small Business. The government is also in the process of drafting a consumer protection bill.
Expropriation and Compensation
The constitution provides that the acquisition of private property by the state can only occur for specified public purposes. The processes that are followed during expropriation follow the Land Act of 2010. These include consultations between government/authority and claimant, consultation with the chief, demarcation and survey of the area, publishing a gazette for public notification and information and provision of compensation equal to fair market value of the property. In cases of expropriation where claimants allege a lack of due process, the 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.
ICSID Convention and New York Convention
Lesotho is a member of the ICSID Convention and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. There is no specific domestic legislation providing for enforcement of awards under the ICSID Convention.
Investor-State Dispute Settlement
The government is a signatory to a treaty in which binding international arbitration of investment disputes is recognized. Lesotho has no Bilateral Investment Treaty (BIT) with the United States. The government has little history of investment disputes involving U.S. or other foreign investors or contractors in Lesotho.
Foreign investors have full and equal recourse to the Lesotho courts for commercial and labor disputes. Courts are regarded as fair and impartial in cases involving foreign investors. There is no history of extrajudicial action against 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. However, Lesotho does not have a bilateral investment treaty with the United States. The government stands ready to accept and enforce foreign arbitral awards and judgements if they meet the requirements of domestic law (there have been no such awards to date).
The Companies Act is the principal commercial and bankruptcy law in Lesotho. 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, however, if there are any disagreements, the person nominated by the creditors shall be the liquidator. All claims against a bankrupt company shall be proved at a meeting of creditors and equity shareholders. 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. In a bankruptcy, workers are paid first, then creditors, equity shareholders and holders of other financial contracts are paid. Monetary judgments are usually made in the local currency.
4. Industrial Policies
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
Lesotho does not have any free or foreign trade zones. However, labor-intensive textile manufacturing companies that export beyond the SACU market enjoy the benefits of free trade zones since they can import raw materials then export finished products duty and tax free.
The government imposes mandates for local employment with an exception on shareholders and investors.
Requirements for visas and residence permits are not intentionally discriminatory; however, procedures are lengthy and not integrated. 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 technical permits are transparent but 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. The maximum period provided for a work permit is one year. For more information on the requirements for visas, residence permits and work permits, please visit: http://www.obfc.org.ls/business/default.php
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 Rights
The right to private property is protected under the law. Property rights and interests are enforced, and owners of property enjoy protection under the Lesotho Constitution of 1993. 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. Foreign Investors are eligible to hold rights under sublease agreements, which should not exceed duration of parent land leases being 90 years for residential leases, 60 years for commercial leases and 30 years for petroleum products respectively (section 32 of the Land Act).
Secured interests in property, both movable and real, are recognized and enforced under the Land Act of 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.
Land titles (leases) as well as secondary land transactions can be enforced in the Land Courts, Magistrate Courts, and the High Court. For more information, please visit www.laa.org.ls .
Through the support of the U.S. 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. The Land Administration Authority (LAA) has commenced preparations to implement a digital platform whereby, customers would be able to apply for land leases and register deeds online. This new system would help issue leases within three weeks as opposed to a period of over 12 months current turn around. The initiative is expected to improve Lesotho’s position in World Bank’s Ease of Doing Business list, of which, Lesotho is currently ranked 114 out of 190 economies in terms of registering property.
Intellectual Property Rights
Legal structures to protect intellectual property rights (IPR) in Lesotho are relatively strong. Investors complain that enforcement is somewhat weak, but infringements and theft are not common. Lesotho respects international IPR laws and is a member of the World Intellectual Property Organization (WIPO) as well as the African Intellectual Property Organization.
Protection of IPR 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 and Berne Conventions, respectively. The laws protect patents, industrial designs, trademarks, and grants of copyright, but they do not protect trade secrets or semiconductor 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).
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. If enacted, the bills will improve the protection of IPR by addressing cyber-crime and protecting electronic transactions. Lesotho is not included in the United States Trade Representative (USTR) Special 301 Report or the Notorious Markets List.
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/
6. Financial Sector
Capital Markets and Portfolio Investment
Through the Central Bank of Lesotho (CBL), the GOL promotes the development of financial markets in Lesotho. Lesotho’s capital market is relatively underdeveloped, with no secondary market for capital market transactions. The Maseru Securities Market launched in 2016 under the wing of the CBL will soon list the first company on its stock exchange. 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. For the 2020/21 fiscal year, the government financed a fiscal deficit of approximately USD 85.7 million through external borrowing.
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. Foreign participation in government securities is allowed as long as foreign investors can open accounts with local banks through which funds can be collected. Lesotho is part of the Common Monetary Area (CMA). The current account has been fully liberalized for all inward and outward cross-border transactions. However, some transactions still need approval from the Central Bank. A Central Bank Report reflected that Private Sector credit from the banking sector declined by 0.7 percent in February 2020 while a decline of 0.2 percent was registered in January 2020.
Credit is allocated on market terms, and foreign investors are able to get credit on the local market. Interest rates are quite high by global standards. 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. In January 2016, Lesotho’s first credit bureau was launched and has been functional. In July 2020, the parliament passed the Secured Interest in Movable Property Act to allow movable property to be considered as collateral in requesting for credit from commercial banks.
Money and Banking System
Lesotho has a central bank and four commercial banks, including subsidiaries of
South African banks (subject to measures and regulations under the Institutions Act of 2012) and the government-owned Lesotho Post Bank. Commercial banks in Lesotho are well-capitalized, liquid, and compliant with international banking standards; however, interest rates are high by global standards. Three South African banks account for almost 92.5 percent of the country’s banking assets, which totaled over M17.07 billion (USD 1.1 billion) by December 2019. The share of bank nonperforming loans to total gross loans was approximately 3.3 percent in December 2019. 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. The country lost one correspondent banking relationships in the past three years. Currently there are no banking relationships in jeopardy.
Foreign Exchange and Remittances
There are restrictions on converting or transferring funds associated with an investment into a freely usable currency and at a legal market-clearing rate. Funds can only be converted into the world’s widely recognized currencies such as the U.S. dollar, British Pound, and the Euro. Incoming funds can be converted into the local currency if the investor does not have the Customer Foreign Currency (CFC) account. If the investor has a CFC account, such funds can remain foreign in that account without any obligation to convert to Maloti.
According to the CBL, there are no plans to change remittance policies. 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 4.3 months of import cover.
Payments of royalties should seek approval from the Central Bank. Export proceeds should be repatriated into the country within the period of six months (180 days).
Sovereign Wealth Funds
There is no sovereign wealth fund or asset management bureau in Lesotho.
7. State-Owned Enterprises
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 Post Bank, which is mandated to provide Basotho greater access to financial services. The government 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 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.
There is no ongoing privatization program in Lesotho.
8. Responsible Business Conduct
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.
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 in the development of the Mohlomi Corporate Governance Code sponsored by the African Development Bank (ADB). It is envisaged that the code will be launched in April/May 2021. This code will provide universal best practices guidance for good corporate governance for Lesotho.
There are no Non-Governmental Organizations (NGOs) specifically mandated with promoting and monitoring responsible business conduct. However, local NGO, the Transformation Resource Centre (TRC), 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.
Department of State
- Country Reports on Human Rights Practices (https://www.state.gov/reports-bureau-of-democracy-human-rights-and-labor/country-reports-on-human-rights-practices/);
- Trafficking in Persons Report (https://www.state.gov/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 (https://www.state.gov/key-topics-bureau-of-democracy-human-rights-and-labor/due-diligence-guidance/) and;
- North Korea Sanctions & Enforcement Actions Advisory (https://home.treasury.gov/system/files/126/dprk_supplychain_advisory_07232018.pdf).
Department of Labor
- Findings on the Worst forms of Child Labor Report (https://www.dol.gov/agencies/ilab/resources/reports/child-labor/findings );
- List of Goods Produced by Child Labor or Forced Labor (https://www.dol.gov/agencies/ilab/reports/child-labor/list-of-goods);
- Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World (https://www.dol.gov/general/apps/ilab) and;
- Comply Chain (https://www.dol.gov/ilab/complychain/).
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 GOL 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.
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).
Resources to Report Corruption
Contacts at government agency or agencies that are responsible for combating corruption:
P.O. Box 16060, Maseru, 100 Lesotho +266 2231-3713
10. Political and Security Environment
Since 2012, Lesotho has been governed through coalition governments which have not lasted beyond three years. (Note: the constitution states that elections should be held every five years and the next elections are scheduled for September / October 2022.) The nation has been increasingly polarized, and the political environment is very unpredictable.
In August 2018, factory workers staged violent protests demanding a minimum wage increase. Workers blocked roads with stones and other debris, set fires, and broke windows of local businesses. Throughout 2020, informal economy workers staged recurring protests against COVID-19 lockdown measures.
11. Labor Policies and Practices
Lesotho’s 2019 Labor Force Survey reflected official unemployment rate as 22.5 percent and youth unemployment stands at 29.1 percent.
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
|Host Country Statistical source*||USG or international statistical source||USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other|
|Host Country Gross Domestic Product (GDP) ($M USD)||2018||$2,486||2018||$2,576||www.worldbank.org/en/country|
|Foreign Direct Investment||Host Country Statistical source*||USG or international statistical source||USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other|
|U.S. FDI in partner country ($M USD, stock positions)||2016||$ 494||2016||$5||BEA data available at https://apps.bea.gov/international/factsheet/|
|Host country’s FDI in the United States ($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||2018||24.8||UNCTAD data available at|
* Source for Host Country Data: Central Bank of Lesotho
Table 3: Sources and Destination of FDI
Data not available.
Table 4: Sources of Portfolio Investment
Data not available.
14. Contact for More Information
Political & Economic Affairs Chief
254 Kingsway Avenue
Tel: +266 2231-2666
Fax: +266 22310116