Botswana

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The GoB publicly emphasizes the importance of attracting foreign direct investment (FDI).  It is currently drafting an investment facilitation law, as recommended by the 2014 Organisation for Economic Co-operation and Development (OECD) investment review.  UNCTAD is providing technical assistance in support of the legislation.  The GoB has launched initiatives to promote economic activity and foreign investment in specific areas, including the establishment of hubs to promote economic growth in the agriculture, diamond, education, health, and transportation sectors.  Additional investment opportunities in Botswana include large water, electricity, transportation, and telecommunication infrastructure. Economists have also noted Botswana’s considerable potential in the mining, mineral processing, energy, cattle, tourism, and financial services sectors.  The Botswana Trade and Investment Centre (BITC), the GoB’s investment and trade promotion authority, assists foreign investors with projects intended to diversify export revenue, create employment, and transfer skills to Botswana citizens.

Limits on Foreign Control and Right to Private Ownership and Establishment

Botswana’s 2003 Trade Act reserves licenses in 35 sectors for citizens, including butcheries, general trading establishments, gas stations, liquor stores, supermarkets (excluding chain stores), bars (other than those associated with hotels), certain types of restaurants, boutiques, auctioneers, car washes, domestic cleaning services, curio shops, fresh produce vendors, funeral homes, hairdressers, various types of rental/hire services, laundromats, specific types of government construction projects under a certain dollar amount, certain activities related to road and railway construction and maintenance, and certain types of manufacturing activities including the production of furniture for schools, welding, and bricklaying.  The law allows foreigners to participate in these sectors as minority joint venture partners in medium-sized businesses. Foreigners can hold the majority share if they obtain written approval from the trade minister.

The Ministry of Investment, Trade and Industry (MITI), which administers the citizen participation initiative, has taken an expansive interpretation of the term chain stores, so that it encompasses any store with more than one outlet.  This broad interpretation has resulted in the need to apply exemptions to certain supermarkets, simple specialty operations, and general trading stores. These exceptions were generally granted prior to 2015 and many large general merchandise markets, restaurants, and grocery networks are owned by foreigners as a result. Since 2015, the GoB has denied some exception requests, but reports they have approved some based on localization agreements directly negotiated between the ministry and the applying company.  These agreements reportedly include commitments to purchase supplies locally and capacity building for local workers and industry.

Other Investment Policy Reviews

In December of 2014, the OECD released an Investment Policy Review on Botswana. (http://www.oecd-ilibrary.org/finance-and-investment/oecd-investment-policy-reviews-botswana-2014_9789264203365-en  ).

Botswana has been a World Trade Organization (WTO) member since 1995. As a member of the Southern African Customs Union, the WTO last conducted a trade policy review in 2016. (https://www.wto.org/english/tratop_e/tpr_e/tp322_e.htm  )

Business Facilitation

To operate a business in Botswana, one needs to register a company with the GoB’s CIPA.  The registration forms are available online from the MITI website: http://www.mti.gov.bw/display-companies-forms  .  According to CIPA the company registration process takes about 14 days, and it takes approximately 48 days to complete additional required registrations such as tax registrations, opening bank accounts, and obtaining necessary licenses and permits.  The World Bank ranked Botswana 157 out of 190 in the ease of starting a business category. In April 2018, CIPA announced a partnership with a New Zealand company to install a new online registration system, which will reduce the company registration process from 12 days to one.  The system is expected to be launched by July 2019.

BITC (www.bitc.co.bw  ), the GoB’s investment promotion agency, was designed to serve as a one-stop shop to assist investors to set up a business and find a location for operation.  BITC’s ability to streamline procedures varies based on GoB entity and bureaucratic requirements.

BITC’s criteria for support for investment projects is whether the project will diversify the economy away from dependence on diamond mining, and whether it will create jobs for and transfer skills to Batswana citizens.  The BITC also hosts the Botswana Trade Portal (https://www.botswanatradeportal.org.bw  ) designed to ease trade across borders.  It is a single point of contact for all information relating to import and export to and from Botswana and represents a number of ministries and parastatals.

Botswana has a number of incentives and preferences for both citizen-owned and locally based companies.  Foreign-owned companies can benefit from local procurement preferences which are usually required for government tenders.  MITI instituted a program in 2015 to give locally based small companies a 15 percent preferential price margin in GOB procurement, with mid-sized companies receiving a 10 percent margin, and large companies a 5 percent margin.  Under this policy, MITI defines small companies as having less than five million pula in annual revenue reflected in their financial statements, medium companies with 5,000,001 to 19,999,999 pula in revenue, and large companies with 20 million pula or more. The directive applies to 27 categories of goods and services ranging from textiles, chemicals, and food, in addition to a broad range of consultancy services.

For Companies Act registration purposes, enterprises are classified as follows: Micro Enterprises —less than six employees including owner and annual turnover of up to 60,000 pula; Small Enterprises — less than 25 employees and annual revenue between 60,000 and 1,500,000 pula; Medium Enterprises — less than 100 employees and an annual revenue between 1,500,000 and 5,000,000 pula; Large Enterprises —more than 100 employees and an annual revenue of 5,000,000 pula or more.  This classification system permits foreigner participation as minority shareholders in medium-sized enterprises in the 35 business sectors reserved for citizens.

Outward Investment

The GOB neither promotes nor restricts outward investment.

3. Legal Regime

Transparency of the Regulatory System

Bureaucratic procedures necessary to start and maintain a business tend to be open, though slow, and regulatory procedures can be cumbersome to navigate.  However, in 2018, Botswana launched a Regulatory Impact Assessment Strategy that will work at improving the regulatory environment and ensuring that legislation is necessary and cost effective, reduce administrative burdens imposed by the regulatory environment to businesses, improve transparency, consultation, and government accountability.  Foreign investor complaints generally focus on the inefficiency and/or unresponsiveness of mid- and low-level government bureaucrats. The GoB has introduced a Performance Management System to improve the service and accountability of its employees. Unfair business practices or conduct can be reported to the Competition Authority, which seeks to level the playing field for all business operators and foster a conducive environment for business.  Bills in Botswana, including investment laws, go through a public consultation process and are available for public comment. Bills are also debated in Parliament whose sessions are open to the public.

The Companies Act of 2004 requires all companies registered in Botswana to prepare annual financial statements on the basis of generally accepted accounting principles.  It further requires every public company, including non-exempt private companies, to prepare their Financial Statement in accordance with the International Financial Reporting Standards.

The Public Procurement and Asset Disposal Board (PPADB) oversees all government tenders. Prospective government contractors are required to register with the PPADB.  The PPADB maintains a process by which tender decisions can be challenged; bidders can also challenge a tender procedure in the courts. The PPADB publishes its decisions concerning awarded tenders, prequalification lists, and newly registered contractors.

The PPADB Act calls for preferential procurement of citizen-owned contractors for works, service and supplies, as well as specific, disadvantaged women’s communities, though it states that such preferences must be time-bound, phased in and out as necessary, and consistent with the country’s external obligations and its “market-oriented, macroeconomic framework.”  When a procuring entity wishes to reserve a tender for citizen-only participation, it is required to publish a notice to that effect either in the bid document or the pre-qualification notice.

Health and safety laws, embodied in the Factories Act of 1973, provide basic protection for workers from unsafe working conditions.  Minimum working conditions required on work premises include cleanliness of the premises, adequate ventilation and sanitation, sufficient lighting and the provision of safety precautions.  Health inspectors and the Botswana Bureau of Standards carry out periodic checks at both new and operating factories.

International Regulatory Considerations

Botswana is a member of SACU and SADC.  Neither has authority over member state national regulatory systems.  Botswana is a member of the World Trade Organization (WTO) and notifies all draft technical regulations to the WTO’s Technical Barriers to Trade (TBT) Committee on Technical Barriers to Trade.

Legal System and Judicial Independence

The Constitution provides for an independent judiciary system.  Botswana’s legal system is based on Roman-Dutch law as influenced by English common law. This type of system cohabits with legislation, judicial decisions, and local customary law.  The courts enforce commercial contracts, and the judicial system is widely regarded as being fair. Both foreign and domestic investors have equal access to the judicial system. Botswana does not have a dedicated commercial court.  The Industrial Court, set up by the Trade Dispute Act of 2004, primarily addresses labor matters.

The GoB is planning to create a corps of commercially specialized judges within the civil court system.  Under the new system, commercial cases will be overseen by these commercial judges in order to expedite handling and ensure relevant expertise.  The country already has a specialized anti-corruption court that handles all corruption cases.

Some U.S. litigants have reported that the time to obtain and enforce a judgment in a commercial dispute is unreasonably long.  The turnaround time for civil cases is approximately two years. In an effort to create more efficient adjudications, the GoB has established land tribunal, industrial, small claims, and corruption courts.  During the past several years, some dockets have improved, but progress has been uneven.

Local laws are accessible through the Botswana Attorney General’s Office website (www.laws.gov.bw  ).  It can take up to 24 months for a law, once passed, to appear on the website.

Laws and Regulations on Foreign Direct Investment

Under Botswana’s Company Act, foreigners who wish to operate a business are required to register as well as obtain the relevant licenses and permits as prescribed by the Trade Act of 2008.

Licenses are required for a wide spectrum of businesses, including banking, non-bank financial services, transportation, medical services, mining, energy provision, and alcohol sales.  Although amendments to the Trade Act have eliminated the catchall miscellaneous business license category, investors have reported on local authorities insisting a business apply for a license even when it does not fall within the established categories.  In addition, some businesses have observed the enforcement of licenses, as well as the time taken for inspections to comply with licensing requirements, varies widely across local government authorities.

Competition and Anti-Trust Laws

Botswana has developed anti-trust legislation and policies to ensure appropriate competition in the business environment.  Under the Competition Act, the Competition Authority is now monitoring mergers and acquisitions. During the year 2016/2017 the Authority dealt with a number of cases to address the non-competitive business conduct and these included bid rigging cases.  The Competition Authority is empowered to reject mergers deemed not to be in the public best interest. It has interpreted this ability to mean that it can prohibit mergers that result in the concentration of a majority of shares in the hands of foreign investors.

Expropriation and Compensation

Section 8 of the country’s Constitution prohibits the nationalization of private property.  The GoB has never pursued a policy of forced nationalization and is highly unlikely to adopt one.  The Acquisition of Property Act provides a process for any expropriation, including parameters to determine market value and receive compensation.  The 2007 Amendment to the Electricity Supply Act allows the GoB to revoke an Independent Power Producer’s license and confiscate the operations, with compensation, for public interest purposes.

Dispute Settlement

ICSID Convention and New York Convention

It has ratified the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).  It is also a member state to the International Centre for the Settlement of Investment Disputes (ICSID convention), and the Multilateral Investment Guarantee Agency (MIGA).

Investor-State Dispute Settlement

There are no known investment disputes involving U.S. persons.  Botswana accepts international arbitration to settle investment disputes.  Judgments by foreign courts recognized by the GoB are enforceable under the local courts where the appropriate bilateral agreements between the countries exist.

International Commercial Arbitration and Foreign Courts

There are no known complaints about transparency or discrimination by local courts in Botswana.

Bankruptcy Regulations

Botswana’s commercial and bankruptcy laws are comprehensive.  Secured and unsecured creditors enjoy similar rights under bankruptcy proceedings to those they would enjoy in the United States.

4. Industrial Policies

Investment Incentives

Botswana has several mechanisms in place to attract foreign direct investment (FDI).  The BITC assists local and foreign investors. BITC is responsible for promoting FDI, investor aftercare, and the promotion of locally manufactured goods in export markets.  It assists investors with company registration, land acquisition, factory shells, utility connections, and work and residence permits for essential staff. Investors’ requests for support from BITC and other agencies are evaluated based on the extent to which the proposed project assists in the GoB’s diversification efforts, contributes to the growth of priority sectors, and provides employment and training to Botswana citizens.  The GoB also makes grants available to investors who partner with citizens and will extend credit to investors presenting proposals that have undergone appropriate due diligence and that have completed a feasibility study. Foreign investors are encouraged to transfer technology to Botswana and skills to Botswana citizens with a view to preparing them for promotion into management positions.

Botswana offers a relatively low tax rate of 22 percent on corporate taxable income and 7.5 percent withholding tax on all dividends distributed.  MITI can grant manufacturing companies the reduced level of 15 percent taxable income. Companies can pay the reduced rate of 15 percent of profit with accreditation from the Innovation Hub or the International Financial Services Centre on approved operations.

The Minister of Finance and Economic Development has the authority to issue development approval orders which are used for specific projects, which include providing tax holiday and education and training grants.  The Minister must be satisfied that the proposed project will be beneficial to Botswana’s economy. Any firm, local or foreign, may apply for a Development Approval Order through the Permanent Secretary at the finance ministry.  Applications are evaluated against the following criteria: job creation for Botswana citizens; the company’s training plans for Botswana citizens; the company’s plans to localize non-citizen positions; Botswana citizen participation in company management; amount of equity held by Botswana citizens in the company; the location of the proposed investment; the project’s effect on the stimulation of other economic activities; and the project’s effect on reducing local consumer prices.  MITI also offers rebates on imported materials for manufactures that produce products for export.

In 2017, Parliament approved and implemented a special incentive package for Selebi-Phikwe geared to promote economic growth and diversification.  Some of the incentives include reduced corporate tax of 5 percent for the first five years and 10 percent thereafter (versus the 22 percent national tax rate), zero customs duty on imported raw materials, rebates for customs duty and value-added tax for any exports outside the SACU, and a minimum of 50 years on land leases (instead of the standard lease of 25 years).

Foreign Trade Zones/Free Ports/Trade Facilitation

Parliament established a new parastatal organization, the Special Economic Zones Authority (SEZA), with the mandate to develop and operate special economic zones around the country.  It has earmarked five geographic areas with a total of eight zones though they are not yet fully operational. In 2015, Parliament approved a Special Economic Zones (SEZ) law to streamline investment in sector-targeted geographic areas in the country including two Gaborone area SEZs (multi-use, diamond processing, and financial services); two Selebi-Phikwe SEZs (mineral processing and horticulture); and additional SEZs in Lobatse (beef, leather, biogas); Palapye (energy); Pandamatenga (agriculture); and Francistown (mining and logistics).  The Special Economic Zones Act is available for sale in hard copy at the GoB bookshop. SEZA has prioritized four SEZs—Lobatse (leather park), Gaborone Fairgrounds (Financial Services), Gaborone Sir Seretse Khama Airport (Diamond and Logistics) and Pandamatenga (Agriculture)—and is actively recruiting investors, private developers, and manufacturers. The Botswana Unified Revenue Services has also introduced an electronic Customs Management System to replace the Automated System for Customs Data. This will pave the way for the National Single Window, an electronic trade platform that makes trading more secure and efficient.

Performance and Data Localization Requirements

Performance requirements are not imposed as a condition for establishing, maintaining, or expanding an investment in Botswana.  Foreign investors are encouraged, but not compelled, to establish joint ventures with citizens or citizen-owned companies.

Foreign investors wishing to invest in Botswana are required to register the company in accordance with the Companies Act and comply with other applicable legislation.  Investors are encouraged, but not required, to purchase from local sources. The GoB does not require investors to locate in specific geographical areas, use a specific percentage of local content, permit local equity in projects, manufacture substitutes for imports, meet export requirements or targets, or use national sources of financing for private-sector investments.  However, GoB entities, including BITC, use the criteria of diversifying the economy, creating employment, and transferring skills to Botswana citizens in determining whether to assist foreign investors.

As a matter of policy, the GoB encourages foreign firms to hire qualified Botswana nationals rather than expatriates.  The granting of work permits for foreign workers may be made contingent upon establishment of demonstrable localization efforts.  The government may additionally require evidence that a local is being trained to assume duties currently being fulfilled by foreign worker, specially focused at the middle-management level.  The GOB offers incentives to companies that train local employees, including the deduction of 200 percent of training expenses when an accredited institution conducts the training.

Foreign and local business managers noted increasing difficulty obtaining work permits for foreign skilled workers and managers over the last decade.  Permits for foreign workers decreased from 20,000 to about 5,000 during that time. Business leaders cite difficulty securing work permits combined with local skills deficits and constrained labor productivity as one of the foremost business constraints in Botswana.  In March 2019, GoB reports suggest permits for foreign workers has increased to over 8,000 with approval rates in excess of 90 percent. Select grants are available to foreign investors who partner with Botswana citizens. The Citizen Entrepreneurial Development Agency has established a venture capital fund to provide equity to citizens and ventures between citizens and foreign investors.  The majority of GoB loans and grants are designed specifically for citizen-owned contracting firms or for small enterprises and are therefore not available to foreign investors.

The GoB, the largest procuring entity in the country, has directed central government, local authorities and state-owned enterprises to purchase all products and services from locally based manufacturers and service providers if the goods and services are locally available, competitively priced, and meet tender specifications in terms of quality standards as certified or recognized by the Botswana Bureau of Standards.  Local preferences arise from numerous sources. In 2015, MITI instituted a program to give locally based small companies a 15 percent preferential price margin in GoB procurement, with mid-sized companies receiving a 10 percent margin, and large companies a 5 percent margin. The directive applies to 27 categories of goods and services ranging from textiles, chemicals, and food, in addition to a broad range consultancy services.  In 2014, the GoB and the Chamber of Mines created a committee to oversee the purchasing of mining supplies with a 10 percent preference towards those produced locally. The 2012 Citizen Economic Empowerment Policy also emphasized the preference for local companies and the GoB’s Public Procurement and Asset Disposal Board (PPADB) registers citizen-owned companies for preference purposes.

For a foreign firm to qualify with the Department of Industrial Affairs as a locally based manufacturer or service provider to sell goods or services to the government of Botswana, the firm first must be registered with the Registrar of Companies and possess a relevant license or waiver letter.  Few of these procedures can be completed online and in practice companies see the need to hire an agent on the ground to handle registrations. Tenders are generally designed based on the products available in the local market and with locally-based companies in mind. In addition, many tenders require local registration as a prerequisite for bids and the GoB frequently breaks up large-scale projects into a series of tenders.  All of these factors make it difficult to compete for tenders from outside Botswana.

5. Protection of Property Rights

Real Property

Property rights are enforced in Botswana.  The World Bank ranks Botswana 80 out of 190 in the Registering Property category.  There are three main categories of land in Botswana: freehold, state land, and tribal land.  Tribal and state land cannot be sold to foreigners. There are no restrictions on the sale of freehold land, but only about 5 percent of land in Botswana is freehold.  In the capital city of Gaborone, the number of freehold plots is limited.

State land represents about 25 percent of land in Botswana.  On application to the Department of Lands, both foreign-owned and local enterprises registered in Botswana may lease state land for industrial or residential use.  Commercial use leases are for 50 years and residential leases are for 99 years. Waiting periods tend to be long for leasehold applications, but subleases from current leaseholders are available.  In 2014, the GoB changed its implementing regulation to allow companies with less than five employees to operate in residential areas if their operations do not pose a health or safety risk to residents.

Tribal land represents 70 percent of land in Botswana.  To obtain a lease for tribal land, the investor must approach the relevant local Land Board.  Processes are unlikely to be streamlined or consistent across Land Boards.

Since independence, the trend in Botswana has been to increase the area of tribal land at the expense of both state and freehold land.  Landlord-tenant law in Botswana tends to be moderately pro-landlord.

In addition to helping investors who meet its criteria obtain appropriate land leaseholds, BITC has also built factory units for lease to industrialists with the option to purchase at market value.

Intellectual Property Rights

Botswana’s legal intellectual property rights (IPR) structure is adequate, although some improvements are needed.  The key challenge facing the GoB is effective implementation. The Companies and Intellectual Property Authority (CIPA) was established in 2014 and is comprised of three offices: the Companies and Business Office, the Industrial Property Office, and the Copyright Office.  Intellectual property is registered through CIPA. The priorities of this Authority are to strengthen and implement Botswana’s IPR regime and improve interagency cooperation. IPR infringement does occur in Botswana, primarily through the sale of counterfeit items in low-end sales outlets.  In 2017, CIPA cooperated with the Botswana Police to seize 12,923 counterfeit CDs and DVDs valued over USD 107,000.00. The U.S. government continues to work with the GoB to modernize and improve enforcement of IPR.

IPR is protected under the Industrial Property Act of 2010, which provides protections on patents, trademarks, utility designs, handicrafts, traditional knowledge and geographic indicators.  The 2000 Copyright and Neighboring Rights Act also protects art and literary works and the 1975 Registration of Business Names Act oversees corporate name and registration procedures. Other IPR-related Laws include the Competition Act, the Value Added Tax Act, the Botswana Penal Code, the Customs and Excise Duty Act, the Monuments and Relics Act, the Broadcasting Act, and the Societies Act.

Botswana is a signatory to the Beijing Treaty on Audiovisual Performances, the Hague Agreement Concerning the International Deposit of Industrial Designs, the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks, the Convention establishing the World Intellectual Property Organization (WIPO), the WIPO Copyright Treaty, the WIPO Performances and Phonograms Treaty, the Patent Cooperation Treaty, the Berne Convention for the Protection of Literary and Artistic Works, and the Paris Convention for the Protection of Industrial Property.  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

Goitseone Montsho
Economic/Commercial Specialist
MontshoG@state.gov
+267 373-2431

Local lawyers’ list: https://bw.usembassy.gov/u-s-citizen-services/local-resources-of-u-s-citizens/attorneys/

6. Financial Sector

Capital Markets and Portfolio Investment

The government encourages foreign portfolio investment, although there are limits on foreign ownership in certain sectors.  It also embraces the establishment of new and diverse financial institutions to support increased foreign and domestic investment and to fill existing gaps where finance is not commercially available.  There are nine commercial banks, one merchant bank and one offshore bank, two statutory deposit-taking institution and one credit union operating in Botswana. All have corresponding relationships with U.S. banks.  Additional financial institutions include various pension funds, insurance companies, microfinance institutions, stock brokerage companies, asset management companies, statutory finance institutions, collective investment undertakings, and statutory funds.  Historically, commercial banks have accounted for 92 percent of total deposits and 98 percent of total loans in Botswana. A large portion of the population does not participate in the formal banking sector.

Money and Banking System

The central bank, the Bank of Botswana, acts as banker and financial advisor to the GoB and is responsible for the management of the country’s foreign exchange reserves, the administration of monetary and exchange rate policies, and the regulation and supervision of financial institutions in the country.  Monetary policy in Botswana is widely regarded as prudent, and the GoB has successfully managed to maintain a sensible exchange rate and a stable inflation rate, generally within the target of 3 to 6 percent.

Banks may lend to non-resident controlled companies without seeking approval from the Bank of Botswana.  Foreign investors usually enjoy better access to credit than local firms do. In July 2014, USAID’s Development Credit Authority, in collaboration with the Barclays Bank of Botswana, implemented a program to allow small and medium-sized enterprises (SME) to access up to USD 15 million in loans in an effort to diversify the economy.

As of the end of 2017, there were 24 companies on the Domestic Board and 11 companies on the Foreign Equities Board of the Botswana Stock Exchange (BSE).  In addition, there are 43 listed bonds and four exchange traded funds listed on the exchange. The total market capitalization for listed companies as at 2018 was USD 41.32 billion though one company constitutes the majority of that figure, Anglo-American Plc, which has a market capitalization of some USD 34.43 billion. The BSE is still highly illiquid compared to larger African markets and is dominated by mining companies which adds to index volatility.  Laws prohibiting insider trading and securities fraud are clearly stipulated under section 35 – 37 of the Securities Act, 2014 and charges for contravening these laws are listed under section 54 of the same Act.

The government has legitimized offshore capital investments and allows foreign investors, individuals and corporate bodies, and companies incorporated in Botswana to open foreign currency accounts in specified currencies.  The designated currencies are U.S. dollar, pound sterling, euro, and the South African rand. There are no known practices by private firms to restrict foreign investment participation or control in domestic enterprises. Private firms are not permitted to adopt articles of incorporation or association which limit or prohibit foreign investment, participation, or control.

In general, Botswana exercises careful control over credit expansion, the pula exchange rate, interest rates, and foreign and domestic borrowing.  Banking legislation is largely in line with industry norms for regulation, supervision, and payments. However, the country failed to meet compliance requirements of the Financial Action Task Force (FATF) resulting in a grey listing in October 2018.  Botswana is currently implementing an action plan to remedy the situation. The Non-Bank Financial Institutions Regulatory Authority (NBFIRA) was established in 2008 and provides regulatory oversight for the non-banking sector. It extends know-your-customer practices to non-banking financial institutions to help deter money laundering and terrorist financing.  NBFIRA is also responsible for regulating the International Financial Services Centre, a hub charged with promoting the financial services industry in Botswana.

Foreign Exchange and Remittances

There are no foreign exchange controls in Botswana or restrictions on capital outflows through financial institutions.  Commercial banks are required to ensure customers complete basic forms indicating name, address, purpose and other details prior to processing funds transfer requests or loan applications.  The finance ministry monitors data collected on the forms for statistical information on capital flows, but the form does not require government approval prior to the processing of a transaction and does not delay capital transfers.

To encourage portfolio investment, develop domestic capital markets, and diversify investment instruments, non-residents are able to trade in and issue Botswana pula-denominated bonds with maturity periods of more than one year, provided such instruments are listed on the Botswana Stock Exchange (BSE).  Only Botswana citizens can purchase Botswana’s Letlole Saving Certificate (equivalent to a U.S. Treasury bond). Foreigners can hold shares in BSE-listed Botswana companies.

Travelers are not restricted to the amount of currency they may carry, but they are required to declare to customs at the port of departure any cash amount in excess of 10,000 pula (~USD 950.00).  There are no quantitative limits on foreign currency access for current account transactions.

Bank accounts denominated in foreign currency are allowed in Botswana.  Commercial banks offer accounts denominated in U.S. Dollars, British Pounds, Euros and South African Rand.  Businesses and other bodies incorporated or registered domestically may open accounts without prior approval from the Bank of Botswana.  The GoB also permits the issuance of foreign currency denominated loans.

Upon disinvestment by a non-resident, the non-resident is allowed immediate repatriation of all proceeds including profits, rents, and fees.

The Botswana pula has a crawling peg exchange rate and is tied to a basket of currencies comprised of the South African rand, whose weighting was adjusted from 50 percent to 45 percent in January 2017, with the IMF’s Special Drawing Rights (consisting of the U.S. dollar, the Euro, British pound, Japanese yen, and Chinese renminbi) comprising the remaining 55 percent.  The GoB also reduced the upward rate of crawl from 0.38 percent to 0.26 percent. Under the regular five-year review of the composition of the SDR, the IMF added the Chinese renminbi to the pool. Movements of the South African rand against the U.S. dollar heavily influence the pula. There is no difficulty in obtaining foreign exchange. Shortages of foreign exchange that would lead banks to block transactions are highly unlikely.

Remittance Policies

There are no restrictions or limitations placed on foreign investors in converting, transferring, or repatriating funds associated with an investment.

Sovereign Wealth Funds

The Bank of Botswana maintains a long-term sovereign wealth fund, known as the Pula Fund, in addition to a regular foreign reserve account providing basic import cover. The Pula Fund, with an estimated value of some USD 5.06 billion as at 2016, was established under the Bank of Botswana Act and forms part of the country’s foreign exchange reserves, which are primarily funded by diamond revenues.  The Pula Fund is wholly invested in foreign currency-denominated assets and is managed by the Bank of Botswana Board with input from recognized international financial management and investment firms. All realized market and currency gains or losses are reported in the Bank of Botswana’s income statement. Botswana is among the founding members of the International Forum of Sovereign Wealth Fund and was one of the architects of the Santiago Principles in 2008.  More information is available at http://www.bankofbotswana.bw/assets/uploaded/BOTSWANA percent20PULA percent20FUND percent20- percent20SANTIAGO percent20PRINCIPLES percent20(2).pdf 

7. State-Owned Enterprises

State-owned enterprises (SOEs), known as “parastatals,” are majority or 100 percent owned by the GoB.  There is a published list of SOEs at the GoB portal (www.gov.bw  ) with profiles of financial and development SOEs. Some SOEs are state-sanctioned monopolies, including the Botswana Meat Commission, the Water Utilities Corporation, Botswana Railways, and the Botswana Power Corporation.

The same business registration and licensing laws govern private and government-owned enterprises.  No law or regulation prohibits or restricts private enterprises from competing with SOEs. Botswana law requires SOEs to publish annual reports, and private sector accountants or the Auditor General audits SOEs depending on how they are constituted.  GoB ministries together with their respective SOEs are compelled on an annual basis to appear before Parliamentary Public Accounts committee to provide reports and answer questions regarding their performance. Some SOEs are not performing well and have been embroiled in scandals involving alleged fraud and mismanagement.

Botswana is not party to the Government Procurement Agreement within the framework of the WTO.

Privatization Program

The GOB has committed to privatization on paper.  It established a task force in 1997 to privatize all of its state-owned companies and formed a Public Enterprises Evaluation and Privatization Agency (PEEPA) to oversee this process.  Implementation of its privatization commitments has been limited to the January 2016 sale offer of 49 percent of the stock of the state-owned Botswana Telecommunications Corporation to Botswana citizens only.  In February 2017, the GOB issued an Expressions of Interest for the privatization of its national airline, but progress stopped due to the decision to re-fleet the airline before privatization. Conversely, the GoB has created new SOEs such as the Okavango Diamond Company, the Mineral Development Company, and Botswana Oil Limited in recent years.

9. Corruption

Botswana has a reputation for a relative lack of corruption and a willingness to prosecute corrupt officials.  Transparency International ranks Botswana as the least corrupt country in Africa (34th worldwide). Investors with experience in other developing nations describe the relative lack of obstruction or interference by law enforcement or other government agents as among the country’s most important assets.  Nevertheless, private sector representatives note rising corruption levels in government tender procurements.

The major corruption investigation body is the Directorate on Corruption and Economic Crimes (DCEC).  Anecdotal reports on the DCEC’s effectiveness vary. The DCEC has embarked on an education campaign to raise public awareness about the cost of corruption and is also working with GoB departments to reform their accountability procedures.  Corruption is punishable by a prison term of up to 10 years, a fine of USD 50,000, or both. The GoB has prosecuted high-level officials. Corruption allegations have surfaced recently around pension fund management and government procurement procedures.

The 2000 Proceeds of Serious Crime Act expanded the DCEC’s mandate to include combatting money laundering.  The 2009 Financial Intelligence Act provides a comprehensive legal framework to address money laundering and establishes a financial intelligence agency (FIA).  The FIA, which operates under the Ministry of Finance and Development Planning, cooperates with various institutions, such as Directorate of Public Prosecutions, Botswana Police Service, Bank of Botswana, the Non-Banking Financial Institutions Regulatory Authority, the DCEC, and foreign FIAs to uncover and investigate suspicious financial transactions.  Botswana is a member of the Eastern and Southern Anti-Money Laundering Group, a regional standards-setting body for ensuring appropriate laws, policies and practices to fight money laundering and the financing of terrorism. In October 2018, Botswana was “gray-listed” by the Financial Action Task Force and is currently implementing an action plan to address shortcomings that led to the listing.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Botswana is not a party to the OECD Anti-bribery Convention but is a party to the 2005 UN Anti-corruption Convention.

Resources to Report Corruption

Contacts for agencies responsible for combating corruption:

Name: Brigadier Joseph Mathambo
Tittle: Director General
Organization: Directorate on Corruption and Economic Crime
Address: Madirelo Extension 6, Gaborone, Botswana
Telephone Number: +267 3914002/+267 3604200
Email: dcec@gov.bw

Name: Mr. Elijah Motshidi
Tittle: Executive Director (Acting)
Organization: Public Procurement & Asset Disposal Board
Address: Private Bag 0058, Gaborone, Botswana
Telephone Number: +267 3602000
Email: webmaster@ppadb.co.bwName: Mr. Abraham Sethibe

Tittle: Director
Organization: Financial Intelligence Agency
Address: Private Bag 0190, Gaborone, Botswana
Telephone Number: +267 3998400
Email: asethibe@gov.bw

One can also reach out to the Minister of the relevant Ministry for a particular tender and provide a copy of the complaint to the Public Procurement & Asset Disposal Board (PPADB) Executive Director.

12. OPIC and Other Investment Insurance Programs

The Overseas Private Investment Corporation (OPIC) makes insurance available for projects in Botswana.  In June 2016, it signed a USD 125 million loan guarantee with Barclays Bank Botswana which represents the first tranche of the approved USD 250 million guarantee facility for the diamond industry.  The second tranche of this facility it announced in 2018 will be utilized through the Stanbic Bank Botswana. Other OPIC programs in Botswana are in place to support lending to SMEs.

Botswana is a member of the Multilateral Investment Guarantee Agency (MIGA), which offers investors protection against inconvertibility, or transfer of currency, expropriation, breach of contract, and war and civil disturbance.

The Botswana Export Credit Insurance and Guarantee Ltd. allows investors to purchase coverage against certain events and losses such as the insolvency and inability of buyers to pay for purchases, unanticipated import restrictions, or the blockage by the buyer’s country of foreign exchange transfer.

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) 2017 $17,380 2017 $17,410 www.worldbank.org/en/country   
Foreign Direct Investment Host Country Statistical Source USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2015 $32 2015 $19 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data  
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2016 $-1 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data  
Total inbound stock of FDI as % host GDP N/A N/A 2017 35.8% UNCTAD data available at https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx  


Table 3: Sources and Destination of FDI

According to the Bank of Botswana, investment in Botswana totaled 84.75 billion pula in 2016, of which 31 billion pula were non-FDI investments.  Africa (33.3 percent) and Europe (64.4 percent) accounted for most of the 54 billion pula influx of FDI. Within these regions, South Africa and United Kingdom were the predominant players, accounting for 9.7 and 32.5 billion pula respectively.  Little data on FDI sources is available for countries and regions with limited investments in Botswana. Retail and Wholesale Trade surpassed the mining sector in 2016 to account for 38.9 percent of Foreign Investment inflows.

Direct Investment From/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward $5.05 100% N/A N/A N/A
Africa $1.69 33.5% N/A N/A N/A
Europe $3.25 64.3% N/A N/A N/A
Asia Pacific $0.09 1.8% N/A N/A N/A
North & Central America $0.02 0.4% N/A N/A N/A
Other $0 0% N/A N/A N/A
“0” reflects amounts rounded to +/- USD 500,000.


Table 4: Sources of Portfolio Investment

IMF Coordinated Direct Investment Survey data are not available for Botswana.  Equity securities represent 82 percent of Botswana’s portfolio investment assets abroad.  Information about country destination of these portfolio investments is not available.

Lesotho

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Toward Foreign Direct Investment

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

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

Lesotho follows World Trade Organization (WTO) laws and regulations.  The government does not discriminate against foreign investors.  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 expresses commitment 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.

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 the following sectors: chemicals, petrochemicals, plastics and composites, energy and mining, environmental technologies, health technologies, textiles and 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.  LNDC maintains an ongoing dialogue with investors by attending annual trade and investment forums both locally and internationally. 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.    Despite the Trading Enterprises Regulations 2011, there appear to be a significant number of foreign-owned shops in reserved industries.  The Central Bank of Lesotho Act of 2000 stipulates a foreign investment minimum threshold of USD 250,000. 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).

Other Investment Policy Review

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.

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 3 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 2019 World Bank Doing Business report notes the country has begun initiatives to improve the business environment, particularly with cross-border trade, access to credit, contract enforcement, property transfers, and strengthening investor protections.  However, businesses still face issues with construction permits and obtaining electricity. The OBFC web site is http://www.obfc.org.ls/business/default.php  .  The website can be used by foreign investors to register their businesses from outside Lesotho.

The process of company registration includes: work permit application with the Ministry of Labor and Employment, visa application and resident permit with the Ministry of Home Affairs, trader’s license with the Ministry of Trade and Industry, tax clearance with Lesotho Revenue Authority, police clearance with the Ministry of Police and Public Safety, and medical clearance with the Ministry of Health.

In 2015, Lesotho established a platform to facilitate 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 cooperations/associations, access finance, link them with relevant service providers, and negotiate tax incentives on their behalf. The Ministry of Finance, together with the United Nations Development Program (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.  The government facilitates quality standard processes and export permits for outward investment.  For AGOA exports, the Ministry of Trade and Industry, LNDC, and LRA 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 Standard Authority to provide assistance to investors who export to the Republic of South Africa (RSA).

3. Legal Regime

Transparency of the Regulatory System

Business regulations in Lesotho are on the whole reasonable, but variable—modern and flexible in some areas and outdated and retrogressive in others—due to the government’s piecemeal approach to reform.  For example, the regulatory framework for utilities and the financial sector is modern, but mining regulation and the industrial and trading licensing system need improvements. The regulatory environment is generally weak, but has minimum impact in hindering competition or 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 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/  .  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, 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; 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 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.

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 of agency or agency holds workshops with relevant stakeholders to validate regulations. Draft regulations are submitted to Attorney General for certification. A Parliament presentation and updates of the draft are made.  A presentation to the Senate and updates of the regulations are made. Parliament tables the regulations and a provision of royal ascent is made by the King, His Majesty 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).  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 12 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 (WTO) and there is a new National Notification Authority within the Department of Trade that is charged with notifying the WTO Committee on Technical Barriers to Trade of all draft technical regulations.  The Notification Authority is not yet operational; its launch was planned for the 2017/18 fiscal year, but is still 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. 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 other 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 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 head of state on the advice of the prime minister, and a number of junior 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 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 though backlogs can 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 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’s overarching FDI policy is the 2015 National Investment Policy of Lesotho, produced with the assistance of UNCTAD.  FDI policy instruments also 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 toward the entry of foreign investment. In 2018, there were no major cases relating to foreign investment. 2018 judgments are available at https://lesotholii.org/courtnames/high-court/2018  .  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 it is being reintroduced by the new government.  The bill is awaiting approval by the Attorney General. Since the bill is still pending, there 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. The government is also 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.  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.  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.  However, in the last two years, 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 has 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) 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.  The government has also publicly alleged hospitality companies, communication companies, and mining companies have failed to declare profits and dividends, but no legal action has been taken. Local courts recognize and enforce foreign arbitral awards issued against the government.

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 awards—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 Policies

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 commenced in 2018.

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.  The government does not impose forced localization, but it does have mandates for local employment with an exception on shareholders and investors.

Requirements for visas and residence permits are not 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 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.  The maximum period provided for a work permit is one year and is not in line with the type of work permit issued. For more information on 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

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.

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.

All allocated land in Lesotho is held under title (Form C’s).  However, the Land Administration Act (LAA) encourages titleholders to register their titles into leases so they are recorded in a formal registration system.  LAA undertook a Scheme of Regularization in 2011 to assist title holders acquire leases. This followed the establishment of the LAA, funded by the U.S. Government through the Millennium Challenge Corporation (MCC).  Presently, LAA is awaiting publication of a Regularization Gazette to continue with regularization of land parcels, mainly for commercial plots in four urban areas of Berea, Botha-Bothe, Mohale’s Hoek, and Quthing.

Land titles (leases) as well as secondary land transactions (transfers, mortgages, subleases, and mining leases) are registered in the Deeds Registry and can be enforced in the Land Courts, Magistrate Courts, and High Court.  Mortgages are registered in the Deeds Registry, which serves as a reliable recording system. For more information please visit www.laa.org.ls  .

Intellectual Property Rights

Legal structures to protect intellectual property rights (IPR) are relatively strong.  Investors complain that enforcement is somewhat weak, although 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 Convention and Berne Convention.  The laws protect patents, industrial designs, trademarks, and grant of copyright, but they do 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.

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/  .

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
naledichambersinc@tlmail.co.ls

6. Financial Sector

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 protectios and the licensing of all market players. Although the stock market was formally launched three years ago, it is not functioning; there are neither companies listed nor securities being traded. 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. For the 2018/19 fiscal year, the government financed a fiscal deficit of approximately USD 85.7 million through domestic 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) and therefore facilitates free movement of capital.  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. Credit is usually allocated on market terms, although there are structural bottlenecks in the market and perceived distortions.  For example, lending rates are considered to be higher in the country despite excess liquidity in the system.

According to the IMF and the World Bank private sector credit is growing.  A Central Bank of Lesotho report in December 2018 reflected that private sector credit grew by 10.2 percent.  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.  Foreign investors that meet credit extension criteria are provided with credit from commercial banks. While the local banking system may not be as developed in terms of credit instruments, there are foreign investors who have qualified for loans, bank overdrafts, etc. from commercial banks.  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; 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.

Money and Banking System

Lesotho has a central bank and four commercial banks—three subsidiaries of South African banks (subject to measures and regulations under the Institutions Act of 2012) 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 (USUSD 1.1 billion) by December 2017. The share of bank nonperforming loans to total gross loans was approximately 3.7 percent in December 2018. 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 Central Bank has fully liberalized inward flows. For outward flows, individuals are allowed to invest up to USD 285,714 per year while legal entities are allowed up to USD 36 million per year. Repatriation of funds abroad by non-residents is not restricted provided there is proof that the declaration of such funds was made when non-residents came to the country.  Loans require approval from the Central Bank.

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 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 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.

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.  There are 14 state-owned organizations and 16 state-invested enterprises. In 2018, the government engaged a consultancy firm to improve SOE financial and operational performance as part of public financial management reforms financed by the World Bank, the European Union, and the African Development Bank (AfDB).

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.

9. Corruption

In Lesotho, the Directorate on Corruption and Economic Offences (DCEO) has a mandate to prevent and to combat corruption.  The country 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 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 (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 conflict-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.

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 still 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 ministry suspended the tender and stated it would be rebid.  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 (USUSD 667) or 10 years imprisonment.  Local companies cannot deduct a bribe to a foreign official from taxes. Corruption is common 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).

The country is currently undertaking a National Benchmark Survey to determine the effectiveness of an overall anti-corruption strategy.  In 2018, a Special Anti-Corruption Sub-Committee of ministerial principal secretaries was established to capacitate principal secretaries to identify corruption, implement preventative measures, and to hold perpetrators accountable.

Resources to Report Corruption

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

Sefako Seema
Prosecutor
DCEO

or

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

12. OPIC and Other Investment Insurance Programs

Lesotho does not have an Overseas Private Investment Corporation (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 USD 2 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 1,000 MW pump storage hydropower plant.  OPIC could provide political risk insurance or financing for equipment to U.S. companies interested in bidding on the project.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

The Central Bank of Lesotho (Modeling and Forecasting Division) collects the provided data and publicly distributes them.

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 $2,333 2016 $ 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 $ 494 2015 $ 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 21 2016 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

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

Liberia

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment (FDI)

Generally, the government supports foreign investment.  In 2018, Liberia established a Business Climate Working Group (BCWG) to develop plans and strategies to improve the business environment.  However, progress in creating an attractive business-friendly climate is hampered by a weak legal and regulatory framework, corruption and lack of transparency in contract award processes, poor infrastructure, and low capacity of the private sector.  Clauses in the 2010 Investment Act prohibit and restrict market access for foreign investors, including U.S. investors, in certain economic sectors or industries. On January 30, 2019, the Ministry of Commerce and Industry (MOCI) announced a ban, which it has yet to implement, on the importation of certain commodities including nails, biscuits, and flour in an effort to protect domestic production of these items.  The National Investment Commission (NIC) is the investment promotion agency that creates investment strategies, designs investment policies, and executes investment programs including attracting foreign investment and negotiating investment contracts or concessions. The NIC, in collaboration with the BCWG, facilitates dialogue through formal business roundtables on investment climate issues. Some private sector groups, such as the Liberia Chamber of Commerce (LCC), regularly meet with investors and government officials to discuss and suggest solutions to critical policy issues.  However, in 2018, some business leaders in the LCC and other groups reported difficulties in obtaining meetings with government representatives to discuss policy changes that were perceived to negatively affect the business climate.

In April 2019, the President of Liberia issued Executive Order #96 to stimulate economic growth.  The order includes a provision that extends residence and work permits from one year to up to five years.  It also exempts commercial importers from seeking import permits and filing import permit declarations.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities have the right to establish and own business enterprises and engage in various forms of remunerative activity.  In the Investment Act and Revenue Code, foreign investors have similar rights and are subject to similar duties and obligations as those that apply to domestic investors, with several notable exceptions.  The exceptions include clauses in the Investment Act that impose statutory limits on foreign ownership of, or entry into, 16 business activities/enterprises, and set minimum foreign capital investment thresholds in 12 others.  This law restricts ownership of the following business activities or enterprises exclusively for Liberians: (1) Supply of sand, (2) Block making, (3) Peddling, (4) Travel agencies, (5) Retail sale of rice and cement, (6) Ice making and sale of ice, (7) Tire repair shops, (8) Auto repair shops with investment of less than USD 550,000, (9) Shoe repair shops, (10) Retail sale of timber and planks, (11) Operation of gas stations, (12) Video clubs, (13) Operation of taxis, (14) Importation or sale of second-hand or used clothing, (15) Distribution in Liberia of locally manufactured products, and (16) Importation and sale of used cars (except authorized dealerships, which may deal in certified used vehicles of their make).  It also sets minimum capital investment thresholds for foreign investors in twelve other business activities, industries and enterprises. The Act further stipulates that, for enterprises owned exclusively by non-Liberians, the total capital invested shall not be less than USD 500,000; and for enterprises owned in partnership with Liberians, the aggregate shareholding of the Liberian partners must be at least 25 percent, and the total capital invested shall not be less than USD 300,000. In 2018, the legislature discussed but did not pass a draft “Business and Economic Empowerment Act,” which aimed to expand these requirements to additional sectors of the economy, increase the minimum capital threshold to USD 2 million, and require that Liberians hold at least 30 percent of senior management positions. 

While the Liberian constitution restricts land ownership to citizens, land acquisition by non-Liberians is possible through leasehold.  Foreign companies seeking to lease land have the option to lease privately or publicly held land. Frequently, foreign companies seeking to acquire land leases do so through direct negotiations with the relevant landlords/owners.  In September 2018, Liberia passed into law the long-awaited Land Rights Act which categorizes land ownership into public land, which is owned, but currently not used by the government; government land, which is used by government agencies (for office buildings or other purposes); customary land, on which the livelihoods of most rural communities depend; and private land, which is owned by private citizens.  In addition to strongly protecting community land rights, the new law ensures consistent land governance as well as legal certainty for every category of land ownership. The law is designed to resolve historical land problems that have caused conflicts and communal strife in the past. For the first time in history, the customary rights of Liberia’s village communities are protected by formal legislation. Implementation, which is currently underway, should result in significantly improved investment opportunities.

The government does not maintain investment screening mechanisms for inbound foreign investment.  There are no laws especially intended to disadvantage U.S. investors or single them out; generally, Liberians welcome U.S. investment as well as American products, which they consider to be of exceptional quality.

Other Investment Policy Reviews

Neither the United Nations Conference on Trade and Development   (UNCTAD) nor the Organization for Economic Co-operation and Development (OECD) has conducted an investment policy review for Liberia in the past three years.  In 2016, Liberia became a member of the World Trade Organization (WTO), but the WTO has not yet conducted Liberia’s Trade Policy Review (TPR).

Link to a list of countries for which OECD, WTO (in context of a trade policy), and UNCTAD have conducted investment or trade policy reviews:  http://www.wto.org/english/tratop_e/tpr_e/tpr_e.htm  http://unctad.org/en/Pages/DIAE/Investment percent20Policy percent20Reviews/Investment-Policy-Reviews.aspx  

Business Facilitation

All businesses are required to register with, and obtain authorization from, the Liberia Business Registry (LBR) to conduct business or provide services in Liberia.  LBR services are available to local and foreign companies at its head office in Monrovia. It does not provide an online registration platform and its website does not currently function.  According to the World Bank, it takes five procedures and 18 days to establish a business in Liberia, http://www.doingbusiness.org/en/data/exploreeconomies/liberia#DB_sb  .  Foreign companies must obtain investment approval from the National Investment Commission (NIC) if they would like to benefit from investment incentives.  Foreign companies must use local counsel when establishing a subsidiary and must provide notarized documents of the parent company. If a subsidiary is engaged in manufacturing and international trade, then it must obtain a trade license from the LBR, a process that can take an average of three days. 

Liberia is one of the few countries surveyed by the World Bank’s Investing Across Borders that does not make its commercial laws and regulations publicly available online.  There is no minimum paid-in capital requirement, except in regulated industries related to financial institutions, such as banking and insurance. More detailed information is available on the World Bank’s Investing Across Borders website: http://iab.worldbank.org/Data/ExploreEconomies/liberia#starting-a-foreign-business  .  The registration procedures and standards are the same for Liberian and foreign investors.

For long-term investment contracts, such as concessions, the National Investment Commission (NIC) is the statutory chair of an ad hoc cabinet-level Inter-Ministerial Concessions Committee (IMCC) that convenes often-lengthy bidding and negotiation processes.  Concessions are approved when ratified by the national legislature, signed by the President of Liberia, and printed into handbills by the Ministry of Foreign Affairs. The Liberia Revenue Authority (LRA) handles tax payment processes and administration. Social security issues are handled by the National Social Security and Welfare Corporation (NASSCORP).  Websites for these agencies are found at: https://lra.gov.lr/   and http://www.nasscorp.org.lr/  

[Reference]

Outward Investment

The National Investment Commission (NIC) does not have a systematic, active mechanism or program to promote or incentivize outward investment.  There is no known restriction or policy limiting or preventing domestic investors from investing abroad. See the NIC’s website, http://investliberia.gov.lr/new/  

3. Legal Regime

Transparency of the Regulatory System

Although Liberia has a Competition Law, Foreign Trade Law, Intellectual Property Act, Public Procurement and Concessions Act, Insolvency and Restructuring Act (Chapter 8 of Commercial Code), and Commercial Code, the government does not always effectively implement these laws.  It frequently does not follow transparent policies to foster competition on a non-discriminatory basis, or establish “clear rules of the game.”  Generally, legal and regulatory procedures in Liberia fall below international norms in terms of transparency, application, and consistency. The Liberia Chamber of Commerce (LCC) maintains relevant resources on African Growth and Opportunity Act (AGOA) regulatory processes.  It assists importers in processing import documents in compliance with AGOA procedures and Liberian customs regulations. The Liberia Legal Information Institute   maintains an online repository to access legal documents including legislative acts (http://www.liberlii.org  ); however, this site has not been updated.  Also regularly available are press releases, newspaper articles, radio talk-shows, and handouts that enable public discussions of proposed new laws or draft bills that may have a significant impact.

In Liberia, both foreign and locally-registered companies are required to adhere to the International Financial Reporting Standards (IFRS) consistent with international norms.  There are no systemic oversight or enforcement mechanisms to ensure that government authorities follow administrative processes. Government ministries and agencies often have overlapping responsibilities, which can result in inconsistent application of law.  Some officials can be arbitrary when resolving conflicting regulatory issues. Regulatory agencies include the Forestry Development Authority (FDA), which regulates issues arising in the forestry sector; the Civil Aviation Authority (CAA), which regulates aviation businesses; the Liberia Telecommunications Authority (LTA), which regulates telecommunications activities; the Liberia Maritime Authority (LMA), which regulates issues arising in the maritime sector; the National Port Authority (NPA), which regulates and largely owns port infrastructure; the Liberia Revenue Authority (LRA), which administers tax collections, tariffs and customs, and provides tax or customs related services; the Liberia Extractive Industry Transparency Initiative (LEITI), which monitors, reconciles, and reports on payments made by extractive companies to the government and to local communities; and the Liberia Land Authority (LAA), which has a mandate for land policy, land administration, and oversight of land management regulation and use functions.  However, there is no legal obligation for ministries or regulatory agencies to publish the text or summary of proposed regulations before their enactment.  Ministries or regulatory agencies are not required by law to develop regulatory plans that would be adopted or implemented within a specified timeframe. Although partially captured in national budgets, public finances and debt obligations, including explicit and contingent liabilities, are not generally transparent.  Budget documents and information on debt obligations are accessible to the general public, largely online.

 [Reference]

(http://rulemaking.worldbank.org/  ) provides data for 185 economies on whether governments publish or consult with public about proposed regulations).

International Regulatory Considerations

Liberia is a member of two regional economic blocks, the Mano River Union (MRU) and the Economic Community of West African States (ECOWAS).  The government has committed to and is working on laws and regulations that would align its economic and commercial relationships with those of its regional counterparts.  The Liberia Revenue Authority (LRA) continues to standardize and harmonize the country’s customs and tariff systems with the ECOWAS External Tariff (CET). Judgments of foreign courts are recognized and enforceable under the Liberian courts, and foreign investment disputes are handled under Liberian legal jurisdictions.  Liberia is a member of the WTO, and the government acceded to the terms and conditions of the WTO arrangements including Technical Barriers to Trade (TBT) and sanitary and phytosanitary (SPS) measures.

Legal System and Judicial Independence

Liberia has three independent branches of government.  The Judicial Branch of government is vested in the Supreme Court, subordinate magistrates, and county courts.  The legal system is based on Anglo-American Common Law, and although still referred to as a common law system, cannot be truly characterized as such.  The system is supposed to operate in parallel with local customary law based on unwritten, indigenous practices, culture, and traditions, but the delineation between formal and traditional laws is ambiguous.  All courts are sanctioned to apply both statutory and customary laws; there is a system of customary law recognized in the court system by the Judiciary Law of 1972. There is also a traditional court system in rural areas that is governed by the 2001 Revised Rules and Regulation Governing the Hinterland of Liberia (https://www.documents.clientearth.org/library/download-info/regulation-2001-revised-rules-and-regulations-governing-the-hinterland-of-liberia/  ).  These competing and disharmonized legal systems often lead to conflicts between Monrovia-based entities and communities outside of Monrovia, and within individual communities themselves.  Contracts are legally enforced by the executive branch. The judicial system has no courts of appeal, and appeal cases from county courts go directly to the Supreme Court, placing a tremendous burden on the Supreme Court’s panel of five judges.  The current judicial system suffers from inadequately trained and poorly compensated judicial officers that can result in flawed proceedings. The Commercial Law sets out provisions for sales, leases, financial leases, mortgages, secured transactions, and commercial arbitration.  The law is backed by a Commercial Court consisting of a panel of judges that was established to resolve commercial transactions and contractual issues. The court hears commercial disputes including debt disputes of USD 15,000 and above. The court does not have a mandate to hear Intellectual Property Rights (IPR) claims.  There is a commission that hears claims of unfair labor practices. In theory, the court presides over all financial, contractual, and commercial disputes, serving as an additional avenue to expedite commercial and contractual cases. In practice, weak capacity and a lack of adequate regulatory frameworks limit its effectiveness.

Laws and Regulations on Foreign Direct Investment

To obtain a new concession agreement or long-term investment contract, potential investors engage in lengthy bidding and negotiation processes.  Other legal instruments relating to foreign investments include the Revenue Code, Public Procurement and Concessions Act, Competition Law, Commercial Code, Financial Institution Act (Banking Law), Foreign Trade Law of Liberia, Association Law, Special Economic Zone Act, and Liberia Intellectual Property Act.  No judicial decisions pertaining to foreign direct investment were announced in the past year. 

According to the Public Procurement and Concessions Act, if an entity proposes to grant a concession to investors, it first must request a “Certificate of Concession” from the Ministry of Finance and Development Planning (MFDP).  Upon receipt of the certificate, the President of Liberia will constitute an ad hoc Inter-Ministerial Concession Committee (IMCC). The National Investment Commission (NIC) chairs the IMCC with statutory members including the Ministers of Justice, Finance and Development Planning, Labor, and Internal Affairs, as well as the concession-granting entity.  The IMCC reviews, evaluates, negotiates, and awards a concession agreement. It then submits the concession agreement to the President of Liberia for onward submission to the Legislature for ratification/approval. A ratified concession becomes law after it is signed by the President and printed into handbills. Depending on contract clauses and stipulations, a re-negotiation and subsequent round of ratification may be necessary in certain cases, such as ownership transfers. 

There is no primary “one-stop-shop” website for investment or website for investment laws, rules, procedures, and reporting requirements for investors.  However, the NIC can provide sector-specific investment counseling and/or advisory services at investors’ request. The following list of websites may help foreign investors to navigate the information, laws, rules, and reporting requirements:

  • National Investment Commission (NIC) http://investliberia.gov.lr/new/  ;
  • Public Procurement & Concessions Commission (PPCC) prepares, monitors, and guides public procurement policies, procedures, and guidelines for awarding concessions, http://www.ppcc.gov.lr/  ;
  • Liberia Revenue Authority (LRA) collects all lawful revenues due the government, and is the custodian of the 2000 Revenue Code, http://www.lra.gov.lr/  ;
  • Ministry of Finance and Development Planning (MFDP) is responsible for the country’s fiscal policies, and is the custodian of the Public Financial Management Act of 2009, http://www.mfdp.gov.lr/  ; and
  • Ministry of Commerce and Industry (MOCI) advises the government and designs policies and programs for the development and promotion of trade, commerce, and industry, http://www.moci.gov.lr/    

Competition and Anti-Trust Laws

The Liberia Intellectual Property Office (LIPO) under the Ministry of Commerce and Industry (MOCI) is responsible for inspecting and reviewing transactions for competition-related concerns, whether domestic or international in nature.  In collaboration with the MOCI, the LIPO administers, investigates, and enforces competition-related issues in line with the Competition Law. This law incorporates WTO requirements to encourage a free market economy by promoting fair competition.  Liberia does not have anti-trust laws. There were no significant competition cases that involved foreign investment over the past year.

Expropriation and Compensation

The 2010 Investment Act guarantees and protects foreign enterprises against expropriation or nationalization by government “unless the expropriation is in the national interest for a public purpose, is the least burdensome available means to satisfy that overriding public purpose, and is made on a non-discriminatory basis in accordance with due process of law.”  Liberia is a signatory to the Multilateral Investment Guarantee Agency (MIGA) Convention that guarantees the protection of foreign investments.  The U.S. Embassy is aware of an expropriation case (METCO vs. NPA, 2002-2015) in which the U.S.-based claimant (METCO) was compensated in 2015 following years of legal proceeding and negotiations; the compensation amount was in a freely transferrable currency, but did not represent a fair market value at the time of the expropriation.  In January 2018, Mount Bele Resources (MBR) Liberia Ltd (MBR) filed an application with the Community Court of Justice of ECOWAS seeking redress for what it termed the “arbitrary revocation of [MBR’s] Mineral Exploration License without due process resulting [in the] denial of its proprietary rights over same and the loss of USD 21 million investment in the mining industry.”  In recent years there have not been any government actions or shifts in policy that would indicate possible expropriations in the foreseeable future. Currently, there are no high-risk sectors in the economy that are prone to expropriation actions and there is no indirect expropriation, such as confiscatory tax regimes or regulatory actions, that could deprive investors of substantial economic benefits from their investments.  Historically, the government has favored signing non-exclusive concession agreements with major investors. This practice allows the government to sign overlapping concession agreements for different resources. For example, the government may sign an agricultural concession agreement, but also allow itself flexibility to sign a mineral and/or timber concession in the same area. As multinational investors develop concession areas, some foreign businesses buy risk insurance to mitigate against the possibility of operational disruption caused by land expropriation.

Dispute Settlement

ICSID Convention and New York Convention

Liberia is a member of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID) – also known as the Washington Convention – and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards – also known as the New York Arbitration Convention.  The Commercial Code is the specific domestic legislation which provides for enforcement of awards under the 1958 New York Convention and/or under the ICSID Convention. The Investment Act provides that “the courts of Liberia shall have jurisdiction over the resolution of business disputes, parties to an investment disputes may however specify any arbitration or other dispute resolution procedure upon which they may agree.”

[Reference]

See list of members of the ICSID convention at: https://icsid.worldbank.org/en/Pages/about/Database-of-Member-States.aspx  .  See list of members of the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards at: http://www.newyorkconvention.org/contracting-states/list-of-contracting-states  .

Investor-State Dispute Settlement

Liberia is a member of the ICSID Convention and a signatory to the MIGA Convention that guarantees the protection of foreign investments.  The Civil Procedure Law governs both domestic and international arbitrations taking place in Liberia, but there is no stand-alone arbitration law.  It may take several years to enforce both foreign and domestic arbitration awards, from filing an application to the court of first instance to obtaining a writ of execution, with provision for an appeal.  The administration of investment disputes or commercial arbitration, as well as enforcement proceedings, take place in the Commercial Court and Civil Law Court with appeal directly to the Supreme Court. Liberia does not have a Bilateral Investment Treaty (BIT) or Free Trade Agreement (FTA) with an investment chapter with the United States.  As a member of both the ICSID and the New York Arbitration Convention, Liberian courts are bound to recognize and enforce foreign arbitral awards issued against the government. Liberia is also a signatory to the ECOWAS Treaty containing investor-state dispute settlement (ISDS) provisions. There is no recent history of extrajudicial action against foreign investors in Liberia.  Over the past 10 years, the U.S. Embassy is aware of two investment disputes or expropriation cases involving U.S. firms: one, METCO vs. NPA, which was resolved in 2015 after the claimant received compensation following years of legal proceeding and negotiations, and another, involving Mount Bele Resources, which continues in the Community Court of Justice of ECOWAS.

International Commercial Arbitration and Foreign Courts

The Investment Act provides for settlement of trade disputes through the judicial system or via alternative dispute resolution (ADR) mechanisms for disputes between two private parties.  The act states, “the courts of Liberia shall have jurisdiction over the resolution of business disputes. Parties to an investment dispute may however specify any arbitration or other dispute resolution procedure upon which they may agree.”  Private entities entering into investment contracts with the Liberian government frequently include arbitration clauses specifying dispute settlement outside of Liberia. There are other codes, statutes, and legislative provisions – including the Liberian Civil Procedure Law – governing commercial arbitration and recognizing arbitration as a means of resolution between private parties in commercial transactions, based on the model of the United Nations Commission on International Trade Law (UNCITRAL model law).  However, given the general weakness of the judiciary, current judicial processes are not always procedurally competent, fair, and reliable. Judgments of foreign courts are recognized and enforceable under the courts, and problems with foreign investments are handled under the same legal jurisdictions. There is no available record of investment disputes involving state owned enterprises (SOEs) and foreign investors.

Bankruptcy Regulations

Liberia does not have a bankruptcy law in place and there is no specialized court to protect the rights of creditors, equity holders, and holders of other financial contracts except the Commercial Court, which is limited in handling such specialized instruments. 

4. Industrial Policies

Investment Incentives

The Revenue Code and the Investment Act provide different forms of investment incentives to foreign investors.  The National Investment Commission (NIC) and the Ministry of Finance and Development Planning (MFDP) are the authorities which provide investment incentives.  Foreign investors who meet the statutory eligibility criteria for incentives must apply to the MFDP. The Revenue Code specifies that the investment activity must be in one of the several specified sectors in order to qualify for incentives.  One may obtain the list of those sectors from the NIC, http://investliberia.gov.lr/new/  .

The investment incentives specified for these sectors include tax deductions for equipment, machinery, cost of buildings and fixtures used in manufacturing, as well as import duties, and goods and services tax exemptions.  Tax incentives are subject to legislative approval as stated in the Revenue Code: “for investments exceeding USD 10 million and subject to approval by the President and the Legislature, the tax incentives permitted by this section may be allowed for a period of up to fifteen (15) years; no tax incentive under this subsection shall be valid or enforceable without legislative approval.”  The law also allows exemptions from import duty of up to 100 percent of their dutiable value for capital assets and other goods to be used in the project. Note that a Customs user fee of 1.5 percent plus ECOWAS trade levy of 0.5 percent is currently applicable. The Minister of Finance and Development Planning can grant additional incentives based on the capital invested, economic zones, or geographic areas as well as the employment creation potential that could promote economic growth.  The government does not have a practice of issuing guarantees or jointly financing foreign direct investment projects. See the NIC website for more information on special investment incentives: http://investliberia.gov.lr/new/  .

Foreign Trade Zones/Free Ports/Trade Facilitation

Currently, there are no functional designated free trade zones or special economic zones in Liberia.  However, the 2017 Special Economic Zone (SEZ) Act authorizes the establishment of the Liberia Special Economic Zone Authority (LSEZA).  The government has established the legal basis for the LSEZA but has not yet designated industries or physical areas as SEZs, in line with the law.  The law combines the Liberia Industrial Free Zone Authority (LIFZA) and Monrovia Industrial Park (MIP), and allows the LSEZA to set aside exclusive areas for industrial production, and processing for domestic and export markets.  According to the law, the LSEZA is responsible for proposing, regulating, supervising, and monitoring all areas or sites it may earmark as SEZs. The law mandates the LSEZA to coordinate with relevant agencies such as the National Investment Commission (NIC), the Ministry of Commerce and Industry (MOCI), and the Liberia Revenue Authority (LRA) to issue applicable licenses, permits, certificates, and other required authorizations.  The law provides that “national tax and incentive regimes designated by applicable law shall not apply in the SEZs; an entire SEZ or any part thereof would constitute a customs-controlled area.” In April 2019, the President of Liberia established a Special Economic Zone (SEZ) Steering Committee, “to create, drive, guide, enhance, coordinate and manage single, multiple and mixed-use [SEZs] in Liberia.”

Performance and Data Localization Requirements

The government, through the Decent Work Act, mandates local employment, particularly at senior management level, including the boards of directors.  The Act gives preference to employing Liberians and many investment contracts specify that a certain percentage of Liberians be hired in senior positions.  The act stipulates “the Ministry [of Labor] shall not issue a permit to work in Liberia unless it is satisfied that: i) there is no suitably qualified Liberian available to carry out the work required by the employer; and ii) the applicant satisfies the requirements for foreign residence in Liberia.”  However, the Investment Act eliminates an earlier mandate that foreign companies must employ qualified Liberians “at all levels.”  Liberian immigration law (An Act Adopting New Aliens and Nationality Law) requires all non-Liberian citizens entering the country to hold an entry visa, except for ECOWAS citizens who require valid passports or laissez-passers.  There are no excessively onerous visa, residence, work permit, or similar requirements that inhibit mobility of foreign investors and their employees, with the exception of the government requiring that residence/work permits be renewed annually with a renewal fee.  Long-term investors have found this unfavorable to the terms of their investment or residency. In April 2019, the President of Liberia issued Executive Order #96 to stimulate economic growth and included a provision that extends residence and work permits from one year to up to five years.  The Order also exempts commercial importers from seeking import permits and filing import permit declarations.

The NIC includes a “local content” policy in certain major investment contracts that mandates the use of domestic content, goods, or raw materials.  The NIC has not followed “forced localization” policies that would compel foreign investors to use domestic content, and there are no enforcement procedures for performance requirements.  There are no legal requirements for foreign information technology investors to turn over source code and/or provide access to encryption. There are no mechanisms that prevent or unduly impede companies from freely transmitting customer or other business-related data outside Liberia, and there are no local data storage requirements for foreign companies operating in Liberia.  The government does not use any systematic mechanisms to enforce any rules on local data storage within the economy.

5. Protection of Property Rights

Real Property

Property rights and interests are legally protected under Liberian law; however, enforcement mechanisms are weak.  The Liberia Bank for Development and Investment   is the only bank currently lending for “long-term” (up to ten years) ventures in housing, including mortgage finance.  Land ownership in Liberia is restricted to Liberian citizens. Chapter III, Article 22, of the Liberian Constitution states:  “Every person shall have the right to own property alone as well as in association with others, provided that only Liberian citizens shall have the right to own real property within the Republic.  Private property rights, however, shall not extend to any mineral resources on or beneath any land or to any lands under the seas and waterways of the Republic.” Acquisition of land by foreign and/or non-resident investors is only possible through rent or leasehold.  Leases ordinarily run for 25-50 years, but exceptions are permitted under the law. Land ownership, lease, and use are governed by both statutory and customary laws. Rights to land ownership and use of resources such as minerals and timber have become increasingly critical issues in recent years, fueled by increased foreign investor interest and clashes between traditional and statutory land uses. 

Although the Liberia Land Authority (LLA) encourages property owners to identify and register land titles, it does not have systemic enforcement programs as part of its land governance and land administration functions.  The LLA estimates that less than 20 percent of the country’s total land is formally registered, conflicting land ownership records are common, and it is difficult to determine who may own real property. The U.S. Embassy is aware of unresolved concessions-related land disputes.  As firms commence operations, local communities may fear that their lands are being encroached upon, which can lead to disputes, strikes, and sometimes violence. In the interest of minimizing lost productivity and in the absence of government adjudication, companies often make additional community-level payments or agreements to resolve competing land claims.  The future enforceability of such agreements is unclear. Prospective investors should not underestimate the potential for costly and complex land dispute issues to arise even after concluding agreements with the government.

In September 2018, the government passed into law the land reform bill, the Land Rights Act, which classified land into four categorizes, namely: Public Land (owned but not currently used by the government), Government Land (used by state agencies for office buildings, etc.), Customary Land ( owned and used by rural communities for their livelihoods), and Private Land (owned by a private citizen).  The act protects communities in many ways including formally recognizing that rural communities own their land under customary law; it gives them legal standing to consent to awarding new contracts, empowering them to make decisions about how their land should be used. For the first time in Liberian history, the law guarantees legal certainty for every category of land ownership and provides the legal basis for resolving historical land problems that have caused conflicts over the years.  In the law, a community’s claim of ownership to customary land will be established by evidence including oral testimonies of community members, maps, signed agreements between neighboring localities and any other confirming documents.

 [Reference]

Reference analysis from the World Bank’s Doing Business Report, including its country/economy’s ranking for ease of “registering property” (rankings available at: http://www.doingbusiness.org/rankings  ).

Intellectual Property Rights (IPR)

Liberia’s IPR legal structure, regulatory environment, and protection and enforcement processes are weak.  IPR law enforcement is poor and rights infringements are common. The Liberia Intellectual Property Act covers such areas as domain names, traditional knowledge, transfer of technology, and patents/copyrights, etc.  The Liberia Intellectual Property Office (LIPO) operates as a semi-autonomous agency functioning under the administrative oversight of the Ministry of Commerce and Industry (MOCI). It lacks the capacity to address IPR infringements.  During the past year the government has not put in place new IPR-related laws or regulations. It does not have a system in place to track and report on seizures of counterfeit goods, figures or statistics on counterfeit good seizures are not available, and the government does not prosecute IPR violations.  The majority of Liberians are unfamiliar with IPR, and IP and industrial property rights infringement is prevalent, including unauthorized duplication of movies, music, and books. Counterfeit drugs, apparel, cosmetics, mobile phones, computer software, and hardware are sold openly. Liberia is not listed in USTR’s Special 301 Report.  Neither is Liberia listed in the notorious market report (see 2016 listings at: https://ustr.gov/sites/default/files/2016-Out-of-Cycle-Review-Notorious-Markets.pdf ).  For additional information about national laws and points of contact at local IPR offices, see WIPO’s country profiles at http://www.wipo.int/directory/en/

6. Financial Sector

Capital Markets and Portfolio Investment

The government does not have foreign portfolio investments abroad and there is no domestic capital market or portfolio investment option, such as a stock market.  Private sector investors have limited credit and investment options. The Central Bank of Liberia (CBL) uses financial instruments such as Treasury bills (T-bills) in an effort to develop a capital market.  In 2018, the CBL made a CBL Bill available for purchase and started to develop regulatory guidance for the issuance of corporate bonds, commercial papers (CP), and bankers’ acceptance (BA) letters in the money market.  It also facilitated nine repurchase transactions between seven commercial banks as part of its inter-bank market development. The CBL continues to promote an interbank market, money market, secondary market, and investor’s education as well as public awareness.  The CBL respects IMF Article VIII by refraining from implementing restrictions on payments and transfers for current international transactions. Many foreign investors prefer to obtain credit from and retain profits in foreign banking institutions.

Money and Banking System

Banking services within Liberia are provided by nine commercial banks, branch outlets including payment windows/annexes, a development finance company, and a deposit-taking microfinance institution.  Eight of the commercial banks are foreign banks. There are numerous intermediate financial services providers across the country, such as licensed foreign exchange bureaus, microfinance institutions, credit unions, rural community finance institutions, and village savings and loan associations.  The CBL reported growth in the commercial banks’ balance sheets in 2018. According to the CBL, total assets, total loans and advances, total deposit, and capital increased by 44 percent, 39 percent, 38 percent, and 44 percent, respectively. The industry’s liquidity ratio was recorded at 40 percent, and all commercial banks recorded liquidity ratios above the 15 percent regulatory minimum requirement in 2018.  However, these increases are partly attributed to the conversion effect of the U.S. dollar into Liberian dollars, which is the reporting currency. The CBL Annual Report 2018 can be found at: https://www.cbl.org.lr/  .  Although not addressed in the CBL’s report, commercial banks and businesses reported considerable difficulty in accessing Liberian dollars during the second quarter in 2018, including those saved by private individuals at commercial banks and by commercial banks at the CBL.  From August 2018 through late February 2019, the CBL directed banks to limit Liberian dollar withdrawals to no more than LRD 250,000 (about USD 1,500) per day per customer, including large businesses. Some commercial banks lowered their Liberian dollar deposits at the CBL by keeping more cash on hand to service customers.

The issue of non-performing loans (NPLs) remained a major challenge in the banking sector and continued to negatively impact profitability.  In 2018, the ratio of NPLs to total loans stood at 13.8 percent. Commercial banks face persistent challenges in profit generation and loan repayment.  There are no known restrictions on a foreigner’s ability to establish a bank account, and there is no currency control or restriction as to how much a customer can transfer out of Liberia through the banking system.  Foreign banks or branches are allowed to establish operations in Liberia, and are subject to prudential measures or other regulations set out by the CBL. 

Foreign Exchange and Remittances

Foreign Exchange Policies

There are no restrictions or limitations placed on foreign investors in converting, transferring, or repatriating funds associated with an investment (e.g., remittances of investment capital, earnings, loans, lease payments, and royalties).  Liberian law allows for the transfer of dividends and net profits after tax to investors’ home countries. The Investment Act permits the unrestricted transfer of capital, profits, and dividends “through any authorized dealer bank in a freely convertible currency.”  Therefore, funds associated with any form of investment can be freely converted into any world currency. The CBL’s regulation concerning transfers of foreign currency stipulates that every business, entity, or individual wishing to make a foreign transfer of funds may do so without limitation of amount to be transferred.  However, the amount to be transferred must have been in an entity’s bank account for no less than three banking days prior to the transfer. Liberia has a floating exchange rate system with both LRD, known as “Liberty” notes, and USD used as legal tender. The exchange rate is determined by market supply and demand. The CBL displays and requires commercial banks to display indicative market exchange rates of the LRD vs. USD, and the rates largely fluctuate based on demand and supply.  The USD can be freely exchanged for LRD in commercial banks, licensed foreign exchange bureaus, petrol stations, and large supermarkets. It is advisable for foreign investors to conduct foreign exchange operations with commercial banks or established licensed forex bureaus. Unlicensed forex bureaus may not provide customers with a rate equal to that of the CBL.

Transfers of currency are protected by Article VII of the International Monetary Fund (IMF) Articles of Agreement (http://www.imf.org/External/Pubs/FT/AA/index.htm#art7  ).

Remittance Policies

There are no recent changes to Liberia’s investment remittance policies to affect access to foreign exchange.  Generally, there are no legal time limitations on remittances or on the inflows or outflows of funds for remittances of profits or revenue.  Correspondent banking relationships are limited, and bank fees related to currency exchange and wire transfers can be high. In general, corporations can remit up to USD 1 million through commercial banks.  Transferring banks are required to file normal cash transaction reports with the CBL. Depending on the amount to remit and the bank(s), the wait-period to remit investment revenues ranges from a few hours to three business days.  However, individuals without a bank account are limited to two over-the-counter transfers of up to USD 5,000 within a 30-day period. The CBL has instituted thresholds for suspicious transactions for which banks must exercise customer due diligence and know your customer (KYC) rules.  The thresholds are USD 25,000 and above for individuals, and USD 40,000 and above for corporations. The channels through which remittances are sent in Liberia are Western Union, Money Gram, RIA Money Transfer, and wire transfer.

Sovereign Wealth Funds

The government does not maintain a Sovereign Wealth Fund (SWF) or other similar entity.

7. State-Owned Enterprises

Wholly-government-owned, semi-autonomous state-owned enterprises (SOEs) are governed by President of Liberia-appointed boards of directors.  SOE financial management is guided by the Public Financial Management (PFM) Act, and SOEs are required to submit periodic financial statements to their boards.  SOEs employ more than 10,000 people and operate in several sectors including port services (seaports, airports), electricity supply, oil and gas, water and sewage, agriculture and forestry, maritime, petroleum importation and storage, and information and communication technology (ICT) services.  See SOE Annual Financial Performance Report 2016-17, https://www.mfdp.gov.lr/index.php/131-new-reports/513-state-owned-enterprises-fy2016-2017-consolidated-annual-financial-performance-report  .

[Reference]

https://resourcegovernance.org/: the underlying country fact sheets provide information on competition from state-owned enterprises in the oil, gas and mining sectors for over 50 countries.

Information on SOEs in OECD and partner countries: http://www.oecd.org/daf/ca/soemarket.htm  .

Privatization Program

There are no established programs or policies for privatization.

9. Corruption

The law does not provide explicit criminal penalties for official corruption, although criminal penalties exist for economic sabotage, mismanagement of funds, bribery, and other corruption-related acts.  Corruption is both a real and perceived problem in Liberia’s public and private sectors. There are laws, regulations, and institutions to counter public sector corruption, including conflict-of-interest in awarding government procurement contracts.  The laws do not extend to family members of officials or to their political parties. The general weakness of the judicial system hinders effective implementation of the laws and regulations. Some officials engage in corrupt practices with impunity. Low pay for civil servants, minimal job training, and little judicial accountability exacerbated official corruption and contributed to a culture of impunity.  In 2018, Transparency International ranked Liberia 120 out of 180 countries in its corruption perception index, with a score of 32/100 (https://www.transparency.org/cpi2018  ).  The government does not have a system or program that encourages or requires private companies to establish internal codes of conduct that, among other things, prohibit bribery of public officials.  Although the government has anti-graft institutions and laws, corruption remains endemic in the Liberian social fabric.  In terms of international commitments, Liberia is a signatory to the Economic Community of West African States (ECOWAS) Protocol on the Fight against Corruption, the African Union Convention on Preventing and Combating Corruption (AUCPCC), and the UN Convention against Corruption (UNCAC).  There are no explicit laws that provide protection to NGOs that investigate corruption. U.S. firms and other foreign investors have identified corruption as an obstacle to new investment. Foreign investors generally report that corruption is most pervasive in government procurement, contract and concession awards, customs and taxation systems, regulatory systems, performance requirements, and government payments systems.  Multinational firms often report having to pay fees to agencies that were not stipulated in investment agreements.

Lack of training, inadequate salaries, and a culture of impunity have undermined the judicial and regulatory systems, which in turn has discouraged investment.  The U.S. government seeks to level the global playing field for U.S. businesses by encouraging other countries to take steps to criminalize their own companies’ acts of corruption, including bribery of foreign public officials, and requiring them to uphold their obligations under relevant international conventions.  If a U.S. firm believes a competitor is seeking to bribe a foreign public official to secure a contract, this information should come to the attention of appropriate U.S. agencies.

Resources to Report Corruption

Contacts at government agencies responsible for combating corruption:

Baba Borkai, Chief Investigator
Liberia Anti-Corruption Commission (LACC), Monrovia, http://lacc.gov.lr/  
Tel: (+231) 777-313131
Email: bborkai@lacc.gov.lr

Contact at a “watchdog” organization (local or nongovernmental organization operating in Liberia that monitors corruption):

Anderson Miamen, Executive Director
Center for Transparency and Accountability in Liberia (CENTAL)
Tel: (+231) 886-818855
Email: admiamen@gmail.com

12. OPIC and Other Investment Insurance Programs

There is potential for the operation of Overseas Private Investment Corporation (OPIC) programs in project financing for the energy, road construction, agricultural value addition, healthcare delivery system, education, banking and financial services, and water and sanitation sectors.  Generally, the government finances large-scale projects through international bilateral and multilateral donors, including the United States, the EU, the World Bank, the African Development Bank, and the IMF. There is an existing OPIC agreement between Liberia and the United States to provide coverage for expropriation and political risk insurance for U.S. investors.  Eligible American businesses, investors, lenders, contractors and exporters can seek OPIC support to take advantage of commercially attractive opportunities in the country. There is an OPIC agreement with International Bank Liberia (IBL) for a USD 20 million direct loan to support longer-term lending to the Liberian private sector in construction, services, manufacturing, agribusiness, hospitality, and transportation sectors.

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
Liberia

Gross Domestic Product (GDP) (M USD )

2018 $932.5 2017 $3,285 https://data.worldbank.org/country/liberia  
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 Liberia (M USD, stock positions) N/A N/A  2017 $874 BEA data available at https://apps.bea.gov/international/factsheet/factsheet.cfm?Area=420  
Liberia’s FDI

in the United States (M USD, stock positions)

N/A N/A  2017 $448 BEA data available at https://apps.bea.gov/international/factsheet/factsheet.cfm?Area=420  
Total inbound stock of FDI as % Liberia GDP (net inflows) N/A N/A 2017 7.54% https://data.worldbank.org/indicator/BX.KLT.DINV.WD.GD.ZS?locations=LR   

* Source for Host Country Data: 2018 Annual Report, Central Bank of Liberia https://cbl.org.lr/2content.php?sub=155&related=29&third=155&pg=sp&pt=CBL   Annual Reports


Table 3: Sources and Destination of FDI

IMF Coordinated Direct Investment Survey data are not available for Liberia.


Table 4: Sources of Portfolio Investment

IMF Coordinated Portfolio Investment Series data are not available for Liberia. 

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