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Business regulations in Lesotho are on the whole reasonable, but variable—modern and flexible in some areas and outdated and retrogressive in others—due to the government’s piecemeal approach to reform.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.
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.
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.