Transparency of the Regulatory System
Regulatory enforcement is generally weak and has moderate impact by hindering competition and distorting business and investment practices. The legal, regulatory, and accounting systems are transparent and consistent with international norms. The accounting systems for companies are regulated by the Companies Act of 2011 and Financial Institutions of 2012. International Financial Reporting System (IFRS) is the current financial system used by companies. Rule-making and regulatory mechanisms exist at the local, national, and supra-national levels although the most relevant for foreign investors is the national level. There are no informal regulatory processes managed by the private sector or non-governmental organizations.
There are no private sector or government efforts to restrict foreign participation in consortia or organizations that set industry standards. Lesotho has a centralized online location where key regulatory actions are published. However, the website is poorly maintained and rarely updated — https://lesotholii.org/ . The government printing office also publishes government gazettes which can be purchased by the public.
Businesses in Lesotho are regulated by the Companies Act of 2011. The issuance of traders’ licenses is governed by the Trading Enterprises Order of 1993, as amended in 1996, and the Trading Enterprises Regulations of 1999, as amended in 2011, as well as the Business Licensing and Registration Act of 2019. Trading licenses are required for a wide range of services; some enterprises can require up to four licenses for one location. Manufacturing licenses are covered by the Industrial Licensing Act of 1969 and the Pioneer Industries Encouragement Act of 1969. For most manufacturing license applications, environmental certificates issued by the National Environmental Secretariat (NES) are sufficient. Where manufacturing activities are assumed to have actual or potential environmental impacts, however, an Environmental Impact Assessment is required, which must be approved by the NES. The introduction of the OBFC improved the industrial and trading license system. The OBFC has also streamlined other bureaucratic procedures, including those for licenses and permits.
The GOL modernized the regulatory framework for utilities through the establishment of the independent Lesotho Communications Authority (LCA), which regulates the telecommunications sector, and the Lesotho Electricity and Water Authority (LEWA), which regulates the energy and water sectors. The two authorities set the conditions for entry of new competitive operators. The LEWA allows both the Lesotho Electricity Company and the Water and Sewerage Company to maintain monopolies in their respective sectors.
The Mines and Minerals Act of 2005, the Precious Stones Order (1970), and the
Mine Safety Act (1981) provide a regulatory framework for the mining industry. The Commissioner of Mines in the Ministry of Mines, supported by the Mining Board, is authorized to issue mineral rights to both foreigners and local investors. On approval, it takes about a month for both prospecting and mining licenses to be issued.
Under the Financial Institutions Act of 2012 the Central Bank of Lesotho (CBL) regulates financial services.
Tourism enterprises are required to secure licenses under the Accommodation, Catering and Tourism Enterprise Act of 1997. The Act provides for a Tourism Licensing Board that issues and renews licenses for camp sites, hotels, lodges, restaurants, self-catering establishments, bed and breakfasts, youth hostels, resorts, motels, catering, and guest houses. Applicants for any of the above licenses must apply to the Board three months before its next meeting. Several government departments, specifically the Ministries of Health and Tourism, the police and, when the property is in Maseru, the Maseru City Council, must inspect properties and submit inspection reports to the Board on prescribed forms. Licenses are granted for one year and can be renewed.
Parliamentary committees may, but are not required to, publish proposed laws and regulations in draft form for public comment. Parliament may also hold public gatherings to explain the contents of the proposed laws, and these provide opportunities for comment on proposed laws and regulations. The committees generally hold such consultations for laws that are perceived to be sensitive, such as: The Land Act, the Penal Code, and the Children’s Welfare and Protection Act.
Regulations are developed to enforce the law, to implement objectives of legal frameworks, and to ensure compliance. The following steps are followed when regulations are developed:
The initiating ministry or agency writes a cabinet memo reflecting objectives and benefits of the regulations. The cabinet memo is then widely circulated to relevant stakeholders to reflect how the regulations will impact them and to seek concurrence. The initiating agency then makes a cabinet presentation to seek cabinet approval to draft the regulations. The initiating agency drafts regulations and holds meetings with relevant stakeholders to obtain their input. The initiating ministry or agency holds workshops with relevant stakeholders to validate regulations. Draft regulations are submitted to the Attorney General for certification. A Parliamentary presentation is held and updates to the draft are made. A presentation to the Senate is held and updates of the regulations are made. Parliament tables the regulations, and a provision of royal ascent is made by His Majesty King Letsie III. The regulations are published, and the public is given a period of 14 days to review the regulations after which their comments are incorporated, and the regulations are finalized and gazetted. The last step is to sensitize the public on the new regulations.
Information on debt obligations is publicly available, including online. The government produces an Annual Public Debt Bulletin, which covers debt management operations, debt portfolio, debt service, and loan guarantees. The government also publishes a Medium-Term Debt Strategy paper. More information is available at: www.finance.gov.ls/ .
International Regulatory Considerations
Lesotho is a member of the Southern African Development Community (SADC) and the Southern African Customs Union (SACU). SACU strives to promote integration of Member States into the global economy through enhanced trade and investment. SADC aspires to deepen regional integration and sustainable development. Lesotho’s products enjoy duty free access to SADC countries, which has a total population of 277 million. For more information about SADC, visit: www.sadc.int .
In January 2021, the GoL ratified the African Continental Free Trade Area (AfCFTA) agreement. The main objective of the AfCTA is to create a single continental market for goods and services, with free movement of business persons and investments. The agreement has been signed by 54 out 55 countries. To date, 35 countries have ratified the agreement. The agreement would provide a market access of over 1 billion people to Lesotho’s products with a combined Gross Domestic Product (GDP) estimated at $3.4 trillion.
Lesotho is a member of the World Trade Organization (WTO). Lesotho’s regulatory systems are independent and not intertwined with regional regulations. In cases where there are gaps with national regulations, the country uses regional regulations to close them. The government does not reference or incorporate U.S. or another country’s regulatory systems. The government strives to provide notification of Technical Barriers to Trade (TBT). More information is located at: https://www.tfadatabase.org/members/lesotho .
Legal System and Judicial Independence
The legal system in Lesotho is based on Roman–Dutch Law and English Common Law, combined with precolonial Customary Law. The judicial system is made up of the High Court, the Court of Appeal, subordinate courts, and the Judicial Service Commission (JSC).
There is no trial by jury, instead, judges make rulings alone. There are magistrates’ courts in each of the 10 districts, and more than 70 central and local courts. With U.S. support, a Commercial Court was established in 2010 to improve the country’s capacity in resolving commercial cases though backlogs continue to delay processing times. Foreign investors have equal treatment before the courts in disputes with national parties or the government. The SADC Protocol on Finance and Investment enables investors to refer a dispute with the State to international arbitration if domestic remedies have been exhausted. Lesotho is a signatory of the International Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID) and also accepts ad hoc arbitration. Lesotho is a member of the International Center for the Settlement of Investment Disputes, and the Arbitration International Investment Disputes Act of 1974 commits Lesotho to accept binding international arbitration of investment disputes.
Laws and Regulations on Foreign Direct Investment
Lesotho does not have any investment laws. The overarching FDI policy is the 2015 National Investment Policy of Lesotho, produced with the assistance of UNCTAD. The Companies Act of 2011 and the Financial Institutions Act of 2012, are the principal laws that regulate incoming foreign investment through acquisitions, mergers, takeovers, purchases of securities and other financial contracts and greenfield investments. The investment treaties also govern conduct toward the entry of foreign investment. In 2020, there were no major cases relating to foreign investment and the 2020 judgments are available at: https://lesotholii.org/courtnames/high-court/2020 .
The OBFC hosts the Lesotho Trade Information Portal, a single online authoritative source of all laws, regulations, and procedures for importing and exporting. The OBFC web site is: http://www.obfc.org.ls/business/default.php . The OBFC portal provides information on company registration and export and import regulations as well as information and links to key laws and 23 ministries.
Competition and Antitrust Laws
The government has produced but not yet passed a draft competition bill to improve the regulation of investments. Its goal is to “provide the legal basis for undistorted competition and thus contribute to transparency and predictability in domestic markets.” The are no agencies established to review transactions for competition-related concerns. However, various government sectors deal with competition-related issues through use of available institutional guidelines and procedures. These include the Commercial Court, the Ministry of Trade and Industry and the Ministry of Small Business. The government is also in the process of drafting a consumer protection bill.
Expropriation and Compensation
The constitution provides that the acquisition of private property by the state can only occur for specified public purposes. The processes that are followed during expropriation follow the Land Act of 2010. These include consultations between government/authority and claimant, consultation with the chief, demarcation and survey of the area, publishing a gazette for public notification and information and provision of compensation equal to fair market value of the property. In cases of expropriation where claimants allege a lack of due process, the affected persons may appeal to the High Court as to whether the action is legal and compensation is adequate. The constitution is silent on whether compensation may be paid abroad in the case of a non-resident; such an additional provision would usually be contained in a foreign investment law. The government has no history of discriminating against U.S. or other foreign investments, companies, or representatives in expropriation. The only local ownership law is the Trading Enterprises Act.
ICSID Convention and New York Convention
Lesotho is a member of the ICSID Convention and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. There is no specific domestic legislation providing for enforcement of awards under the ICSID Convention.
Investor-State Dispute Settlement
The government is a signatory to a treaty in which binding international arbitration of investment disputes is recognized. Lesotho has no Bilateral Investment Treaty (BIT) with the United States. The government has little history of investment disputes involving U.S. or other foreign investors or contractors in Lesotho.
Foreign investors have full and equal recourse to the Lesotho courts for commercial and labor disputes. Courts are regarded as fair and impartial in cases involving foreign investors. There is no history of extrajudicial action against foreign investors.
International Commercial Arbitration and Foreign Courts
Lesotho readily accepts binding international arbitration of investment disputes. Lesotho has entered into a number of bilateral investment agreements that provide for international arbitration. However, Lesotho does not have a bilateral investment treaty with the United States. The government stands ready to accept and enforce foreign arbitral awards and judgements if they meet the requirements of domestic law (there have been no such awards to date).
The Companies Act is the principal commercial and bankruptcy law in Lesotho. According to the law, creditors, equity shareholders, and holders of other financial contracts of a bankrupt company have a right to nominate a person to be a liquidator, however, if there are any disagreements, the person nominated by the creditors shall be the liquidator. All claims against a bankrupt company shall be proved at a meeting of creditors and equity shareholders. If the claim is rejected by the liquidator, the claimant may apply to the court by motion to set aside the rejection. Creditors who will act as witnesses are entitled to witness fees. In a bankruptcy, workers are paid first, then creditors, equity shareholders and holders of other financial contracts are paid. Monetary judgments are usually made in the local currency.