Investment Climate in Lesotho
The economic growth for the period 2011-14 averaged 4.3% per annum but dropped to an estimated growth rate of 3.4% in 2015 due to weakness in the construction and manufacturing sectors and the growth rates are expected to remain low at 2.6% in 2016 and 2.9% in 2017. Partly the poor performance is as a result of spill overs from South Africa economy
Why invest in Lesotho?
- Lesotho offers stable social and political environment that is investor friendly;
- A free enterprise and free market economic system, which forms the basis for sustained development and growth;
- English speaking, literate, well-motivated labour force;
- Provides access to a big market through Southern African Customs union, Southern African Development Community, USA under Africa Growth and Opportunity Act, European union under EU-SADC interim EPA and
- The country provides a low tax regime.
Lesotho is a constitutional monarchy that is ruled by a King as head of state and governed by a 33-member Senate and a 120-member National Assembly. In recent times, Lesotho’s political climate has been in flux with the country seeing its first coalition government after the elections held in 2012. A snap election was held two years later, in 2015, and yet another coalition government was formed. The current seven-party coalition government is led by the Democratic Congress Party and it controls 65 of the 120 parliamentary seats.
The country has a population of about 2.1 million people with the population growth rate of 0.3%. Lesotho has one of the highest literacy rates in Africa with about 85% of the adult population being literate, partly because Lesotho spends 12% of its GDP on education. However nearly 40% of the population lives below the international poverty line of $1.25 USD per day
About 28% of the population lives in urban areas with urbanization rate of 3.5% per year. The high urbanisation rate is putting a lot of pressure on the urban areas.
Doing business in Lesotho
The highlights of World Bank score of doing business in Lesotho are summarised as follows;
|Topics||World Bank 2017 Rank||World Bank 2016 Rank||Change in Rank|
|Starting a Business||117||110||
|Dealing with Construction Permits||171||171||
|Protecting Minority Investors||106||101||-5|
|Trading across Borders||39||39||–|
The government is the in process of creating conducive environment for doing business in the weak areas of the survey.
Fitch’s credit rating for Lesotho was last reported at B+ with stable outlook.
Exchange controls are currently administered by the Central Bank of Lesotho and the commercial banks are authorized foreign exchange dealers.
Lesotho is a signatory to the convention on the settlement of investment disputes and is a member of the Multilateral, Investment Guarantee Agency. The country is a member of the International Monetary Fund and has accepted the obligations of the Articles of Agreement, thereby giving confidence to the international community of its pursuance of sound economic policies, contributing to a multilateral payments system free of restrictions.
Key development challenges
- Lack of a dynamic private sector to seize opportunities in the Southern African market;
- Control of unsustainable public spending;
- Streamlining legal framework and regulations that enhance doing business environment.
Lesotho is the 83rd least corrupt nation out of 175 countries, according to the 2016 Corruption Perceptions Index reported by Transparency International. Lesotho also scored 39 points out of 100 on the 2016 Corruption Perceptions Index reported by Transparency International.
The attempted coup in 2014 and the killing of a former army chief in 2015 created a lot of security concerns but the situation is under control.
Unemployment and skilled labour
Despite the high rates of economic growth the country faces an unemployment rate of 28% and low labour productivity is wide spread. A 2010/11 household budget survey showed that an estimated 57 percent of the population lives below the poverty line. Poverty is said to have decreased in urban areas and increased in rural areas.
Attitude to Foreign Direct Investment
The government maintains a strong commitment to private investment and is generally open to FDI to create jobs and open new markets and industries in accordance with the national objective of diversifying Lesotho’s industrial base. The government is therefore committed to improving the climate for investment and has undertaken several policy reforms for the purpose. The government has 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 through the enacted the Companies Act of 2011
Restrictions on Foreign investment
Foreign investors enjoy the same rights and protections as Basotho investors. The Land Act of 2010 allows foreign investors to hold land titles so long as the local investors own at least 20% of the enterprise. There also 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 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. The Mines and Minerals Act No.4 of 2005 with the exception of diamond restricts mineral permits for small-scale mining operations on less than 100m2 to local ownership.
Intellectual Property (IP) Rights.
Legal structures to protect intellectual property rights are relatively strong and infringements and theft are not common. Lesotho is a member of the World Intellectual Property Organization (WIPO) as well as the African Intellectual Property Organization. Intellectual property protection 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 law protects patents, industrial designs, trademarks, and grant of copyright. 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.
The key resources include diamond, sand and clay.
Investment Climate in Lesotho has been summarized to include the following
Sources of information