1998 SOUTHERN AFRICA ECONOMIC ... - National Treasury

L E S O T H O
The money market is developing steadily and there are now
m o n t h ly auctions of tre a s u ry bills. In 1997 the central bank
i n t roduced a Central Bank paper which is aimed at
complementing the tre a s u ry bills. T h e re is no capital market in
Lesotho as ye t , but in order to facilitate public sale of state
enterprises the government has tasked the Privatisation Unit of
the Ministry of Finance to coordinate the establishment of a
stock exchange. Regulations governing the operations of the
m a r ket are being pro mulgated under the Central Bank A c t .
E x c h a n ge Contro l s
P rofits and dividends from investments held in Lesotho may be
repatriated fre e ly. All inward transfers of capital should be
re g i s t e red with the central bank to facilitate subsequent
re p a t r i a t i o n . Prior ap p roval is re q u i red for outward transfer of
c ap i t a l .
Residents are only allowed to transfer capital within the CMA
re g i o n , and they are re q u i red by law to declare any fo re i g n
exchange earnings within seven day s . Companies are howeve r
a l l owed to invest outside the CMA, p rovided fo reign exchange
earnings are re p a t r i a t e d .
Fo reign Tr a d e
M e rchandise exports have increased rap i d ly since 1986, g row i n g
by a phenomenal 39.9 percent during 1996. M a nu f a c t u re d
goods (pre d o m i n a n t ly from the textile and leather we a r
industries) made up 76.3 percent of the total export value in
1997 . Total exports to Africa (mainly SACU) have re g i s t e red 89
p e rcent growth in 1996, and account for 71 percent of ove r a l l
e x p o rt s . While the SACU countries remain the largest trading
p a rt n e r s ,Lesotho is diversifying its markets to increase export s
to North America in part i c u l a r, thus reducing its reliance on
S AC U. L e s o t h o ’s network of trade pre fe rences has played a
crucial role in providing favourable access to markets such as
t h e s e.
Main export products are clothing, f u r n i t u re, fo o t wear and
wo o l . Lesotho imports corn, c l o t h i n g , building materials,
ve h i c l e s ,m a c h i n e ry and medicines.
Trade Liberalisation
I m p o rt licenses are issued to licensed traders and
m a nu f a c t u rers resident in Lesotho, and will only be issued fo r
quantities not in excess of local demand.
Fo reign Direct Inve s t m e n t
L e s o t h o, in concert with other countries wo r l d - w i d e,
recognises that FDI is important for the much needed
e m p l oyment generation, i nvestment cap i t a l , and technology
t r a n s fe r, and a lot of effo rt is being made to put in place a liberal
FDI framework to facilitate greater direct inward inve s t m e n t
f l ows into the country.
FDI into Lesotho has increased steadily throughout the 1990s,
f rom USD3m in 1992 to USD19m in 1994 and to USD28m in
1 9 9 6 .
The transformation of South Africa to a democracy has had a
p o s i t i ve impact on the inflow of FDI to Lesotho. South A f r i c a
remains the main source of FDI, accounting for nearly 38
p e rcent of the total port fo l i o, p re d o m i n a n t ly in agri-business,
construction and engineering, m a nufacturing and serv i c e s ,
fo l l owed by East Asia (27 percent) which re g i o n ’s presence is
l a r g e ly concentrated in the clothing, textiles and fo o t wear subs
e c t o r. The residual 35 percent comes from Europe (e. g .
G e r m a ny, S w i t z e r l a n d ,United Kingdom Po rtugal and Italy) and
is mainly in the garment manufacturing business. Of the 23
clothing manu f a c t u rers curre n t ly operating in Lesotho, 14 are
f rom Taiwan and five are from South A f r i c a .
All major infrastructure investments have been financed thro u g h
external sources in the form of grants and concessional finance.
The best known project is the LHWP that commenced in 1987.
The project is immense in comparison with the economy of
L e s o t h o, accounting for more than 25 percent of GDP in its
peak construction year of 1994. The Katse dam enables Lesotho
to supply water to the Gauteng area of South A f r i c a ,and it will
also generate hy d roelectric power for the country itself. O t h e r
infrastructural components of the project includes ro a d s ,
b r i d g e s , p ower lines and power supply systems. T h e
USD1,500m first phase of the project was completed at the
beginning of 1998, marking the start of the transfer of water
t h rough a complex system of dams and tunnels from Lesotho to
G a u t e n g .
Lesotho Privatisation Prog r a m m e
The legislation governing the privatisation programme was put
in place in 1995. The programme is carried out by the
Privatisation Unit of the Ministry of Finance, headed by a
D i rector who is responsible to the Minister of Finance and
Economic Planning.
The participation of Basotho nationals in the privatisation
p rogramme is deemed paramount for the success and
acceptability of the pro g r a m m e. The government has thus take n
a conscious decision to sell its smaller enterprises to the local
business commu n i t y, and to re s e rve share holdings in larger
enterprises for sale to employees and for future public
f l o a t a t i o n . To facilitate such floatation the Privatisation Unit is
charged with the task of coordinating work tow a rds the
establishment of a capital market facility. F u rt h e r m o re the
p rogramme encourages joint ve n t u res between fo re i g n
i nvestors and individuals and groups in Lesotho’s business
c o m mu n i t y. Cooperation is also encouraged between inve s t o r s
in agro-industries and Basotho farmers who traditionally hold
l a n d , but have had little incentive to grow cash-crops like
a s p a r a g u s , fruits and flowe r s , which have proved to grow
s u c c e s s f u l ly in Lesotho.
The port folio of companies to be privatised includes more than
t h i rty state-owned enterprises, and others in which the
government holds shares through LNDC and the Lesotho
D evelopment Bank. These include shares in South Africa based
retail store s , a g ro - i n d u s t ry and utility companies (electricity,
water and telecommu n i c a t i o n s ) .For the latter the gove r n m e n t
is seeking to enter into strategic part n e r s h i p s . The national
b a n k s , Lesotho National Development Bank and the Lesotho
Agricultural Bank have been placed under a management
contract to pre p a re them for privatisation.
Privatisations to date include that of the national airline,L e s o t h o
A i r w ays Corporation,which was sold to a South African chart e r
c o m p a ny, Ross Air in August 1997 at about USD2.2m. This deal
b rought about an application from the South African airline
Airlink to have its traffic rights on the Johannesburg-Maseru line
re i n s t a t e d ,resulting in creation of jobs and a healthy increase in
the competition on the ro u t e.
Other industries that are curre n t ly being privatised include the
Lesotho Flour Mills, the Basotho Fruit and Vegetable Cannery,
the International Freight and Tr avel Serv i c e,t wo mountain lodges
and government mechanical wo r k s h o p s .
I N V E S T M E N T C L I M AT E
I nvestment Incentive s
– A non-re p ayable skills training grant which covers up to 50
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