2011 Investment Climate Statement - Lesotho

2011 Investment Climate Statement
Bureau of Economic, Energy and Business Affairs
March 2011

Openness To, and Restrictions Upon, Foreign Investment

The Government of Lesotho (GOL) welcomes Foreign Direct Investment (FDI) and views it as a means to drive growth, improve international competitiveness, and access foreign markets. Virtually all business sectors are open to foreign investors without requiring special government approval. There are almost no restrictions on the form or extent of foreign investment. One exception is small-scale retail and service businesses, which are restricted to domestic ownership only. No foreign ownership or even board directorship by a non-citizen is permitted at any level. There are foreign-owned small retail businesses that were established before the present restrictions. These exceptional restrictions on FDI stem from Lesotho’s sensitivity to the entry of small business owner-operators from abroad, especially China and West Africa. With some restrictions, residents and non-residents may hold foreign exchange accounts. Some payments and transfers are subject to prior government approval and limitations, and many capital transactions face restrictions or quantitative limits.

Lesotho's performance in attracting FDI has been good by regional standards. Many trading businesses and all substantial manufacturing businesses are open to FDI. Relevant trading or industry licenses are required and must be renewed annually. Current business taxation regulations only partially address investor needs as they predominantly favor investment in manufacturing. The GOL is under pressure to revise relevant laws affecting investors in additional sectors. In most aspects of "normal business," foreign investors receive national treatment and are on an equal footing with Basotho investors. The investment climate is favorable with regards to currency conversion, monetary transfer policies, and lack of undue burdens to investors.

Most foreign investment originates from East Asia and South Africa, and 90% of all FDI flows into export-oriented manufacturing, specifically apparel for the U.S. market. There are approximately 40 factories specializing in both woven and knit garments. Most are owned by investors from Taiwan, Hong Kong, Singapore, and South Africa. FDI in apparel alone created 45,000 jobs in 2008; however, employment in the sector has declined to less than 35,000 jobs due to falling buyer orders attributed to the global economic crisis. The single largest known investment within apparel is the approximately USD90 million in infrastructure by the Taiwanese-owned Nien Hsing Group.

Beyond apparel, South African firms lead FDI, with investments in air travel, hotels, insurance, telecommunications, financial services, mining, and manufacturing of footwear and electronics. Foreign firms’ concentration in such a narrow range of products provides ample opportunity for further diversification.

Lesotho’s telecommunications sector has also attracted FDI. The consortium of ESKOM, Econet Wireless International, and Mauritius Telecom own a 70% share of Lesotho Telecom. Lesotho has a high penetration of telephony relative to per capita income. Such services have been extensively modernized and expanded in recent years.

FDI in diamond mining has been revived by the reopening of three commercial diamond mines – Lets’eng Diamonds, Liqhobong, and Kao diamond mines. Lets'eng Diamonds is a partnership between a South African-owned company and the GOL. The mine employs about 70 people, 90% of whom are Lesotho nationals. Liqhobong and Kao diamond mines are partnerships between GOL and a European and Gibraltan mining company, respectively. Operations at these mines were suspended at the end of 2008 due to falling rough diamond prices. Two kimberlite pipes namely Kolo (1.1 hectares) and Mothae (8.8 hectares) are under evaluation by Angel Diamonds and Motapa Exploration Limited Lesotho, respectively. There are several other small kimberlite pipes ranging in size from 1 to 2 hectares which require ore-reserves estimation and grade calculations before mining.

In its attempt to attract FDI to the mining industry, the GOL has offered a number of concessions, including VAT exemptions on inputs used during construction, and exemptions from withholding taxes on dividends and interest payments. In return, the GOL is granted 8% of gross sales royalties and a share of dividends due to its equity shareholding in the three mines. The GOL has 30% equity shareholding in Lets’eng Diamonds, 25% in the Liqhobong diamond mine, and 7% in the Kao Diamond Mine (with provision for this to increase to 13% or 20%). Three laws: the Mines and Minerals Act (2005); the Precious Stones Order (1970); and the Mine Safety Act (1981), provide a regulatory framework for the mining industry.

Until June 2010, foreign ownership of land was a serious challenge to investors because foreigners were prohibited from owning land lease titles. The Land Act 2010 now allows for land ownership by foreign investors so long as local investors hold at least 20% of shares in the enterprise. This issue continues to be addressed through the Land Administration Reform Project as part of Millennium Challenge Corporation (MCC) funding for Lesotho. A major opportunity to improve Lesotho’s investment climate is expanding the legal framework for investors. The GOL has indicated their desire to improve the country's FDI policy and legal framework to improve transparency and consistency.

Lesotho is a member of SADC, although investors from member countries receive no preferential treatment. Lesotho's standards of treatment and protection for foreign investors are good in practice, but the legal framework guaranteeing these norms is weakly developed. There is no foreign investment law. Bilateral Investment Treaties (BITs) have been concluded with only two countries, the United Kingdom in 1981, and Germany in 1985. Tourism has barely been exploited, and remains a key opportunity for growth.

The Lesotho National Development Corporation (LNDC) is the main parastatal of the Government of Lesotho; it falls under the Ministry of Trade and Industry, Cooperatives and Marketing and is charged with implementing the country’s industrial development policies. The LNDC provides assistance to foreign investors and publishes information on investment opportunities and services it offers to foreign investors. It also offers incentives, assistance with work permits, and logistical support for relocation.

The GOL continues to recognize the need for the country to be competitive in regional and international markets, and to work toward that goal. The government has embarked on structural reforms to improve the investment climate. Initiatives include private sector competitiveness programs under the MCC and World Bank, as well as modernizing customs processes through technical assistance from the USAID Southern Africa Global Competitiveness Hub. Specific activities include modernizing bank payment systems, introducing national ID's, creating credit facility for manufacturers, and modernizing land tenure systems. Customs processes improvements will include minimizing the number of procedures required to clear consignments, both for export and import clearance purposes.

The Ministry of Trade and Industry has introduced a "One Stop Shop" where all services required for the issuance of licenses, permits, and imports and exports clearances are housed under one roof. This has reduced the number of days to start a business from 92 days to 30 days. The Ministry is committed to developing this facility further to increase efficiency and expedite the procedures and processes needed to compete in the exporting business. Developments will extend to simplifying and expediting the issuance of work and residence permits to reduce the turnaround time.




TI Corruption Index



Heritage Economic Freedom



World Bank Doing Business



MCC Government Effectiveness


0.48 (90%)

MCC Rule of Law


0.60 (89%)

MCC Control of Corruption


0.82 (100%)

MCC Fiscal Policy


11.9 (95%)

MCC Trade Policy


63.5 (33%)

MCC Regulatory Quality


0.00 (50%)

MCC Business Start Up


0.945 (71%)

MCC Land Rights Access


0.613 (51%)

MCC Natural Resource Mgmt


47.51 (15%)

Conversion and Transfer Policies

The GOL has traditional foreign exchange controls but is itself controlled by its membership in the Southern Africa Common Monetary Area (CMA), comprised of Lesotho, Namibia, South Africa, and Swaziland. Under the CMA the South African rand is legal tender in Lesotho. Under CMA rules, the loti should be exchanged at par with the rand and the rand/loti peg must be maintained. Lesotho must hold reserves in rand and other foreign currencies. There are no exchange controls between Lesotho and South Africa but CMA members agree to have exchange controls with third parties. South Africa has recently relaxed its foreign exchange controls in an attempt to weaken the strength of its currency, and since South Africa has a decisive influence on the exchange rate and a monetary policy of the rest of the CMA, Lesotho is expected to relax its foreign exchange controls as well.

With limited controls adopted in 1993, Lesotho has partly liberalized the capital account. Controls on the current account were abolished in 1998. Commercial banks have been delegated authority to undertake current account transactions and Lesotho has acceded to Article VIII of the International Monetary Fund, although dividends payments still require Central Bank approval. The Central Bank maintains direct power of approval over foreign exchange requirements for all capital account transactions including FDI, capital disinvestment, and contracting and servicing of offshore debt. There has never been a case of blockage of such transfers, and shortages of foreign exchange that could lead to blockage are highly unlikely given net international reserves of USD983 million, equivalent to eight months of import cover. Lesotho is a member of the Southern African Common Policy on approval of foreign loans. Policies on foreign borrowing, however, are not strongly developed as there is little foreign borrowing by resident businesses. The Central Bank of Lesotho (CBL) and the LNDC monitor international capital inflows.

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. For loan repayments, however, an investor needs to notify the bank at the beginning of an investment that the capital for that investment is a loan and disclose the terms of the loan. Two days is the current average delay period for remitting (through normal and legal channels) investment returns such as: dividends; return of capital; interest and principal on private foreign debt; lease payments; royalties; and management fees.

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. Affected persons may appeal to the High Court as to whether the action is legal and compensation is adequate. The constitution is silent as to whether compensation may be paid abroad in the case of a non-resident. There have not been any expropriatory actions in the recent past. The GOL has not discriminated against U.S. investments, companies, or representatives in expropriation.

Dispute Settlement

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. Complex commercial cases may be heard by foreign judges. The GOL established the Commercial Court in February 2010 and appointed two judges in an effort to improve the country’s capacity to resolve commercial cases. Privatization has introduced a number of investment agreements and increased the need for international arbitration to settle disputes. Under the BIT with United Kingdom, an investor may take a dispute with the GOL to international arbitration. The BIT with Germany is silent on this issue.

Lesotho is a member of the Multilateral Investment Guarantee Agency, the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. Currently, there is no legislation providing specifically for the enforcement of these conventions.

There were no investment disputes in recent years involving U.S. or other foreign investors or contractors in Lesotho.

Performance Requirements and Incentives

The GOL does not maintain any measures inconsistent with or in violation of the World Trade Organization’s (WTO) Trade Related Investment Measures (TRIMs). There are no incentives or performance requirements specific to foreign investors as a condition of investment. There are a number of financial incentives available to manufacturing companies establishing themselves in Lesotho, such as unimpeded access to foreign exchange, export finance facility, and long-term loans. These incentives are applied uniformly to both domestic and foreign investors and are specified in law or regulation.

The Lesotho tax system heavily favors investment in manufacturing. Corporate income generated from exporting manufactured goods outside the Southern African Customs Union (SACU) is taxed at 0%. There is a permanent maximum manufacturing tax rate of 10% on profits and there is no withholding tax on dividends paid to non-residents from manufacturing profits. There is also free repatriation of profits derived from manufacturing companies. Corporate income in all other sectors is taxed at 29% and a further 25% withholding tax on non-resident dividends. There is a credit facility for value added tax (VAT) on imports, which provides input tax credit upon importation and local purchasing of raw materials and capital goods for manufactures. Moreover, only industrial buildings and mining qualify for depreciation allowances for taxation. Buildings for services, tourism, farming, etc., are not depreciable. Infrastructure such as land improvements and site services also do not qualify.

Lesotho has double taxation agreements with the Federal Republic of Germany, the Republic of South Africa, Mauritius, and the United Kingdom.

Right to Private Ownership and Establishment

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. Lesotho has no competition law or overall competition regulator. Instead, under the industrial and trading licenses system a business can apply for protection from competition for up to 10 years.

Protection of Property Rights

Lesotho respects international intellectual property laws and is a member of the World Intellectual Property Organization and the African Regional Intellectual Property Organization. Secured interests in property, both movable and real, are recognized and enforced in Lesotho. The concept of a mortgage exists; mortgages are protected under the Deeds Registry Act, 1967.

Secured interests, including mortgages, are recorded and filed by the deeds registry.

Patents are rarely issued in Lesotho but trademark protection is often sought and granted. Intellectual property protection is regulated by the Industrial Property Order 1989 and the Copyright Act of 1989, which conform to the standards set out in both Paris and Berne conventions respectively. The law protects patents, industrial designs, trademarks, and grant of copyright. The Law Office is responsible for enforcement of copyrights.

The Land Act, 2010 protects and facilitates acquisition and disposition of land, while the Deeds Registry Act, 1967 protects and facilitates acquisition and disposition of buildings and mortgages. No adequate steps been taken to implement and enforce the WTO TRIPS agreement and the government has not signed and ratified the WIPO internet treaties.

Transparency of the Regulatory System

The judicial system is fair and competent in commercial matters and the government is willing to supplement the bench with foreign judges in specialized cases. The High Court established a Commercial Court with two judges in February 2010 to provide transparent and efficient adjudication and completion of commercial cases. Generally there is adequate regard in the courts for equal treatment of foreign investors who are in dispute with national parties or the government.

Company law is based on the Companies Act of 1967 which provides reasonable standards for most purposes but is believed to be incomplete and complex. Technical improvements were incorporated in a 1998 draft of a new company law and were circulated to stakeholders but a new law has not been introduced.

The regulatory framework for utilities is modern, but is outdated for mining. Lesotho mining legislation gives authority to grant titles to the King and Principle Chiefs upon the recommendation of a Mining Board. Financial services regulation is also up to date but the industrial and trading license system is archaic. Industrial licensing long ago lost its original purpose of protecting start-up firms from competition. Trading licenses are required for 44 types of business. Some enterprises can require up to four licenses for one location.

Lesotho's Telecommunications Authority is the sector's independent regulator. The authority sets conditions for entry of new competitive operators. Currently it allows Lesotho Telecom to maintain a monopoly for fixed-line and international services.

Banking regulations do not give power to the Central Bank to give directions as to interest rates, exchange rates, margins, or the spread of services offered. The currency peg with South Africa negates the GOL’s leverage on monetary policy. This creates a low political risk environment for banking investment.

Proposed laws and regulations are published in draft form for public comment. Public gatherings are held to explain the contents of the proposed laws, providing additional opportunities for comment. There are no private sector or government efforts to restrict foreign participation in industry standards-setting consortia or organizations.

Efficient Capital Markets and Portfolio Investment

Lesotho has a small financial system closely tied to South Africa through the CMA. There are three South African-owned banks: First National Bank; Ned Bank; and Standard Lesotho Bank, which bought a 70% share in the state-owned Lesotho Bank. There is also Lesotho PostBank, which is 100% government owned. The South African banks dominate the sector, accounting for almost 90% of the country's banking assets, which totaled over M8.2 billion (USD1.1 billion) in September. The CBL regulates the all the financial and the non-financial institutions through the Financial Institutions Act (FIA), 1999 and Insurance Act, 1976.

According to a November 2010 IMF report, the banks in Lesotho are well capitalized, very liquid, and comply with international banking standards. The ratio of liquid assets to total assets rose slightly from 77% reported in 2005 to 78% in 2006. Credit provision is very low but is to be addressed through structural reforms under the private sector development component of the MCC Compact, including the establishment of a credit bureau. Industrial and commercial credit is provided by the LNDC and foreign investors are able to get credit on the local market. The LNDC's mandate is to promote and facilitate foreign investment.

Competition from State Owned Enterprises (SOEs)

Lesotho privatized all state owned enterprises (SOEs) including telecommunications, banks, utilities, government transportation, and radio following the adoption of the privatization Act of 1995. In 2004, however, the government established a government-owned bank which is mandated to provide financial services to Basotho living in urban and rural areas of the country who do not have bank accounts. In 2008, the government also introduced state-owned buses in the public transportation sector. The SOEs senior management reports to an independent board of directors. They are required by law to publish an annual report and to submit their books to independent audit.

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.


There are no sovereign wealth funds or asset management bureaus in Lesotho.

Corporate Social Responsibility

There is a general awareness of corporate social responsibility (CSR) among both producers and consumers. Investors support social initiatives especially during the winter season and “Festive Season” around Christmas. Foreign and local enterprises tend to follow generally accepted CSR principles such as the OECD Guidelines for Multinational Enterprises. Firms who pursue CSR are viewed favorably.

Political Violence

In the years following the 2007 general elections, there have been civil disturbances and protest rallies by opposition parties but no incidents have involved political violence to commercial prospects or installations.

On April 22, 2009 there was an unsuccessful attempt to kill the Prime Minister. The official report on the incident acknowledges the volatile nature of Lesotho’s political history since independence, but lays the blame squarely on individual actors and not systemic problems. Those individuals charged with orchestrating the attack are pending extradition from South Africa.

There are no known nascent insurrections, belligerent neighbors or other politically motivated activities aiming to destabilize Lesotho.


Anti-corruption legislation passed in 1999 provides criminal penalties for official corruption. The Directorate on Corruption and Economic Offenses (DCEO) is the primary anticorruption organ and investigates corruption complaints against public sector officials, under the supervision of the Ministry of Justice and Human Rights. The Amendment of Prevention of Corruption and Economic Offences Act of 2006 first subjected public officers to financial disclosure laws. Yet, the disclosure form to be used has still not been determined. The law may also be applied to private citizens if deemed necessary by the DCEO. Lesotho signed and ratified the UN Anticorruption Convention in 2005 but it is not yet a signatory of the OECD Convention on Combating Bribery.

No known U.S. firms have identified corruption as an obstacle to FDI in Lesotho. According to the DCEO, there is no baseline to measure the level of corruption in any sector including the executive, legislative, or judicial branches. The media has occasionally raised allegations of corruption in the mentioned sectors. Giving or accepting a bribe is a criminal act and the penalty for such is a minimum of M10,000 (USD1,428) or 10 years imprisonment. Lesotho has a commendable track record of combating and prosecuting high-level corruption cases. The GOL successfully prosecuted the former CEO of the Lesotho Highlands Water Project for accepting bribes, and he is currently serving an 18-year sentence for the offense. The foreign company involved was prosecuted for bribing the official and heavily fined. Local companies cannot deduct a bribe to a foreign official from taxes. The GOL encourages companies to establish internal codes of conduct that, among other things, prohibit bribery of public officials. Most companies have effective internal controls, ethics, and compliance programs to detect and prevent bribery.

There were isolated reports of government corruption during the year. One high-profile report of corruption and fraud within Lesotho’s Block Farming Program (BFP) emerged in February 2010. After investigation, the Office of the Ombudsman released a report in September alleging corruption by the Minister of Finance, the Minister of Forestry, and the Assistant Minister of Agriculture and Food Security. Together, the three officials personally received more than USD2.7 million in BFP loans guaranteed by the GOL.

International nongovernmental "watchdog" organizations operate in the country. Under the Transparency International's Corruption Perceptions Index for 2010, Lesotho scored 3.5 and ranks 78 out of 178 countries.

Bilateral Investment Agreements

Lesotho has bilateral investment protection agreements or treaties with the United Kingdom and Germany which entered into force in 1981 and 1985, respectively. In 2004, Lesotho also signed a bilateral investment agreement with Switzerland, for the promotion and protection of investment. This agreement has not yet entered into force. The three agreements have already been posted in full on the UNCTAD website.

Lesotho does not have a bilateral investment treaty or a bilateral taxation treaty with the U.S. and there are no taxation issues of concern to U.S. Investors.

OPIC and Other Investment Insurance Programs

OPIC insured one U.S.-owned company, Seaboard Corporation, in its joint venture with Lesotho Flour Mills. Seaboard started operations in 1998 and currently employs about 300 people. OPIC can encourage United States investors to consider exploring new investment opportunities in other sectors. The Mission does not have a bilateral agreement providing for OPIC program and does not budget for OPIC claims in its official budget. The mission does not purchase local currency since it has an account with one of the commercial banks. In the event that the mission needs local currency, it draws from its local bank account without the need for conversion. As a result, there is no exchange rate risk of either devaluation or depreciation.

Lesotho is a member of the Multilateral Investment Guarantee Agency (MIGA). In 2000, MIGA issued guarantees to Imperial Group (Proprietary) Limited of South Africa for its investment in the partial privatization (60%) of the government's Plant and Vehicle Pool Service Unit.


Lesotho's Labor Code Order of 1992 regulates terms of employment and conditions for worker health, safety, and welfare. It was amended in 2004 to include HIV/AIDS policies in the workplace. Union organization is permitted. There is a full-time and independent Directorate of Industrial Dispute Prevention and Resolution. Statutory minimum wages are fixed annually by the Ministry of Labor and Employment with recommendations from a tripartite Wages Advisory Board. Minimum wage setting is sensitive to the textile and garment industry's need to maintain competitiveness.

In 2001, Lesotho ratified both the ILO Convention 182 on the Prohibition and Elimination of the Worst Forms of Child Labor and Convention 138 on the Minimum Age of Employment. The Labor Code Order of 1992 and its subsequent amendments are the principal laws governing terms and conditions of employment in Lesotho.

There is surplus unskilled labor but special labor skills are in limited supply. The Labor Code Order of 1992 requires every non-citizen employee or self-employed person to have a work permit. A work permit is issued by the Labor Commissioner, who must be satisfied that no qualified Lesotho citizen is available for the position. The statutory maximum duration of a work permit is two years.

Foreign Trade Zones/ Free Trade Zones

There are no areas designated as duty-free import zones in Lesotho.

Foreign Direct Investment Statistics

FDI data is readily available though the compilation currently has a two year lag. The latest Private Capital Flows (PCF) Survey report is for 2007. The 2008 PCF report is still being finalized and the Central Bank would not release the data to post as it is not considered official until the Minister of Finance and Development Planning approves it. Post relies mostly on the Private Capital Flows (PCF) Survey report produced by the CBL for FDI data. The CBL has adopted an international framework for monitoring private capital flows and investor perceptions through annual surveys. Data represent actual investment, excluding announced but not completed investment. The CBL does not provide data on major FDI by U.S. companies or other nations' companies. This makes it difficult to track the United States' and other countries' FDI position in Lesotho on an annual basis.

Table A: Year-end Stock of Foreign Direct Investment in Lesotho for 2007


FDI Stock

in Million Maloti


in Million USD


GDP in Million USD: 1,571.72 (GDP at 2007 current prices)

Stock as % of GDP: 6.02

Table B: 2007 Direct Investment Capital Flows by Industry Sector

In millions of USD

% of GDP

Mining and Quarrying






Building and Construction



Wholesale and Retail Trade



Transport and Communications



Finance and Insurance



Real Estate and Business



Total Capital Flows



Table C: 2007 Direct Investment Capital Flows by Country of Origin


In millions of USD

% of GDP

South Africa












United States









United Kingdom



Total Capital Flows



Table D: 2007 Direct Investment Abroad

Stock in Million Maloti


Stock in Million USD


Stock as Percentage of GDP


Table E: 2007 Direct Investment Abroad by Industry Sector


in Millions Maloti

in Millions USD

% of GDP





Wholesale & Retail




Transport & Comm.




Finance & Insurance




Total Claims Abroad




Table F: 2007 Direct Investment Abroad by Country of Destination


in Millions Maloti

in Millions USD

% of GDP

South Africa
















Total Claims Abroad




FDI data source: Central Bank of Lesotho; Report on Private Capital Flows Survey 2007

GDP data source: Bureau of Statistics; 1998-2008 National Accounts Publications

Exchange rate period: 2007 average, USD1 = M7.40