In 2016, real growth was largely driven by the tertiary sector, which grew by 4.5 percent and currently makes up some 55 percent of Lesotho’s Gross Domestic Product (GDP). This performance was underpinned by expansion in wholesale and retail trade, restaurants and hotels, transport and communications, financial intermediation, real estate and business services, public administration, education, health and social work, and community, social and personal services.
The secondary sector also recorded positive growth, although activity in the manufacturing subsector slowed. Growth was buoyed by the depreciating exchange rate, increased demand in the food and beverages subsector, and new entrants in the textiles and clothing industry from Swaziland following its exclusion from the African Growth and Opportunity Act (AGOA).
The primary sector, comprising mining and agriculture, was another driver of growth during 2016. Most activity was registered in the mining and quarrying subsector, which expanded by 9.6 percent and is forecast to grow by 25.7 percent in 2017 and 7.0 percent in 2018. Increased output at Storm Mountain Diamonds’ Kao Mine and the completion of the Liqhobong Mine, coupled with diamond beneficiation activities, underlie these projections.
The mining and quarrying sector’s share in GDP has increased to 8.9 percent, up from 6.5 percent in 2010, boosted by the discovery of high-quality diamonds and the use of new technology.
PRIVATE SECTOR GROWTH
Lesotho’s private sector is relatively small, contributing around 15 percent to GDP. It is characterised by medium, small and micro enterprises (MSMEs) and affiliated business associations requiring financial and technical support and training across all economic sectors.
Despite Lesotho’s challenges in recent years there is an emerging dynamism in the private sector which, combined with a rehabilitated government, could place Lesotho on an upward growth trajectory.
The aim of the next National Strategic Development Plan, which kicks off in 2018/19, will be to consolidate the efforts of the private and public sectors to focus on sustainable growth and job creation.
Commitments in the 2017/18 national budget focus on re-launching dialogue with the private sector in a collaborative effort to accelerate investment, economic growth and job creation. This social compact will define the specific roles to be played by the private sector, civil society, local government councils and the central government, and will determine modalities for mutual accountability. The Financial Inclusion Strategy (discussed later under the Financial Services, Insurance and Investment chapter) will also be a vital element in rekindling private sector growth.
In support of further private sector development, the Ministry of Trade and Industry is undertaking trade and market access facilitation, developing additional industrial infrastructure at Tikoe and Ha Belo, and establishing national standards and quality infrastructure and offices. The Ministry is also presenting the Business Licensing and Registration Bill, the Competition Bill, and Trade and Tariff Administration Bill to Parliament. When passed, these bills will simplify trade licensing, reduce uncompetitive business behaviour, and consolidate the administration of tariffs under the Southern African Customs Union (SACU) Agreement.
A sum of M194.8 million was set aside for the Ministry in the 2017/18 financial year. Of this amount, M1.2 million is allocated for the establishment of the Lesotho Standards Institution and M31.895 million for national standards and quality infrastructure. Furthermore, the operationalisation of online company registration has been achieved and One-Stop Business Facilitation Centre (OBFC) services have been rolled out to Maputsoe. The continued roll-out of OBFCs is taking place in 2017/18 with M5.688 million having been budgeted for this initiative.
Private Sector Competitiveness and Economic Diversification Project
Spearheading economic diversification, enterprise assistance and investment climate reform, the World Bank-funded Second Private Sector Competitiveness and Economic Diversification Project (PSCEDP II) was launched during 2014. The PSCEDP II aims to spur the development of selected non-textile sectors, resulting in increased private sector investment, growth and job creation. This is being achieved through improving the business environment, enhancing access to finance, supporting investment promotion activities in new sectors, and strengthening linkages to domestic MSMEs. A key aspect of the PSCEDP II concerns improving economic diversification in the economy through targeted support to new growth sectors such as horticulture and tourism.
In the first quarter of 2017 the World Bank approved an additional US $13.4 million in financing support under PSCEDP II for continued facilitation of reforms to reduce the time and cost associated with doing business in Lesotho. Other objectives comprise: providing easier access to finance, making trading across borders simpler, and supplying streamlined, accessible and efficient government-to-business services in order to attract private investment and boost growth.
Credit extended to the business sector increased by 6.5 percent during the first quarter of 2017, with the biggest expansion being recorded in the mining and manufacturing sectors.
Under PSCEDP II, Lesotho’s business environment has improved markedly, particularly access to credit. In addition, initiatives to boost private sector diversification have yielded positive results, and the expanded horticulture hub has earned Global GAP certification. One of the current objectives is to establish a Cabinet-level investment climate reform process similar to that under the job summit process.
Improving the business environment
Thanks to a concerted programme of business reforms, Lesotho’s ranking in the World Bank’s ‘Doing Business’ report now stands at 104th out of 190 countries – 8 places higher than in 2016, and substantially better than the regional average. The country fares comparatively well in the ease of ‘Starting a Business’, where at 119th it is ranked higher than Botswana (153rd), South Africa (136th) and Namibia (172nd). On average, it takes seven procedures, 29 days, and costs 7.7 percent of income per capita to start a business in Lesotho. Reforms which underlie this improving scenario include the creation of a one-stop shop for company incorporation in 2013 and elimination of the requirements for paid-in minimum capital and for notarisation of the articles of association.
Lesotho’s particular strengths in the 2018 Doing Business report include ‘Trading Across Borders’ (40th) and ‘Enforcing Contracts’ (95th); scoring better in both indicators than top regional business destinations such as South Africa and Botswana. Lesotho also does well in the ‘Getting Credit’ indicator, where it is placed 77th. Areas where the country still faces challenges are in indicators such as ‘Resolving Insolvency’ (124th), ‘Dealing with Construction Permits’ (167th), and ‘Getting Electricity’ (152nd).
Between 2017 and 2018 Lesotho’s ranking in ‘Ease of Getting Credit’ improved from 82nd to 77th place, putting it on a par with Botswana.
In the past several years, Lesotho has made transferring property easier by streamlining procedures and increasing administrative efficiency, strengthened investor protection by increasing the disclosure requirements for related-party transactions, and improved the liability regime for company directors in cases of abusive related-party transactions. It has also made enforcing contracts easier by launching a specialised commercial court. Access to credit information has been enhanced through the establishment of the country’s first credit bureau, and credit bureau coverage is constantly being expanded.
Economic growth in the country is encouraged by the Lesotho National Development Corporation (LNDC), which initiates, promotes and facilitates the development of manufacturing and processing industries, mining and commerce, in a manner calculated to raise levels of income and employment. Supported by a Government-administered incentive regime, LNDC enjoys clear channels of communication with relevant departments and parastatals in order to speed up service delivery, and has had success in attracting labour-intensive manufacturing enterprises.
The LNDC also provides pre-investment and after-care services to both prospective and existing investors to help simplify and shorten the processes related to investment. Examples include facilitating the procurement of all permits and licenses, as well as providing assistance with company registration. Investment project appraisals are undertaken, along with equity participation in projects considered to be of strategic importance to the national economy and demonstrating long-term viability.
The Corporation collaborates with South Africa’s Industrial Development Corporation (IDC) on matters of mutual benefit, such as capacity building, technical assistance, economic research, project financing, co-investment in projects and exchange of information for strategic cooperation regarding delegation visits and business symposiums. There have also been consultations with the IDC and African Development Bank to secure lines of credit to finance new investment projects and to capitalise a new equity financing scheme for local entrepreneurs.
The LNDC is involved in offering training, which it undertakes through an Industrial Attachment Scheme. This exposes Basotho graduates to opportunities within the country’s various industrial sectors as well as enabling them to gain the requisite practical skills to prepare them for the job market.
The Ministry of Trade and Industry is currently focused on restructuring and/or improving the capacity of business development support institutions to enhance service delivery and institute mechanisms for improved coordination. In this regard, a consultant has been engaged to revise the LNDC mandate and re-engineer organisational business processes and systems, as well as finalising the amendment of the LNDC Act
The Lesotho Revenue Authority (LRA) Business Partnership Forum, which was launched in October 2011, creates a platform for business people to discuss issues related to tax as well as the promotion of the business sector in Lesotho. Its objectives are, among others, to serve as a platform through which the LRA Customs Department and the business community can forge strong partnerships to educate people in business about the need to foster customs compliance. This has seen the development of the Preferred Trader Scheme under the Customs Modernisation Programme and the roll-out of the ASYCUDA World System.
Launched in 2009, the Private Sector Foundation of Lesotho (PSFL) is the umbrella body for the private sector in the country. Its overall objective is to promote and ensure sustained dialogue between Government and the private sector as well as to facilitate the promotion and development of a dynamic private sector.
The limitations of the public sector in creating productive and sustainable jobs has seen the Lesotho Government intensify its focus on developing conditions, frameworks, institutions and facilities that support entrepreneurship. This is particularly aimed at the country’s youth, who need to be equipped with the requisite skills to make them internationally competitive in product and labour markets. Business opportunities that make optimal use of Lesotho’s own resources and generate work throughout the country are promoted, and Basotho are also encouraged to become involved in productive and export-oriented industries, and engage in joint ventures with foreign investors to facilitate the transfer of skills and technology.
Medium, Small and Micro Enterprises
The role played by entrepreneurship in promoting economic development in general and industrialisation in particular cannot be underestimated, and Micro, Small and Medium Enterprises (MSMEs) are currently the pillar of the Basotho economy. The MSMEs Policy has been produced as a framework and strategy to guide the development of such enterprises and build their productive capacities. Revisions are also being made to the Cooperatives Societies Act, with the objective of formulating a plan to capacitate both cooperatives and MSMEs to raise their contribution to economic growth and development.
The Ministry is focusing on strengthening the competitiveness of both MSMEs and cooperative societies, facilitating entry to markets for their products and services. This includes enhancing access to credit from commercial banks while ensuring growth and sustainability of businesses through training on product development, business management and quality and standards assurance. Feasibility studies to determine the viability and sustainability of various enterprises are being undertaken.
The PSCEDP II has financed the Lesotho Enterprise Assistance Programme (LEAP) to enable it to provide business development support to more than 130 MSMEs. Moving forward, LEAP will offer funding for equipment in addition to business support, deepening the impact of the programme.
In recognition of their important role in future growth, the Ministry of Small Business Development, Cooperatives and Marketing has committed M211.9 million to MSMEs in the 2017/18 financial year to increase job intake in these enterprises and expand business opportunities for the youth. This entails promotion and support to establish cooperative enterprises, construction of market centres and slaughter houses, and refurbishment of BEDCO estates and the Lesotho Cooperatives College.
Financial support for enterprise
Established in 2011, the Partial Credit Guarantee Scheme (PCGS) is aimed at addressing the challenge of access to finance for local entrepreneurs by providing them with a guarantee of 50 percent on their business loans with local commercial banks. To benefit from the scheme, prospective entrepreneurs are required to submit their business plans to any of the participating banks to obtain loans.
Modifications have been made to the policy guidelines of the PCGS to accommodate not only priority sectors, but a wider spectrum of sectors including retail and services. While the upper limit of M5 million has remained the same, the lower limit of M200 000.00 was removed to allow banks to lend smaller amounts.
The Partial Credit Guarantee Fund (PCGF) helps Basotho-owned enterprises access finance from banks without having to put up collateral. An amount of M50 million was set aside for the scheme, and by mid-2017 the fund had assisted Basotho with M35 million in financing, benefiting 240 businesses. It was announced in October 2017 that the Ministry of Small Businesses Development, Cooperatives and Marketing had been awarded M10 million of the PCGF, which is accessible to Basotho through the Lesotho Post Bank.
Launched in 2017, the LNDC’s M20 million Supply Chain Finance facility was created to provide access to credit finance to facilitate the development of Basotho-owned enterprises – that is, those in which at least 75 percent of shares are owned by Basotho. The facility consists of three solutions, one of which is invoice factoring, where the LNDC buys up to 80 percent of the value of an outstanding invoice of a firm at a prime-linked rate, thereby addressing the problem of cash flow. Contract financing involves the LNDC helping firms to raise up to 70 percent of the capital needed to execute a secured contract. Furthermore, the LNDC will issue a pre-approval letter on behalf of a firm seeking financial backing for the purposes of competing in a specific tender.
Basotho Enterprises Development Corporation
The Basotho Enterprises Development Corporation (BEDCO) was set up in 1975 as a subsidiary of the LNDC and established as a parastatal in 1980 in order to assist in developing indigenous Basotho-owned business enterprises, with particular emphasis on small-scale businesses and the promotion of entrepreneurial skills.
BEDCO assists MSMEs in business counselling; discovering, evaluating and formulating viable projects for financing by local financial institutions; providing manufacturing and technical assistance to small-scale enterprises; training entrepreneurs in skills to facilitate their employment in the construction and textile industries; and supplying business training courses. BEDCO is also engaged in supplying real estate services, with commercial and industrial rooms and units available for rental in a variety of locations, including industrial parks and the BEDCO Commercial Centre.
BEDCO partners with local organisations such as the Mineworkers Development Agency (MDA), Lesotho National Development Corporation (LNDC), Action Lesotho and many others in order to utilise limited resources for the benefit of enterprise development. Furthermore, the corporation has emerged as a partner of choice among business development organisations from neighbouring countries, such as the Small Enterprise Development Agency (Seda) of South Africa, Local Enterprise Authority (LEA) of Botswana and Small Enterprises Development Company (SEDCO) of Swaziland.
Furthermore, BEDCO has entered into a partnership with the LRA and commercial banks to ensure they contribute towards the setting up of small businesses. Established links with other financing institutions such as IDC of South Africa have played an important role in enterprise development.
Ongoing programmes and projects include: ‘Ichorise Mohoebi’, which is a national entrepreneurial capacity building initiative focusing on starting, operating and growing a business; ‘Iketsetse’, which endeavours to promote rural-based productivity; Corporate Enterprise Development Investment, which taps into the corporate social investment (CSI) funds of large corporates for the benefit of MSMEs; the Creative Industries Empowerment Project, which develops markets for Basotho-made products such as mosaics, pottery, jewellery and handicrafts; and ‘Qhotsiso’, a business incubation programme. The Sebaboleng Woodwork Incubator Project is focused on developing the entrepreneurship skills of people who possess operational skills in carpentry and aspire to start businesses but lack the necessary capital and skills to do so.
Launched in 2016, the 2nd Bacha Entrepreneurship Project represents a collaboration involving BEDCO, the LRA and Standard Lesotho Bank, with the goal of assisting young unemployed graduates between the ages of 21 to 35 to become employers and drivers of economic growth by developing their entrepreneurial skills. The project calls for viable, sustainable and profitable business proposals that will be financed for a combined start-up capital of M500 000.00.
A five-year Memorandum of Understanding (MoU) signed between the LNDC and BEDCO in 2015 focuses on developing MSMEs through sharing research information and building the technical capacity of BEDCO to effectively deliver on its mandate. The agreement also enables MSMEs supported, monitored and mentored by BEDCO to have access to LNDC development finance services, and ensures coordinated efforts in building the skills capacity of personnel involved in enterprise development.
In October 2017 BEDCO unveiled four enterprise development programmes meant to tackle the high unemployment rate: Job Creation Acceleration through SMME Development, which aims to create over 200 new jobs over a period of six months by tapping into the potential of small enterprises; the revamped ‘Ichorise Mohoebi’ entrepreneurship capacity building initiative; Global Entrepreneurship Week; and a programme seeking to foster the development of creative arts and crafts among Basotho.
Lesotho’s most important manufacturing subsectors comprise textiles and garments, food and beverages, automotive components, plastic products, consumer electrical and electronic appliances, packaging material and garment accessories such as zipper and buttons. While manufacturing remains the main engine of growth in Lesotho, its contribution to GDP has dropped from a high of some 21.3 percent in 2002 to 14.1 percent in 2010 and 10.7 percent at present. The fortunes of the sector are closely aligned to those of the textiles and garments subsector.
The Central Bank of Lesotho (CBL), in its annual report of 2016, estimates that the manufacturing subsector grew by 3.6 percent in 2016 compared with growth of 2.4 percent in 2015; driven by improvements in ‘food products and beverages’, ‘textiles, clothing, footwear and leather’, as well as ‘other manufacturing’. Textiles, clothing, footwear and leather products grew by 3.9 percent in 2016, while food products manufacturing also expanded as a result of increased demand.
The global recovery in manufacturing and trade, together with buoyancy in global financial markets, augurs well for Lesotho’s garment exports, despite increased competition from Asia and elsewhere in Africa.
The manufacturing sector remained the largest employer in the economy during 2016. Employment by LNDC assisted companies declined to 47 054 in December 2016 from 48 693 in December 2015, mainly because of the poor performance of woven garments factories, which recorded an 8.1 percent decline in 2016 owing to subdued demand. Conversely, employment rose in the knit garments, footwear and fabrics/yarn industries where prospects were more encouraging.
In the first quarter of 2017, employment by LNDC-assisted companies increased by 0.3 percent. This was underpinned by broad-based growth in the ‘hotel & accommodation’, ‘footwear’ and ‘food & beverages’ subsectors, while ‘woven garments’ and ‘retail’ continued to shed jobs.
The further development of manufacturing is of the utmost importance to the Ministry of Trade and Industry. Medium-term development aims include:
- Developing industrial clusters for identified sectors which have the potential to drive growth and facilitate the adoption of appropriate technology for industrialisation.
- Securing a suitable site and the services of a consultant to draw up plans for the construction of laboratories and offices to house the proposed national quality assurance entity.
TEXTILES, CLOTHING & FOOTWEAR
Manufacturing is dominated by textiles and apparel firms, which have flourished under the provisions of the African Growth and Opportunity Act (AGOA), making the subsector one of the main drivers of growth and export earnings since the 1990s. It has also been a major job creator, in particular for low-skilled Basotho, mostly women, who in the past were excluded from formal employment. While investment has come primarily from Taiwanese and Chinese companies, there have also been entrants from South Africa and, more recently, Swaziland, following the latter’s loss of AGOA benefits.
The contribution of the industry to Lesotho’s economy goes beyond the sector itself, as there are important employment and economic multipliers. A range of formal/informal activities occur that feed into or off the industry; such as small packaging industries, road freight transporters, courier services, clearing agents, security, passenger transport, traders that sell food to workers, residential accommodation, water, electricity and telecommunication utilities.
Lesotho’s labour laws enshrine all aspects of the ILO’s core conventions, regulate maximum working hours, and guarantee minimum paid leave. While the application of these laws is regulated by the inspectorate of the Ministry of Labour and Employment, many retailers and brands (including Levi Strauss, The Children’s Place, Gap, etc) that source garments from Lesotho also monitor factory conditions. In 2016 a donor-driven ILO initiative ‘Betterwork Lesotho’ wrapped-up an eight year programme involving factory compliance with local and global standards. Currently, six local factories (all United States exporters) have Worldwide Responsible Apparel Production (WRAP) accreditation.
A snapshot of the industry
By the end of 2016, the textiles, clothing and footwear subsector comprised the following elements:
- 1 Textile firm providing 1 220 jobs and producing 18 000 tonnes of yarn and 15.6 million linear metres of fabric per year
- 9 Denim (woven bottoms) firms employing 13 124 workers and producing 23.304 million garments annually
- 4 Non-Denim Woven Fashion firms with employment of 1 580 and production of 6.360 million garments every year
- 6 Industrial Workwear firms providing 4 696 jobs and output of 11.003 million garments per year
- 33 Knit Garments firms employing a total of 24 513 workers and producing 115.143 million garments annually
- 2 Footwear firms with employment of 1 253 and production of 7.2 million pairs of shoes per year
- 11 Supporting Industries providing jobs for 218 people
Employment in the footwear industry soared between 2016 and 2017, reaching growth of 82.7 percent year-on-year in the first quarter of 2017, from 768 to 1403 jobs.
Challenges and opportunities
Clothing and textiles industries have formed the backbone of Lesotho’s export trade to the United States (US) market, and the 2015 extension of AGOA for a further ten years ensures continued preferential market access for Lesotho. Notwithstanding the challenges within the Basotho textile and clothing industry, which have diluted some of the benefits of AGOA, the performance of the US economy remains important in sustaining export demand. Exports to the US are nonetheless expected to remain under pressure due to the continued erosion of Lesotho’s competitiveness in US markets by new multilateral and bilateral trade developments.
The uncertainty of US exports has seen the textiles and clothing subsector begin a process of diversifying its markets, particularly to non-AGOA destinations such as South Africa. In 2015/16, 70 percent of Lesotho-made garments were exported to the US under AGOA, while 30 percent terminated in South Africa. This represents a significant shift from sole reliance on the US market, as only ten years ago no more than 5 percent of Lesotho’s apparel entered the South African market.
The textile, clothing, footwear and leather products subsector realised growth of 3.9 percent in 2016 compared with 4.8 percent in 2015 according to the CBL 2016 Annual Report. At the same time, growth in exports of textiles and clothing was recorded at 18.4 percent in 2016 against 35.2 percent in 2015. While textile exports to the US continued to face challenges, Lesotho’s increase in market share in the Southern African Customs Union (SACU) region improved significantly, especially exports of textiles destined for the South African market, and exports to non-AGOA destinations are expected to grow.
DIVERSIFICATION & DEVELOPMENT
Lesotho has a pressing need for export product and market diversification, as well as the development of value chains. The second Private Sector Competitiveness and Economic Diversification Project also concentrates on promoting diversification with the aim of building value chains and catalysing private sector efforts to scale up production.
Reports such as the ‘Lesotho Potential Export Diversification Study’ have identified products with which Lesotho could have comparative advantage, as well as potential new markets for products, and trade missions to source new buyers are ongoing. Local firms have been called on to diversify their exports to the US beyond textiles to fully benefit from the renewal of AGOA.
In addition to the important ‘food products and beverages’ subsector, the Lesotho National Development Corporation has identified the following areas for investment:
- Packaging materials and accessories
- Consumer electrical and electronic appliances
- Leather and footwear
- Textile and garments (higher value-added garments; knit mills)
- Water bottling
- Automotive components
- Sandstone products
Strengthening value chains
A study by the African Development Bank (AfDB) on textile value chains revealed that skill deficiencies, particularly at management and supervisory level, as well as limited and ineffective industry-specific training facilities, constitute a critical constraint to harnessing this value chain. It has been recommended that lead companies strengthen linkages with emerging local entrepreneurs to bolster supply. This is in addition to the need to increase productivity, skills development and transfer between foreign and local entrepreneurs.
According to the AfDB, without a major productivity improvement and upgrading programme for entrepreneurs that includes more value addition, the industry will not be able to compete globally. Specific policies to further local company development and linkages to the domestic economy are required to extend the impact of the clothing industry beyond its immediate employment creation effect.
Local entrepreneurs currently participate in the lower level processes of cut, make and trim plants. Provided financial constraints can be overcome, these entrepreneurs would play a more important role by upgrading to full package suppliers, using new machinery and production processes. Apart from textiles, the development of entrepreneurship would require promotion of investment in agro-industry and development of agri-business to increase value-addition and market integration. Access to markets (buyers and suppliers) often impedes entrepreneurship development. This calls for the industry associations to offer support by providing information on market requirements and potential buyers and suppliers.
Basotho Canners, incorporated as Basotho Fruit and Vegetable Canners (BFVC) (Pty) Ltd, is located in Masianokeng, Maseru. It processed raw materials (fruits, vegetables and ingredients) to produce consumer products such as canned baked beans in tomato sauce, organic peaches and asparagus, fruit juice and tomatoes. As an export-oriented company, BFVC had some success in exporting its products to South Africa and other international markets like the EU. However, the existing plant is currently not in operation.
Basotho Canners is 100 percent owned by the LNDC, which is seeking a Joint Venture investment partner to operate the agro-processing factory on a management contract basis. The objective is to resuscitate and expand the current facilities for improved production and packaging of canned fruits and vegetables to better meet current and future demand in terms of quantities and quality of products, including ISO 9000 certification.
To achieve this, Basotho Canners will produce and package the following products: beans in tomato sauce, juice, Chakalaka (canned mixed vegetables; HS 2004.90), peaches and asparagus. Beans in tomato sauce, potatoes, green peas, juice and Chakalaka will be marketed in the local market, while asparagus and organic peaches will be marketed to both the local and international markets through wholesalers, distributors, supermarkets, caterers, hotels, retail stores/general dealers, restaurants and food courts.
The raw materials will be sourced from local smallholder farmers, who will be equipped and capacitated to produce sufficiently for the cannery, while excess supply will be channelled through the local market centre as fresh produce to meet local demand.
The construction of industrial estates is undertaken by the LNDC on land allocated by Government, with development concentrated in the Maseru and Leribe districts. Access to the estates is via tarred roads and, for freight purposes, those situated in Maseru are linked by rail from Maseru’s industrial area to the South African railway system. Maputsoe Industrial Area is close to South Africa’s Ficksburg station.
The LNDC’s Industrial estates comprise:
- Ha Nyenye (31 hectares) – 80 kilometres north of Maseru
- Ha Tikoe (80 hectares) – 7 kilometres south of Maseru City
- Berea (7 hectares)
- Ha Belo (121 hectares) – Botha-Bothe
Under the Tikoe Industrial Infrastructure Phase 2 Project, which was completed in the 2016/17 financial year, the LNDC has developed 27 hectares of land into a fully-serviced estate with roads, water, electricity and 11 factory shells with sizes ranging from 2 000 to 4 000 square metres (a total rentable space of 30 000 square metres) to accommodate new investors. The project was financed by Government and its development partners, the Arab Bank for Economic Development in Africa (BADEA) and the OPEC Fund for International Development (OFID), in an amount of
US $28.4 million.
Infrastructure development is ongoing in 2017/18, with M50 million having been set aside for Tikoe Industrial Infrastructure Phase 3 and a further M50 million for Belo industrial infrastructure.
The mining and quarrying sector has grown swiftly over the past two decades, and presently contributes 8.4 percent to Lesotho’s GDP in current prices. As of 2017, there were three diamond mines and two sandstone quarries in full production. Lesotho has an estimated 405 kimberlite bodies in the form of pipes, dykes or offshoots.
The mining industry is a significant job creator, directly employing about 3 000 people – a figure which is expected to double as new mines commence production in the next few years. The Ministry of Mining anticipates that by 2020 the industry will employ more than 10 000 people.
Government plans to increase the contribution of mining to 10 percent of GDP by 2025, raising diamond production from 350 000 carats per year to about 1.5 million carats a year. One of the benefits of operating a mine in Lesotho is that it is located in the heart of southern Africa, and an array of mining skills and services are available from neighbouring countries such as South Africa and Botswana.
While diamond mining remains the main focus of the industry, in early 2017 Government signed agreements with two mining companies to prospect for coal and shale gas. The first phase of shale gas prospecting involves research on the geological structure of the southern region, which will assist in the targeting of preferred sites for drilling, while the second phase entails the quantification of the gas resource. There is potential to find gas reserves of up to 10 trillion cubic feet. Coal exploration will take place in Mohale’s Hoek at Qhalasi and Matebang, with a view to determining whether there are significant deposits for viable commercial exploitation.
The recovery in global demand for diamonds is currently supporting growth in Lesotho’s diamond mining industry. The mining and quarrying output index increased by 16.1 percent in the first quarter of 2017 relative to growth of 18.2 percent in the fourth quarter of 2016, on a seasonally adjusted basis. The increase in production came predominantly from higher levels of diamond recovery in the country’s three diamond mines. In mid-2017, Government forecast that the mining sector would post growth of 17.3 percent in 2017/18 from 8.1 percent in 2016/17 as a result of the recapitalisation of Liqhobong Diamond Mine which has achieved full production.
The European market is the main destination for Lesotho’s rough diamonds exports. The Central Bank of Lesotho (CBL) expects diamond exports to accelerate from -1.3 percent in 2016 to 62.5 percent in 2017 before slowing to 7.1 percent in 2018.
Mineral sector framework and policy
The Ministry of Mining is committed to disseminating information on mineral resources, as well as regulating and managing prospecting and mining activities to develop the mining sector in partnership with stakeholders in an environmentally friendly and sustainable manner for the socioeconomic benefit of the Basotho nation.
Through the Ministry, the Government of Lesotho has a clear mandate on the following four areas in the mining industry:
- Policy formulation, implementation and monitoring
- Regulation of the sector
- Investment and development, where Government is a shareholder in mining activities
- Provision and management of geological information about mining resources in Lesotho
In order to realise this mandate, a Minerals and Mining Policy was developed by the Ministry together with key stakeholders and approved by the cabinet in June 2015. The policy was formulated in line with the Africa Mining Vision (AMV 2009) which advocates for ‘transparent, equitable and optimal exploitation of mineral resources to underpin broad-based sustainable growth and socio-economic development’. Designed to attract investment and thus encourage growth, it provides a strategic direction for the development of the country’s mineral resources and a predictable regulatory framework for the sector.
The Minerals and Mining Policy also points to the need to engage in beneficiation of diamonds to add more value, create additional jobs, get a better deal from the country’s resources, and boost the tourism sector. The capital intensive nature of the mining industry means that it is not a huge employment creator. However, Government anticipates that the more highly skilled positions, which are currently being filled by workers from outside Lesotho, will be given to Basotho once they have acquired the requisite skills.
Following consultations with industry stakeholders, Lesotho is drafting new minerals legislation to achieve institutional reform, promote investment in the sector by clarifying and securing investors’ mining assets, and ensure that international standards are adhered to in terms of environmental protection, health and safety.
The Ministry of Mining issues prospecting licenses through competitive bidding; an approach which improves governance and transparency while raising the potential for securing further investment.
The Ministry of Mining’s medium-term objectives include:
- Implementing the Minerals and Mining Policy, reviewing the existing legal framework, and developing a strategic plan for the Ministry in order to promote investment in the mining sector
- Determining the country’s potential mineral resources and reserves to facilitate the discovery of available minerals as well as diversify mineral production
- Increasing the number of operating mines in Lesotho by opening new mines and encouraging downstream activities
- Ensuring that the Ministry’s structure is responsive to its strategic objective of strengthening mining industry regulation
- Putting measures in place that help to maximise revenue collection
- Setting up structures that will promote and enable beneficiation of minerals and increase participation of Basotho in the mining sector
Research and investment
Government places a great deal of emphasis on mineral research and tries to ensure that information on resources is easily available to all potential mining investors. Although commercial mining interests have up to now concentrated primarily on diamonds, there are indications that Lesotho possesses numerous other valuable mineral deposits. The geochemical mapping project presently underway includes the five base metals of platinum, niobium, tungsten, cobalt and tantalum, as well as rare earth elements.
Achievements during 2016/17 included the updating of 47 out of 58 geochemical maps to bring the country’s mineral resources information up to date. In addition, analysis of satellite data and ground trothing was conducted, and results for rare earth and platinum group elements are now available.
An allocation of M36.2 million was proposed for the Ministry of Mining in the 2017/18 budget. Of this amount, M4 million is earmarked for the Lesotho Geochemical Mapping (LGM) project.
In order to increase investment in the minerals sector, the Ministry of Mining is spearheading the construction of a M76-million Geoscience Laboratory in Maseru. This will allow for in-country research and provide, besides other services, indicative mineral resource reports for exploration and mining companies. The first phase of development is likely to be completed in 2018, with the laboratory’s capacity to be expanded over time. Expected outcomes include accelerated turnaround times for exploration and mining companies, which currently have to send test results to South Africa for analysis.
Beneficiation of diamonds
Mineral beneficiation features prominently on Government’s agenda, as the local processing of diamonds adds value to Lesotho’s mining industry and creates jobs for Basotho. A feasibility study into developing a Jewellery Manufacturing and Diamond Centre in Maseru recommended, as a starting point, the establishment of a few select core businesses capable of:
- Competing in the international market
- Promoting joint ventures with existing foreign jewellery businesses
- Producing quality finished and semi-finished exportable products
- Instituting intensive training programmes
- Creating sustainable jobs
Lesotho’s Mining Ministry intends establishing the Lesotho Diamonds Centre (LDC) in Maseru at an estimated cost of M10 million. This will be an exchange platform for the buying and selling of diamonds. The LDC will start out as a small Ministry-driven project, which will focus on the evaluation of diamonds by grading and sorting of gems, as well as securing government revenues obtained from royalty payments. It will also be mandated to collate correct data on the volumes of exported diamonds, which is a key requirement of the Kimberley Process.
The LDC will initially be located at the Mining Ministry’s offices in Maseru. In the long-term the plan is to establish it near Moshoeshoe I International Airport so that buyers are afforded easy access to the centre. This will also ensure greater security, as the diamonds will not need to be transported great distances. Furthermore, it is hoped that the LDC will be able to address issues of artisanal and small-scale mineworkers. This subsector has not yet been set up as a legal, state-regulated industry.
Affiliated with the internationally-recognised Harry Oppenheimer School of Diamonds, the Lesotho Diamond Academy trains students in gemmology (the study of natural or artificial gems), diamond evaluation, cutting and polishing.
Lesotho’s economic performance is expected to recover over the 2017–2019 period, largely as a result of the improved performance of the mining sector, thanks to increased output from the country’s main diamond mines.
While Lesotho’s alluvial deposits have historically yielded a number of large, high-quality gem diamonds, it was not until the 1950s that the source of these gems was discovered in the Maloti Mountains. These diamondiferous kimberlite deposits were mined by artisanal diggers between 1959 and 1968, and thereafter by large mining companies such as Rio Tinto (1967-1972) and De Beers (1977-1982), with the latter mining the Letšeng-la-Terai deposit situated about 70 kilometres from Mokhotlong. Mining production reached its peak in 1980, when diamonds to the value of M24.7 million were exported. The mine was closed in 1982 as it became less profitable.
The open-pit Letšeng Diamond Mine was purchased by Gem Diamonds, a leading global producer of high value diamonds, in 2006. The company owns 70 percent of the mine, with the balance of interest (30 percent) being held by the Lesotho Government. The mine employs approximately 1 600 people, including contractors, with the Letšeng workforce comprising about 97 percent Lesotho nationals.
At an altitude of over 3 kilometres above sea level, it is the highest diamond mine in the world and is renowned for the recovery of large, high-quality Type II diamonds. Over the course of a decade, Letšeng has produced more than 60 gems in excess of 100 carats, predominantly high-value white diamonds. Amongst these are the iconic 603-carat Lesotho Promise, the 550-carat Letšeng Star, and the 493-carat Letšeng Legacy. This is in addition to the 601-carat ‘Lesotho Brown’ recovered in 1960.
In 2015, Letšeng produced the 357-carat Letšeng Dynasty and the 314-carat Letšeng Destiny. The mine is also a source of high-quality pink and blue diamonds, with a rare blue diamond achieving a sales price of US $603 047 per carat in 2013 and an exceptional pink diamond achieving US $187 700 per carat in 2016.
Although Letšeng produces only about 100 000 carats per year because of its low grade recovery (averaging just less than two carats per hundred tonnes), the mine’s exceptionally high average dollar-per-carat status puts it in the top 15 global diamond producers by revenue. Diamonds from Letšeng are worth, on average, between US $2 000 and US $2 500 per carat, and generate revenues of about US $200 million a year for Gem Diamonds.
Over the past five years, Letšeng has grown to become one of the largest open pit diamond mines in the world. It processes ore from two kimberlite pipes: the 17-hectare Main pipe and 5.2-hectare Satellite pipe. Initiatives to unlock additional value at the mine, including an updated open-pit life of mine plan, large diamond recovery and breakage projects, and a mining optimisation project, began in 2017.
The revised life of mine plan will reduce waste tonnes mined and increase ore treated from 6 to 7 million tonnes per annum, with the contribution from the higher dollar-per-tonne Satellite pipe rising from 1.6 million to 1.8 million tonnes per annum for the next two years, and thereafter to 2.0 million tonnes per annum until 2029. The new plan will also reduce capital requirements over the life of mine, with improvements in near term cash flows.
Letšeng should continue profitable production until 2038, with Gem Diamonds expecting to transition to underground mining operations from around 2025. Owing to the close proximity of the kimberlite pipes to each other, one option is for a shaft to be sunk between the pipes to ensure access to both simultaneously. Another option envisages accessing the ore bodies from the adjacent valleys, entailing the construction of a horizontal shaft instead of a vertical one.
Production at Letšeng increased by 26 percent in the third quarter of 2017 to 30 774 carats. The recovery of high-end diamonds is also improving, with the mine having yielded six diamonds in excess of 100 carats in the first nine months of the year compared with just four during 2016. These include the 114.38-carat Type II, 126-carat D-colour Type IIa, and 104.73-carat white diamonds, as well as a 151.52-carat yellow diamond.
Letšeng’s Diamond Discovery Centre is a permanent interactive exhibition that tells the story of Lesotho’s diamond industry, with a specific focus on the history of diamond mining at Letšeng.
Liqhobong Diamond Mine lies at the head of the Liqhobong Valley in the Maloti Mountains. It comprises a main and satellite pipe, covering areas of 8.5 hectares and 0.8 hectares, respectively. The mine has since September 2010 been operated by Liqhobong Mining Development Company (LMDC), 75 percent of which is owned by Firestone Diamonds and 25 percent by the Government of Lesotho. The diamond resource currently extends to approximately 520 metres below surface, totalling around 23 million carats at an average grade of 28 carats per hundred tonnes. The potential exists to extend the mine life as the resource is open at depth: the deepest vertical hole drilled to date terminated in kimberlite at 650 metres below the surface.
Following development of the main treatment plant and supporting infrastructure, Liqhobong was commissioned in October 2016, with construction completed on time and within the US $185.4 million budget. This includes a new processing plant capable of producing 3.6 million tonnes per annum and facilitating improved diamond value management by reducing breakages and enabling the recovery of intact stones in excess of 100 carats.
Firestone’s first two diamond sales were completed in February and March 2017 in Antwerp. Total sale proceeds of US $13.7 million were achieved, with all 127 590 carats offered for sale being sold and achieving an average price of US $107 per carat.
Nameplate capacity of 300 000 tonnes per month was being achieved regularly in the first quarter of 2017. Scheduled plant commissioning modifications at the mine resulted in a higher grade of 20.1 carats per hundred tonnes achieved for March, with the grade expected to continue rising post the implemented plant modifications and the mining of higher grade ore in the main pit in the coming months.
Firestone Diamonds’ review of its current life of mine plan was undertaken in order to optimise mining operations. This has seen the company revise its production guidance for the year to 30 June 2018, which is anticipated to be between 800 000 and 850 000 carats. This will be achieved by extending the mining of the weathered kimberlite in order to access lower areas of the pit that have historically yielded higher grade and higher value diamonds. Furthermore, Firestone plans to mine additional waste rock in the coming year in order to improve the long-term mining prospects.
In April 2017, a 110-carat diamond was unearthed at Liqhobong. This was followed by the recovery of a 134-carat gem-quality light yellow diamond in October 2017 – the largest gem the company has recovered to date.
At 1 million carats per annum, Liqhobong Mine has the largest production capacity of all Lesotho’s diamond mines.
The owner and operator of Kao Diamond Mine, Storm Mountain Diamonds (SMD), is a subsidiary of London-listed Namakwa Diamonds, which holds a 75 percent equity interest while the Government of Lesotho holds 25 percent. At 19.8 hectares, the main kimberlite pipe at Kao is the largest in Lesotho and the fourth-largest in southern Africa. There is also a 3.2-hectare satellite pipe. Situated in the Botha-Bothe District, within a 20 kilometre radius of the Letšeng and Liqhobong mines, Kao has a total resource of 173 million tonnes, containing about 12.6 million carats.
Commercial production began in March 2012, treating up to 300 000 tonnes per month. A plant expansion project intended to raise production to 400 000 tonnes per month was completed in 2016. The upgrading of plant equipment has notably enhanced processing capacity as well as helping to reduce damage to larger gems. Increased production volumes are achievable due to the large size of the kimberlite pipe. Mining flexibility in the open pit is an advantage, with a life-of-mine stripping ratio of less than one tonne of waste per tonne of ore. In addition to increasing the scope of mining in the pit, Kao’s production horizon has been extended until at least 2035.
Kao’s output is characterised by a high percentage of gem-quality stones and many fancy stones with colours ranging from pink, purple, yellow (vivid and light fancy) and light brown to the classic ‘blue white’. Furthermore, the mine has yielded the largest pink gem diamond recovered in Lesotho, the 36.02 carat ‘Pink Storm’, which was sold for US $425 000 per carat. Kao’s top ten diamonds have generated US $38 million at an average price of US $75 000 per carat.
Located near on the southern edge of the Kaapvaal Craton, which hosts the diamondiferous northern Lesotho kimberlite field, the Mothae Diamond Project comprises an estimated 8.8-hectare diamondiferous kimberlite pipe containing a resource of large, high-value Type lla diamonds. Mothae is 30 percent-owned by the Government of Lesotho and 70 percent by Lucapa Diamond Company, and has an indicated resource of just over a million carats and an inferred resource valuation amounting to US $1 billion.
Lucapa acquired Mothae in early 2017 for a sum of US $9 million. Its erstwhile majority owner, Lucara Diamond Corporation, abandoned the resource in 2015. Trial mining between 2008 and 2012 during Lucara’s ownership yielded 23 446 carats, including 96 stones weighing more than 10 carats each, while three separate rough diamond sales fetched up to US $41 500 per carat. Lucapa has a ten-year mining lease, with the option of extending this by another decade.
In October 2017, Lucapa announced that its new development plan for Mothae, which optimises the pit design to maximise targeted diamond production and cash flow, had significantly improved project economics. The new mine plan is expected to result in a 29 percent increase in gross project revenues to US $776 million, a 26 percent increase in net operating cash flows to US $312 million, and a 22 percent increase in diamond production to 498 000 carats. In addition, it is anticipated that the life of mine will be extended to 13.5 years, and the project’s net present value is forecast to rise by 31 percent to US $85 million.
In terms of the new plan, Phase 1 will see a higher processing capacity at the diamond plant from 100 to 150 tonnes per hour, with the targeted mining and treatment period remaining unchanged at around 34 months, and initial production targeted for the second half of 2018. During Phase 2, the miner intends installing a second 150 tonne-per-hour module in parallel with the Phase 1 plant to achieve the targeted 300 tonne-per-hour Phase 2 throughput.
Under the new mine development plan, Phase 1 is expected to cost US $17 million, of which US $1.5 million had already been funded as of October 2017. Lucapa has also secured a US $15 million facility from Equigold, with the Lesotho Government agreeing to assist the company with additional up-front investment by deferring the remaining consideration payments due
The government-owned Lemphane Kimberlite Project is one of five known diamondiferous kimberlite pipes within the region, and lies in close proximity to both the Letšeng and Liqhobong deposits. Lemphane has the potential to yield large high-quality diamonds of up to 8.90 carats with values greater than US $2 400 per carat having been recovered. Negotiations are underway to determine who will be awarded the lease for the operation of Lemphane, with Government having shortlisted three companies.
Operated by Reskol Diamond Mining, a subsidiary of French-listed Batla Minerals, the Kolo Diamond Project in Mafeteng has an estimated resource of 1.3 million tonnes of kimberlite and 110 000 carats. Reskol has a ten-year lease which expires in 2021. Trial mining was expected to be completed before the end of 2017 and has included Phase 1, consisting of setting up processing facilities and conducting a 60 000-tonnes pre-mining test, and Phase 2, involving capital investments to increase capabilities and process 50 000 tonnes per month.