Lesotho is a constitutional monarchy – one of only three which remain in Africa – and gained its independence from Britain on 4 October 1966. This small, land-locked country with a population of just over 2 million people has been referred to as the ‘Switzerland of Africa’ because of its rugged topography and high altitude: its lowest point is approximately 1 400 metres above sea level.
The country is encircled by the economic powerhouse of South Africa, and has forged strong regional ties and trade links with its neighbours. It is currently a member of the Southern African Development Community (SADC), Common Monetary Area (CMA) and Southern African Customs Union (SACU), as well as benefiting from a fixed exchange rate regime with South Africa. Furthermore, trade preferences such as the United States’ African Growth and Opportunity Act (AGOA) have been beneficial for the textile and garments industry.
While agriculture was once the dominant sector, today Lesotho’s most important economic activities include construction, mining and manufacturing, and its chief exports are textiles and garments, diamonds, water, wool and mohair.
Lesotho is a member of the Southern African Customs Union (SACU) and Southern African Development Community (SADC), and participates in a number of economic partnership agreements with various regional and international blocs. It is also part of the Common Monetary Area (CMA) which links South Africa, Namibia, Lesotho and Swaziland. The Basotho economy is closely integrated with that of its neighbour, South Africa, and the countries share a fixed exchange rate regime. Furthermore, South Africa remains Lesotho’s second-largest export destination as well as being its primary source of imported goods. The United States (US) serves as the main market for Lesotho’s textile exports, thanks to the preferential trade terms afforded by the African Growth and Opportunity Act (AGOA).
Lesotho’s government is committed to promoting the private sector and attracting foreign direct investment (FDI), guided by the updated Companies Act of 2011 as well as various sector-specific pieces of legislation. These cover mining, tourism and the industrial sector, with a particular focus on textile manufacturing. Structural reforms in agriculture have seen the removal of price subsidies and import controls on maize and wheat produce in favour of market-determined prices.
Contributing around 15 percent to Lesotho’s Gross Domestic Product (GDP), the private sector is presently still quite small as a result of factors such as the country’s limited market size, low levels of technology and restricted ICT capacity. There are nonetheless many ongoing initiatives to accelerate private sector growth, which include speeding up the implementation of the Companies Act as well as the Land Act.
THE BASOTHO ECONOMY
Lesotho’s economy is dependent on clothing and textiles, diamond mining, the export of water to South Africa, revenue from SACU, and workers’ remittances from South African mines. Between 2010 and 2014, growth averaged 4.3 percent. While the agricultural sector only accounts for some 5.7 percent of GDP at present – from around 20 percent in 1983 – it is the main source of income for the majority of the rural population.
Economic activity in the 1990s was driven by the construction boom which accompanied the first phase of the Lesotho Highlands Water Project (LHWP), an extensive water transfer scheme to supply the needs of South African industry. Around the turn of the millennium the manufacturing sector, specifically the textiles and apparel industry, took over as the principal source of foreign revenue and jobs. By 2002, it made up some 21.3 percent of Lesotho’s GDP peaking. Diamond mining has become an increasingly important industry in the past decade and a half, with its contribution to GDP rising from 0.1 percent in 1999 to around 9 percent in 2015. In addition to diamonds and textiles, large infrastructure projects like the second phase of the LHWP are expected to attract ever greater levels of investment in the medium to long term.
Strategic development plans
Lesotho’s National Strategic Development Plan II (NSDP II) will map out the country’s development agenda in the medium term, covering the 2017/18 to 2021/22 period. One of the most important objectives of the first NSDP (2012/13 to 2016/17) was to create the conditions necessary for high, shared and employment-creating economic growth, while developing key infrastructure across all economic sectors, especially in support of private sector investment and development.
The new NSDP will integrate emerging issues, national, regional and international policy commitments and programmes, particularly the United Nation’s Sustainable Development Goals (SDGs), the African Union (AU) Agenda 2063, and the SADC Regional Indicative Strategic Development Plan (RISDP). In addition, it will contain indicative costing of proposed activities and expansion of existing programmes, an analysis of the implications for sectoral resource allocation, and mechanisms for effective monitoring and evaluation.
As an active member of many regional groupings and their associated trade agreements, Lesotho has the scope to diversify both its export markets and products.
The global upswing in economic activity is strengthening, with global growth projected to rise to 3.6 percent in 2017 and 3.7 percent in 2018, according to the International Monetary Fund (IMF) in its World Economic Outlook (WEO) report of October 2017. Notable improvements in investment, trade and industrial production, coupled with greater business and consumer confidence, are supporting the recovery. With early 2017 growth generally stronger than expected, upward revisions to projections are broad-based, and include the euro area, Japan, China, emerging Europe, and Russia, which offset downward revisions for the US, United Kingdom (UK)
After the disappointing global performance over the past few years, this recent pick-up provides an ideal window of opportunity for policymakers to undertake critical reforms to stave off downside risks, raise potential output, and improve living standards more broadly. In the medium term, global growth is forecast to increase marginally beyond 2018, reaching 3.8 percent by 2021.
Among advanced economies, domestic demand and output grew faster in the first half of 2017 than in the second half of 2016. In the US, weakness in consumption in the first quarter turned out to be temporary, while business investment continued to strengthen, partly reflecting a recovery in the energy sector. In the euro area and Japan, stronger private consumption, investment, and external demand bolstered overall growth momentum in the first half of the year. Growth in most of the other advanced economies, with the notable exception of the UK, picked up in the first six months of 2017 from its pace in the second half of 2016. With growth in advanced economies projected to gradually decline toward potential growth rates of about 1.7 percent, further improvements in global performance are entirely driven by emerging market and developing economies.
Robust growth is forecast in emerging market and developing economies, from an upwardly revised 4.3 percent in 2016 to 4.6 percent in 2017 and 4.9 percent in 2018. This forecast primarily reflects stronger projected activity in China and in emerging Europe for 2017 and 2018. While commodity importers account for the lion’s share of growth in emerging market and developing economies, the projected increase is driven mainly by higher growth in commodity exporting countries such as Brazil and Russia. However, while emerging Asian countries are generally growing at a fast pace, many of those in Latin America, Sub-Saharan Africa (SSA) and the Middle East continue to struggle with sub-par performances.
The picture for the SSA region continues to be one of multispeed growth. While on a steadily rising trend from 1.4 percent in 2016 to projections of 2.6 percent in 2017 and 3.4 percent in 2018, there are sizable differences across countries. Downside risks have risen because of idiosyncratic factors in the region’s largest economies and delays in implementing policy adjustments. Beyond the near term, growth is expected to rise gradually, but barely above population growth, as large consolidation needs weigh on public spending. The outlook for fuel-importing countries is generally brighter, with an aggregate growth rate of 3.9 percent in 2017, rising to 4.4 percent in 2018.
The IMF has cut South Africa’s economic growth forecast for 2017 to just 0.7 percent, citing ‘rising political uncertainty’ as the main factor behind the cut, with the political situation having dented consumer and business confidence across the country. Growth is projected to remain subdued despite more favourable commodity export prices and strong agricultural production, with predictions of a slight improvement to 1.1 percent in 2018.
Lesotho’s economy in 2016/17
The slow and uneven global and regional recovery continues to have negative effects on Lesotho’s export potential. South Africa, the second largest economy in the Sub-Saharan region, exerts a major influence on Lesotho’s performance, and its persistent economic slowdown has cut employment prospects for Basotho mineworkers, as well as dampening Lesotho’s exports to that country and destabilising SACU revenues.
From minimal growth of only 1.7 percent in 2015/16 and 2.1 percent in 2016/17, Government projects a recovery of economic activity averaging 3.4 percent over the medium term. This is based on rising agricultural production, which declined significantly in 2016 due to the El Niño climate effect, but is expected to recover substantially during the 2017/18 crop year. The mining sector is expected to post robust growth of around 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 recently resumed full production. Thanks to increasingly diversified export markets for Lesotho’s textiles and apparel, the manufacturing sector also recorded higher growth, although exports to the US remain under pressure due to stiff competition from Asian producers.
In the external sector, the overall balance of payments continues to indicate vulnerability to external shocks. From a deficit of 8.6 percent in 2015/16, the current account balance is expected to worsen further in 2016/17 to 15.6 percent on account of a significant drop in SACU receipts and flat remittance income. While Lesotho is able to manage the deficit in the short term, this situation underlines the importance of transformation along with heightened production and export levels.
Official international reserves were recorded at 4.5 months’ of import cover in 2016/17 from a high of 6.1 months in 2015/16. The deterioration came from lower SACU revenues and a draw-down on reserves to finance the large budget deficit in 2016/17. Reserves will deteriorate further to 4 months of imports in 2017/18, but should stabilise and begin to recover during 2018/19 and 2019/20 to Government’s desired policy benchmark of 5 months of imports in light of the bold steps being taken to control spending.
Inflation in Lesotho is expected to average 6.6 percent overall for 2016/17, mainly due to increases in the cost of food and non-alcoholic beverages. The inflation rate is projected to decline marginally in 2017/18 to 6.3 percent.
Future growth is anticipated
The Central Bank of Lesotho (CBL) expects the country’s performance to recover over the 2017-2019 period, primarily because of rapid growth in the primary sector – particularly the mining subsector – which is being driven by higher production levels at two of the biggest diamond mines. While the secondary sector is expected to contract in the medium term due to completion of construction activities in some mining plants, the commencement of advance infrastructure relating to Phase II of the LHWP is expected to contribute positively to the sector in the longer term.
The IMF estimates that Lesotho’s GDP will grow by 4.6 percent in 2017, and anticipates growth accelerating to 5.6 percent by 2021.
Lesotho’s year-on-year consumer inflation rate registered 5.4 percent for both July and August 2017, compared with the 5.0 percent recorded in June 2017.The acceleration in overall inflation comes against the backdrop of increased inflation in the ‘food and non-alcoholic beverages’ category, despite falling food prices across the southern African region.
INVESTING IN LESOTHO
Lesotho’s free enterprise and free market economic system forms the basis for sustained development and growth, and the business environment is becoming ever-more investor-friendly. The legal framework is solid and based upon the rule of law, and there is full Government support on trade and investment issues.
As regards the safeguarding of investments, with a score of 6.0, Lesotho ranks higher than both the Sub-Saharan and US averages (5.0 and 4.0 respectively) in the World Bank’s Index of Shareholders’ Power. Lesotho also does better than Sub-Saharan Africa in the Index of Investor protection, scoring 5.0 against 4.3.
Being centrally situated in Southern Africa gives Lesotho access to a substantial consumer market in neighbouring South Africa as well as the more sophisticated transport and communication networks of its larger neighbour. There are good road connections to both the economic hub of Gauteng and the port of Durban on the Indian Ocean, and thus links to the wider international community, making it suitable for export-orientated manufacturing industries. Globally, Lesotho is ranked 39th out of 190 economies in the World Bank’s ‘Doing Business’ report for 2017 when it comes to the ‘Ease of Trading Across Borders’ indicator.
Lesotho’s labour force is young, predominantly English-speaking, literate and well-motivated, with a tradition of manual dexterity at competitive wage rates. Serviced industrial sites, factory shells and commercial buildings are available for rental, and there are special incentives provided to investors who erect their own factories at designated sites.
Backstopping services from the Lesotho National Development Corporation (LNDC) and a One-Stop Shop for business brings together a streamlined and integrated suite of services for businesses and investors, and includes Trading and Manufacturing Licences, Import and Export Issuances, Residency Visas and Work Permits. Import and export procedures have been greatly improved in terms of number of procedures, length of time and cost.
Current tax and financial incentives are as follows:
- 10 percent corporate tax on profits earned by manufacturing companies exporting outside SACU
- Manufacturing corporate tax rate of 10 percent on profits for intra-SACU trade
- No withholding tax on dividends distributed by manufacturing companies to local or foreign shareholders
- No advance corporation taxes paid by companies on the distribution of manufacturing profits
- Training costs are allowable at 125 percent for tax purposes
- Payments made in respect of external management skills and royalties related to manufacturing operations are subject to withholding tax of 10 percent
- Easy repatriation of manufacturing profits
- A VAT rate of 14 percent (ensuring harmonisation with the RSA)
- Furthermore, the Lesotho Revenue Authority has introduced flexible VAT payment systems to tax compliant firms to ease cash flows
Investment assets and constraints
According to the United Nations Conference on Trade and Development (UNCTAD) in its 2017 World Investment Report, FDI inflows to Lesotho went from US $169 million in 2015 to US $132 million in 2016. FDI stock amounted to US $266.5 million (11.8 percent of GDP) in 2016 against
US $251.0 million (10.6 percent of GDP) in 2015. In addition, the World Bank and the International Fund for Agricultural Development (IFAD) have invested over US $24.46 million since March 2012 to benefit more than 370 farmers, most of them women.
Further investment climate reforms are regarded by Government as the foundation for attracting higher levels of private investment. UNCTAD is working with Government to develop an investment
policy to enable Lesotho to market itself as an investment hub.
Current constraints to investment include high port authority expenses resulting from Lesotho being a landlocked territory, and the comparatively low quality of its infrastructure, not to mention a degree of political uncertainty in recent times. Nonetheless, Lesotho’s fundamental assets, such as its skilled labour force, high rates of productivity, and potential-laden tourism industry remain compelling strengths for the wider business community.
Lesotho improved its position in the World Bank’s ‘Doing Business’ rankings by 12 places between 2016 and 2017.
Traditionally, areas which have attracted the greatest investment include large infrastructure projects like the LHWP, and initiatives that aim at developing the hydroelectric power industry will likely attract new investors in the coming years. Lesotho’s textiles and garments subsector is another potent attractor of investors, who come mainly from South Africa and South-East Asia, with the country’s duty-free access to the US under AGOA having been extended until 2025. The mining industry also brings in a great deal of FDI.
Foreign direct investment in priority sectors is encouraged, with preference given to joint ventures for sustainability and developmental purposes. The spotlight is on activities that contribute to the diversification of Lesotho’s industrial base to include manufacturing other than textiles and apparel. Government directs development to areas where Lesotho has a comparative advantage and therefore stands a chance of competing with the rest of the world, and the LNDC has identified the following priority subsectors:
- Agro industry
- Adventure and eco-tourism
- Renewable energy
- Infrastructure and construction
- Mining and other resources
There are a number of investment opportunities currently available in Lesotho. Basotho Canners in Masianokeng, Maseru, is looking for a Joint Venture (JV) investment partner to operate the agro-processing facility on a management contract basis to produce and export products such as baked beans, juice, mixed vegetables, peaches and asparagus. The project cost is estimated at
US $30 million.
A further project involves the development of the world’s highest altitude eco-distillery for the production of spirits from Agave and other sources; as well as a 20-bed, four-star boutique hotel with an on-site spa and events venue. The project has substantial and experienced partners operating at the regional and international level, and seeks an investor, potentially with experience in the sector, to provide the necessary capital.
The Lesotho National Broadband Network (NBN) Initiative requires a telecommunications infrastructure investor to partner with the LNDC and telecommunications service providers. The objective of this US $150 million project is to expand telecommunications infrastructure and make it available on an Open Access, non-discriminatory and uniform pricing basis to a large number of service providers in the industry. Another ICT project, the US $300 000 Lesotho Call Centre initiative requires a technical partner for project development and investment.
LESOTHO NATIONAL DEVELOPMENT CORPORATION
Operating under the auspices of the Ministry of Trade and Industry, the Lesotho National Development Corporation (LNDC) strives to facilitate economic growth and development in the kingdom while promoting it as an attractive investment destination to foreign and local investors. In addition to a robust Government-administered incentive regime, the LNDC enjoys clear channels of communication with relevant state departments and parastatal organisations in order to speed up service delivery.
The LNDC offers pre-investment and after-care services to both prospective and existing investors as an expedient means of simplifying and shortening 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. Subsidies are given to investors wishing to construct their own industrial buildings at LNDC-serviced sites.
Factory inspections are conducted to assess workplace circumstances and thereby ensure harmonious relations between employers and employees, as well as investor-compliance with the country’s labour laws. A specifically-designed checklist of all labour-related issues facilitates prompt detection and intervention where necessary.
The corporation administers the Partial Credit Guarantee Scheme, where the commercial banks provide loan guarantees (on a 50/50 risk sharing basis) to entrepreneurs who wish to start or expand medium to large businesses but do not have sufficient collateral/security. Furthermore, the launch of the M20 million Supply Chain Finance facility, one of the four components of LNDC’s Enterprise Development Facility (EDF), is an important step.
The Supply Chain Finance facility is set to boost the production and export capacity of local firms by providing Basotho-owned enterprises with access to credit finance. 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. Firms qualify as Basotho-owned provided at least
75 percent of their shares are locally owned. Contract financing will involve the LNDC helping firms to raise up to 70 percent of the capital needed to execute a secured contract. The corporation will also issue a pre-approval letter on behalf of a firm seeking financial backing in order to compete in a specific tender.
The LNDC was one of the winners at the UNCTAD Investment Promotion Awards at the World Investment Forum in Nairobi, Kenya, in July 2016. The Corporation was honoured for its instrumental role in forging effective collaboration with strategic partners, in particular the Industrial Development Corporation of South Africa and the China-Africa Development Fund, to promote investment in strategic projects in infrastructure, agriculture, energy and manufacturing. Its efforts have attracted investment in renewable energy and in rural areas.
Promoting investment and competitiveness
LNDC is a member of the Africa Investment Promotion Agency Network (AfrIPANet). This is a programme developed by the United Nations Industrial Development Organisation (UNIDO), with the aim of providing investment promotion agencies with up-to-date and accurate investor survey information, thus enabling them to readjust investment promotion interventions in areas expected to bring the most impact in terms of linking domestic investment to FDI.
Additionally, the LNDC has joined forces with the USAID-Southern African Trade Hub to increase international competitiveness of the regional textile and garment industry. Textile and garment manufacturing companies need to be certified under the Worldwide Responsible Accredited Production (WRAP), which looks at whether factories are compliant with international standards in terms of child labour and forced labour, health and safety, harassment and abuse, discrimination, hours of work, compensation and benefits, and freedom of association.
LNDC led a delegation of private sector representatives, including senior officials from the African Development Bank, to the second Japan-Africa Business Forum in Tokyo, Japan, from 25 to 26 July 2017. Forums such as these provide opportunities for business partnerships and networking between Africa, the Japanese business community and other Asian investors.
The focus of the Japan-Africa forum was on energy and power, agriculture and agribusiness, infrastructure, trade and industrialisation, health and sanitation. Ongoing initiatives being undertaken with support from the Japan International Cooperation Agency (JICA) include solar energy installations at Moshoeshoe I International Airport, equipment supply to Moshoeshoe I meteorological stations, hydrological stations to measure flow in various rivers in Lesotho, as well as mobile water treatment plants for purification of water and distribution to rural areas.
Turkey is set to open an embassy in Maseru; a move which will strengthen diplomatic ties, increase the level of development cooperation and boost economic partnerships.
TRADE & MARKET ACCESS
Regional integration is of prime importance, given Lesotho’s small size and geographical position within the larger economy of South Africa. Benefits to this relationship include ready access to its neighbour’s excellent transport network, technology, expertise, goods markets, investment resources and capital and financial markets.
To take full advantage of these opportunities, Lesotho has been involved in the upgrading of border post facilities and access roads, and the establishment of a dry port. Furthermore, it has undertaken several initiatives in the form of bilateral, sub-regional and regional agreements to facilitate regional trade relations. These include a Joint Bilateral Commission on Cooperation between Lesotho and South Africa on issues of infrastructure and transport.
The Lesotho Revenue Authority’s Asycuda customs border control system is part of the broader Customs Modernisation Programme meant to simplify clearing processes and reduce the costs of doing business, while also reducing levels of corruption at the border and increasing revenue collection. The system entails non-intrusive methods of inspections, such as the use of X-rays to scan goods and baggage at both the border and airport.
Trade facilitation is of prime importance in lowering cross border transaction and transport costs for a Land Locked Developing Country (LLDC) such as Lesotho. The LLDC group lobbies for special consideration to be shown to export-driven countries lacking their own direct
Lesotho has signed a number of trade agreements which afford expanded access to regional and international markets. In addition, its status as a Least Developed Country (LDC) in the World Trade Organisation (WTO) gives it duty-free access to the markets of industrialised countries. The Enhanced Integrated Framework (EIF) is an aid-for-trade partnership for LDCs that supports such countries in being more active in the global trading system by helping them to address supply-side constraints to trade.
Along with South Africa, Botswana, Namibia and Swaziland, Lesotho is a member of the Southern African Customs Union (SACU), which is the oldest functioning customs union in the world, having been established in 1910. SACU is the regional framework for trade cooperation, and seeks to maintain the free interchange of goods between member countries and provide a common external tariff for the common customs area. Lesotho’s products therefore enjoy duty free access to a market of more than 55 million consumers with a combined GDP of over US $300 billion (M4.291 trillion). Countries in the common customs area are able to negotiate new Free Trade Area (FTA) agreements with third parties as a bloc.
The 2009 Preferential Trade Agreement (PTA) between SACU and the Common Market of the Southern Cone (MERCOSUR) comprises Argentina, Brazil, Uruguay and Paraguay – one of the world’s largest economic blocs with a combined GDP of roughly US $2.4 trillion. The PTA entered into force on 01 April 2016 and covers some
1 100 product lines. Furthermore, negotiations are underway for a PTA between India and SACU.
The agreement between SACU and the European Free Trade Area (EFTA), made up of Switzerland, Norway, Iceland and Liechtenstein, covers trade in industrial goods (including fish and other marine products) and processed agricultural products, and provides for future non-binding engagements on additional issues. Lesotho can also export all products to the EU (500 million consumers) duty-free under the SACU Economic Partnership Agreement (EPA).
The US and SACU signed a Trade, Investment and Development Cooperative Agreement (TIDCA) in 2008. The TIDCA is a cooperative framework agreement that makes provision for the two parties to negotiate and sign agreements relating to a wide range of trade issues, with a special focus on customs and trade facilitation, technical barriers to trade, sanitary and phytosanitary (SPS) measures, and trade and investment promotion.
The US has historically proven a ready market for Lesotho’s exports of apparel. The African Growth and Opportunity Act (AGOA) provides eligible African countries with duty and quota-free access to the US market of some 320 million consumers. Lesotho, which has been exporting to the US under AGOA since 2001, is allowed to utilise third-country textile inputs because of its LDC classification. Lesotho’s total exports under AGOA in the year ending September 2016 were worth US $288.471 million.
About 40 000 jobs in Lesotho depend directly on AGOA, while the programme additionally provides indirect benefits to a further
120 000 citizens.
Lesotho is a member of the Southern African Development Community (SADC), a grouping of 15 countries with a combined population of some 333 million and a cumulative GDP of US $573.597 billion. Other members of SADC include South Africa, Zimbabwe, Zambia, Malawi, Tanzania, Madagascar, Mauritius, Seychelles, Angola, Democratic Republic of Congo, Namibia, Botswana, Swaziland and Mozambique. Intra-SADC trade is governed by the SADC Protocol on Trade, while extra-regional trade is aligned with both the WTO negotiated tariff liberalisation process as well as bilateral and/or inter-regional trade arrangements.
The SADC FTA has been fully implemented since 2012, with 92 percent of product lines traded at zero percent. The FTA is one of the first milestones towards regional integration and a common market. Two key developments during the past year have been the approval of the SADC Industrialisation Strategy and Roadmap, and the finalisation of the Revised Regional Indicative Strategic Development Plan (RISDP) 2015-2020. The revised RISDP recalibrates the regional integration agenda, prioritising, among others, industrial development, and emphasising the realignment of existing priorities with resource allocation in terms of their relative importance and greater impact on regional integration. More recently an agreement was reached on a SADC Regional Development Fund to support regional integration.
Entered into on a provisional basis on 10 October 2016, the EPA between the EU and six SADC countries, including Lesotho, grants free access to the European market while allowing member states to maintain tariffs on products sensitive to international competition; a strategy known as asymmetrical liberalisation. In exchange, these countries are removing custom duties on 86 percent of EU imports. The agreement is contingent on the provisions in Article 2 of the EPA, which include respect for human rights, rule of law and democracy. The first meeting of the joint Trade and Development Committee took place from 16-17 February 2017.
Total SADC EPA group exports to the EU are around €31 billion, while EU exports amount to some €33 billion. Lesotho, as well as fellow SADC members South Africa, Botswana and Namibia, exports large quantities of diamonds to the EU. At the same time, the EU exports a wide range of goods to these countries, including vehicles, machinery, electrical equipment, pharmaceuticals and processed food. There is potential to develop the services sector in Lesotho, and the EPA provides for cooperation in this area as well.
Lesotho is one of 26 countries to participate in the Tripartite Free Trade Area (TFTA) between SADC, the East African Community (EAC) and the Common Market for Eastern and Southern Africa (COMESA), which was launched in June 2015. Negotiations are ongoing, and as of October 2017, 24 countries (including Lesotho) had signed the Declaration while 21 had signed the Agreement and two had also ratified it. The Agreement requires 14 ratifications to enter into force.
Once the TFTA is fully operational, it will usher in a single tripartite policy framework covering 26 countries with a total GDP of US $1.6 trillion and a population of over 625 million, stretching from the Cape to Cairo. The TFTA will encompass half of Africa in terms of membership, economic and geographical extent, and serve as the foundation for Continental Free Trade Area (CFTA) negotiations.
Lesotho’s products also benefit from preferential market access to the Australian market of 22 million consumers, with products entering either duty-free or at reduced rates of duty. Under the GSP system, a long list of products (excluding dairy, poultry and eggs) have been granted duty-free entry to Canada with its population of 34 million people.
Furthermore, close to 100 percent of Lesotho’s industrial products, including textiles and clothing, can be exported duty and quota free to Japan with its 127 million consumers. Lesotho’s products are eligible for duty free access to New Zealand in terms of a GSP scheme introduced in 1972, while Turkey also provides duty free access for Lesotho’s industrial products.
In conjunction with her regional partners, Lesotho is keen to foster closer economic ties with Asian countries, including China, India and Pakistan, creating new opportunities for product and market diversification.
Southern African Trade Hub
The Southern African Trade Hub (SATH) works with Lesotho to improve standards and facilitate exports, enhancing the investment climate and increasing trade in textiles and apparel. The Trade Hub has been asked by the US Embassy in Lesotho and USAID to provide technical assistance to Lesotho’s Ministry of Trade and Industry in designing and delivering training courses on capacity building as a means of helping the country comply with the WTO agreement on trade facilitation. The Hub has also been requested to provide forums for Government to fully engage with the private sector in the development of a national trade policy for Lesotho, as well as the establishment of a national body for tariff and trade remedy investigations.
Under USAID’s Partnership for Trade Facilitation (PTF) programme, SATH has assisted the Lesotho Department of Standards and Quality Assurance (DSQA) to set up an effective WTO Technical Barriers to Trade (TBT) National Enquiry Point (NEP) by purchasing essential IT equipment and office furniture as well as conducting training. The NEP serves as a reference collection of technical regulations, standards, and certification procedures. The Hub also provided technical assistance to improve the standards development process; strengthen the legal and regulatory framework; and enhance outreach and communication efforts to ensure that the private sector is more aware and involved in standardisation activities.
The Trade Hub’s Strategic Partnership Fund supports interventions to catalyse rapid and inclusive economic growth across the region, with potential partners including the private sector, associations and cooperatives, MSMEs and regional businesses.
The Hub supported Lesotho in developing an Investor Roadmap that identified the most critical and significant constraints on stimulating investment and enhancing economic growth in the country. SATH has subsequently undertaken annual audits on the implementation of the Investor Roadmap to provide further recommendations for investment climate reforms. In partnership with the LNDC and the Department of Policy and Strategic Planning, the Trade Hub conducted an Investor Roadmap audit during 2015 and developed an Investor Climate Reform Communications Strategy to communicate Lesotho’s progress to implementers, the private sector and other intended beneficiaries.
SATH has been involved in technical assessments (social compliance, production capacity) of 18 companies to promote technology and investment in Lesotho. These include:
- MAGIC trade show – 3 pre-MAGIC workshops
- Collaboration with the other two trade and investment hubs on the Africa Pavilion
- Source Africa 23-25 May 2017
- Saitex 25-27 June 2017
- Origin Africa 25-29 September 2017