Given Lesotho’s small population size and low levels of per capita incomes, its growth strategy is based on export promotion to meet demand in regional and international markets, thereby stimulating further growth at home. An essential element of this strategy is to increase Foreign Direct Investment (FDI), which will bring the established international trade links and superior technology needed to augment the capacity of local producers and help diversify the economy.

The country also exploits niche market opportunities offered in the domestic market, while building linkages between foreign and local firms in order to maximise domestic content and access global industrial value chains. 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 also belongs to the Common Monetary Area (CMA), which links South Africa, Namibia, Lesotho and eSwatini.

In addition, Lesotho is part of two continental initiatives: the New Partnership for Africa’s Development (NEPAD) and the African Union. Regional activities are guided by SADC’s revised Regional Indicative Strategic Development Plan (RISDP) 2015-2020 which prioritises, among others, industrial development and the realignment of existing priorities with resource allocation in terms of their relative importance and greater impact on regional integration.

The domestic economy is linked to regional and global markets through the textiles, oil and the diamond trade, and is thus affected both positively and negatively by movements in those markets. Lesotho also has very close economic ties with its larger neighbour, South Africa, and the countries share a fixed exchange rate regime. With a population of more than 55 million people, South Africa offers a huge market for Lesotho’s exports.

Lesotho’s main export trading partners are South Africa (49 percent) and the United States (46 percent). The latter 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). Imports from South Africa account for 75 percent of all imports, followed by China at 16 percent.

As Government spending is high, equivalent to 47 percent of national output, it tends to crowd out private investment. Lesotho has the opportunity to utilise external private capital to meet the development-finance gap. However, this requires the removal of remaining impediments to private sector investment, ranging from missing policy frameworks – such as Public-Private Partnerships (PPPs) – to weak technical and institutional capacity.

It is vital that Lesotho improves its international competitiveness for trade and foreign investment in order to participate effectively in regional and global markets. As such, during National Strategic Development Plan II (NSDP II), Lesotho needs to work on further investment climate reform and significantly increasing its exports in the region to reduce the trade deficit with South Africa.

In order to utilise opportunities emanating from the trade preferences it enjoys with the rest of the world, Lesotho also needs to enhance its strategic focus and bargaining power on bilateral, regional and multi-lateral trade negotiations to promote its domestic interests. In this regard, it is important for Government to establish an appropriate institutional infrastructure and the capacity to participate effectively in such trade negotiations.

THE BASOTHO ECONOMY

Between 1998 and 2017, Lesotho’s economy grew at an annual average rate of 3.4 percent, comparing favourably with South Africa, which over the same period grew at 2.6 percent. Like many small economies, it is relatively undiversified and highly dependent on trade as the main avenue for growth. Agriculture and textile manufacturing are important job creators, while the export of diamonds and water brings in significant foreign exchange. Diversifying the currently narrow economic base is crucial for accelerating growth. This requires strong industrial policies and strategic governance to encourage the discovery of new sectors and the establishment of infant industries.

Prior to the construction boom of the 1990s that was driven by the Lesotho Highlands Water Project (LHWP), Lesotho’s economy was based on subsistence agriculture and animal husbandry as well as migrant workers’ salaries, with many Basotho working in South Africa’s gold mines. As a result, two-third of its Gross National Income (GNI) was generated through migrant labour, while only one-third of GNI resulted from productive activities within its borders.

At the turn of the millennium, tremendous growth in textiles manufacturing created many new jobs, and a few years later diamond mining set the stage for resource- based growth.  By 2016, more than 70 percent of GNI was generated by domestic economic activities. Going forward, construction projects are once more in the spotlight following the commencement of the second phase of both the LHWP and the Lesotho Lowlands Water Development Plan.

Lesotho pursues export expansion and diversification as part of its strategy to create jobs and grow the economy.

Strategic development

Lesotho’s National Strategic Development Plan II (NSDP II) has identified commercial agriculture, manufacturing, technology, tourism and creative industries as the strategic sectors that need to be prioritised for growth and job creation for the 2018/19 to 2023/24 period. To unlock this latent potential, Government is implementing a two-pronged strategy which entails attracting private investment (both domestic and foreign) into these sectors, and resolving the constraints that hinder their growth and development.

This involves creating an enabling investment climate and supportive regulatory framework by accelerating investment climate reform and related legislation, such as residence and work permits, access to land and electricity, and customs clearance. Maintaining macroeconomic stability is also essential, and is closely aligned with promoting democracy and political stability. Further, access to finance must be improved through the development of capital markets and other innovative products for Small, Medium and Micro Enterprises (SMMEs).

Specific strategies to strengthen business and trade facilitation for export promotion include:

  • Rolling out one-stop business facilitation centres to all districts and expanding their mandate to include registration of intellectual property rights.
  • Developing industrial and logistical infrastructure programmes to promote local investment.
  • Upgrading key infrastructure for trade facilitation, including the dry port.
  • Improving cross-border trade logistics.
  • Streamlining import and export procedures.
  • Building an automated trade facilitation system.
  • Upgrading customs processing and clearance facilities to enable high-speed border transit.

NSDP II integrates emerging issues, national, regional and international policy commitments and programmes, particularly the United Nation’s Sustainable Development Goals (SDGs), the African Union Agenda 2063, and the SADC Regional Indicative Strategic Development Plan (RISDP).

Global prospects

According to the International Monetary Fund (IMF) in its World Economic Outlook (WEO) report of October 2019, the global economy is in a synchronised slowdown, with growth for 2019 having been downgraded to 3 percent, its slowest pace since the global financial crisis. This subdued scenario is a consequence of rising trade barriers; elevated uncertainty surrounding trade and geopolitics; idiosyncratic factors causing macroeconomic strain in several emerging market economies; and structural factors, such as low productivity growth and aging demographics in advanced economies.

Projections for global growth in 2020 are that it will rise modestly to 3.4 percent. However, this recovery is not broad-based and is quite precarious. In advanced economies, expectations are that it will slow to 1.7 percent in 2019 and 2020, while emerging market and developing economies are forecast to experience an upturn in growth from 3.9 percent in 2019 to 4.6 percent in 2020. Around half of this is driven by recoveries or shallower recessions in stressed emerging markets, such as Turkey, Argentina and Iran, and the rest by recoveries in countries where growth slowed significantly in 2019 relative to 2018, such as Brazil, Mexico, India, Russia and Saudi Arabia.

Sub-Saharan Africa registered growth of 3.1 percent in 2018, and this is forecast to increase to 3.2 percent in 2019 and further to 3.6 percent in 2020. In South Africa, despite a moderate rebound in the second quarter, growth is expected to be slightly weaker in 2019 at 0.7 percent, reflecting the larger-than-anticipated impact of labour strikes and energy supply issues in mining, together with weak agricultural production. However, it should recover marginally to 1.1 percent in 2020. About 20 economies in the region, accounting for some 45 percent of the Sub-Saharan African population and 34 percent of the region’s GDP, are expected to grow faster than 5 percent in 2019.

The domestic economy: 2018-2021

Following the 0.9 percent contraction in 2017, as revised by the Bureau of Statistics (BoS), economic activity picked up in 2018 to 1.2 percent, reflecting upside surprises in the first half of the year – notably in textiles manufacturing and the mining industry. While there was a decline in the third quarter, economic activity rebounded in the fourth quarter of 2018. Textiles exports were buoyant throughout 2018 against the backdrop of supportive external demand. The performance of the mining industry was robust in the first half of 2018 before dissipating somewhat in the second half and into 2019. Favourable growth in mining was due to strong demand and prices coupled with once-off high carat stone recoveries.

Less positively, the construction subsector contracted on the back of delays in the implementation of the Lesotho Highlands Water Project (LHWP) Phase II. Negative spill-overs from South Africa and slow budget execution by Government continued to take their toll on the services sector well into the first quarter of 2019. These factors significantly moderated the gains experienced in other sectors. Prospects remain less favourable across sectors in the short-term, with the exception of a rebound led by construction, which underlies the overall recovery anticipated in the medium-term.

The Central Bank of Lesotho, in its Macroeconomic Outlook for June 2019, anticipates that growth will pick up to 2.7 percent in 2019 before decelerating to 1.7 percent in 2020. Construction activities will likely dip with the completion of the advance infrastructure associated with the LHWP Phase II in 2020. However, the industry is forecast to rebound in 2021 with commencement of the dam construction and transfer tunnel, as well as the Lesotho Lowlands Water Development Project (LLWDP) Phase II, driving growth to peak at 4.1 percent. The mining industry and textiles continue to benefit from favourable external demand conditions; however, they remain vulnerable to global trade shocks.

Lesotho’s Central Bank anticipates that the country’s annual growth rate will average 2.8 percent in the medium term.

The overall fiscal balance remained in deficit in 2018 as Government struggled to rein in expenditure. The fiscal deficit moderated slightly to 1.9 percent in 2018 from 2.2 percent in 2017. It is expected that in the medium term the overall fiscal balance will register modest deficits as SACU revenue recovers.

In the external sector, a surplus of 3.7 percent of GDP was recorded in 2018 following a deficit of 5.9 percent of GDP in 2017. This was attributed to the improved performance of the current and financial accounts, with the current account deficit at 0.3 percent of GDP in 2018 relative to 4.5 percent of GDP in 2017. The reduction in the current account deficit follows the buoyant performance of textile and diamond exports.

INVESTMENT CLIMATE

Structural reforms in the business environment and a programme of strategic development have seen continued improvements in Lesotho’s investment climate. While the country has made progress in areas such as the control of corruption, regulatory quality and accountability, factors such as the effectiveness of government and political stability require further work.

Being centrally situated in Southern Africa  gives Lesotho access to a substantial consumer market in 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.

In 2019, Lesotho was ranked 38th out of 190 economies worldwide in the World Bank’s ‘Doing Business’ report in respect of the ‘Ease of Trading Across Borders’ indicator. This is two positions higher than the previous year. Also, it is worth noting that both importing and exporting goods takes less time as well as costing less than in any other country in the region with the exception of eSwatini.

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 business facilitation centre brings together a streamlined and integrated suite of services for investors, including 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. The launch of the Lesotho Standards Authority in 2018 to accredit and certify local products for safe entry into domestic and international markets will support export-oriented investors.

Lesotho’s legal system is based on UK common law and Roman-Dutch law. In respect of investment protection, the country belongs to the Multilateral Investment Guarantee Agency, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), and the International Centre for Settlement of Investment Disputes (ICSID). While foreign corporations are allowed to own land, local shareholding must be at least 20 percent.

A company is resident in Lesotho if it is incorporated in Lesotho, has its management and control in Lesotho, or undertakes the majority of its operations in Lesotho. The corporate tax rate is 25 percent, however a concessional tax rate of 10 percent applies to income from manufacturing and commercial farming. Other incentives include a tax deduction of 125 percent of expenditure incurred on the training or tertiary education of a Lesotho citizen employed by a taxpayer in a business, and an amortisation deduction of start-up costs. Double taxation avoidance agreements are in force with Mauritius, South Africa and the United Kingdom (UK).

Value Added Tax (VAT) is levied on the supply of goods and services in Lesotho and on the importation of goods and services. The VAT rate is 15 percent, and a rate of 8 percent applies to utilities (such as electricity) and 9 percent in respect of telecommunications services.

Current developments

In 2018, Government established the Investment Climate Reform Committee, chaired by the Deputy Prime Minister and consisting of technical and policy input from key investment ministries. The committee is tasked with implementing a variety of reforms to make it easier to invest in Lesotho, including issues such as access to capital for starting a business.

An investment laboratory has been set up for both investors and government to work out all the modalities necessary for investment to take place. This is essentially a one-stop solution development dialogue, which takes the approach that infrastructure and business climate requirements are demand driven. The lab had by the first quarter of 2019 registered more than 80 investors, with potential for investment of M10 billion and creation of 20 000 jobs. Interest has been expressed in agri-business, tourism and creative arts, technology and manufacturing.

Government is presently implementing a Customs Modernisation Programme that entails upgrading border IT infrastructure and introducing Coordinated Border Management through the Trade Related Facility and the National Single Window, as well as the rehabilitation of Sani Top and Van Rooyen’s commercial border posts. The three-year, M800-million project to develop Ha Belo industrial estate will put industry closer to South Africa’s port of Durban. Furthermore, roads and the border crossing along this route are being upgraded.

Southern African Trade & Investment Hub

The Southern Africa Trade and Investment Hub (SATIH) engages with Lesotho and other partners across Southern Africa to deepen regional economic integration, promote two-way trade with the US under the African Growth and Opportunity Act and attract investment that drives commercial expansion of Southern African companies into global markets. The Hub implements activities in four critical areas:

  • Finance and Investment – Accelerating US and international investment to businesses to promote strategic value chains and expand international trade links
  • Export Competitiveness – Helping companies to leverage AGOA to increase exports to the US
  • Enabling Environment and Trade Facilitation – Fostering transparent, reliable, efficient and cost-effective trade policies and related infrastructure
  • Agribusiness – Increasing the competitiveness of agricultural value chains for export through investment, technology transfer and greater private sector participation.

The Hub links export-oriented companies in key sectors such as textile/apparel and specialty foods to potential buyers and investors, as well as including them in regional directories. It partners with the LNDC to facilitate trade links, and promotes awareness of Worldwide Responsible Accredited Production (WRAP) standards. Further, it supports private sector initiatives to increase market transparency and trade in textiles and apparel.

The Southern Africa Trade and Investment Hub supports economic diversification and job creation in Lesotho, while fostering a business environment conducive to trade and investment.

LESOTHO NATIONAL DEVELOPMENT CORPORATION

The Lesotho National Development Corporation (LNDC) strives to facilitate economic growth and development in the kingdom and implement its industrial development policies, while promoting Lesotho 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 is the first point of contact for investors who intend setting up operations in Lesotho. The corporation 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.

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. Subsidies are given to investors wishing to construct their own industrial buildings at LNDC-serviced sites.

The LNDC has played an instrumental role in forging effective collaborations with strategic partners, in particular the Industrial Development Corporation of South Africa and the China-Africa Development Fund, to promote investment in infrastructure, agriculture, energy, manufacturing and renewable energy and in rural areas. This has seen the corporation win accolades from the United Nations Conference on Trade and Development (UNCTAD).

LNDC is a member of the Africa Investment Promotion Agency Network (AfrIPANet), a programme developed by the United Nations Industrial Development Organisation (UNIDO). It aims to provide investment promotion agencies with up-to-date and accurate investor survey information, thus enabling them to readjust investment promotion interventions in areas expected to realise the most impact in terms of linking domestic investment to FDI.

Investment opportunities

Areas that have traditionally attracted the greatest investment include large infrastructure projects like the LHWP, and initiatives aimed at developing the hydroelectric power industry and other forms of renewable energy such as solar and wind will likely attract new investors in the coming years. Lesotho’s textiles and garments subsector is another lucrative area of investment, with the country’s duty-free access to the US under AGOA having been extended until 2025. Most garment and textiles investment has come from South Africa and South-East Asia. The mining industry also brings in a great deal of FDI.

The LNDC has identified 21 priority products that already have international market access or hold great potential to do so. These include high-tech agriculture and agribusiness in respect of meat and meat products, fruits and vegetables. In addition, the textiles and apparel manufacturing value chains have the potential for expansion, as does the light-engineering value chain. In line with the NSDP II, the LNDC aims to facilitate further investment into national priority sectors such as tourism and the creative industries, while also developing infrastructure and technology-based industries.

Diamond sorting © Letšeng Diamonds

Support is being given to leading export-oriented companies by scaling up their productive capacity, facilitating international market access and integrating these companies into supply chains. Also in the spotlight is the setting up of new companies in the abovementioned priority areas and related product categories.

In order to bring in higher levels of FDI, partnerships have been initiated with renowned regional and global players in targeted product lines. The intention is to establish national champions that are capable of competing on par with their regional and global peers in strategic industries, particularly in manufacturing and high-tech agro-processing. This foresees cross-border acquisitions of strategic assets, raw materials, distribution channels and technology, with companies to receive the requisite technology, product and process certifications as well as human capital.

Among others, LNDC currently has a stake in Basotho Canners, CashBuild, Shoprite stores, Avani Maseru/Lesotho hotels, LNDC Centre Property, Maluti Mountain Brewery, Loti Brick, Lesotho Milling Company and Defcort Flats, as well as factory shells in different parts of the country.

TRADE & MARKET ACCESS

Lesotho is a member of a number of multilateral organisations and has diplomatic relations across the world. Regional integration is of prime importance, given its 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 trade relations. These include a Joint Bilateral Commission on Cooperation between Lesotho and South Africa on issues of infrastructure and transport.

The time and cost associated with the logistics of importing and exporting in Lesotho is among the lowest in Sub-Saharan Africa.

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 sea-freight facilities.

During the implementation of NSDP II, Government will establish the appropriate institutional infrastructure to enable Lesotho to participate effectively in negotiations on regional integration and the development of trade agreements with third parties as well as other international policy-making processes. This will include building the capacity of its negotiating teams and strengthening coordination between internal stakeholders.

Trade agreements

Lesotho is a member of the World Trade Organisation (WTO), and as a least developed country (LDC) also enjoys duty-free access for its goods to major world markets. 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 eSwatini, 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 62 million consumers with a combined GDP of US $307 billion.

The revenue realised from external trade is coordinated through a joint revenue pool and distributed proportionately to SACU member states, based on an established revenue sharing formula. Countries in the common customs area are able to negotiate new Free Trade Area (FTA) agreements with third parties as a bloc.

SACU members are party to the SADC Protocol on Trade signed in 1996, and enjoy a free trade agreement with the European Free Trade Association (EFTA) states, made up of Switzerland, Norway, Iceland and Liechtenstein. In addition, there is a Preferential Trade Agreement (PTA) with the Common Market of the Southern Cone (MERCOSUR), comprising Argentina, Brazil, Uruguay and Paraguay (a total market of 385 million consumers). A Trade, Investment and Development Cooperative Agreement (TIDCA) was signed in 2008 with the USA.

Lesotho, together with the rest of SACU and Mozambique, signed an EPA with the UK on 10 October 2019. The agreement is intended to provide continuity and certainty in trade amongst the parties when the UK is no longer a member of the European Union.

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 – the largest consumer market on earth with a GDP of US $21.439 trillion and almost 330 million people. 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 exports to the US under AGOA totalled US $422 million in 2018, up 36.8 percent (US $113 million) from 2017. Top export categories were knit apparel (US $213 million), woven apparel (US $108 million), precious metal and stone (US $98 million) and electrical machinery (US $2 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 more than 345.2 million and a cumulative GDP of US $721.321 billion at current prices (2018). Other members of SADC include South Africa, Zimbabwe, Zambia, Malawi, Tanzania, Madagascar, Mauritius, Seychelles, Angola, Democratic Republic of Congo, Namibia, Botswana, eSwatini 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. An agreement has been reached on a SADC Regional Development Fund.

The EU signed an Economic Partnership Agreement (EPA) on 10 June 2016 with the SADC EPA Group comprising Botswana, Lesotho, Mozambique, Namibia, South Africa and eSwatini. The agreement 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 customs 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 agreement became the first fully operational regional EPA in Africa after Mozambique started applying the EPA in February 2018.

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. In 2018, total SADC exports to the EU amounted to approximately €32.7 billion, while EU exports to SADC were worth some €29 billion.

Lesotho is also a signatory to the Tripartite Free Trade Area (TFTA) between SADC, the East African Community (EAC) and the Common Market for Eastern and Southern Africa (COMESA), which will offer access to a market of around 700 million people, stretching from the Cape to Cairo. The aim is to gradually reduce tariffs for all goods traded in the bloc to zero percent. To date, 22 of the 27 member states have signed the agreement, while five have ratified it from the 14 required ratifications. The TFTA is expected to become operational during 2020. In the first year of operations, member states are to fully liberalise trade on 66 percent of all goods, with the goal of achieving 100 percent after five years.

The COMESA-EAC-SADC Tripartite Free Trade Area aims to establish a single market for 27 African countries with a combined GDP of more than US $4.1 trillion

The TFTA serves as a building block for the African Continental Free Trade Agreement (AfCFTA) which envisages bringing together all 55 member countries of the African Union to trade tariff-free. Lesotho is among 54 African countries to have signed the agreement, which aims to create a market of over 1.2 billion people with an aggregate GDP of close to US $4 trillion.

The AfCFTA was officially launched at the 12th Extraordinary Summit of the African Union in Niamey, Niger on 7 July 2019. All African countries except Eritrea have now signed, while 28 have ratified the agreement (24 ratifications were needed for the agreement to enter into force). Critical parts of the agreement have yet to be finalised – such as schedules of tariff concessions and services commitments, and policies around investment, intellectual property and competition – before countries commence trading under the AfCFTA on 1 July 2020.

Under the EU’s Everything But Arms (EBA) initiative, Lesotho enjoys quota-free and duty-free access to the EU market for everything except arms. 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.

Lesotho has entered into bilateral investment treaties with Germany, Switzerland and the UK. In conjunction with her regional partners, Lesotho is also keen to foster closer economic ties with Asian countries, including China, India and Pakistan, creating new opportunities for product and market diversification.