2013 Investment Climate Statement
Bureau of Economic and Business Affairs
March 2013
Report

Openness to and Restrictions upon Foreign Investment

The Government of Lesotho (GOL) maintains a strong commitment to private investment and is generally open to foreign direct investment (FDI). Lesotho does not currently have a specific and overarching FDI policy. FDI policy instruments include the Companies Act of 2011, as well as legislation covering mining, tourism and manufacturing, particularly the textile industry. The Companies Act and the Financial Institutions Act of 2012 are the principal laws that regulate incoming foreign investment through acquisitions, mergers, takeovers, purchases of securities and other financial contracts and greenfield investments. In addition, the GOL has drafted a Competition Bill with the objective of improving the regulation of investments. The GOL intends to pass the bill into law in 2013.

The judicial system is generally independent and procedurally and substantively fair, although Freedom House Southern Africa noted politicization, chronic underfunding and structural problems in its 2012 report “Politics of Judicial Independence in Lesotho.” The judicial system upholds the sanctity of contracts and enforces in accordance with their terms and on a non-discriminatory basis. The government enforces judicial decisions through officers of the court, and if necessary, through criminal proceedings.

Foreign investments are screened in a routine, non-discriminatory manner to ensure consistency with national interests. The lack of local entrepreneurs has meant the government is under no pressure to exclude foreign investment to the advantage of local investment; virtually all business sectors are open to foreign investors. No government approval is required, and there are almost no restrictions on the form or extent of foreign investment, except investment in small-scale retail and services businesses. Foreigners are not permitted to own or even sit on the boards of these businesses. These restrictions on small-scale services and manufacturing businesses are meant to control immigration. There are no reports of discrimination against foreign investors at the time of investment or after, and private firms do not restrict foreign investment.

The Lesotho National Development Corporation (LNDC), a parastatal reporting to the Ministry of Trade and Industry, Cooperatives and Marketing (MTICM), implements the country’s industrial development policies. LNDC provides assistance to host of supportive services foreign investors and publishes information on investment opportunities and services it offers to foreign investors. It also offers incentives such as Long-term loans and 0% tax on profits for manufacturers, assistance with work permits and licenses, and logistical support for relocation. For more information, please visit: http://www.lndc.org.ls.

To complement LNDC’s activities in assisting foreign investors, MTICM has established a "One Stop Business Facilitation Centre" (OBFC), placing all services required for the issuance of licenses, permits, imports and exports clearances under one roof. OBFC services coupled with the implementation of the Companies Act of 2011 have reduced the number of days it takes to start a business from 40 days to five days. In addition to these improvements, the GOL eliminated the requirements for paid-in minimum capital and for notarization of the articles of association, strengthened investor protections by increasing the disclosure requirements for related-party transactions and improving the liability regime for company directors in cases of abusive related-party transactions and permitted foreigners to own land under the Land Act of 2010. As a result of these improvements, Lesotho climbed 17 places in the 2013 World Bank Doing Business Report, from 153 to 136.

Lesotho's performance in attracting FDI has been credible by regional standards. The bulk of FDI is channeled into the manufacturing sector and most of that investment goes into export activity. Most investment currently originates from Taiwan, Hong Kong, Singapore and South Africa. The single largest investment is believed to be around US$120 million in capital infrastructure by the Taiwanese Nien Hsing Group. More than fifty percent of FDI flows into export-oriented manufacturing - specifically textiles and apparel for the U.S. market. There are 40 factories specializing in a very narrow range of woven and knit garments. Foreign affiliates have also invested small amounts in footwear, fluorescent light bulbs, electronics, food processing and other manufacturing products such as plastics and card boards. South African FDI is also present in garments factories, hotels, air travel, insurance, telecommunications, financial services and mining. Foreign investors in the apparel industry have created jobs, particularly for females, and contributed to poverty reduction. Current business taxation regulations only partially address investor needs because they predominantly favor investment in manufacturing for export to countries outside the South African Customs Union (SACU). The Government of Lesotho is under pressure to revise relevant laws affecting investors in various sectors. In most aspects of "normal business," foreign investors are on an equal footing with local investors. The investment climate is favorable with regards to currency conversion, monetary transfer policies and lack of undue burdens to investors.

Generally, the GOL continues to recognize the need for the country to be competitive in regional and international markets. To achieve this goal, the government has embarked on structural reforms that aim at improving the investment climate. Initiatives include private sector competitiveness programs under the Millennium Challenge Corporation (MCC) and the World Bank, as well as modernizing customs processes through technical assistance from the USAID Southern Africa Global Competitiveness Hub. Lesotho has no legal provisions that discriminate among home countries. It is a member of the Southern African Development Community (SADC), but this does not lead to preferential treatment for investors from these countries.

If a scroll bar appears below the following table, swipe the table to move left/right of the dashed line.

Measure

Year

Index/Ranking

TI Corruption Index

2012

45/64

Heritage Economic Freedom

2012

46.6/161

World Bank Doing Business

2013

136

MCC Government Effectiveness

2013

0.59 (93%)

MCC Rule of Law

2013

0.64 (95%)

MCC Control of Corruption

2013

1.10 (98%)

MCC Fiscal Policy

2013

-6.6 (8%)

MCC Trade Policy

2013

69.1 (54%)

MCC Regulatory Quality

2013

0.15 (64%)

MCC Business Start Up

2013

0.961 (84%)

MCC Land Rights Access

2013

0.62 (63%)

Conversion and Transfer Policies

There are no restrictions on converting or transferring funds associated with an investment into a freely usable currency and at a legal market-clearing rate. However, for loan repayments an investor needs to notify the Central Bank of Lesotho (CBL) at the beginning of an investment that the capital for that investment is a loan, they also need to disclose the terms of the loan. Dividends payments require CBL approval. According to the CBL, there are no plans to change remittance policies in the near future and there is no difficulty in obtaining foreign exchange by foreign investors. Foreign exchange is easily obtainable; the CBL has authorized the three commercial banks and two private bureau de changes in Lesotho to deal in foreign exchange. However, the CBL still maintains direct power of approval over foreign exchange requirements for all capital account transactions including FDI, capital disinvestment and contracting and servicing offshore debt.

The current average delay period for remitting investment returns such as dividends, return of capital, interest and principal on private foreign debt, lease payments, royalties and management fees through normal, legal channels is two days, provided the investor has submitted all the necessary documentation related to the remittance. There has never been a case of blockage of such transfers, and shortages of foreign exchange that could lead to blockage are unlikely given that the CBL maintains net international reserves of around US$920 million. Lesotho is a member of the Southern African Common Policy on approval of foreign loans.

Lesotho’s fiscal and monetary policies operate within the context of her membership of the Common Monetary Area (CMA). The CMA consists of the following SACU countries: Namibia, Swaziland and South Africa. Under the CMA, the national currency, the loti, is pegged at par to the South African rand, which is also accepted as legal tender in Lesotho. To maintain the rand/loti peg, Lesotho maintains reserves in rand and other foreign currencies. There are no exchange controls between Lesotho and South Africa but CMA members have exchange controls with third countries.

Expropriation and Compensation

The constitution provides that the acquisition of private property by the state can only occur for specified public purposes. Further, the law provides for full and prompt compensation at fair market value. Affected persons may appeal to the High Court as to whether the action is legal and compensation is adequate. The constitution is silent as to whether compensation may be paid abroad in the case of a non-resident. Currently, there are thirty five cases alleging inadequate compensation of expropriated land for the construction of Metolong dam lodged with the Transformation Resource Center (TRC), a non-governmental organization. The communities affected by the dam approached TRC to mediate between themselves and the Metolong Authority, because TRC mediated disputes around another dam project, the Lesotho Highlands Water Project. None of these cases have been brought to court yet. The government has no history of discriminating against U.S. or other foreign investments, companies or representatives in expropriation. The only local ownership law is the Trading Enterprises Act, which states that a foreigner may not operate a business in a commercial space less than 1,000 square meters.

Dispute Settlement

Lesotho is a member of the International Center for the Settlement of Investment Disputes and the Arbitration International Investment Disputes Act of 1974 commits Lesotho to accept binding international arbitration of investment disputes. The government has no history of investment disputes involving U.S. or other foreign investors or contractors in Lesotho. Foreign investors have full and equal recourse to the Lesotho courts for commercial and labor disputes. Courts are regarded as fair and impartial in cases involving foreign investors.

The legal system is a mixture of Roman-Dutch and English Common Law. The judicial system consists of the High Court, the Court of Appeal, subordinate courts and the Judicial Service Commission (JSC). The members of the High Court are the Chief Justice, appointed by the King acting on the advice of the Prime Minister, and judges (currently ten including the Chief Justice), appointed by the King acting on the advice of the JSC. The Court of Appeal, which meets semiannually, is headed by a president, appointed by the King acting on the advice of the Prime Minister, and five justices of appeal, appointed by the King, acting on the advice of the JSC. Parliament has the power of establishing subordinate courts and courts-martial. The High Court has unlimited original jurisdiction over civil and criminal matters, as well as appellate jurisdiction from subordinate courts. Subordinate courts, comprising resident magistrate's courts, judicial commissioner's courts, and central and local courts, administer statute laws, while chiefs administer customary and tribal laws. There is no trial by jury. Lesotho has not accepted compulsory International Court of Justice jurisdiction. A Commercial Court was established in 2010 in an effort to improve the country’s capacity in resolving commercial cases. Before the establishment of the Commercial Court, commercial cases used to languish for years, compounded by the fact that there were no specialized judges to deal with commercial disputes. Since the establishment of the Commercial Court, the duration for commercial disputes resolution is, on average, a year. Incidents of government interference in commercial cases are rare.

The Companies Act is the principal commercial and bankruptcy law. According to the law, creditors, equity shareholders and holders of other financial contracts of a bankrupt company have a right to nominate a person to be liquidator, and if the creditors and the shareholders nominate different persons, the person nominated by the creditors shall be the liquidator. All claims against a bankrupt company shall be proved at a meeting of creditors, equity shareholders and the court or the liquidator may fix a time or times within which creditors of the company are to prove their claims. If the claim is rejected by the liquidator, the claimant may apply to the court by motion to set aside the rejection. Creditors who will act as witnesses are entitled to witness fees, to be paid out of the funds of the company, as he would be entitled to if he were a witness in any civil proceedings. Creditors are paid first in a bankruptcy; equity shareholders and holder of other financial contracts then follow. According to the Labor Code, despite the provisions of any other law in Lesotho, workers have the right to recover pay and benefits from local and foreign firms in bankruptcy before creditors, equity shareholders and holder of other financial contracts. Monetary judgments are usually made in the local currency. An amount of a claim based on a debt or liability denominated in a foreign currency shall be converted into Lesotho currency at the rate of exchange on the date of commencement of the liquidation.

Lesotho has entered into a number of investment agreements and these provide for international arbitration to settle disputes. For instance, under the Bilateral Investment Treaty with United Kingdom, an investor may take a dispute with the government to international arbitration. Lesotho is a member of the Multilateral Investment Guarantee Agency and has acceded to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States and New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. Currently there is no legislation providing specifically for the enforcement of these conventions.

Performance Requirements and Incentives

Lesotho has not notified the World Trade Organization (WTO) of any measure inconsistent with Trade Related Investment Measures (TRIMs) requirements, and has not introduced measures that violate TRIMs obligations. There are no incentives for and no performance requirements imposed on foreign investors as a condition of investment. However, there are a number of financial incentives available to manufacturing companies establishing themselves in Lesotho, such as unimpeded access to foreign exchange, export finance facility and long-term loans. These incentives are applied uniformly to both domestic and foreign investors. For more information, see http://www.lndc.org.ls.

The GOL does not follow a policy of “Forced Localization” designed to force foreign investors to increase investment and/or employment in the local economy. However, foreign investors are required to keep records of local sales and employees’ remuneration locally for tax purposes. With the exception of textile companies that export to the United States under the African Growth and Opportunity Act (AGOA), which are bound by SACU regulations to export all their products, there is no requirement that investors purchase from local sources or export a certain percentage of output, or only have access to foreign exchange in relation to their exports. The GOL does not impose "offset" requirements, whereby major procurements are approved only if the foreign supplier invests in manufacturing, research and development or service facilities in the country related to the items being procured. The GOL does not impose conditions on permission to invest, including location in specific geographical area, use of a specific percentage of local content or local equity, substitution for imports, export requirements or targets, employment of host country nationals, legal requirements to use specific employment agencies, technology transfer or local sources of financing. An exception will be in a case where the foreign investor intends to acquire title to land by lease from the State. In such a case, the company will have to have at least 20% local ownership.

U.S. and other foreign firms able to participate in government financed and subsidized research and development programs on a national treatment basis. Requirements for visas, residence permits and work permits are neither discriminatory nor excessively onerous. The procedures for obtaining one of these permits are transparent although foreign investors complain about excessive fees charged. For more information on requirements for visas, residence permits and work permits, please visit: http://www.trade.gov.ls/business/managing_immigration.php.

Right to Private Ownership and Establishment

The right to private property is protected under the law. All foreign and domestic private entities may freely establish, acquire, and dispose of interests in business enterprises. Under the Land Act of 2010, foreign nationals are permitted to buy and hold land. Lesotho has no competition law or overall competition regulator. Instead, under the industrial and trading licenses system a business can apply for protection from competition for up to 10 years.

Protection of Property Rights

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

Patents are rarely issued in Lesotho but trademark protection is often sought and granted. Intellectual property protection is regulated by the Industrial Property Order 1989 and the Copyright Act of 1989, which conform to the standards set out in the Paris Convention and Berne Convention. The law protects patents, industrial designs, trademarks, and grant of copyright, but does not protect trade secrets and semi-conductor chip lay-out design. The Law Office is responsible for enforcement of copyrights.

The Land Act of 2010 protects and facilitates acquisition and disposition of land, while the Deeds Registry Act of 1967 protects and facilitates acquisition and disposition of buildings and mortgages.

Lesotho has not taken adequate steps to implement and enforce the WTO Trade Related Aspects of Intellectual Property Rights (TRIPS) agreement due to lack of capacity. However, Lesotho has received technical cooperation (training and workshops) from developed countries such as France and the United States to assist in the implementation of the WTO TRIPS agreement. Lesotho has not signed and ratified the WIPO internet treaties.

Transparency of the Regulatory System

Lesotho's regulatory environment is generally weak, but it does not hinder competition, nor distorts business or investment practices. Businesses in Lesotho are regulated by the Companies Act of 2011, which changed the process of registering private and public shareholding companies in Lesotho. The act has made business registration easy by abolishing the requirement to inspect proposed company premises before registration of the company, eliminating the need for a legal representative when registering a business and providing standard articles of incorporation. The act also envisages electronic company registration, as well as electronic regulatory filing, but the office of the Registrar is not yet set up to facilitate these improvements. Until such time as this has been done, applications for registrations as well as regulatory filings have to be submitted manually. The act also allows foreign companies to register as an external company, and must do so with within 10 days of opening a business in Lesotho. The company must nominate a person who is either resident or maintains a full-time office within Lesotho upon whom notices and processes can be served, and register the principal place of business of the company in Lesotho.

Every firm intending to engage in business must obtain a trader’s license. The issuance of traders’ licenses is governed by the Trading Enterprises Order of 1993, as amended in 1996, and the Trading Enterprises Regulations of 1999, as amended in 2011. Manufacturing licenses are covered by the Industrial Licensing Act of 1969 (which is currently under reconsideration by Parliament) and the Pioneers Industries Encouragement Act of 1969. For the majority of manufacturing license applications, environmental certificates issued by the National Environmental Secretariat (NES) are sufficient. However where manufacturing activities are assumed to have actual or potential environmental impacts, an Environmental Impact Assessment is required, which must be approved by the NES. The introduction of the OBFC improved the industrial and trading license system. Trading licenses are required for a wide range of services; some enterprises can require up to four licenses for one location. The OBFC has also streamlined other bureaucratic procedures, including those for licenses and permits. The GOL has committed to develop the OBFC further to improve the business climate in the country. As part of this effort, the government plans to simplify and expedite the issuance of work, residence and building permits.

The GOL modernized the regulatory framework for utilities through the establishment of the independent Lesotho Telecommunications Authority (LTA) and the Lesotho Electricity and Water Authority (LEWA). LTA regulates the telecommunications sector, while LEWA regulates both the energy and water sectors. The two authorities sets the conditions for entry of new competitive operators. Currently the LTA allows Lesotho Telecom to maintain a monopoly for fixed-line and international services, while permitting competition in mobile telephone services. The LEWA allows both the Lesotho Electricity Company and the Water and Sewerage Company to maintain monopoly in their respective sectors.

The Mines and Minerals Act of 2005, the Precious Stones Order (1970), and the Mine Safety Act (1981) provide a regulatory framework for the mining industry. The Commissioner of Mines in the Ministry of Mines, supported by the Mining Board, is authorized to issue mineral rights to both foreigners and local investors. On approval, it takes about a month for both prospecting and mining licenses to be issued.

The CBL regulates financial services under the Financial Institutions Act of 2012.

Tourism enterprises are required to secure licenses under the Accommodation, Catering and Tourism Enterprise Act of1997. The Act provides for a Tourism Licensing Board that issues and renews licenses for camp sites, hotels, lodges, restaurants, self-catering establishments, bed and breakfasts, youth hostels, resorts, motels, catering and guest house licenses. Applicants for any of the above licenses must apply to the Board three months before its next meeting. A number of government departments, specifically the Ministries of Health and Tourism, the Police and the Maseru City Council, must inspect and to submit inspection reports to the Board on prescribed forms. Licenses are granted for one year and can be renewed.

The Parliament’s Portfolio Committees may, but are not required to, publish proposed laws and regulations in draft form for public comment. Parliament may also hold public gatherings to explain the contents of the proposed laws and these provide opportunities for comment on proposed laws and regulations. The Portfolio Committees generally make these consultations for laws that are perceived to be sensitive, such as the Land Act, the Penal Code and the Children’s Welfare and Protection Act. There are no private sector or government efforts to restrict foreign participation in industry standards- setting consortia or organizations.

Efficient Capital Markets and Portfolio Investment

In general, Lesotho’s capital market is relatively under-developed, with no secondary market for capital market transactions to take place. Current policies do not facilitate the free flow of financial resources to support the flow of resources in the product and factor markets.

Credit is allocated on market terms, and foreign investors are able to get credit on the local market. However, the banking sector is characterized by conservative lending guidelines, high interest rates and large collateral requirements. Few firms are eligible for long-term loans, while small- and medium-sized enterprises have little access to credit. Structural reforms under the private sector development component of the Millennium Challenge Corporation Compact, which includes the establishment of a credit bureau, are expected to alleviate the credit extension problem. The LNDC provides industrial and commercial credit to foreign investors. The private sector has access to a limited number of credit instruments, such as credit cards, loans, overdrafts, checks and letters of credit.

Three South African banks dominate the banking sector, accounting for almost 90% of the country's banking assets, which totaled over M8.2 billion (US$1.1 billion) in September 2011. According to the CBL, the banking system is sound; the commercial banks in Lesotho are well- capitalized, liquid and compliant with international banking standards.

The regulatory system is not effectively established to encourage and facilitate portfolio investment. The GOL issued treasury bonds at the end of 2010, to more broadly develop capital markets in Lesotho, although there is no secondary market for these bonds. The lack of a stock market also impedes the free flow of capital in the financial system since shares do not trade freely on the market, and there is insufficient liquidity in the markets to enter and exit sizeable positions.

Lesotho does not have a competition commission; as a result, information on cases of cross-shareholding and stable shareholder arrangements is not available.

Competition from State Owned Enterprises

Lesotho privatized most state owned enterprises (SOEs) including telecommunications, banks and government vehicle fleet following the adoption of the privatization Act of 1995. However, in 2004 the government established the Lesotho Postbank, which is mandated to provide Basotho greater access to financial services. The government also introduced state-owned buses in the public transportation sector in 2008. In addition, the government has announced that it will take over management of its vehicle fleet beginning in 2013 after privatizing the fleet in 2000. In Lesotho, SOEs do not exercise delegated governmental powers, and there are no laws that seek to ensure a primary or leading role for SOEs in certain sectors/industries. SOEs operate under the same tax, regulatory and policy environment as other private business, including foreign businesses.

Private enterprises are allowed to compete with public enterprises under the same terms and conditions with respect to access to markets, credit and other business operations, such as licenses and supplies. SOEs are subject to hard budget constraints under the law and these provisions are enforced in practice. SOE senior management reports to an independent board of directors, although some of the directors may be politically-affiliated individuals. SOEs are required by law to publish an annual report and to submit their accounts to independent audit. SOEs are subject to the same domestic accounting standards and rules as other private investors, and these standards are comparable to international financial reporting standards.

There is no sovereign wealth fund or asset management bureau in Lesotho.

Corporate Social Responsibility

There is a general awareness of corporate social responsibility among both producers and consumers. Foreign and local enterprises tend to follow generally accepted corporate social responsibility (CSR) principles such as those contained in OECD Guidelines for Multinational Enterprises and the United Nations’ Guiding Principles on Business and Human Rights, although the government does not actively promote adherence to these principles. Firms who pursue CSR are viewed favorably by society, not necessarily by government.

The government maintains and enforces domestic laws with respect to labor and employment rights, consumer protections and environmental protections. There are no independent NGOs operating in the country that promote or monitor CSR.

Political Violence

In May 2012, Lesotho held national elections widely regarded as free and fair, followed by a peaceful transfer of power from the ruling political party to the new, three-party coalition. Since the transition, there have been no incidents of political violence. Businesses and foreign investors are not targets of political violence.

Corruption

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

No U.S. firms have identified corruption as an obstacle to foreign direct investment in Lesotho. Giving or accepting a bribe is a criminal act under the Prevention of Corruption and Economic Offences Act of 2006, the penalty for which is a minimum of 10,000 maloti or 10 years imprisonment. Local companies cannot deduct a bribe to a foreign official from taxes. Government encourages companies to establish internal codes of conduct that, among other things, prohibit bribery of public officials. Most companies have internal controls, ethics, and compliance programs to detect and prevent bribery.

There have been reports of corruption in government procurement. For example, the 2008-2009 Auditor General report highlighted irregularities in the procurement of tenders in the Ministry of Health and Social Welfare. Other irregularities were identified within the Ministry of Public Works and Transport, where the Principal Secretary and other Ministry officials are accused of awarding contracts to two companies without complying with procurement regulations.

The international nongovernmental "watchdog" organization that monitors corruption trends in the country is the Transparency International. Under the Transparency International's Corruption Perceptions Index for 2012, Lesotho scored 45 and ranks 64 out of 176 countries.

Bilateral Investment Agreements

Lesotho has bilateral investment protection agreements with the United Kingdom (1981) and Germany (1985). In 2004, Lesotho signed a bilateral investment agreement with Switzerland; the agreement has not yet been ratified. The three agreements are posted in full on the UNCTAD website. Lesotho signed an interim Economic Partnership Agreement (EPA) with the European Union in 2009 while negotiations for a full EPA are ongoing. In 2008, SACU member states and the United States signed a Trade, Investment, and Development Cooperative Agreement (TIDCA).

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

OPIC and Other Investment Insurance Programs

Lesotho is a member of the Multilateral Investment Guarantee Agency.

OPIC insured one American-owned company: Lesotho Flour Mills, Seaboard Corporation's joint venture with the Lesotho government. Seaboard started operations in 1998 and currently employs about 300 people. OPIC can encourage United States investors to consider exploring new investment opportunities in other sectors.

Labor

Lesotho has been a member of the International Labor Organization (ILO) since 1966 and has ratified 23 international labor conventions, including all the eight fundamental human rights instruments of the ILO. In addition, Lesotho is a signatory to the following Conventions which enable social dialogue to take place: Freedom of Association and Protection of the Right to Organize Convention, 1947 (No. 87); Right to Organize and Collective Bargaining Convention, 1949 (No. 98); Workers’ Representatives Convention, 1971 (No. 135); Tripartite Consultation Convention, 1976 (No. 144); and Labor Administration Convention, 1978 (No. 150). Lesotho has also ratified the Prohibition and Elimination of the Worst Forms of Child Labor Convention (No. 182) and the Minimum Age of Employment Convention (No.138).

Lesotho's Labor Code Order of 1992 and its subsequent amendments are the principal laws governing terms and conditions of employment in Lesotho. The Labor Code regulates terms of employment and conditions and for worker health, safety and welfare. It was amended in 2006 to include HIV/AIDS policies in the workplace. The law permits union organization. Statutory minimum wages are fixed annually by the Ministry of Labor and Employment with recommendations from a tripartite Wages Advisory Board. The textile and garment industry is sensitive to minimum wage setting because of its need to compete with low labor costs abroad, particularly in Asia. The Labor Court and the Labor Court of Appeal are the key judiciary entities dealing with labor disputes. In addition, the Labor Code Amendment Act of 2000 established the Directorate of Industrial Dispute Prevention and Resolution (DDPR), which is a semi-autonomous labor tribunal, independent of the government, political parties, trade unions, employers and employers’ organizations. LNDC is another key institution that deals with labor disputes. The function of LNDC in this realm is to bring parties together before any formal process is set in motion. For example, LNDC intervenes in strikes and tries to reconcile workers and employers. When this informal process fails, the more formal process of the DDPR can be engaged which can consist of conciliation and arbitration.

There is a large surplus of unskilled labor, but skilled labor is in limited supply. To augment the limited supply of skilled labor, the Labor Code allows firms to hire of non-citizens with a work permit. A work permit is issued based on a labor quota formula by the Labor Commissioner who must be satisfied that no qualified Lesotho citizen is available for the position. Within the textile and garments sector, an informal policy permits a company to employ one expatriate worker for every 20 Basotho workers. The statutory maximum duration of a work permit is two years. A work permit may be cancelled before term or renewed.

The 2003 UNCTAD Investment Policy Review has concluded that labor policy and administration is a commendable feature of the Lesotho investment framework; labor policy has focused on sustaining a competitive advantage for Lesotho to attract FDI over other countries in the region.

Lesotho’s high HIV/AIDS prevalence rate, estimated at 23 percent of the adult population, has heavily impacted the labor market; companies need to take the health of their workforce into account when making management decisions.

Foreign Trade Zones/ Free Trade Zones

Lesotho does not have any free or foreign trade zones. LNDC maintains five industrial areas with direct road links to attract foreign investors. These areas are mainly occupied by foreign manufacturing firms.

Foreign Direct Investment Statistics

FDI data is readily available, albeit with a two year lag. The CBL has adopted an international framework for monitoring private capital flows and investor’s perceptions through annual surveys. FDI data is available in the Private Capital Flows (PCF) Survey report produced by the Central Bank of Lesotho (CBL). The latest publicly available Private Capital Flows (PCF) Survey report is for 2008. Data represent actual investment, excluding announced but not completed investment. The CBL does not provide FDI data by country of origin, making it difficult to track the United States' and other countries' FDI position in Lesotho.

Table A: Year-end Stock of Foreign Direct Investment in Lesotho for 2008

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in Million Maloti

1,462.25

in Million USD

169.91

GDP in Million USD

1,530.90 (GDP at 2008 current prices)

Stock as % of GDP

11.1%

Table B: 2008 Direct Investment Capital Flows by Industry Sector

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In millions of USD

% of GDP

Mining and Quarrying

56.52

3.69

Manufacturing

90.78

5.93

Building and Construction

0.39

0.03

Wholesale and Retail Trade

14.27

0.93

Transport and Communications

5.03

0.33

Finance and Insurance

2.47

0.16

Real Estate and Business

0.45

0.03

Total Capital Flows

169.91

11.10

Table C: 2008 Direct Investment Capital Flows by Country of Origin

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In millions of USD

% of GDP

United Kingdom

54.91

3.59

Taiwan

51.10

3.34

South Africa

42.65

2.79

China

8.43

0.55

Netherlands

6.14

0.40

United States

3.46

0.23

Switzerland

2.70

0.18

Belgium

0.45

0.03

Germany

0.06

0.00

Total Capital Flows

169.91

11.10

Table D: 2008 Direct Investment Abroad

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Stock in Million Maloti

378.09

Stock in Million USD

43.93

Stock as Percentage of GDP

2.87%

Table E: 2008 Direct Investment Abroad by Industry Sector

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Sector

in Millions Maloti

in Millions USD

% of GDP

Manufacturing

330.51

38.40

2.51

Building and Constr.

0.73

0.08

0.01

Wholesale & Retail

23.21

2.70

0.18

Transport & Comm.

8.15

0.95

0.06

Finance & Insurance

14.88

1.73

0.11

Real Est. & Bus. Services

0.61

0.07

0.00

Total Claims Abroad

378.09

43.93

2.87

Table F: 2008 Direct Investment Abroad by Country of Destination

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Country

in Millions Maloti

in Millions USD

% of GDP

South Africa

131.76

15.31

1.00

China

109.39

12.71

0.83

Taiwan

107.84

12.53

0.82

Switzerland

13.87

1.61

0.11

Netherlands

13.55

1.57

0.10

Belgium

1.7

0.20

0.01

Total Claims Abroad

378.09

43.94

2.87

Data sources:

FDI: Central Bank of Lesotho; Report on Private Capital Flows Survey 2008

GDP: Bureau of Statistics; 1999-2008 National Accounts Publications

Exchange rate period; 2008 average 1USD = M 8.606

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