natural resource is water, often referred to as ‘white gold’
by the Basotho people. During 1995 and 1997, with intense
construction activities involving the multi-million Lesotho
Highlands Water Project, Lesotho registered an impressive
economic performance – the real GDP growth rate made Lesotho
one of the top ten performers in Africa at this time.
Completion of a major hydropower facility in January 1998
now permits the sale of water to South Africa, generating
royalties that will be an important source of income for
Lesotho. The positive impact of the water project (refer to
separate section for further details) and the small but
rapidly growing manufacturing sector contributed to the
spurt in economic growth. The lessening economic
contribution of the project as it nears completion will be
more than offset by royalty payments from South Africa.
Post Office Building- Maseru
The economy of
Lesotho is based on subsistence farming and animal
husbandry, as well as small-scale industries that include
clothing, footwear, textiles, food processing and
construction. The small manufacturing base depends largely
on farm products to support the milling, canning, leather
and jute industries. The great majority of households gain
their livelihoods from subsistence farming and migrant
labour, with a large portion of the adult male workforce
employed in South African mines (although the number of such
mine workers has declined steadily over the past years). In
the past financial year, Lesotho’s economy slowed down
substantially because of major political conflicts causing
temporary disruption in business activities. Unemployment
remains high and is one of the most serious problems facing
Lesotho, with poverty still severe.
In order to attain its macroeconomic objectives, the
government of Lesotho is continuing to place high priority
on parastatal privatization and private sector development,
with this strategy forming the primary source of growth and
employment creation. Based on free market principles and
private ownership of property, the Lesotho economy presents
a relatively open economic and business climate. Any
institutional and regulatory constraints that impede growth
are being addressed.
Lesotho’s fiscal policy for 1999/2000 and beyond is focused
on maintaining budgetary expenditures at sustainable levels.
Characterised by the growing importance of the private
sector and increased globalisation of production and trade,
the economy of Lesotho faces the beginning of a purposeful
The slow-down in the world economy during 1998/99 has had
far reaching effects on developing countries, with aid and
private capital flows to emerging markets reducing. South
Africa itself has the most developed and well-diversified
economy, with agriculture, mining, secondary industry,
commerce and a broad structure of service establishments
contributing to the wealth of the nation. Lesotho’s ability
to achieve its sustainable human development objectives is
closely linked to the evolving economic and political
dynamics of this larger neighbour, as well as other
countries of the Southern African Development Community (SADC).
Economic swings in South Africa are the largest single
influence on Lesotho’s economy, with inflation following the
trends in this country. Proceeds from membership in a common
customs union with South Africa form the majority of
government revenues expected to be significantly affected by
events currently taking place in the world economy.
For Lesotho to
continue to create a profitable base for export orientated
manufacturing industries and increase employment
opportunities for Basotho, the LIPC, a division of LNDC,
acts as a one- stop facility for investors by carrying out
the following main functions:
Identification of potential foreign investors.
- Promotion of
Lesotho to foreign investors to set up manufacturing
availability of services, facilities and incentives
necessary to make Lesotho attractive to investors .
Lesotho's image as a highly competitive investment
Investment Advantages and Incentives
Lesotho is a
signatory to the convention on the settlement of investment
disputes between states and is a member of the Multilateral,
Investment Guarantee Agency. Furthermore, as a member of the
International Monetary Fund, Lesotho has accepted the
obligations of the Articles of Agreement, thereby giving
confidence to the international community of its pursuance
of sound economic policies, contributing to a multilateral
payments system free of restrictions.
position also provides distinct advantages . For investors
Lesotho offers a highly competitive environment that is
conducive to productivity. The current investor package
includes the following:
- A stable
social and political environment that is investor
friendly, with a free enterprise and free market economic
system forming the basis for sustained development and
- A low
corporate tax rate of 15 % on profits earned by
manufacturing companies, with free repatriation of
profits, as well as no secondary or withholding tax on
dividends distributed by manufacturing companies to local
or foreign shareholders. (Refer also to Banking and
comprehensive export finance facility to support exporters
with working capital on concessionary terms and unimpeded
access to foreign exchange
guarantees, with long-term loans and/or equity
participation in strategic projects
sales tax exemption on capital machinery and equipment for
manufacturing industries, as well as full rebates on
imported raw materials or components used solely in the
processing or manufacturing of goods for the export
market, thus enabling manufacturers to offer credit
facilities to customers
- An abundant
labour force that is predominantly English speaking,
literate and well motivated, with high productivity and
competitive wage rates
non-repayable skills training grant that covers up to 50%
of the wage bill during the initial training period for
newly established manufacturing company.
of serviced industrial sites and purpose-built factory
shells for rental at competitive rates.
water and electricity tariffs as a direct spin-off from
the Lesotho Highlands Water Project.
1999/2000 the Ministry of Industry, Trade and Marketing , in
conjunction with the Lesotho National Development
Corporation and other stakeholders are to review the
investment incentive package in order to enhance
competitiveness in the region. There are plans to introduce
accelerated depreciated allowances on plant and machinery
used in new manufacturing process, as well as the
possibility of a reduction on municipality rates applicable
A Door To Limitless Trade Opportunities
to a free enterprise economy, the Government of Lesotho has
mounted an aggressive campaign to attract foreign
investments coupled with an extensive programme of guiding
local entrepreneurs in establishing their own business. As a
result, many industries have been established not only to
serve the local market, but also to tap export
In the past few years, considerable progress has been
achieved by the Kingdom of Lesotho in the exportation of its
products. This is reflected not only in the steady growth of
the country's exports, but also in the range and variety of
products exported as well as in the number of countries to
which Lesotho exports.
There are a number of factors, which have contributed to
this success. Foremost among these is the premium quality of
the products exported. This, together with the most
competitive prices, enables Lesotho to carve a respectable
niche in the world market.
Another advantage, which has served Lesotho's exports well,
is its privileged position vis-à-vis developed country
markets. Under the Lome Convention, its exports are given
duty-free access to the EU market. The Generalized System of
Preferences in other developed markets provides a number of
concessions, which make Lesotho exports very competitive. In
addition, Lesotho has duty-free access to the SACU market
and some duty concessions in SADC member states.
Best known for its diamond exports, there are also proven
deposits in Lesotho of other minerals and semi-precious
stones. These are continuously being explored and developed
for the export market.
Wool and mohair export continues to be substantial, and from
these, hand-woven tapestries are produced which have gained
acceptance as original works of art. More recently, mohair
yarn, handspun in numerous co-operatives throughout the
country, has been highly regarded for its warmth and beauty,
its softness and strength.
The traditional skills of weaving, braiding and pottery have
also been harnessed to produce exquisite hand-crafted
articles such as knitwear, jewellery, basketry and a host of
handicraft items. Many of these products demonstrate such
fine workmanship, which defies comparison with machine-made
From its expanding manufacturing sector Lesotho is
particularly proud of the wide acceptance obtained from its
exports of premium-quality tapestries, wall hangings,
mohair, quilts, curtaining, sheepskin, slippers, jackets and
hats, leather, garments, pharmaceutical, footwear, and car
seat covers, to name a few. Many more products are
constantly being developed and adapted to meet the tastes
and requirements of specific foreign markets.
Readers who may be interested in any of the products
featured in this article, or in obtaining information on
Lesotho's other products are requested to contact the Trade
Promotion Unit, Ministry of Industry, Trade and Marketing.
Tel : (+266) 322138
Fax : (+266) 310644
P.O. Box 747, Maseru 100
Trade Concessions and Agreements
network of trade preferences has played a crucial role in
providing favorable access to world markets. Ideally located
for export orientated manufacturing industries, foreign
companies are able to serve world markets - there is access
to 28 million consumers in the Southern African Customs
Union and 360 million consumers in the European Union. The
highly concessionary Generalized System of Preferences gives
access to North American, Japanese, Nordic and other
developed markets, with preferential access to 18 markets in
the Preferential Trade Area in eastern and southern Africa.
Other preferential trade agreements have been entered into
with the Southern Africa Development Community, and
countries of the Western African Preferential Trade Area.
Bilateral trade agreements have been concluded with a number
National efforts to attract more inward investment include
double taxation agreements with other countries. The
National Assembly has recently approved a new double tax
agreement with South Africa. Lesotho has also signed a
double taxation agreement with the United Kingdom, with an
agreement to be effected with Mauritius in the near future.
For goods imported into the Common Monetary Area duty is
rebated on a range of articles as well as materials imported
for manufacturing or processing.
financial strength, managerial and technical skills, and
marketing capabilities are required to form joint ventures
with local investors. investment opportunities exist in the
following strategic areas:
- Clothing and
Agro-industries, especially in processing of locally
produced wool and mohair, establishment of mineral water
or electronic consumer products - strategic partners to
produce TV sets, video cassette recorders, electronic
stoves, microwave ovens, refrigerators, washing machines
and dryers, telecommunications equipment .
- A wide range
of potential projects in the manufacturing, construction
and services sectors connected to the Lesotho Highlands
engineering services for rehabilitation of rural hospitals
lodges and other facilities catering for tourists .
rehabilitation and maintenance.
- Health care
of high quality rock-wool for insulation .
- Use of local
clays for production of ceramic products such as sanitary
ware, stoneware utensils, glazed advertising slabs. For
detailed information about economic indicators, visit the
Central Bank of Lesotho web site.
Source: Lesotho Review 2000, written and compiled by
published by Wade Publications