VZCZCXRO2988
RR RUEHDU RUEHJO RUEHRN
DE RUEHMR #0335/01 2000832
ZNR UUUUU ZZH
R 190832Z JUL 06
FM AMEMBASSY MASERU
TO RUEHC/SECSTATE WASHDC 2161
INFO RUEHLMC/MILLENNIUM CHALLENGE CORP
RUCNSAD/SADC COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHMR/AMEMBASSY MASERU 2449

UNCLAS SECTION 01 OF 03 MASERU 000335 
 
SIPDIS 
 
AIDAC 
SIPDIS 
 
DEPARTMENT PLEASE PASS TO USTR, ATTN: WILLIAM JACKSON 
 
E.O. 12958: N/A 
TAGS: ECON EAID PGOV LT
SUBJECT: ECONOMIC REPORT 
 
 
MASERU 00000335  001.2 OF 003 
 
 
¶1.  SUMMARY: 
 
--Letseng Diamond Mine sold to Gem Diamond Mining Company; 
--More Mining Licenses Granted; 
--Law Society Appeals to Chief Justice; 
--Standard Bank and Lesotho Bank Announce Merger; 
--Lesotho Textiles Make a Comeback. 
 
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LETSENG DIAMOND MINE SOLD TO GEM MINING COMPANY 
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¶2.  Uncertainty over the future of Letseng Diamond Mine in the 
mountain district of Mokhotlong was dispelled with last week's 
announcement that South Africa's mining holding company, JCI, 
has sold 100 per cent of Letseng Investment Holding to Gem 
Diamonds Mining of Africa for Maloti 879 million (USD 122 
million). The Chief Executive of Gem Diamonds, which began 
operations in July 2005, is Clifford Elphick, who has worked for 
Anglo American, and was Managing Director of E. Oppenheimer and 
Son from 1990 until the end of 2004. 
 
¶3.  A March 24 Financial Mail report by Brendan Ryan suggested 
that black empowerment mining company Matotzi Resources faced 
insolvency, and that its only salvation was becoming a 
subsidiary of JCI, which owns 58 per cent of the company. 
According to the report, Matotzi had made an attributable loss 
of Maloti 31.7 million (USD 4 million) during the six months 
ending in September 2005.  JCI had however undertaken to provide 
financial support to fund any resulting cash shortfalls. 
 
¶4.  Between them, Matotzi and JCI owned 76 per cent through a 
Lesotho registered company,  Letseng Investment Holdings.  The 
GOL owns 26 per cent  of the mine.  The original deal stipulated 
that the government could renegotiate its shareholding in the 
mine after five years of operation , which expires this year. 
 
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MORE MINING LICENSES GRANTED 
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¶5.  The Lesotho government has granted diamond prospecting 
licenses to two companies based in Canada and South Africa.  The 
Canadian company, Motapa Diamonds, has been granted exclusive 
rights to explore the Mothae kimberlite which is located 6.5 
kilometers north-west of the Letseng diamond mine along a 
structural lineament common to both kimberlites.  The site is 
expected to yield diamonds of a similar value to those of 
Letseng. Note. In 2005 the mine made a find of four flawless 
diamonds weighing 112, 105, 76 and 71 carats each.  End Note. 
 
¶6.  Prior investigations of Mothae indicate a grade of 
approximately 2.8 carats per hundred tons, although no reliable 
information on diamond value has been obtained. 
 
¶7.  Angel Diamonds (Pty) Ltd., a subsidiary of Thabex 
Exploration was on June 13 granted a two-year prospecting 
license over the Kolo kimberlite by Lesotho's Commissioner of 
Mines.  Thabex Exploration is listed of the Johannesburg Stock 
Exchange, and has a diversified portfolio of exploration 
projects in alluvial and kimberlite deposits in South and 
Southern Africa. 
 
¶8.  The kimberlite is based in the Mafeteng district, forty 
kilometers south of the capital, Maseru. The two year period is 
extendable by a year.  In the event of successful prospecting, 
Thabex is expected to make 20 per cent of its shareholding in 
Angel Diamonds available to the Lesotho government. 
 
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LAW SOCIETY APPEALS TO CHIEF JUSTICE OVER OFFICIAL CAR SCHEME 
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¶9.  The Law Society of Lesotho has appealed to the Chief Justice 
and other members of the Bench to dissociate themselves from a 
scheme through which a South African vehicle leasing company, 
Imperial Fleet Services, has offered Mercedes Benz vehicles 
previously allocated to judges of the high court for a residual 
value of Maloti 4,000.00 (about USD 590.00). 
 
¶10.  Imperial Fleet Services, a South African company that 
leases GOL vehicles, made a first offer of Mercedes Benz and 
Camry vehicles previously leased to government to the officials 
who were assigned the vehicles at a residual value of about 
 
MASERU 00000335  002.2 OF 003 
 
 
Maloti 4,000.00 (about USD 590.00) in the case of Mercedes Benz, 
and an average of Maloti 2,000.00 (about USD 295.00) in the case 
of Toyota Camrys in May this year. 
 
¶11.  Speaking in a Radio Lesotho phone-in program last month, 
the Government Secretary, Mr. Tlohang Sekhamane, said the scheme 
had been negotiated by government as an incentive to retain good 
quality officials, and Imperial to better its chances of getting 
another contract.  The present contract has been renewed by a 
year until December, 2006.  He said the scheme would also 
benefit holders of statutory positions including judges of the 
high court, members of the public service commission, the 
teaching service commission, the Independent Electoral 
Commission and the Attorney General and the Director of Public 
Prosecutions, among others. 
 
¶12.  According to the petition signed by the society president, 
Advocate Zwelake Mda, "It is the considered opinion of the 
Society that this arrangement smacks of a corrupt association 
between the Government and Imperial Fleet Services in that, 
inter alia: 
 
a)  The government is a party to a contract pursuant to which 
the vehicles are rented out to it by Imperial; 
 
b) The fate and continuance of this contract (which itself is 
dogged by controversy) is depended on the favorable disposition 
of the government; 
 
c)  The marked value of the vehicles is way far above the paltry 
amount of Maloti 4,000 at which the vehicles are offered to 
those whose remit is to decide the fate of the said contract. 
The Society contends that where people hold offices of trust and 
discharge functions of public benefit, they dare not benefit 
privately.  Consequently the view that the Judiciary would be 
falling into a bottomless pit of corruption if it became party 
to this scheme.  The society thus humbly and with due respect 
urges you and your Honorable brethren not to be attracted to 
this unfortunate scheme". 
 
¶13.  Meanwhile the leaders of three political parties have sent 
a similar note of protest to the heads of diplomatic missions 
accredited to Lesotho.  Dated July 4, the letter refers to "the 
illicit and unprocedural acquisition of government property - in 
the form of Mercedes Benz and Toyota Camry vehicles - by the 
current ministers and principal secretaries". 
 
¶14.  The letter refers to a recent European Union commemoration 
event where the Lesotho government was specifically asked to 
step up the fight against corruption, purportedly by the EU 
delegate to Lesotho.  According to the letter, the Foreign 
Minister had responded by saying that the GOL expects diplomats 
to help in that fight. The letter points to the acquisition of 
the vehicles as an incident in which government officials have 
abused their privileged positions for personal gain "through 
corrupt acquisition". 
 
¶15.  The letter is signed by Dr. Khauhelo Raditapole, leader of 
the Basotholand African Congress, BAC; Mr. Kelebone Maope, 
leader of the Lesotho People's Congress; and Mr. Ntsukunyane 
Mphanya, leader of the Mahatammoho a Poelano Alliance, who call 
on the diplomatic missions to bring the matter to the attention 
of their governments and organizations. 
 
¶16.  The Commissioner General of the Lesotho Revenue Authority, 
Dr. Charles Jenkins has confirmed that the government officials 
who acquired the vehicles did not have to pay Value Added Tax 
(VAT) on the purchase.  He was responding to initial public 
speculation on whether the new owners would have paid tax on the 
amount at which the vehicles had been offered to them, or on the 
book value of the vehicles, and subsequent reports that the 
officials had evaded tax when acquiring the vehicles. 
 
¶17.  Dr. Jenkins cited a law abolishing double taxation on 
registered goods when the VAT was introduced in 2003.  According 
to the law, VAT is only paid on new vehicles, and not on second 
hand vehicles.  He said documentation relating to the said 
vehicles revealed that Imperial Fleet Services had paid tax to 
the South African government upon importation of the vehicles, 
which tax was subsequently claimed from the South African 
Revenue Service, SARS by the Lesotho Revenue Authority. 
 
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STANDARD BANK AND LESOTHO BANK ANNOUNCE MERGER 
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MASERU 00000335  003.2 OF 003 
 
 
¶18.  Two of Lesotho's four major commercial banks, Standard Bank 
and Lesotho Bank have announced that they will start operating 
under one name, Standard Lesotho Bank starting over the weekend 
of July 15 to July 17.  The South African Standard Bank bought 
eighty per cent shareholding in Lesotho Bank, previously owned 
by the government in 1999.  The new bank was called Lesotho Bank 
99, and has been operating as a separate entity since. 
 
¶19.  According to the Managing Director of Standard Bank, Collin 
Addis, the merger is intended to ensure a more efficient 
business model that meets the needs of its customers. He said 
following the merger, customers of the two banks would be able 
to make transactions and apply for replacement of automated 
teller machine cards and check books at existing branches of 
either bank. 
 
¶20.  He said the benefit to the GOL was that it would now own 
its 20 per cent shareholding in an expanded entity. 
 
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LESOTHO TEXTILES MAKE A COMEBACK 
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¶21.  Lesotho's largest employer, the textile industry is 
reported by the UN Integrate Regional Information Networks to be 
making a comeback following the closure of seven factories with 
a loss of nearly 10,000 jobs at the end of 2005.  According to 
Andy Salm, Regional Textile and Apparel Specialist for ComMark 
Trust, a non-governmental organization that monitors the 
industry in Southern Africa, all the factories that had been 
closed have reopened, and the number of jobs that had shrunk 
from 50,000 to 40,000 have now climbed back to around 47,000. 
 
¶22.  Salm attributes the continued commitment of textile 
industrialists in Lesotho to the engagement of the Lesotho 
government in addressing the problems encountered by the 
industry.  He points out that the minister of Industry, Mpho 
Malie is receptive to working with the industry, and comes 
together with key players every two weeks to work out issues 
that may exist.  Lesotho has further made concerted efforts to 
develop strong relationships with buyers and "clear red tape", 
which has contributed to turning around the industry. 
 
¶23.  According to Salm, another reason why Lesotho has caught 
the attention of buyers stems from the efforts of the government 
to build on an image of ethical choice. He cited the Apparel 
Lesotho Alliance to Fight Aids (ALAFA), a recently launched 
HIV/AIDS education and treatment network for industry workers 
as an example of a move to enhance the industry's growing 
reputation as a socially responsible source of clothing for 
famous brands. 
PERRY