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RR RUEHBZ RUEHDU RUEHJO RUEHRN
DE RUEHMR #0062/01 0631507
ZNR UUUUU ZZH
R 031507Z MAR 08
FM AMEMBASSY MASERU
TO RUEHC/SECSTATE WASHDC 3572
INFO RUCNSAD/SADC COLLECTIVE
RUEHMR/AMEMBASSY MASERU 3987

UNCLAS SECTION 01 OF 10 MASERU 000062 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR AF/S, AF/EPS 
 
E.O. 12958: N/A 
TAGS: BEXP ECON EINV ETRD BTIO LT
SUBJECT: LESOTHO: 2008 COUNTRY COMMERCIAL GUIDE 
 
REF: STATE 163400 
 
MASERU 00000062  001.2 OF 010 
 
 
¶1.  Lesotho 2008 Country Commercial Guide 
 
Chapter 1: Doing Business in Lesotho 
 
The economy of Lesotho, a mountainous southern African nation 
completely surrounded by the Republic of South Africa, is based 
on agriculture, livestock, light manufacturing, water exports, 
earnings from the Southern African Customs Union (SACU), and, to 
a decreasing extent, remittances from migrant laborers employed 
in South Africa.  Lesotho also exports garments, diamonds, wool, 
and mohair.  Due to its geography, Lesotho is economically 
dependent on South Africa in many sectors.  The majority of 
households subsist on farming or migrant labor. 
 
Mountainous Lesotho is the source of all of neighboring South 
Africa's major rivers.  The nation's multi-billion-dollar 
Lesotho Highlands Water Project (LHWP), which was initiated in 
1986, is designed to capture, store, and transfer water from 
mountain sources to South Africa's greater Pretoria-Johannesburg 
capital region.  Completion of the first phase of the project 
has made Lesotho nearly self-sufficient in the production of 
electricity and generates approximately $24 million annually 
from the sale of water (and limited amounts of electricity) to 
South Africa.  The project was financed by the World Bank, the 
African Development Bank, the European Investment Bank, and 
other bilateral donors. 
 
Lesotho has taken advantage of the African Growth and 
Opportunity Act (AGOA) to become one of the largest exporters of 
garments to the U.S. from sub-Saharan Africa.  Exports totaled 
$443 million in 2007, and employment reached 47,000 workers. 
Lesotho's 19 garment factories are primarily owned by East Asian 
manufacturing conglomerates. 
 
Lesotho receives economic aid from a variety of sources, 
including the United States, numerous United Nations 
organizations, the World Bank and other international financial 
institutions, Ireland, the European Union, the United Kingdom, 
Germany, the People's Republic of China, Japan, various Arab 
funds, and several dozen international non-governmental 
organizations. 
 
Lesotho has nearly 6,000 kilometers of roads.  There is a short 
rail line (freight) linking Maseru, Lesotho's capital, with 
South Africa.  Lesotho is a member of the Southern African 
Customs Union (SACU), and as such does not pay tariffs to export 
goods to other SACU members (Botswana, Namibia, South Africa, 
and Swaziland).  With the exception of Botswana, these countries 
also form a common currency and exchange control area known as 
the Common Monetary Area (CMA).  The South African rand can be 
used interchangeably with the Lesotho loti, the nation's 
currency (plural: maloti).  The loti is pegged at a one-one 
ration with the South African rand. 
 
Lesotho, classified as a Least Developed Country, suffers from a 
serious HIV/AIDS pandemic which has ravaged the country's human 
resources, leading to declines in population, standard of 
living, and economic potential.  The Government of Lesotho and 
the international community have engaged in an aggressive 
campaign to mitigate the effects of the world's third highest 
HIV prevalence rate and to reverse an alarming increase in new 
infections.   To support these efforts, the United States 
coordinates the resources of two presidential initiatives, the 
President's Emergency Plan for AIDS Relief (PEPFAR) and the 
Millennium Challenge Account (MCA), to implement programming in 
prevention, care and treatment, health infrastructure, and human 
resources. 
 
National Statistics: 
 
GDP (2007):  $1.52 billion 
Population (2007):  1.8 million 
Annual Growth Rate (2006):  7.2% 
Per Capita GNI (2007):  $5,926 
Average Inflation Rate (2007):  9% 
Natural Resources: Water, diamonds, and other minerals 
Labor:  Lesotho is an exporter of excess labor 
Agriculture (2006 est.): 17% of GDP 
Agricultural Products:  corn, wheat, sorghum, peas, beans, wool, 
mohair 
 
 
General Incentives 
 
The following are Lesotho's current investment incentives 
(including incentives available only to companies who coordinate 
their investment through the parastatal Lesotho National 
Development Corporation): 
 
-    Unrestricted repatriation of profits; 
 
MASERU 00000062  002.2 OF 010 
 
 
-    Grants for employee skills training (up to a maximum of 50 
percent of labor costs during the initial training period for a 
newly established manufacturing company); 
-    Unimpeded access to foreign exchange; 
-    Certain loan guarantees; 
-    Direct loans from the Lesotho National Development 
Corporation (LNDC); 
-    Equity participation (in selected cases) by the LNDC, in 
the absence of a private investor; 
-    Rebates on imported raw materials or components for use 
solely in the processing or manufacturing of goods for the 
export market; 
-    Provision of serviced industrial plots, customized 
factories, and commercial and residential properties for lease; 
-    A free enterprise and free market economic system; and 
-    No withholding tax on dividends distributed by 
manufacturing companies to shareholders 
 
Export Incentives 
 
Lesotho has an "Export Finance Scheme" to enable exporters to 
better compete in world markets. The main components of this 
mechanism are: 
 
-    Credit Guarantee Scheme:  Provides LNDC loan guarantees to 
exporters' banks; 
-    Pre-Shipment Credit Scheme:  Finances exporters' working 
capital needs on the basis of confirmed export orders; 
-    Post-Shipment Credit Scheme:  Provides loans which enable 
the exporter to begin a new manufacturing cycle from the day of 
shipment until payment from the foreign buyer is received, thus 
allowing companies to offer favorable credit terms to their 
customers; 
-    Refinance Arrangement:  Grants Central Bank capital to 
commercial banks in order to provide exporters with 
concessionary export finance; and 
-    Counter-Guarantee Arrangement:  The Central Bank assumes 95 
percent of the risk associated with guarantees issued by the 
LNDC. 
 
Investment Guarantees 
 
While no investment code exists in Lesotho, the Government of 
Lesotho provides incentives to investors through legislation and 
the nation's constitution protects the rights of investors. 
 
Lesotho is a signatory to the International Center for 
Settlement of Investment Disputes (ICSID) agreement which allows 
for foreign investors to gain international jurisdiction in 
legal disputes concerning investment in Lesotho.  Lesotho is 
also a member of the Multilateral Investment Guarantee Agency 
(MIGA). 
 
Taxation 
 
As of 2007, the key features of the Lesotho tax system are: 
 
-    A corporate tax rate of 25 percent; 
-    10 percent tax on manufacturing profit; 
-    10 percent tax on farming operations; 
-    A zero percent corporate tax on income generated from 
exporting manufactured goods outside of SACU; and 
-    A maximum individual tax rate of 35 percent. 
 
The government introduced a Value-Added Tax (VAT) in July 2003 
at a uniform rate of 14 percent.  Important food items are 
exempted from VAT.  Double taxation agreements exist with South 
Africa, Mauritius, the United States, and the United Kingdom.  A 
self assessment system was introduced in April 2004 to give 
taxpayers the responsibility of assessing their own tax 
liabilities and to comply as required. 
 
 
Chapter 2: Economic and Political Environment 
 
GOVERNMENT AND POLITICAL CONDITIONS 
 
The Lesotho Government is a constitutional monarchy. The Prime 
Minister, Pakalitha Mosisili (elected in 2002; re-elected in 
2007), is head of government and has executive authority.  The 
King serves a largely ceremonial function; he has only limited 
executive authority and is proscribed from actively 
participating in political initiatives. 
 
The Lesotho Congress for Democracy (LCD) controls a majority in 
the National Assembly (the lower house of parliament), with the 
All Basotho Congress (ABC), the National Independent Party 
(NIP), the Basotho National Party (BNP), and the Lesotho Workers 
Party (LWP) among the 9 opposition parties represented.  The 
upper house of parliament, called the Senate, is composed of 22 
principal chiefs whose membership is hereditary, and 11 
 
MASERU 00000062  003.2 OF 010 
 
 
appointees of the King, acting on the advice of the prime 
minister. 
 
The constitution provides for an independent judicial system. 
The judiciary is made up of the Court of Appeal, the High Court, 
Magistrate's Courts, and traditional courts that exist 
predominately in rural areas.  All but one of the Justices on 
the Court of Appeal are South African jurists. There is no trial 
by jury; rather, individual judges make rulings or, in the case 
of criminal trials, with two other judges as observers.  The 
constitution also protects basic civil liberties, including 
freedom of speech, association, and the press; freedom of 
peaceful assembly; and freedom of religion. 
 
Lesotho held its first post-independence local government 
elections in 2005 using a quota system that reserved one-third 
of electoral divisions for women candidates. In these elections, 
53% of the victorious candidates were women.  For administrative 
purposes, Lesotho is divided into 10 districts, each headed by a 
District Administrator. 
 
Chapter 3: Selling U.S. Products and Services 
 
Foreign manufacturers and exporters are represented in the 
market either through their own branch offices or through 
authorized agent distributors.  Distributors provide technical 
support to end users and usually have contractual arrangements 
with their principals. 
 
Franchising 
 
Franchising is used to a limited extent in Lesotho, successfully 
operating in the sectors of fast food, clothing, office 
cleaning, motor vehicle sales and repair, insurance, and fuel. 
KFC is the only American franchise currently operating in 
Lesotho. 
 
Direct Marketing 
 
Direct marketing is used in Lesotho for the sales of a variety 
of products, from insurance to household equipment.  Companies 
such as Avon, Amway, and HerbaLife have built large businesses 
by direct marketing through local distributors. 
 
Joint Venture/Licensing 
 
In Lesotho, a local joint venture partner is often required, 
especially in the area of government procurement and tenders. 
 
The Ministry of Trade and Industry operates as a "one-stop shop" 
for investors and, in 2007, reduced bureaucratic procedures to 
apply for required permits and licenses prior to foreign 
investment in Lesotho.  The Lesotho National Development 
Corporation also plays a facilitating role for foreign investors 
by providing information to prospective investors, arranging 
site visits, and assisting with permits and licenses as well as 
certain operational problems. 
 
To open a local office of a foreign company in Lesotho, a firm 
must first establish itself as a legal entity by registering 
with proper authorities: the Ministry of Trade and Industry, the 
Ministry of Labor and Employment, and the Department of 
Immigration within the Ministry of Home Affairs.  The following 
documents should be submitted: 1) a letter of the company's 
intent to begin operations in Lesotho; 2) a letter appointing 
the company's official in-country representative; 3) the c.v. of 
the company's in-country representative; and 4) the work permit 
and identity documents of the company's representative.  These 
documents should be submitted to the following address: 
 
Commissioner of Trade 
Ministry of Trade and Industry 
P.O. Box 747, Maseru -100 
Tel: (266) 22-317-454 
 
Representative offices in construction, engineering, or related 
consulting are fields required to register with the Ministry of 
Public Works.  Foreign firms may fully participate in government 
procurement.  Government procurement rules do not give Lesotho 
nationals preference in bids for goods and services contracts. 
However, the Ministry of Trade encourages joint ventures. 
Lesotho is not a signatory to the WTO Agreement on Government 
Procurement. 
 
Advertising 
 
Advertising through local media, including weekly newspapers and 
other periodicals, is recommended for introducing a new product. 
 Television advertising has grown rapidly and now outstrips 
print advertising in cost, although target audiences are limited 
to urban areas.  Electronic commerce is not widely used, but the 
 
MASERU 00000062  004.2 OF 010 
 
 
Ministry of Communications has developed proposals for it to be 
more widely developed. 
 
Pricing 
 
U.S. firms may conduct their own market research to ascertain 
consumer preferences, cost of delivery, and preferred methods of 
distribution and advertising.  Produce prices are best developed 
with advice from the local distributors who are generally well 
attuned to the competitive factors at play in specific markets. 
 
Protecting Intellectual Property Rights 
 
Lesotho's Industrial Property Order (1989), Copyright Order 
(1989), and Industrial Property Regulations (1989) are the 
nation's legal foundation for the protection of intellectual 
property rights.  Patents are valid for 15 years from the 
application date, but have rarely been issued in Lesotho. 
Trademark protection, however, is widely sought and granted. 
Lesotho is a member of WIPO and the African Regional 
Intellectual Property Organization (AIPO).  The law protects 
patents, industrial designs, trademarks, and copyrights.  There 
is no apparent enforcement of intellectual property laws with 
regards to copyrighted music or films. 
 
 
Chapter 4: Leading Sectors for U.S. Exports and Investment 
 
According to the Lesotho National Development Corporation 
(LNDC), Lesotho's lead sectors for investment and export, and 
their appropriate codes, are as follows: 
 
HS2-61:  Articles of apparel and clothing accessories, knitted 
or crocheted 
HS2-62:  Articles of apparel and clothing accessories, not 
knitted 
HS2-XX:  Diamonds 
HS2-60:  Iron and steel 
HS2-90:  Electrical machinery and equipment and parts, sound 
recorders and reproducers, television recorders and reproducers, 
parts and accessories 
 
HS2-XX:  Knitted or crocheted fabrics 
HS2-XX:  Optical photographic, cinematographic, measuring, 
checking precision, medical or surgical instruments and 
apparatus parts and accessories 
HS2-XX:  Plastics and articles 
HS2-XX:  Wool and fine or coarse animal hair including yarns and 
woven fabrics 
HS2-68:  Articles of stone plaster cement asbestos, mica or 
similar materials 
 
Lesotho's exports changed significantly in 2004 due to 
reinvigoration of the diamond mining sector.  By the end of 
2006, the sector generated exports worth $90 million, 
positioning it second behind the textile industry in terms of 
importance for the country's export base.  Three mines are 
currently operational: Letseng, Liqhobong, and Kao.  A further 
two mines are expected to open in the coming years.  Letseng 
diamond mine is expected to generate revenues of approximately 
$40 million a year. 
 
Textile sector growth was 1.3% in 2006 after a decline of 8% in 
2005 in the wake of the expiration of the Multifibre Agreement. 
In 2006, exports were roughly at $387 million, as compared to 
$391 million in 2005 and a peak of $456 in 2004.  Lesotho's 
small but expanding tourism sector is also viewed as a potential 
destination for foreign investment.  Other potential industries 
include consumer electronics, leather goods, toys, plastics, and 
sporting goods. 
 
 
Chapter 5:  Trade Regulations, Customs and Standards 
 
Lesotho applies the SACU common external tariff.  Additional 
charges include customs clearing fees ranging from $130 to $175 
per shipment.  Lesotho also enforces an import permit system for 
all imports from non-SACU member-state companies.  This system 
is applicable to all consignments imported by individual 
consumers or investors.  Manufacturers are accorded preferential 
treatment, however, and granted blanket import rights for a 
period of 12 months and an additional grace period of three 
months. 
 
The agricultural sector benefited from structural reforms in 
recent years, including removal of price subsidies and import 
controls on maize and wheat.  The Agricultural Marketing Act 
controls the importation of bread, legumes, sugar, eggs, meat, 
dairy products, fruits, and vegetables. 
 
With the exception of eggs, sugar, and legumes, import 
 
MASERU 00000062  005.2 OF 010 
 
 
restrictions include provisions allowing for small consumer 
purchases made outside the country.  The Department of 
Marketing, under the Ministry of Trade and Industry, monitors 
the level of production of these commodities and issues import 
licenses in the event of short supply.  National production does 
not meet local demand in most sectors, and as result, import 
permits are routinely issued.  Non-automatic licenses are 
necessary to import used clothing. 
 
Membership in Free Trade Agreements 
 
Lesotho is a party to the SACU-EU Free Trade Agreement, the 
Africa Caribbean and Pacific-European Union (ACP-EU) Agreement, 
and the Cotonou Trade Agreement.  Lesotho is also a member of 
the World Trade Organization. 
 
STANDARDS 
 
Lesotho does not have a national standards body.  The Standards 
and Quality Assurance Section of the Ministry of Trade and 
Industry functions as a focal point for standards and quality 
assurance issues.  No national standards have been developed to 
date.  Industries in Lesotho have traditionally relied upon the 
South African Bureau of Standards for voluntary standards 
facilities and quality assurance mechanisms.  Local exporters 
have developed their standards in accordance to technical 
quality requirements of importing countries and international 
standards. 
 
Lesotho participates in a SADC regional program on 
standardization, quality, and accreditation.  The program aims 
to harmonize standards across member states. 
 
 
Chapter 6:  Investment Climate Statement 
 
Openness to Foreign Investment 
------------------------------ 
 
Lesotho is open to foreign direct investment (FDI) and generally 
treats foreign investors favorably.  However, Lesotho's legal 
framework with regards to FDI is not well developed, and thus 
problems exist with regards to transparency and consistent 
application of the law.  Lesotho has found success in attracting 
FDI to its export sector.  Foreign investors in the apparel and 
footwear industries have created new jobs and contributed to 
poverty reduction.  Current business taxation and regulation 
provisions only partially address investor needs, and the 
Government of Lesotho (GOL) is under pressure to update relevant 
laws affecting investors in various sectors. 
 
Ninety percent of FDI in Lesotho flows into export-oriented 
manufacturing, a sector stimulated largely by the U.S. African 
Growth and Opportunity Act (AGOA).  This FDI created an apparel 
sector which now provides over 40,000 jobs.  The single largest 
investment is believed to the US$90 million capital 
infrastructure investment of Nien Hsing Group in Taiwan. 
Foreign firms in Lesotho concentrate their production on a 
narrow range of products, such as knit apparel and blue jeans. 
Foreign companies also invested smaller amounts in footwear 
production, electronics components assembly, food processing, 
and miscellaneous small-scale manufacturing. 
 
Lesotho's telecommunications sector has also attracted FDI.  An 
international consortium composed of ESKOM Zimbabwe's Econet 
Wireless International and Mauritius Telecom owns 70% of Telecom 
Lesotho.  Lesotho has a relatively high penetration of telephone 
connectivity relative to its low per capita income. 
Communications services have been extensively modernized and 
expanded over recent years, although significant portions of 
mountainous rural Lesotho remain without such services. 
 
FDI in air transportation has not been successful.  The 
parastatal Lesotho Airways closed in 1997 due to its inability 
to attract FDI.  Air routes to and from Maseru are now handled 
exclusively by South African Airways, and are limited to the 
Maseru-Johannesburg route.  Foreign investors have not 
contributed significant capital in the tourism sector, including 
activities aimed at protecting the natural environment and 
ecological attractions. 
 
FDI in the mining sector has experienced a revival through the 
reopening in 2004 of Lets'eng Diamonds, a partnership between a 
South African-owned company and the Lesotho Government.  The 
mine in the northeast Lesotho district of Makhotlong employs 
about 50 people, most of whom are Basotho nationals.  A European 
mining company and the GOL jointly operate another diamond mine 
in Liqhobong, as well as the Kao kimberlite pipe in the northern 
district of Butha Buthe.  South African companies are currently 
prospecting the Kolo mine in southern Lesotho.  In its attempt 
to attract FDI in the mining sector, the GOL offers a number of 
 
MASERU 00000062  006.2 OF 010 
 
 
concessions to foreign investors including VAT exemptions on 
inputs used during construction and withholding tax exemptions 
on dividends and interests payments.  In return, the Government 
of Lesotho is granted an eight percent royalty on gross diamond 
sales, a 12.5% equity interest in joint ventures with foreign 
companies, and a 12.5% share of dividends.  Major diamond finds 
in 2006 and 2007 generated worldwide media coverage. 
 
The Origin of Foreign Investors 
 
Lesotho's apparel sector is entirely East Asian and South 
African-owned, and currently employs approximately 40,000 
people.  Two factories are under Taiwanese ownership, two are 
owned by Hong Kong concerns, one is Singapore-owned, and eight 
are owned by South African firms.  The rest of the approximately 
19 factories are owned by PRC investors.  None are under local 
ownership.  South African FDI is present in footwear factories, 
four electronics firms, the Sun Hotel chain, air transportation, 
insurance, telecommunications, financial services, and mining. 
FDI from other countries includes Canadian mining interests and 
U.S. and Chinese investment in food processing industries. 
 
Lesotho's success in attracting FDI has been limited largely to 
export-oriented manufacturing.  No foreign ownership at any 
level, including positions on boards of directors, is permitted 
in reserved trading license businesses (i.e., small scale retail 
and services operations).  The restrictions on foreign 
involvement in small scale services provision and manufacturing 
are perceived as instruments of immigration control, as there is 
a great deal of political sensitivity regarding small business 
owners from Asia.  Many trading businesses and all medium to 
large manufacturing businesses are open to FDI.  Nevertheless, a 
relevant trading or industry license is required and must be 
renewed annually. 
 
Generally, foreign investors are treated equally with domestic 
investors.  One significant exception is a prohibition on 
foreigners holding land lease titles (land may not be purchased 
in Lesotho, as all land is officially owned by the crown). 
Lesotho has no legal provisions discriminating among various FDI 
source countries.  Lesotho's membership in SADC does not lead to 
preferential treatment for investors from other SADC countries. 
Lesotho's standards of foreign investment protection are good in 
practice, but the legal framework guaranteeing these norms is 
weak.  For example, there is no foreign investment law, and 
Bilateral Investment Treaties (BITs) have been concluded with 
only two countries -- the United Kingdom (1981) and Germany 
(1985). 
 
 
Conversion and Transfer Policies 
-------------------------------- 
 
Lesotho uses traditional foreign exchange controls, though its 
participation in the Southern Africa Common Monetary Area (CMA) 
restricts the independence of its monetary policy.  The CMA 
includes Lesotho, Namibia, South Africa, and Swaziland.  Under 
the CMA, the South African rand, alongside the Lesotho loti, is 
legal tender in Lesotho.  Under CMA rules, the loti must be 
exchanged at a one/one ratio with the rand, and the rand/loti 
peg must be maintained with reserves in rand and other foreign 
exchange.  There are no exchange controls between Lesotho and 
South Africa, but CMA members agree to enforce exchange controls 
with third parties. 
 
The Government of Lesotho delegates authority to commercial 
banks to undertake current account transactions, and Lesotho has 
acceded to Article VIII of the International Monetary Fund. 
However, dividend payments still require the Central Bank 
approval.  The Central Bank of Lesotho (CBL) maintains direct 
powers of approval over foreign exchange requirements for all 
capital account transactions including FDI, capital 
disinvestment, and contracting and servicing offshore debt. 
There has never been a case of CBL blockage of such transfers. 
Lesotho is a member of the Southern African Common Policy on 
approval of foreign loans.  However, policies on foreign 
borrowing are not strongly developed as there is insufficient 
foreign borrowing by resident businesses. 
 
 
Expropriation and Compensation 
------------------------------ 
 
Lesotho's constitution states that the acquisition of private 
property by the state can only occur for specified public 
purposes and in exchange for full and prompt compensation.  Any 
party subject to such expropriation has the right to appeal the 
action or the compensation offered to the nation's High Court. 
The constitution does not address whether compensation may be 
paid abroad in the case of a non-resident.  Under existing 
constitutional provisions, several mining companies filed a case 
 
MASERU 00000062  007.2 OF 010 
 
 
in 1999 against the Lesotho Water Highlands Project and its 
financiers alleging that their mineral lease rights were 
unlawfully expropriated without compensation when a new dam 
flooded a potential mining area.  Lesotho's courts found in 
favor of the Lesotho Highlands Water Project and its financiers, 
stating that all proper regulations and notifications were 
followed prior to the dam construction. 
 
 
Dispute Settlement 
------------------ 
 
Foreign investors have full and equal recourse to Lesotho's 
courts to settle commercial and labor disputes.  The nation's 
courts are regarded as fair and impartial in cases involving 
foreign investors.  In complex commercial cases, overseas judges 
may be invited to the bench.  Under Lesotho's BIT agreement with 
United Kingdom, an investor may take a dispute with the 
Government of Lesotho to international arbitration, but the BIT 
agreement with Germany does not address this issue.  Lesotho is 
member of the Multilateral Investment Guarantee Agency (MIGA) 
and has acceded to the Convention on Settlement of Investment 
Disputes between States and Nationals of Other States. 
 
 
Performance Requirements 
------------------------ 
 
There are no blanket incentives specifically for foreign 
investors and no performance requirements imposed exclusively on 
foreign investors as a condition of investment.  The principal 
business taxes in Lesotho are income tax, customs fees, excise 
duties, and value added tax.  Corporate income taxes heavily 
favor investment in manufacturing, as income is taxed at zero 
percent and there is no withholding tax on dividends paid to 
non-residents.  Income in all other sectors is taxed at 35%, and 
there is a further 25% withholding tax on non-resident 
dividends.  Moreover, only industrial buildings qualify for 
depreciation allowances.  Buildings for services, tourism, and 
farming are not depreciable.  Also, infrastructure such as land 
improvements and site services do not qualify. 
 
 
Right to Private Ownership and Establishment 
-------------------------------------------- 
 
Foreign entities have the right to establish enterprises in 
Lesotho, but many types of new businesses require specialized 
licenses (see section A.8. below).  Lesotho has no competition 
law or overall competition regulator.  Instead, under the 
industrial and trading licensing system, a business can apply 
for protection from competition for up to 10 years. 
 
 
Protection of Property Rights 
----------------------------- 
 
As discussed in the sections on intellectual property rights and 
expropriation/compensation, Lesotho generally respects private 
property rights.  Lesotho's constitution forbids the deprivation 
of private property from individuals and businesses without 
proper legal proceedings. 
 
 
Transparency of the Regulatory System 
------------------------------------- 
 
The judicial system is fair and competent in commercial matters. 
 The government is willing to supplement the bench with foreign 
judges in cases requiring specialized expertise.  Generally, 
there is adequate regard for contracts with foreign parties and 
equal treatment of foreign investors before the courts in 
disputes with national parties or the government. 
 
Corporate law is based on the Companies Act of 1967 which 
provides reasonable standards for corporate behavior.  However, 
it has been criticized as both incomplete and overly complex. 
Technical improvements were incorporated in a 1998 draft of a 
revised law, though it was never passed by parliament. 
 
The regulatory framework for utilities is modern, while many 
analysts judge mining regulations to be outdated.  Lesotho's 
current mining legislation gives the authority to grant land 
rights to the King and traditional chiefs upon the 
recommendation of a Mining Board, rather than to a government 
ministry.  Financial services regulation is sufficient. 
However, the industrial and trading license system, which 
requires licenses for 44 types of business, has over the years 
lost its original purpose of protecting new firms from 
competition.  Some enterprises can require up to four licenses 
for legal operation. 
 
MASERU 00000062  008.2 OF 010 
 
 
 
The Lesotho Telecommunications Authority (LTA) acts as an 
independent regulator of the telecom industry.  The LTA sets the 
conditions for the entry of new competitive operators, although 
it maintains Lesotho Telecom's monopoly on fixed line and 
international services. 
 
Current banking regulations do not grant the Central Bank of 
Lesotho power to direct interest rates, exchange rates, margins, 
or the range of services offered by banks operating in Lesotho. 
This is due to the currency peg with the South African rand, 
which relinquishes Lesotho's leverage with regards to monetary 
policy and also creates a lower political risk environment for 
banking investment. 
 
 
Efficient Capital Markets and Portfolio Investment 
--------------------------------------------- ----- 
 
Lesotho hosts three foreign-owned banks: First National Bank, 
Ned Bank, and Standard Bank (the latter bought a 70% share in 
state-owned Lesotho Bank).  The financial base of these banks is 
sound, as they are supported by foreign-based capital. 
Judgments as to the market-orientation of credit provision by 
these banks are difficult as very little credit is extended to 
local consumers.  Industrial and commercial credit is provided 
by the parastatal Lesotho National Development Corporation 
(LNDC).  The LNDC's mandate is to promote and facilitate foreign 
investment. 
 
 
Political Violence 
------------------ 
 
Rioting and violence associated with an attempted coup d'etat in 
1998 still cast a shadow over today's investment environment. 
The country has made considerable strides in the intervening 
decade to consolidate and strengthen democracy, but there is 
room for improving investors' confidence.  Following a free and 
peaceful February 2007 general election, Lesotho experienced 
several civil disturbances and general strikes associated with a 
political impasse over the allocation of parliamentary seats. 
In the wake of June 2007 attacks by unknown gunmen on the 
residences of prominent government and political leaders, the 
Government of Lesotho imposed a two week long dusk until dawn 
curfew in Maseru.  Political tensions between governing and 
opposition parties continue, but the national political 
atmosphere is generally calm. 
 
 
Corruption 
---------- 
 
Investors reported that corruption is not a significant factor 
affecting their investments.  Anti-corruption legislation passed 
in 1999 was implemented through the creation of an autonomous 
anti-corruption unit, the Directorate on Crime and Economic 
Offenses (DCEO).  The Government of Lesotho actively prosecutes 
corruption cases at various levels of authority, including 
recent cases against the former Principal Secretary of Justice 
and Constitutional Affairs, a former Deputy Commissioner of 
Police, and various foreign and domestic parties engaged in the 
Lesotho Highlands Water Project.  According to independent 
indicators used by the Millennium Challenge Corporation, Lesotho 
scores among the top nations in its economic peer group with 
regards to the control of corruption. 
 
 
OPIC Insurance Program 
---------------------- 
 
The Overseas Private Investment Corporation (OPIC) insures one 
American investment in Lesotho, Seaboard Corporation's joint 
venture with Lesotho Flour Mills, which began operations in 1998 
and currently employs approximately three hundred people.  This 
is OPIC's sole current activity in Lesotho. 
 
 
Labor 
----- 
 
Lesotho's employers operate under the Labor Code Order of 1992 
which regulates terms of employment and requirements for worker 
health, safety, and welfare.  It was amended in 2004 to address 
HIV/AIDS policies in the workplace.  Unionization is permitted. 
The law created an independent Directorate of Industrial Dispute 
Prevention and Resolution.  Statutory minimum wages are set 
annually by the Ministry of Labor and Employment in accordance 
with recommendations from a Wages Advisory Board including 
worker, management, and government representatives.  In 2001, 
Lesotho ratified ILO Convention 182 on the Prohibition and 
 
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Elimination of the Worst Forms of Child Labor and Convention 138 
on Minimum Age of Employment. 
 
The Labor Code Order of 1992 requires every non-citizen employee 
or self-employed person to have a valid work permit.  A work 
permit is issued by the Labor Commissioner who, by regulation, 
must be satisfied that no qualified Lesotho citizen is available 
for the position.  The statutory maximum duration of a work 
permit is two years. 
 
 
Foreign Direct Investment Statistics 
------------------------------------ 
 
Lesotho's FDI statistics since 2004 are estimated as follows: 
(currency figures are in millions) 
 
 
 
Year               2004     2005     2006     2007 
 
FDI Stock 
in Maloti        343.68   364.37   623.00   745.03 
 
FDI Stock 
in $              49.09    52.05    89.00    106.43 
 
FDI as % 
of GDP             0.03     0.04     0.06     0.07 
 
GDP Purchasers' 
Prices in $     1419.85  1438.94  1445.71  1481.89 
 
 
Source: FDI stock data from the Central Bank of Lesotho, GDP 
data from the Bureau of Statistics Website (National Accounts) 
 
Lesotho's FDI data is incomplete and does not currently meet the 
needs of policy makers.  The Central Bank estimates FDI using 
information received from Lesotho National Development 
Corporation (LNDC) and, as such, the data sometimes include 
planned (not actual) projects, leading to possible 
overestimation.  This data does not capture the reinvestment 
element of FDI inflows.  By confining this data to initial 
equity investments, the figures ignore later investments 
financed by retained earnings from foreign companies already in 
Lesotho.  This could lead to an underestimation of FDI volume. 
 
 
Chapter 7: Trade and Project Financing 
 
Banking System 
 
Lesotho's banking system is essentially foreign owned by South 
African Banks (Standard Bank, NedBank, and First National Bank). 
 Lesotho's banks are supervised by the Central Bank of Lesotho 
through the Financial Institution Act of 1999.  Local currency 
accounts for individuals can be opened with any bank through the 
presentation of a valid identity document.  For the opening of 
business accounts, applicants must submit an application letter 
with copies of authorized signatures. 
 
Due to Lesotho's currency peg with the South African rand, 
Lesotho's banking regulations do not give the nation's Central 
Bank power to direct interest rates, exchange rate margins, or 
the spread of services offered by banks.  Lesotho partially 
liberalized capital account transactions in 2003, and abolished 
current account controls in 1993.  There are no credit rating 
agencies in the country, but Fitch Credit Rating has given 
Lesotho sovereign credit ratings for the last three years, which 
is currently "B" for the nation's short term issuer default 
rating. 
 
Project Financing 
 
Multilateral financial institutions such as the World Bank, the 
African Development Bank, the European Union, the Kuwait Fund, 
the Saudi Fund, and BADEA all lend capital to Lesotho for 
infrastructural development.  In addition, in 2007 Lesotho 
signed a compact agreement with the USG-financed Millennium 
Challenge Corporation for a $362.5 million grant for investment 
in water, health, and private sector infrastructure. 
 
 
Chapter 8: Business Travel 
 
All U.S. citizens traveling to Lesotho are urged to visit the 
Embassy's website (http://maseru.state.gov) for the latest 
travel information.  Basotho traveling to the United States 
require visas and must schedule an appointment and complete a 
visa application form online and personally present themselves 
 
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for an interview at the U.S. Embassy in Maseru.  All visa 
applications must be completed online.  For more information, 
please visit U.S. Embassy Maseru's consular information website 
(http://maseru.usembassy.gov/visa_services.ht ml). 
 
Business Custom 
 
Business meetings in Lesotho are normally held in offices rather 
than over meals, although there are occasionally one-hour 
breakfast or lunch meetings.  Business attire is similar that in 
the United States.  It is advised to reconfirm appointments as 
delays are common.  Meetings are generally conducted in English. 
 Most businesses are open Monday through Friday and close for 
lunch between 1:00 p.m. and 2:00 p.m.  Business cards are an 
important feature of the professional environment. 
 
The time difference between Lesotho and United States is seven 
hours during daylight savings time in the U.S., six hours during 
the rest of the year.  The currency unit is loti or the South 
African rand, and the average exchange rate for the current 
period is 1 USD = 7 Maloti/Rand.  Lesotho uses metric system for 
weight, volume, and length measurements. 
 
Chapter 9:  Contacts Market Research and Trade Events 
 
No large trade shows are currently planned in Lesotho for 2008. 
The Government of Lesotho's primary contact for market research 
is Mr. K. Cekwane, Director of the Marketing Division of 
Lesotho's Ministry of Trade and Industry (telephone: 
+266-22-31-7454). 
 
Chapter 10:  Guide to Our Services 
 
Commercial Advocacy 
 
The U.S. Embassy's Economic Section provides commercial advocacy 
to U.S. firms intending to do business in Lesotho.  Primarily, 
this involves scheduling meetings with potential business 
agents, partners, and government officials and performing 
limited research in areas of interest.  The Economic Section 
also liaises with American firms in specific 
development-oriented sectors to assist in identifying trade 
opportunities with local partners. 
NOLAN