VZCZCXRO6437
RR RUEHBZ RUEHDU RUEHJO RUEHRN
DE RUEHMR #0361/01 2820916
ZNR UUUUU ZZH
R 090916Z OCT 09
FM AMEMBASSY MASERU
TO RUEHC/SECSTATE WASHDC 4416
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
INFO RUCNSAD/SADC COLLECTIVE
RUEHMR/AMEMBASSY MASERU 4850

UNCLAS SECTION 01 OF 07 MASERU 000361 
 
SIPDIS 
 
DEPT FOR AF/S AND AF/EPS GABRIELLE MALLORY 
STATE PASS USTR FOR CONSTANCE HAMILTON 
COMMERCE FOR KEVIN BOYD 
TREASURY FOR ANTHONY IERONIMO 
 
E.O. 12958: N/A 
TAGS: EAGR EAID ECON ENRG ETRD PHUM LT
SUBJECT: LESOTHO: AGOA ELIGIBILITY REVIEW 
 
REF: STATE 97769 
 
MASERU 00000361  001.2 OF 007 
 
 
¶1.  Per reftel's request, post submits the following information 
for the annual AGOA eligibility review. 
 
 
 
¶2.  Country: Lesotho   Current AGOA Status: Eligible 
 
 
 
Country Background Summary:  The Kingdom of Lesotho is a 
landlocked Southern African nation with a population of 
approximately 1.88 million inhabitants and a per capita income 
of $1,110 per month in 2007.  In 2006, Lesotho achieved a record 
growth rate of 6.2% due to the doubling of the diamond mining 
output and rising public investment. The economy is estimated to 
grow at the rate of 1.1% in 2009 compared to 3.4% in 2008. The 
slowdown is mainly due to the effects of the global economic 
crisis. Government revenue is mainly derived from taxes and 
customs revenues.  Lesotho's market-based economy is closely 
tied to that of its larger neighbor, South Africa, though its 
export sector is heavily dependent on apparel exports to the 
United States under the African Growth and Opportunity Act 
(AGOA).  With a prevalence rate of approximately 23%, Lesotho 
has one of the world's highest rates of HIV/AIDS infection. 
 
 
 
The Government of Lesotho (GOL) is focusing on structural and 
institutional reforms and increased investment with the support 
of a $362.5 million Compact grant from the Millennium Challenge 
Corporation (MCC).  The GOL seeks to address the country's 
credit weakness, low level of development, and poor business 
environment.  Improvements in the country's development will 
depend on the impact of reforms, infrastructure enhancements, 
increasing private sector activity, and diversification of 
government revenue streams and the country's industrial export 
base.  According to an MCA Lesotho fact sheet published in 
January 2009, Lesotho is the first African country which was 
able to perform to MCC expectation by meeting the set standards 
and time-frames of the Compact Conditions Precedent and 
Milestones Schedule. 
 
 
 
 
 
 
¶3.  Comments on Eligibility Requirements 
 
 
 
 
 
¶I. Market-based Economy 
 
 
 
 
 
¶A. Major Strengths Identified 
 
 
 
 
-  The Government's efforts continue to focus on structural and 
institutional reforms and investment in infrastructure.  This 
effort is supported by a $362.5 million grant from MCC to 
address low levels of development and the weak investment 
climate. Infrastructural developments include the expansion of 
electricity supply, a waste water recycling system, and urban 
roads. 
 
 
 
-  These initiatives will be supplemented by an $8.1 million 
World Bank private sector competitiveness and economic 
diversification project.  The World Bank project aims to improve 
Lesotho's business environment by streamlining procedures for 
starting a business and facilitating commercial bank loans to 
the private sector.  To aid in industrial diversification, the 
project will finance training centers to teach textile workers 
to produce greater value-added products and conduct pilot 
projects in the field of tourism. 
 
 
 
MASERU 00000361  002.2 OF 007 
 
 
 
-  Lesotho is a member of the WTO and therefore its open 
rules-based trading system complies with WTO obligations. 
 
 
 
-  Lesotho is a member of Southern African Customs Union (SACU) 
and Southern African Development Community (SADC), which allows 
preferential access by each member country to the others' 
markets. 
 
 
 
-  The government's intervention in the market is very limited 
and subsidies and price controls are rarely used. 
 
 
 
-  Lesotho privatized all state owned enterprises including 
telecommunications, utilities, government transportation and the 
radio airways.  However, in 2008 the government introduced 
state-owned buses in the public transportation sector. 
 
 
 
-  Lesotho is largely open to foreign direct investment (FDI); 
however, the FDI policy and legal framework are not well 
developed enough to enhance transparency and consistency.  The 
Lesotho National Development Corporation (LNDC) has a mandate to 
promote FDI. 
 
 
 
-  Lesotho welcomes investment from all countries of the world, 
including the United States. 
 
 
 
-  In the mining sector, the outlook is positive. Letseng 
Diamonds, which began commercial production in 2004, doubled 
capacity in 2008.  Liqhobong and Kao Mines began production in 
2006 and 2007 respectively although they suspended operations 
recently due to the persistent global imbalances and the 
volatile commodities prices that followed it. Four other 
mines:; Mothae, Moste-Tsoeu, Lemphane, and Kolo are at the 
prospecting stage.  This sector has contributed to higher GDP 
growth and the diversification of Lesotho's export base. 
 
 
 
-  The textile and garment industry remains the largest employer 
in the country although its  workforce has declined from  45,310 
individuals in July 2008 to around 36,000 individuals in July 
¶2009. Based on a report from the US Commerce Department on US 
Trade with Sub-Saharan Africa, Lesotho's annual garment exports 
to the United States under AGOA currently stand at $374.1 
million.  In 2006, 6.6% of GDP was accounted for by the garment 
sector alone.  All other manufacturing activities totaled 8.6% 
of GDP. 
 
 
 
-  Lesotho is committed to cutting red tape and providing an 
enabling, legal, and regulatory environment to improve the ease 
of doing business in Lesotho. For instance, there is a One-Stop 
Business Facilitation Centre which provides integrated services 
to businesses including export and import coordination and a new 
simplified and computerized licensing regime.  There is also a 
favorable tax environment for the export sector. The tax rate on 
income generated from exporting manufactured goods outside of 
SACU is 0%; there is a maximum manufacturing tax rate of 10% on 
profits derived from sales within SACU; and there is no capital 
gains tax. 
 
 
 
¶B.  Major Issues/Problems Identified 
 
 
 
-  Lesotho's current weak business environment constrains 
private sector-led development.  The World Bank ranked Lesotho 
130 out of 183 countries for ease of conducting business. 
 
 
 
 
MASERU 00000361  003.2 OF 007 
 
 
-  Infrastructure bottlenecks, such as factory space and waste 
water treatment facilities, constrain expansion of the 
manufacturing sector and development of additional fabric mills. 
 
 
 
-  Lesotho's textile industry has experienced a continuing 
erosion of its competitiveness in recent years.  This erosion 
has resulted in a reduction of production output and prices. 
During this same period, a decreasing general demand for textile 
products in the United States also exerted downward pressure. 
 
 
 
-  These trends indicate the sector's high vulnerability to 
global competition which will only increase as more quotas on 
Chinese textiles are removed based on the WTO's general trading 
rules. 
 
 
 
-  The HIV/AIDS prevalence rate, currently estimated at 23%, 
poses a major challenge to Lesotho's long-term growth prospects. 
 
 
 
 
 
II. Political Reforms/Rule of Law/Anti-Corruption 
 
 
 
 
 
¶B.  Major Strengths Identified 
 
 
 
 
-  According to the Freedom House country report, Lesotho is 
`Free'. The status designation of `Free' is determined by the 
combination of the political rights and civil liberties ratings, 
it indicates the general state of freedom in a country. The 
political rights and civil liberties categories contain 
numerical ratings between 1 and 7, with 1 representing the most 
free and 7 the least free. Lesotho has a rating of 2 for 
political rights and 3 for civil liberties. 
 
 
 
-  Lesotho law prohibits arbitrary arrest and detention.  The 
government generally observed these prohibitions.  However, 
political opposition figures claimed that security forces 
violated these principals in the aftermath of July 2007 attacks 
on several GOL ministerial residences in Maseru. 
 
 
 
-  The constitution and law provide for an independent 
judiciary, and the judiciary was independent in practice. 
 
 
 
-  The GOL, through its Directorate on Corruption on Economic 
Offences (DCEO), continued to pursue corruption cases related to 
the embezzlement of government resources in various government 
departments and the private sector. 
 
 
 
 
¶B.  Major Issues/Problems Identified 
 
 
 
 
-  According to the Transparency International Corruption 
Perceptions Index, Lesotho was rated 3.2, indicating that 
corruption was perceived to be a serious problem. The index 
defines corruption as the abuse of public office for private 
gain and measures the degree to which corruption is perceived to 
exist among a country's public officials and politicians. 
 
 
 
-  Lengthy pretrial detention remained a problem due to a 
 
MASERU 00000361  004.2 OF 007 
 
 
serious backlog of cases and an overall lack of resources within 
the Ministry of Justice and Human Rights. 
 
 
 
-  The mediation begun by the Southern African Development 
Community (SADC) following the 2007 election has reached a 
stalemate since the SADC appointed mediator delivered a report 
on his findings and disengaged from political dialogue in July 
¶2009. Even the subsequent dialogue that began under the 
mediation of the Christian Council of Lesotho and other civil 
society organizations in August 2009 was postponed indefinitely 
due to disagreement between government and opposition parties. 
SADC continues to monitor the situation via its Organ on 
Politics, Defense, and Security. 
 
 
 
 
 
III. Poverty Reduction 
 
 
 
 
 
¶A.  Major Strengths Identified 
 
 
 
 
-  In 2007 Lesotho enacted the Poverty Reduction and Growth 
Strategy (PRGS), aimed at providing broad-based economic growth. 
  The government plans to create more employment income 
opportunities through rapid and sustained economic growth, which 
will empower the poor and vulnerable to access basic services. 
According to the PRGS, growth should be driven by the private 
sector and facilitated by appropriate government policies. 
Lastly, the PRGS is intended to deepen the capacity of the 
democratic institutions in the country and improve public sector 
performance. 
 
 
 
-  The PRGS envisages an average growth rate of 4.5% throughout 
the implementation period (2008-2012). 
 
 
 
-  Strategies for sustainable broad-based economic growth 
include attracting domestic investment and foreign direct 
investment beyond the garment sector in order to add value to 
local products and expand the economic base, especially in the 
tourism industry. 
 
 
 
-  Free primary education, introduced in 1999, was extended to 
the seventh and final grade in 2006.  To accommodate increased 
intake, the government has built 108 new primary schools since 
¶2000.  Seventeen of these were inaugurated by the Prime Minister 
in February 2007.  The government also introduced an affordable 
text book rental plan for secondary schools.  A similar rental 
plan was introduced in primary schools in 2003. 
 
 
 
-  The National Manpower Development Secretariat continued to 
provide loan bursaries to qualifying university and other 
tertiary institutions students. GOL allocated $50.9 million for 
these loan bursaries in the 2009/10 budget. 
 
 
 
 
 
¶B.  Major Issues/Problems Identified 
 
 
 
 
-  As observed during the IMF Article IV Consultations in August 
2007, preliminary results from a review of the original Poverty 
Reduction Strategy (PRS) show that despite relatively good 
growth, PRS indicators were not positive, indicating that the 
country has been unable to achieve broad-based sustainable 
 
MASERU 00000361  005.2 OF 007 
 
 
growth.  Fitch Rating's 2007 Sovereign Credit Rating ranked 
Lesotho at "BB-" for its foreign long-term currency rating and 
at "B" for its short-term foreign rating, with a stable outlook. 
However, Fitch indicated that the country is much less developed 
than its peers in the "BB" group.  Lesotho's per capita income 
of $1,100 falls far short of the "BB" rating group median of 
$2,500. 
 
 
 
-  Lesotho's Human Poverty Index ranking was 71 out of 108 
countries in 2007/08, largely due to the high prevalence of 
HIV/AIDS (23% among the total population). 
 
 
 
-  The country lacks data essential for monitoring and 
evaluating PRS implementation. 
 
 
 
-  Poverty remains widespread, and the official unemployment 
rate according to the Bureau of Statistics is estimated to be 
around 22.7%. However, the majority of trade unions estimated 
the unemployment rate to be between 40-50 %. They mainly 
attributed that estimate to the loss of jobs in the textile and 
garments sector, which is the largest formal employer after the 
government. 
 
 
 
 
 
IV. Workers' Rights/Child Labor/Human Rights 
 
 
 
 
 
¶A.  Major Strengths Identified 
 
 
 
 
-  The Constitution recognizes the right to form independent 
trade unions to protect workers' rights and provides for sound 
labor relations and fair employment practices. 
 
 
 
-  The Constitution prohibits slavery or servitude and forced 
labor. 
 
 
 
-  In June 2006, Lesotho's Parliament amended the 1982 Labor 
Code to include an HIV/AIDS workplace policy. 
 
 
 
-  Lesotho ratified ILO Convention 182 on the Worst Forms of 
Child Labor and 138 on Minimum Age in 2001. 
 
 
 
-  In an effort to reduce child labor, Lesotho participates in 
two regional U.S. Department of Labor programs:  "Towards 
Eliminating Child Labor" and "Reducing Exploitative Child Labor 
in Southern Africa". 
 
 
 
-  In June 2008, the Ministry of Labor and Employment, with 
assistance from the ILO, endorsed the National Action Plan on 
Elimination of Child Labor in Lesotho (APEC). APEC was conceived 
of under the US DOL program "Towards Eliminating Child Labor in 
Southern Africa." 
 
 
 
-  The law provides for freedom of speech and of the press, and 
the government generally respected those rights. 
 
 
 
-  The law provides for freedom of assembly and association, and 
 
MASERU 00000361  006.2 OF 007 
 
 
the government generally respected those rights. 
 
 
 
-  The law provides for freedom of religion, and the government 
generally respected this right. 
 
 
 
-  An inter-sectoral committee formed to combat trafficking in 
persons has been established.  The committee's goal is to draft 
a comprehensive law against trafficking in persons, and efforts 
have intensified country-wide to educate law enforcement and 
ports of entry officials about trafficking in persons issues. 
 
 
 
 
¶B. Major Issues/Problems Identified 
 
 
 
 
-  Ministry of Labor officials reported that employers in the 
retail sector frequently violate the labor code. They cited 
common problems, including violations of the rules governing 
ordinary hours of work, overtime pay, and public holidays. They 
also said that health and safety violations were also common in 
locally-owned establishments. Employers of locally-owned 
establishments often do not keep records of employees' salaries 
to facilitate legally required inspections. The labor code also 
prohibits essential employees such as civil servants from 
joining or forming unions, but allows them to form staff 
associations. 
 
 
 
-  The law limits workers' rights to strike and requires a 
number of procedures before strike action is authorized. 
 
 
 
-  The national minimum wage is approximately $100 per month. 
Recent stories in the local newspapers pointed out, this minimum 
wage  does not provide a decent standard of living for workers 
and their families. 
 
 
 
-  Child labor is common in the informal and agricultural 
sectors, because, while on the surface, child labor laws covered 
all sectors, there are no provisions for children working in 
informal sectors such as private establishments. 
 
 
 
-  An increase in the number of youth orphaned by the HIV/AIDS 
pandemic has placed young children at risk of employment within 
the informal sector. 
 
 
 
-  Prisons were overcrowded and conditions remained poor. See 
the 2008 Human Rights Report for more details. 
 
 
 
-  Violence against spouse and children remained a serious 
problem. See the 2008 Human Rights Report for more details. 
 
 
 
-  The law does not specifically prohibit trafficking in 
persons. There were no official statistics available on the 
issue of trafficking. 
 
 
 
 
 
 
 
¶V. International Terrorism/U.S. National Security 
 
 
 
 
MASERU 00000361  007.2 OF 007 
 
 
 
 
¶A. Major Strengths Identified 
 
 
 
 
None 
 
 
 
 
¶B. Major Issues/Problems Identified 
 
 
 
 
None 
POWER