Seaboard’s sweetheart deal

How a flour mill became a feeding trough for foreign profits

MOTSAMAI MOKOTJO

For nearly three decades, Basotho have been fed a narrative of poverty by the majority owner of Lesotho Flour Mills (LFM), Seaboard Overseas and Trading Group.

Yet, a damning Diligence Report, gathering dust since 2019, exposes this narrative as a carefully constructed facade designed to siphon millions from our national coffers. It’s time to stop asking questions and start demanding answers and action.

The core of this scandal lies in a management contract that defies all logic of fair business practice. Instituted in 1999 for a supposed 10-year term, this agreement has inexplicably persisted, funnelling a staggering $300 000 annually to Seaboard – an amount automatically adjusted upwards for US inflation year after year. Think about that, a guaranteed, inflation-protected windfall, paid monthly in advance, regardless of LFM’s actual performance.

The 2019 Diligence Report, commissioned by the African Legal Support Facility via Covington & Burling, pulled no punches in questioning this very rationale. Its assessment was bleak and its language stark.

The report bluntly characterized the $300 000 fee as ‘rich’, highlighting the utter lack of justification for such a perpetual pay-out for managing a ‘key strategic asset.’

It unequivocally stated, “The management contract should have a time horizon . . . LFM company should not be obliged to retain Seaboard… as a management company in perpetuity.”

The indefinite nature of the contract itself is a red flag.

The report questioned the necessity and scope of Seaboard’s role, noting it “appears extensive, and it is unclear how its scope of work overlaps with that undertaken by LFM company’s staff and management.”

Are we paying Seaboard to do jobs Basotho employees could and should be doing?

Perhaps most alarmingly, the report detailed “onerous termination and indemnity provisions” that shield Seaboard and its affiliates from virtually any liability, while placing all risk squarely on LFM (and thus, the Lesotho government). This indemnity “absolves head honchos of any responsibility relating to the performance of the company.” A free pass for failure, funded by Lesotho.

This Diligence Report provides the crucial “why” behind 27 years of mysteriously absent dividends. The Public Accounts Committee (PAC), former ministers like Tefo Mapesela, and even former board members point to systematic financial manipulation:
Both the PAC and former trade minister Mapesela explicitly accused Seaboard of inflating operational costs through transfer pricing – buying services or goods from its own affiliates at inflated prices. This artificial inflation creates the “losses” used to justify paying zero dividends to the government, despite LFM being historically profitable.

As former finance minister, Dr Timothy Thahane, has also noted that the LFM was “lucrative” before Seaboard’s involvement deepened. Previous PAC reports have similarly been scathing: “the committee has a suspicion that Seaboard Overseas and Trading Group… does not serve the interests of Lesotho. The suspicion is that Seaboard Overseas and Trading has been inflating the operation costs deliberately in order to avoid declaring dividends. Minister Mapesela confirmed this, highlighting how Seaboard’s control over the CEO and operations created a greater possibility of financial manipulation.”

Former LFM board chair, Dr Mphu Ramatlapeng, revealed the privatization itself was “ill-conceived,” forced by World Bank loan conditions despite LFM being profitable and the government’s reluctance. We sold a strategic, profitable asset for a paltry $10 million, only to lock ourselves into a contract guaranteeing millions back to the buyer indefinitely.

The evidence compiled by international lawyers and echoed by our own officials is overwhelming: Seaboard has engineered a system designed to extract maximum value for itself while leaving the Basotho people with crumbs – or nothing at all. The $300 000+ annual fee is just the visible tip; the hidden cost lies in decades of lost dividends and a strategically crippled agricultural sector.

Former Government Secretary, Chaka Ntsane, rightly calls it a “cardinal mistake and a disservice to the economy.”

Minister Shelile’s recent comments about Seaboard “working on an exit strategy” are cold comfort after 27 years of exploitation. “Soon” is not good enough. The 2019 Diligence Report provided the blueprint for action years ago.

Enough is enough.

The government must immediately terminate the management contract. Invoke whatever clauses possible to end this parasitic arrangement. The report questioned its very rationale – that rationale has proven non-existent. Investigate decades of transfer pricing, operational costs, and dividend calculations. Seaboard must be held accountable for every Loti diverted.

Government must further explore all avenues, nationally and internationally, to recover lost dividends and potentially challenge the validity of the contract based on the Diligence Report’s findings and evidence of bad faith. And as Ntsane stated, reviving LFM under transparent, accountable management is essential for our agricultural economy. This strategic asset must serve Lesotho, not foreign shareholders.

The Diligence Report removed any shadow of doubt. Seaboard’s management of LFM hasn’t been an investment in Lesotho; it’s been an exercise in extraction. It’s not just a bad contract; it’s a betrayal.

The government must act decisively now to reclaim our mill and our future. Basotho deserve dividends, not decades of deception.