MASERU – Lesotho might save in excess of M69 million in money annually spent importing bottled water from neighbouring South Africa, provided the country ensures sufficient domestic production to meet demand. This is the view of some economists, following the Ministry of Agriculture, Marketing and Food Security ban of importation of water into the country.
The ban, they say, means that local companies will also sell their products around the country without competition from imported similar products. According to the ministry Lesotho has been importing bottled water to the value of over M69 million, a reality the ministry says plays a critical part in eroding the country’s economy.
The notice issued by the ministry on February 9 and signed by Minister Tefo Mapesela, states that the country will no longer issue permits to import water from South Africa as the country ’s level of importing water has escalated. “Despite Lesotho’s abundant water resources, we have always been known to import water; however, this has reached intolerable levels.
The country has worked on the international standards for the production of water to ensure the health of consumer is guaranteed. Above this, the ministry is working tirelessly in an effort to strengthen value chains in water bottling industry to ensure maximum benefit on the economy.
Therefore, the Government of Lesotho, through Ministry of agriculture, is diverging into a new direction of ceasing to issue bottled water permits as of today 8th February 2021 in terms of Agricultural Marketing act of which its authority is vested to the ministry of Agriculture, Marketing and Food Security,” the ministry’s notice says.
Commenting on these developments, Managing Partner at RL Chartered Accountants Robert Likhang noted that he appreciates all means of building domestic economy and creating market for domestic producers.
However, he believes that government should have studied the full value chain and be sure that domestic production is sufficient for the demand to avoid inflation as a result of low supply to demand before the ban can be implemented.
He said where there is sufficient supply locally, protectionism may have a great value as the economic leaks caused by imports and also consumption is controlled.
Likhang further noted that making sure that Lesotho has sufficient supply of different types of bottled water all producers must undergo standards accreditation.
“Another issue is that these policies banning importation of certain products need to be gradually implemented because large investors would have already entered into supply contracts which could attract heavy penalties in cases of breaches.
Lesotho has to grow both domestic and direct foreign investments to leverage from linkages and other factors; as such we need to ensure that one act does not unfairly affect any of the two-investor groups.
Foreign investors also look at policy stability in taking investment decisions, lack of consistency and/or engagement may seriously affect future decisions by foreign investors. “Notwithstanding the importance of protecting domestic producers, balanced approach needs to be considered in policy development,” he noted.
On the issue of water the country sells to South Africa, that is often weighed against the bottle water it imports Public Relation Officers at Lesotho Highlands Water Authority (LHDA), Masilo Phakoe, pointed out that Lesotho does not sell water to South Africa – but is paid royalties.
He said this is because the cost of building dams to collect water and tunnels to transfer the water to South Africa are paid by South Africa. He said in order to transfer water from the Orange River to Gauteng where it is needed, a comparison of various options or alternative water transfer schemes was made.
He noted that the options narrowed down to comparing how much it would cost to construct and operate a water transfer scheme in South Africa , Orange Vaal Transfer Scheme (OVTS) against how much it would have cost to construct the water transfer scheme in Lesotho i.e. Lesotho Highlands Water Project (LHWP).
“It was calculated that the OVTS would cost twice as much of the cost of constructing the water transfer scheme in Lesotho (LHWP). It was therefore agreed to implement the more cost effective Lesotho Highlands Water Project (LHWP). “The resultant savings in costs are shared equally between Lesotho and South Africa,” Phakoe said.
He said the share that Lesotho gets is called Royalty Revenue, of which to-date Lesotho has received revenue to the amount of approximately M11 264 billion for transferring 16.4 billion cubic meters of water to South Africa; monthly payments differ though. Phakoe said in 2020 payments were on average M85 million per month.
“The money does not come to the LHDA but is paid into the account that the Government of Lesotho holds at the Central Bank of Lesotho. In short, royalties is a payment of savings resulting from constructing and implementing the water transfer scheme in Lesotho instead of constructing it in South Africa.
It is not the price for selling water. One cannot sell what has not cost him/her to have in stock. South Africa paid for the construction of the dams and tunnels. All that happens is that this water is transferred AND NOT SOLD to RSA,” he said.
He further noted that Lesotho benefits by using the transfer of this water to generate electricity and through royalty revenue, aquaculture in the dams, tourism, excellent paved roads, skills development, jobs for Basotho, contracts for Basotho companies, growth of the economy to mention a few.