Report gauges Lesotho’s capacity to attract FDI

IRENE SEME

MASERU – This week the United States Department of State released the 2022 Investment Climate Statements report that aims to help US companies to make informed business decisions by providing updated information on the investment climates of more than 160 countries and economies that are potential markets. The report findings reveal that Lesotho is a country open to and eagerly seeking Foreign Direct Investment (FDI) and the government of Lesotho has announced that to help the country to recover from the Covid-19 pandemic, it will focus on making the country an attractive destination for FDI.

In this report, it is stated that the government, business, labour, and civil society leaders all strongly agree that attracting FDI is vital to Lesotho’s future. Private Sector Foundation of Lesotho Chief Executive Officer, Thabo Qhesi, said the advantage of FDI is that it brings capital and technology which the country does not have. He said this means that there will then be new job creation opportunities thus reducing poverty and the government will benefit from the employees’ ‘pay as you earn’.

Qhesi also said through FDI, the Central Bank of Lesotho will access foreign currency which will assist the government in paying its international bills in forex. “While GOKL clearly recognizes the importance of FDI and has continued to enact policies to make foreign investment easier, 2020 also saw the rollout of rules intended to protect local entrepreneurs from foreign competition in designated sectors,” the report states.

The report further states that in recent years many migrants from Asia and other parts of Africa have started businesses in these designated sectors and the government has recently announced aggressive measures to reverse this trend. In an interview with Public Eye, Minister of Small Business Machesetsa Mofomobe said that the risk and danger of allowing foreigners to operate in retail is that they will send all their money back to home. He said that erodes our economy to their home countries.

Machesetsa further noted that there is a law that states which businesses are reserved for Basotho, but as minister of small business he does not have control over it yet but the ministry of trade does. According to the report, sectors such as small retail food sales and basic auto repair are dominated by local small and micro enterprises but some do have participation by medium-sized foreign-owned firms.

The report further states that although these regulations will have a negative effect on some foreign investors, they will have a minimal impact on overall FDI because most businesses in the designated sectors are relatively small. However, the government has also enacted other regulations, such as requiring foreign investors to renew their business licenses yearly instead of every three years, a condition that many foreign investors describe as onerous to the point of impossibility given the administrative challenges.

Moreover, recent policy debates within the government around proposals to mandate a minimum percentage of local ownership enterprises earmarked for the locals have caused real concern. In February, the government implemented the regulations in the used car motor dealership sector causing barriers to entry for investors. Uncertainty concerning the execution of the regulations in other sectors remains.

Lesotho’s economy and FDI were badly affected by Covid-19 in 2021, with several foreign-owned textile factories closing or cutting back on operations due to the global downtrend in demand. Despite these challenges, Lesotho is refining the services it offers foreign investors and retains advantages such as ready access to the South African and regional markets as well as lower labour, electricity, and communications costs than neighbouring countries.

The report adds that Lesotho remains focused on providing jobs to its citizens and has publicly proclaimed its eagerness to work with foreign investors, especially those ready to partner with locals. Through the Lesotho National Development Corporation (LNDC) which is responsible for the initiation, facilitation, and promotion of Lesotho as an attractive investment destination, the government actively encourages investment in manufacturing, mining, and agriculture sectors. LNDC also implements the country’s industrial development policies.

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