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«March 2012 This publication was produced for review by the United States Agency for Development. It was prepared by the AECOM International ...»

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March 2012

This publication was produced for review by the United States Agency for Development.

It was prepared by the AECOM International Development.

USAID Southern Africa Trade Hub

Plot 50668 Tholo Park, Fairgrounds

Gaborone, Botswana Tel: +267 3900884 Fax: +267 3901027 www.satradehub.org

Technical Report:

Investor Roadmap Lesotho Tomasz Iwanow, Trade Economist Reginald Selelo, Investment Promotion/FDI Specialist Morabo Morojele, Consultant

Submitted by:

AECOM International Development

Submitted to:

USAID/Southern Africa March 2012 USAID Contract No. 674-C-00-10-00075-00


The author’s views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government.

PO Box 602090 ● Plot 50668, Tholo Park, Fairgrounds ● Gaborone, Botswana ● Phone (267) 390 0884 ● Fax (267) 390 1027 ● info@satradehub.org www.satradehub.org USAID Southern Africa Trade Hub






1.1 Project Context

1.2 Roadmap Goals and Methodology

1.3 Outline of the Report


2.1 Introduction

2.2 Overview of Key Government Institutions Responsible for Issuance of Visas, Work and Residence Permits

2.3 Acquiring a Business Visa


2.4 Acquiring Work and Residence Permits

2.4.1 Overview

2.4.2 Residence Permits

2.4.3 Work Permits



2.5 Labor Relations

2.5.1 Policy Environment

2.5.2 Government entities dealing with Labor Disputes

2.5.3 Procedures for Dispute Resolution in Lesotho

2.5.4 Labor Disputes Analysis and Recommendations


2.5.5 Hiring and Termination

2.6 Conclusion


3.1 Introduction

3.2 The Policy Environment


3.3 Business Registration

3.3.1 Company Law

1 USAID Southern Africa Trade Hub 3.3.2 Business Types

3.3.3 The One Stop Business Facilitation Centre

3.3.4 Registration Procedures

3.3.5 Company Registration in the Districts



3.4 Registering for Tax


3.5 Registering as an Importer

3.6 Registering a Bonded Warehouse


3.7 Health Certificates

3.8 Registering for Municipal Rates

3.9 Obtaining Sectoral Licenses

3.9.1 Obtaining a Traders License

3.9.2 Obtaining a Manufacturing License

3.9.3 Obtaining a Mining License

3.9.4 Obtaining a Tourism License

3.9.5 Obtaining a Liquor License



3.10 Acquiring Incentives


3.11 Police Clearance




4.1 Introduction

4.2 Land Acquisition

4.2.1 Overview of Key Issues Regarding Land Acquisition

4.2.2 Analysis of Lesotho’s Land Management System from the Perspective of Investment and Economic Development

4.2.3 Procedures to Register a Property in Lesotho


4.3 Site Development

2 USAID Southern Africa Trade Hub 4.3.1 Overview of Procedures Required for Site Development

4.3.2 Obtaining a Construction Permit


4.3.3 Environmental Impact Assessment


4.3.4 Obtaining a Water Connection

4.3.5 Procedure to Obtain a Water Connection


4.3.6 Obtaining an Electricity Connection



5.1 Introduction

5.2 Overview

5.3 Tax Registration

5.4 Income Tax

5.4.1 Corporate Income Tax

5.4.2 Individual or Personal Income Tax

5.5 Withholding Taxes (WHT)

5.6 Fringe Benefit Tax (Fbt)

5.7 Exemptions and Deductions from Income Tax

5.7.1 Exemptions from Income Tax

5.7.2 Deductions Permitted

5.8 Value Added Tax (VAT)

5.9 Miscellaneous Taxes, Levies, Charges and Fees

5.10 Issuance of a Tax Clearance Certificate

5.11 Tax Appeals



5.12 Customs and Excise Duties - Imports and Exports

5.12.1 Customs Duties

5.12.2 Excise Duties

5.12.3 Customs Concessions or Rebates

5.13 Import and Export Procedures

5.13.1 Single window

5.13.2 Registration and Import Permits

3 USAID Southern Africa Trade Hub 5.13.3 Customs Procedures for Importing

5.13.4 Customs Procedures for Exports



5.14 Complying with Exchange Controls

5.14.1 Introduction

5.14.2 Dealings in Foreign Currency

5.14.3 Foreign Exchange Out-Payments

5.14.4 Payment for Imports

5.14.5 Analysis of compliance to the exchange controls


5.15 Obtaining Credit and Financial Development





Appendix A1: Projects and Development Requiring EIA in Lesotho

Appendix A2: Requirements for an EIA in Lesotho

Appendix A3: List of Institutions Interviewed

Appendix A4: Lesotho Investor Roadmap Recommendations

Appendix A5: The Lesotho Investor Roadmap Action Plan

4 USAID Southern Africa Trade HubLIST OF ACRONYMS

AGOA African Growth and Opportunities Act BDS Business Development Services BEDCO Basotho Enterprises Development Corporation BLNS Botswana, Lesotho, Namibia, Swaziland CET Common External Tariff CMA Common Monetary Area COMTRADE Commodity Trade Statistics Database DC District of Columbia DCC Duty Credit Certificates DDPR Department of Dispute Prevention and Resolution DOE Department of Environment DOI Department of Immigration EBA Everything But Arms EFTA European Free Trade Association EIA Environmental Impact Assessment EU European Union FDI Foreign Direct Investment FOB Freight on Board GDP Gross Domestic Product GIZ Deutsche Gesellschaft fur Internationale Zusammenarbeit GOL Government of Lesotho IBCC International Business Classification Codes ILO International Labor Organization IRC Industrial Relations Council ITC International Trade Centre LAA Land Administration Authority LDC Least Developed Country LEWA Lesotho Electricity and Water Authority LNDC Lesotho National Development Corporation LRA Lesotho Revenue Authority LSPP Department of Land Surveys and Physical Planning NAFTA North American Free Trade Area MCA Millennium Challenge Account 5 USAID Southern Africa Trade Hub MMC Maseru Municipal Council MOFDP Ministry of Finance and Development Planning MOU Memorandum of Understanding MPS Ministry of Public Service MTICM Ministry of Trade, Industry, Cooperatives and Marketing NES National Environmental Secretariat OCIS Own Construction Incentive Scheme OECD Organization for Economic Cooperation and Development OSBFC One Stop Business Facilitation Centre PAYE Pay-As-You-Earn RSA Republic of South Africa SACU Southern Africa Customs Union SAD Single Administrative Document SADC Southern African Development Community SAIEA Southern African Institute for Environmental Assessment SARS South African Revenue Service SATH Southern Africa Trade Hub SEZ Special Economic Zones SME Small and Medium Sized Enterprises SPS Sanitary and Phytosanitary TCIDP Textile and Clothing Industry Development Programme TIN Taxpayer Identification Number UN United Nations UNCTAD United Nations Conference on Trade and Development US United States USAID United States Agency for International Development USD United States Dollars UTM Universal Transversal Mercator VAT Value Added Tax VIP Very Important Person WASA Water and Sewage Authority WASCO Water and Sewage Company WCO World Customs Organization WEF World Economic Forum WTO World Trade Organization

6 USAID Southern Africa Trade HubACKNOWLEDGEMENT

During the data collection phase of this Lesotho Investor Roadmap exercise, the Lesotho National Development Corporation (LNDC) provided indispensable assistance to the roadmap consulting team. LNDC officials offered invaluable insights and guidance, while the counterparts assigned to the consultants spared no effort in ensuring a full schedule of meetings as well as smooth flow of other logistical arrangements. We wish to acknowledge this assistance and express our appreciation thereof.

The USAID Southern Africa Trade Hub (SATH) also wishes to thank the individuals from both public and private sector who generously provided their time during the data collection interviews. SATH team is appreciative of the input and comments received on the earlier versions of the document.

7 USAID Southern Africa Trade HubEXECUTIVE SUMMARY

Large investments in the apparel industry and the Lesotho Highlands Water Project have been the key source of Lesotho’s success in attracting both foreign and domestic investment in the economy. As these sources of investment and economic growth dry up, Lesotho needs to stimulate and support investment into its economy in order to sustain and support equitable economic growth. The Government of Lesotho (GOL) is committed to attracting both domestic and foreign direct investment. To support this initiative, Lesotho National Development Cooperation (LNDC), in collaboration with USAID Southern Africa Trade Hub (SATH), embarked on the Lesotho Investor Roadmap project aimed at pinpointing administrative, procedural and regulatory impediments that may deter investment in Lesotho.

The Investor Roadmap is a tool which supports government efforts in undertaking critical reforms that can spur entrepreneurial investment in the economy of Lesotho. It is at once an analytic tool, a detailed prescriptive document and a catalyst for meaningful change.

The Roadmap examines the individual procedures that represent the critical path to business start-up and operation and creates a series of Action Plans to eliminate the red tape that inflates the cost of investments.

In assessing the investment and administrative regime in Lesotho, some general observations were identified that are common to the four process areas of the Roadmap (Employing, Reporting, Locating, and Operating). The Roadmap identified that procedural transparency in Lesotho is a major concern. Most government agencies, with a few exceptions, do not have procedural guides and websites that inform potential investors of the legal requirements, submission requirements, time frames and costs of starting and operating a business. The Roadmap also encountered instances of a lack of policy coordination; where government agencies did not communicate with one another thus leading to cases where one regulator approved a particular request while another declined it.

The Investor Roadmap identified that the most problematic of the four process areas were locating and employing procedures. Reporting procedures did not raise major concerns, partly because the new Companies Act (2011) came into operation in October 2011 to ease issues pertaining to company registration. Operating procedures were not considered to be problematic except regarding certain trade facilitation issues directly related to the computerization of the Lesotho Revenue Authority (LRA), as well as a few procedural concerns.

The critical and significant binding constraints on stimulating investment and enhancing

economic growth in Lesotho are detailed below:

 Access to Land. Prior to the introduction of the Land Act of 2010, the land system did not permit a modern land market to develop in which investors and others requiring land were able to freely purchase and obtain titles from others and put the land to improved commercial use. The Act has provided a legal framework for the development of a modern land market. Now the key to enhancing access to land for Basotho and to support their entrepreneurial activity is to accelerate the process of the provision of land leases and adequate zoning of land. The fundamental objective regarding access to land for foreign investors is to support them in obtaining land for the construction of factories. In the past, investors wishing to invest in Lesotho were often forced to invest elsewhere due to the unavailability of serviced land for their 8 USAID Southern Africa Trade Hub ventures. As a result, up to 15,000 possible jobs were not created in Lesotho and GDP growth was up to 1% lower than the potential. A well-functioning land market is also crucial in enhancing entrepreneurs’ access to the formal credit market, since in the absence of land titles it is not possible to use land as collateral for obtaining a loan. Therefore, improving access to land is also likely to enhance access to credit which is another key constraint on investment in Lesotho.

 Access to Credit. Despite the presence of well-capitalized and modern banks in Lesotho, obtaining credit is one of the key problems for investment and economic growth. The Doing Business indicators rank Lesotho 150th out of 184 countries in the world on “Getting Credit”; an indicator which measures the ease with which it is possible to get credit in a country. Both new and well established entrepreneurs have highlighted that accessing credit is one of the key constraints on their business growth. Vital challenges faced by Lesotho and other developing countries include being unable to provide collateral assets due to insufficient protection of property rights as well as information asymmetry problems whereby prospective lenders face difficulties in “informing” financial institutions regarding prospective profits for adequate risk assessment of loans.

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