The Kingdom of Lesotho

Published by Wade Publications CC

Commerce, Industry & Mining

An expanding private sector along with growth and diversification in manufacturing and consolidation in the mining industry is expected to drive Lesotho’s economy in the medium term.


© Anne Wade

During 2013, growth in Lesotho’s economy was led in part by a recovery in the textiles and clothing subsector, which rebounded as a result of increased activity in the United States (US) in addition to the relocation of a number of South African producers to Lesotho. However, despite relatively favourable market conditions, the performance of the mining sector was subdued. This follows supply-side setbacks which included stoppages for new plant installations as well as insufficient electricity supply to some mines.

The tertiary sector made up almost 65 percent of GDP in 2013 and grew moderately during the year, at 3.1 percent compared with 5.7 percent in 2012. During this period, wholesale and retail trade was estimated to have expanded at a rate of 2.1 percent. Although this is significantly lower than the 12.3 percent recorded in 2012, it reflects the stabilisation of the subsector which followed the opening of a new mall in Maseru during 2012 as well as the expansion of another during the same year.
 
While the outlook for both the secondary and tertiary sectors is fairly positive for the 2014/15 period, international conditions remain uncertain. Continued sluggish growth in Europe could dampen demand for diamonds, and if the textiles subsector is to grow further then the African Growth and Opportunity Act (AGOA), which is set to expire away at the end of September 2015, needs to be renewed as soon as possible. The process of restructuring textiles and clothing firms to meet new global demands is yet another challenge, and the implementation of strategies to diversify manufacturing as well as meet the energy needs of Lesotho’s diamond mines must be expedited.

PRIVATE SECTOR GROWTH

A major challenge for Government is to create the conditions in which a vibrant and competitive private sector with adequate skills and technological know-how is able to flourish. This is a necessary condition for high and sustainable growth, and involves the development and diversification of the economic base and expansion of productive capacity in key growth sectors.

There is scope to expand Lesotho’s private sector, which is relatively small and characterised by small, medium and micro enterprises (SMMEs) and affiliated business associations requiring financial and technical support and training across all economic sectors. Businesses include taxi and truck owners’ associations, small traders’ and street vendors’ associations, and textile exporters.

One of the critical features of a healthy private sector is enhanced access to credit for investment. Private sector credit rose from 19.8 percent of GDP in 2012 to 21.6 percent in 2013, and is expected to average 23 percent of GDP in 2014 and 2015.

The creation of an enabling investment climate for the private sector while ensuring that a proper regulatory framework is in place is pivotal to the future of Lesotho’s economy. With this aim in mind, the National Strategic Development Plan (NSDP) seeks to remove the most binding constraints to growth and job creation at the macro and micro levels. This entails the implementation of reforms that focus on:

  • Simplifying procedures for starting and doing business
  • Improving access to finance through consolidation and improvement in the performance of established facilities such as the existing credit guarantee schemes and the development of financial markets
  • Improving access to technology and simplifying the operations of institutions that support Micro, Small and Medium enterprises (MSMEs), particularly community-based commercial projects
  • Exploring further options for land reforms to support commercial agriculture and private investment in industrial infrastructure.

While Lesotho’s private sector remains small, accounting for 14.7 percent of GDP, it is gradually expanding in response to government initiatives which include reforms in the financial sector, improvements in the business climate and strategic investment.


Private Sector Competitiveness Programme

Government programmes have in recent years concentrated on improving the investment climate and expanding industrial infrastructure as well as supporting SMMEs. To this end, financing has been secured for the second phase of the Private Sector Competitiveness and Economic Diversification Project amounting to US $15 million, which is equivalent to M150 million. The objective of the intervention is to support non-textile sectors and growth in manufacturing, as well as job creation. Through this project, Government will implement reforms aimed at easing investment procedures and assisting potential SMMEs.

Business reforms
The reform process has seen Lesotho improve its ranking from 143rd in 2012 to 128th place in the World Bank’s 2015 ‘Doing Business’ report, with huge improvements having been seen in various indicators, such as ‘Starting a Business’ and ‘Registering Property’. The 2011 Companies Act, which came into effect in 2012, makes it easier to start a business, as does the establishment of a one-stop shop for company incorporation. Under the new law, a paid-in minimum capital and the notarisation of articles of association are no longer required.

The Industrial Licensing Bill has been revised and submitted to Parliament for consideration. Once enacted, the legislation will speed up the process for obtaining industrial licences. Setting up commercial courts for business arbitration has also increased business confidence and trust in the rule of law.

While there was not much change in Lesotho’s rankings between 2014 and 2015, with a number of indicators stalling or dropping slightly, those that did improve include dealing with construction permits as well as registering property. Challenges remain in several areas, including obtaining credit, protecting minority investors, paying taxes, accessing electricity, trading across borders and resolving insolvency.

BUSINESS FACILITATORS

Building institutional capacity to enhance commercial, industrial, cooperative and SMME development is the task of the Ministry of Trade and Industry, Cooperatives and Marketing, which is also charged with creating the appropriate investor-friendly policies. Parastatal institutions support industrial growth by providing the necessary physical infrastructure and services.

The Lesotho National Development Corporation (LNDC) www.lndc.org.ls encourages economic growth in the country through initiating, promoting and facilitating the development of manufacturing and processing industries, mining and commerce, in a manner calculated to raise levels of income and employment in Lesotho. Supported by a Government-administered incentive regime, LNDC enjoys clear channels of communication with relevant departments and parastatals in order to speed up service delivery, and has had success in attracting labour-intensive manufacturing enterprises.

During 2014 Lesotho made transferring property easier by streamlining procedures and increasing administrative efficiency, with its ranking in the 2015 ‘Doing Business’ report rising by four places in respect of the ‘Ease of Registering Property’ indicator.

The LNDC also provides pre-investment and after-care services to both prospective and existing investors to help simplify and shorten the processes related to investment. Examples include facilitating the procurement of all permits and licenses, as well as providing assistance with company registration. Investment project appraisals are undertaken, along with equity participation in projects considered to be of strategic importance to the national economy and demonstrating long-term viability.

The Corporation collaborates with South Africa’s Industrial Development Corporation (IDC) on matters of mutual benefit, such as capacity building, technical assistance, economic research, project financing, co-investment in projects and exchange of information for strategic cooperation regarding delegation visits and business symposiums. There have also been consultations with the IDC and African Development Bank to secure lines of credit to finance new investment projects and to capitalise a new equity financing scheme for local entrepreneurs.

The Lesotho Revenue Authority (LRA) Business Partnership Forum, which was launched in October 2011, creates a platform for business people to discuss issues related to tax as well as the promotion of the business sector in Lesotho. Its objectives are, among others, to serve as a platform through which the LRA Customs Department and the business community can forge strong partnerships to educate people in business about the need to foster customs compliance.

EMPLOYMENT & ENTREPRENEURSHIP

Several years of uncertain global conditions have dampened Lesotho’s export prospects, with the result that many jobs have been lost in the formal economy which is at the same time trying to accommodate thousands of new job seekers. The limitations of the public sector in creating productive and sustainable jobs has seen the Lesotho Government intensify its focus on developing conditions, frameworks, institutions and facilities that support entrepreneurship. This is particularly aimed at the country’s youth, who need to be equipped with the requisite skills to make them internationally competitive in product and labour markets.

Business opportunities that make optimal use of Lesotho’s own resources and generate work throughout the country are promoted, with special emphasis placed on supporting the agribusiness, tourism and mining sectors. Basotho are also encouraged to become involved in productive and export-oriented industries, and engage in joint ventures with foreign investors to facilitate the transfer of skills and technology.

Medium, Small and Micro Enterprises
Lesotho’s economy, like most of those in sub-Saharan Africa, is dominated by Medium, Small and Micro Enterprises (MSMEs), which have the potential to contribute enormously to economic development and poverty eradication in the country. With comparatively low start-up costs, such enterprises allow individuals and groups with limited access to capital to engage in productive activities. Furthermore, as many operate in the rural areas and are run by women and the youth, they also have the potential to improve the geographic and gender distribution of income.

As a means of promoting the development of MSMEs and the capacity of the private sector to develop bankable new business ideas, Government continues to implement an MSME capacity building programme. This includes facilitating access to credit from commercial banks while ensuring growth and sustainability of businesses through training on product development, business management and quality and standards assurance.

Under the National Strategic Development Plan 2012/13-2016/17, special consideration is given to MSMEs to enhance their survival rate and growth. Integration between large enterprises and MSMEs, as well as between international companies and local firms, is being promoted, while uncompetitive behaviour in local markets is discouraged through instituting proper standards and strengthening inspections. Furthermore, the creation of a national policy for MSMEs, and laws to enforce implementation of the policy, will provide a framework for future developments in the sector.

The Memorandum of Understanding signed between the Private Sector Foundation of Lesotho (PSFL) and Durban Chamber of Commerce and Industry on 16 April 2014 seeks to strengthen cooperation between the two organisations in expanding trade and business activity between their members and stakeholders.

The draft Country Programme Document for Lesotho (2013-17), developed by the United Nations Development Programme (UNDP) and the United Nations Population Fund (UNPF), has as one of its focus areas the acceleration of inclusive growth. Building on policies already in place, the UNDP aims to facilitate private sector development through supporting MSMEs, particularly in the areas of access to technical and vocational skills as well as targeted financial products from microfinance institutions. In addition, the One-Stop Business Facilitation Centre will be strengthened to make it easier to establish and manage enterprises.

Empowering local entrepreneurs
One of the most important institutions currently assisting the indigenous private sector is the Lesotho National Development Corporation (discussed earlier in this chapter), which works to strengthen capacity for local business support, link local businesses with the garment industry and regional markets, and facilitate funding for Basotho projects.

The LNDC has examined various options through which it could make positive and effective interventions to foster business development. Training is offered through an Industrial Attachment Scheme, which exposes Basotho graduates to opportunities within the country’s various industrial sectors as well as enabling them to gain the requisite practical skills to prepare them for the job market.

The Basotho Enterprises Development Corporation (BEDCO) www.bedco.org.ls was set up in 1975 as the subsidiary company of the LNDC and established as a parastatal in 1980 in order to assist in developing indigenous Basotho-owned business enterprises, with particular emphasis on small-scale businesses and the promotion of entrepreneurial skills. BEDCO’s Board of Directors is appointed by the Minister of Trade and Industry, Cooperatives and Marketing. In addition to BEDCO’s central office in Maseru, there is a Mafeteng office which covers the southern region, and an office in the northern region that encompasses Leribe, Botha-Bothe and Mokhotlong.

BEDCO assists MSMEs in business counselling; discovering, evaluating and formulating viable projects for financing by local financial institutions; providing manufacturing and technical assistance to small-scale enterprises; training entrepreneurs in skills to facilitate their employment in the construction and textile industries; and supplying business training courses. BEDCO is also engaged in supplying real estate services, with commercial and industrial rooms and units available for rental in a variety of locations, including industrial parks and the BEDCO Commercial Centre. 

A national entrepreneurial skills development project known as ‘Ichorise Mohoebi’ was launched by BEDCO at the end of 2013. The project consists of four modules, the first being the Consultant Capacity Module which is provided to accountants and business consultants to enable them to offer training in the project. Other modules comprise Start Your Business, Operating Your Business and Grow Your Business. BEDCO has put aside over M5 million to fund the project, which is being implemented free of charge throughout Lesotho. For existing start-ups, BEDCO is to provide enterprise support by facilitating value chain linkages among businesses operating in similar industries.

The Jobs Summit Process was launched by the Lesotho Government in Maseru during August 2014. The initiative is aligned to the National Strategic Development Plan and includes input from the private sector, civil society and donor partners.

Access to finance
Numerous studies undertaken on the constraints to private sector development in Lesotho have highlighted access to finance as one of the major inhibiting factors. Improving access to and affordability of finance for small-scale entrepreneurs and the youth in the informal and rural sectors is a top priority.

Funded by the Lesotho Government, the M50-million Partial Credit Guarantee Fund helps Basotho-owned enterprises to access finance from banks without having to put up collateral. Participating banks are able to provide loan guarantees on a 50:50 risk-sharing basis to entrepreneurs wishing to start or expand their businesses.

At the beginning of 2014 the LNDC Board approved modifications to the policy guidelines of the Partial Credit Guarantee Scheme to accommodate a wider spectrum of sectors, including retail and services, and not only priority sectors. While the upper limit of M5 million stays as is, the lower limit of M200 000.00, as set out in the PCG guidelines, has been removed to allow banks to lend even smaller amounts. In addition, the Construction Industry’s Bid Securities and Performance Guarantees shall be supported by providing 50 percent guarantee.

The removal of the restrictions on sectors and type of projects should increase uptake of the scheme by granting access to many local entrepreneurs who were previously excluded. Furthermore, the lower limit will make the scheme more accessible to small businesses. It was reported in the LNDC’s January-March 2014 Newsletter that seven projects had thus far been supported by the scheme in an amount of more than M7 million.

The Lesotho Enterprise Assistance Programme (LEAP) was launched in 2008 by the Lesotho Government in collaboration with the World Bank-funded Private Sector Competitiveness Project (PSCP). Its objective is to help private enterprises improve their competitiveness in both the domestic and export markets, strengthening the human and institutional capacity of MSMEs and professional associations through the provision of financial and technical assistance. This is provided through a Matching Grant Scheme (MGS) under the LEAP programme as follows:

  • Direct assistance to individual private firms through mentoring assistance and provision of cost-sharing grants for the use of specialised services. LEAP covers 60 percent of the cost of service fees and of invoiced travel costs on a reimbursement basis. The firm itself covers the balance of the cost.
  • Cost-sharing grant assistance to representative business and professional associations and chambers to build their capacity to better serve their members. LEAP covers 75 percent of the cost of service fees and associated travel costs for the use of external services on a reimbursement basis.
  • LEAP HIV/AIDS grants support expenditures by businesses for contracting outside specialists to conduct on-site HIV testing at the firm’s premises.

MANUFACTURING

For almost 15 years, the manufacturing sector – particularly textiles and clothing – has been an important driver of economic growth and employment creation. According to Lesotho’s Bureau of Statistics, from around 10.4 percent in 1999, its contribution to GDP had grown to 21.3 percent by 2002. While this had moderated to 18.9 percent by 2008, the advent of the global economic crisis saw the percentage dropping significantly, and manufacturing presently makes up 11.3 percent of GDP (African Economic Outlook, 2014).

Manufacturing concerns in Lesotho comprise food products and beverages, textiles, clothing, footwear and leather, and ‘other manufacturing’, consisting of electrical and electronic appliances, furniture, ceramics, handicrafts and jewellery. Textile and garments firms, which are predominantly owned by foreign companies, are the dominant industry, followed by food products and beverages. In the recent past there have been investments in other key subsectors, such as electronics and plastic products.

The LNDC’s July-September newsletter notes that the total employment created by the Corporation through foreign direct investment (FDI) is 45 400. Some of the leading brands represented in Lesotho include: Jonsson Manufacturing / Jonsson Workwear; Crabtree; Africa Clean Energy; Mountain Kingdom Goods; Maluti Mountain Brewery; Lesotho Milling; Loti Brick; Johnson Controls and Automotive Components.

The performance of manufacturing rallied in 2013, growing by 1.9 percent compared with a decline of 3.9 percent in 2012. This was mainly as a result of growth in the clothing and textiles subsector, as the manufacturing of food and beverages was estimated to have contracted by 1.4 percent, with other manufacturing declining by 2.1.

Manufacturing employment
Textiles and clothing firms create a large portion of Lesotho’s formal sector jobs and employ the vast majority of workers in the manufacturing sector (89.3 percent), most of whom are women. According to June 2014 figures from the Lesotho Bureau of Statistics, on a year-to-year basis (second quarter of 2014 over the same quarter of 2013) an overall increase of 13.7 percent in employment for all industries was recorded, with an 18.9 percent increase for textiles and clothing. There was a significant decrease in employment in the leather and footwear subsector, primarily because of the closure of some of these firms.

The Central Bank of Lesotho’s quarterly review of June 2014 attributes the steady growth in manufacturing employment to the textiles and clothing industry, particularly knit and woven garments firms.

Restructuring manufacturing
While the manufacturing sector has brought in much-needed foreign revenue, its present structure, which is characterised by a very narrow export base (textiles and garments) and concentrated direction of exports (the US market), has rendered it vulnerable to external shocks. Against this backdrop, the global financial crisis and subsequent weakening of world markets had a particularly negative impact on exports, with the sector’s contribution to GDP dropping substantially. In addition to external factors, challenges include inadequate industrial infrastructure, long lead times required for exporting, insufficient backward and forward integration, limited products and a lack of technical, marketing and financial skills.

The medium-term objective is to rebuild Lesotho as a textile hub, increasing textile and clothing exports while diversifying the manufacturing industry by developing industrial clusters in areas such as wool and mohair, leather, food and jewellery. Capacity building will facilitate access to the necessary technical advice and support in industrial engineering and technology advancements.

To accommodate new industries, industrial infrastructure will be expanded and efforts made to increase local participation in manufacturing, with linkages between FDI and local SMMEs to be improved, both in the rural and urban areas. Such a strategy should also take advantage of the domestic market, given that Lesotho is a net importer.

During 2014/15, the spotlight has been on supporting agro-industrial development. This includes the construction of market centres, slaughter houses for pigs and poultry, standards and quality assurance infrastructure as well as silos and storage facilities for farmers’ produce. M19.0 million was set aside for these projects.

TEXTILES & CLOTHING

The textiles and clothing industry has played a vital role in Lesotho’s economic development. Investment in the 1990s, primarily by Taiwanese and Chinese companies, allowed the country to take advantage of a number of preferential trade agreements. These included the ACP-EU agreement, which provided duty-free access to the EU for clothing originating in Africa, Caribbean and Pacific (ACP) countries, and the African Growth and Opportunities Act (AGOA), which gives eligible countries in sub-Saharan Africa duty-free access to US markets. Furthermore, the Southern African Customs Union (SACU) duty credit scheme allowed textile-exporting companies to earn rebates on duties they paid on imports used for production.

FDI increased tremendously under this favourable scenario, and the manufacturing sector became the country’s main source of export earnings. The textiles and clothing industry grew rapidly, with Lesotho becoming sub-Saharan Africa’s largest single exporter of textiles and clothing to the US, and the supplier of many well-known brands. The subsector has also been a major job creator, in particular for low-skilled Basotho, mostly women, who in the past were excluded from formal employment.

The number of factories grew from 23 in 2000 to a high of around 70 in 2008. Furthermore, AGOA contributed to a deepening of the textile industry in Lesotho from simple cut, make and trim operations to fabric production. A denim and yarn mill was built to supply local industries, with denim fabric also exported to Zambia, Zimbabwe and Mozambique and yarn going to Kenya and Ghana. 

Since 2001, the textiles and garments industry has been Lesotho’s second biggest formal employer after Government, providing jobs for about 45 000 workers, most of them women.

However, following the elimination of quotas with the phasing out of the Multi-Fibre Agreement, Lesotho began to face fierce competition from low-cost and more efficient producers in China and the Far East. With exports to the US already in decline, the situation worsened with the onset of the global economic crisis in 2008, coupled with investor concern regarding Lesotho’s continued duty-free access to the US market under AGOA (prior to its extension to 2015). Exports reached a seven-year low in 2009. The expiry of the SACU duty credit scheme the following year provided further challenges.

Despite these setbacks, there have been encouraging signs of market diversification. Exports to South Africa have grown in recent years and the number of South African clothing firms in Lesotho has been on the increase. According to the LNDC, more South African firms would like to open plants in Lesotho and are only constrained by a lack of factory shells and serviced manufacturing sites.

Current performance
The turnaround in the manufacturing subsector in 2013 was driven by the recovery of the textiles and clothing industry, which grew by 3.4 percent. Factors working in the industry’s favour included the depreciation of the Loti against the US dollar during 2013 in addition to the relocation of South African producers to Lesotho to take advantage of lower labour costs.

Two new knit garment firms started operations during 2013, reflecting the growing confidence in the textiles and clothing subsector.

Furthermore, orders from US retailers rose as a result of the renewal of the AGOA Third Country Fabric Provision (TCPF) in September 2012, which eliminated the uncertainty among US retailers about Lesotho as a reliable supplier of quota and duty free textiles and clothing products. These improvements continued into 2014 with increased demand from US-based retailers.

Tax amendments
To promote textile manufacturing in Lesotho, in 2006/07 Government reduced corporate tax from 15 to zero percent for companies exporting outside SACU and to 10 percent for exports within SACU. These incentives were modified in the 2014/15 budget as the tax exemption is considered inconsistent with Lesotho’s commitment under international and regional agreements, which aim to eliminate unfair competition that could arise from differentiated tax applicable to other domestic producers exporting within SACU. It was therefore proposed that the zero corporate tax on extra-SACU export be abolished and the standard rate of 10 percent applied to all manufacturers.

The importance of AGOA
Through AGOA, Lesotho has managed to attract major international brands, and remains the top exporter of garments to the US in value terms. However, the continued expansion of the industry is based to a large extent on whether AGOA is to continue beyond 2015. The present uncertainty surrounding these provisions makes foreign investors reluctant to take up major long-term commitments.

During the US-Africa Leaders’ Summit and the 2014 AGOA Forum, both of which were held in the first week of August 2014, President Obama, the US trade representative and various congressional leaders reiterated their commitment to a ‘seamless’ renewal of AGOA before its scheduled expiry on 30 September 2015. However, no commitment was made regarding how much in advance of its expiration AGOA would be renewed.

Trade Minister Sekhulumi Ntsoaole, together with the Lesotho Textile Exporters Association (LTEA), led an advocacy mission to Washington DC in September 2014. This was undertaken in order to encourage the US Congress to renew AGOA during the post-election congressional session scheduled for late November/December 2014.

Developing linkages with South Africa
While the Lesotho clothing and textiles industry has sparked the development of the manufacturing segment of the economy as well as creating many formal sector jobs, the creation of linkages to the local economy has been limited. The African Economic Outlook report suggests that the future of Lesotho’s clothing industry lies principally in the South African-owned end market of the industry, which is growing rapidly as firms re-locate from South Africa in response to Lesotho’s more flexible wage rates and labour market conditions.

South African companies offer employment opportunities for Basotho in lower and higher management positions. They are also amenable to moving additional functions from South Africa to Lesotho, dependent upon the availability of local human resources. The challenge for Lesotho-based manufacturers is to take advantage of this potential. There is thus a need to develop a comprehensive strategy of interventions to enhance this subsector’s ability to generate upgrading, skills and local and regional linkages that support the broader industrialisation of the domestic economy.

Lesotho was promoted by the LNDC at Source Africa 2014, a trade show held in Cape Town during June. One of the aims of the event was to encourage African buyers and suppliers to do business with each other and capitalise on tariff advantages and shorter distances to market. Attended by suppliers from 20 different countries, Source Africa was also the ideal opportunity for Basotho exhibitors to show off the quality, creativity, reliability and sophistication of textiles and apparel manufacturing to a global audience of buyers, industry professionals and service providers.

Basotho-owned industries
Government encourages the development of local manufacturers, with the objective of establishing backward and forward linkages between them and big industrialists:

  • Tlotliso Holdings (Pty) Ltd, which was established in April 2012, manufactures knitted garments such as shirts, sweaters and trousers for export to the US, runs two production units based in Matsieng and Maseru, and employs a total of 500 people.
  • Johanne Garments is a small but fast-growing firm run by five young Basotho graduates from the National University of Lesotho as well as Limkokwing University of Creative Technology. A manufacturing facility was opened at ha-Thetsane in June 2013, and the firm has begun producing overalls, freezer suits, chef and lab coats and other work wear.
  • Industrial Garments Manufacturers Lesotho (Pty) Ltd began operations in March 2014 with the production of conti suits (overalls) for CGM, and employs 150 workers.

OTHER MANUFACTURING

The Basotho Fruits and Vegetable Canners (BFVC) factory has produced canned organic peaches, apricots and asparagus for the European, South African and local markets, with other products including fruit nectars and juices, and canned vegetable salad and baked beans. A Memorandum of Understanding was signed between the LNDC and the Lesotho Defence Force (LDF) in May 2013 to jointly revive BFVC. The forming of a joint venture company – Mountain Kingdom Foods (Pty) Ltd – will help to ensure adequate and consistent supplies for processing at the cannery, thereby enabling it operate at maximum capacity at all times. Furthermore, following the signing of another agreement, the cannery will receive assistance from Montara Continental Limited (a subsidiary of Oblata Resources) in finding markets for its produce.

The Ministry of Trade and Industry, Cooperatives and Marketing, is committed to supporting the textiles and garments subsector, and there is a concerted drive to diversify both products and export markets as well as to produce higher-value items, in particular woven garments and knitwear.

Other manufacturers in Lesotho include television assembly company Lefase Lesotho Manufacturing (Pty) Ltd, which operates out of Thetsane Industrial Estate where it assembles television sets for the local and South African markets, and Hong Yun (Pty) Ltd, a producer of steel and wooden products. Injection moulding company, Coating Company of Lesotho, set up operations at Tikoe Industrial Estate in Maseru during 2013, while LSA Manufacturing (Pty) Ltd, a bag and tent manufacturing firm, was allocated an 1 800 square metre factory building at the LNDC’s Thetsane Industrial Estate in March of the same year.

A new plastic hanger manufacturing company by the name GTA Plastics commenced operations in 2014 with a staff complement of 25 which is expected to rise to 100 at full production. In addition, it was announced in August 2014 that set-top boxes to be used in digital television are to be produced at a firm based in Maputsoe.

DIVERSIFYING MANUFACTURING

Lesotho has a pressing need for export product and market diversification. Reports such as the ‘Lesotho Potential Export Diversification Study’ have identified products with which Lesotho could have comparative advantage, as well as potential new markets for products, and trade missions to source new buyers are ongoing.

Manufacturing sectors ripe for investment include, but are not limited to:

  • Sub-assembly or final assembly of consumer electrical and electronic appliances and components –
  • This includes chip assembly, circuit breakers and energy saving products
  • Tanning and finishing, footwear and footwear components, leather garments and leather goods, including bags, car seat covers, wallets, belts, gloves and other accessories
  • Plastic products – Plastic tubes for irrigation and construction, plastic covers for car batteries
  • Pharmaceuticals – All pharmaceutical products are presently imported from outside Lesotho
  • Water bottling – Lesotho’s 137 documented springs produce water of an exceptionally high quality, and six of these are in close proximity to Maseru
  • Processing of organic, fortified foods and grain
  • The processing of sandstone for building projects – There are good sandstone deposits throughout Lesotho, and mechanisation is required for large scale production
  • Brick making – With various clay deposits across the country, there are opportunities to manufacture bricks and ceramic tiles for local and regional markets
  • Waste management – The production of items such as fertiliser and bricks from the garment industry’s solid and liquid waste
  • Packaging products – Over 20 million pieces of packaging materials, most of which are imported, are consumed annually by the textiles industry

Eight priority sectors have been identified to support SACU’s regional industrial development process. These include: agro-processing; renewable energy; textile, clothing and apparel; mineral beneficiation and processing; leather and leather products; arts and crafts; automotive, including components; support services such as ICT, financial, skills development, infrastructure, engineering, transport and logistics.

INDUSTRIAL INFRASTRUCTURE

Industrial development is dependent on adequate physical infrastructure (roads, factory buildings, communications) and a reliable supply of utilities (water, electricity). A Minimum Infrastructure Platform (MIP) is being built that combines priority physical infrastructure investments with those that support enterprise development.

Industrial estates and factory shells
The construction of industrial estates is undertaken by the LNDC on land allocated by Government, with development concentrated in the Maseru and Leribe districts. Access to the estates is via tarred roads and, for freight purposes, those situated in Maseru are linked by rail from Maseru’s industrial area to the South African railway system. Maputsoe Industrial Area is close to South Africa’s Ficksburg station.

The LNDC’s Industrial estates comprise:

  • Ha Nyenye (31 hectares) – 80 kilometres north of Maseru
  • Ha Tikoe (40 hectares) – 7 kilometres south of Maseru City
  • Berea (7 hectares)
  • Ha Belo (121 hectares) – Botha-Bothe

The construction of additional infrastructure and factory shells at Ha Tikoe Industrial Estate has been jointly financed by the Government of Lesotho, the Arab Bank for Economic Development in Africa (BADEA) and the OPEC Fund for International Development (OFID). The scope of the development includes water, electricity, 2 kilometres of roads and 30 000 square metres of factory space.

The LNDC has completed 11 factory shells at Ha Tikoe to accommodate new investors and those that want to expand their investments, attracting full occupancy of the shells. To encourage domestic economic empowerment, six smaller factory shell units of 500 square metres have been built for local entrepreneurs to encourage the development of value chains.

MINING

The mining and quarrying sector currently accounts for 7.9 percent of Lesotho’s GDP. While this is lower than the 9.2 percent posted in 2008, before the global financial crisis, it is nonetheless substantially greater than at the start of the millennium, when the sector made up just 0.1 percent of the economy. This transformation has been shaped by robust growth in the international diamond market, which allowed for the reopening of old mines as well as the establishment of new ones.

Despite a dip in 2009 and 2010, the industry rebounded in 2011, when the stronger diamond market prompted the reopening of the Liqhobong and Kao mines and encouraged the coming on stream of new mines. Mining output grew by 14.5 percent in 2011 and 20.8 percent in 2012, but in 2013 registered a decline of 4.4 percent as a result of constrained capacity and low productivity, despite the encouraging market conditions.  Production picked up at Letšeng mine during the first half of 2014 following the completion of recent projects to improve output and reduce diamond damage.

Diamond prices have more than doubled since 2009. Rough-diamond prices rose by 10 percent in 2013 as the US economy recuperated and consumer demand increased in China. The market remained healthy during 2014 due to better credit conditions in India, the world’s prime diamond polishing centre, and an increase in the disposable incomes of Chinese consumers. Additionally, further growth is forecast in the US jewellery market.

Mineral sector strategies
While contributing substantially to the economy, the mining sector offers limited employment creation due to its highly mechanised nature. The development of a mining and minerals policy and the review and modernisation of the existing regulatory framework is critical to maximising benefits from the sector. This includes the completion of geochemical mapping and the development of downstream industries.

Although commercial mining interests have up to now concentrated primarily on diamonds, there are indications that Lesotho possesses numerous other valuable mineral deposits. The geochemical mapping project presently underway includes the five base metals of platinum, niobium, tungsten, cobalt and tantalum, as well as rare earth elements.

It was announced in the 2014/15 national budget that 42 geochemical map sheets had been generated to help update Lesotho’s geological information. In addition, a Memorandum of Understanding and scope of work for remote sensing exploration had been signed between the Lesotho Government and a Japanese company. This will be followed by a ground truth to ascertain the country’s potential mineral resources.

In addition, huge investments are required to guarantee power supply to Lesotho’s mines, some of which have been forced to suspend operations due to an absence of connections to the electricity grid in their respective areas. To sustain the mining sector, an aggressive expansion of the existing power grid will have to form part of the Government’s medium-term investment programme.

Beneficiation of diamonds
Mineral beneficiation features prominently on Government’s agenda, as the local processing of diamonds adds value to Lesotho’s mining industry and creates jobs for Basotho. A feasibility study into developing a Jewellery Manufacturing and Diamond Centre in Maseru recommended, as a starting point, the establishment of a few select core businesses capable of:

  • Competing in the international market
  • Promoting joint ventures with existing foreign jewellery businesses
  • Producing quality finished and semi-finished exportable products
  • Instituting intensive training programmes
  • Creating sustainable jobs

Construction of the Letšeng Diamond Cutting and Polishing facility, which forms part of a long-term plan to export polished gemstones, has been completed. Expectations are that the company will employ about 70 people and process over 2 000 carats per month. This should increase the mine’s annual revenue by around 3.5 percent.

Affiliated with the internationally-recognised Harry Oppenheimer School of Diamonds, the Lesotho Diamond Academy trains students in gemmology (the study of natural or artificial gems), diamond evaluation, cutting and polishing. The Academy held its first graduation ceremony at the end of 2013, when 58 graduates were awarded certificates following a year-long course.

During 2014/15, a feasibility study is being conducted into the establishment of a diamond centre which will provide facilities for the sale of raw diamonds as well as cutting and polishing.

Mining policy
Current concessions under the Mines and Minerals Act of 2005 include exemptions for mining companies from sales taxes on capital items during mine evaluation and construction, as well as exemptions from withholding taxes on dividends and interest payments. Government requires payment of a royalty on diamond sales (8 percent), as well as a 12.5 percent free-carried interest and a similar contributing interest in any mining project.

It was announced in the 2014/15 budget that progress had been made towards the development of a policy for minerals and mining, with a draft policy expected to be finalised during 2014. Also, with the assistance of the International Monetary Fund (IMF), Government has reviewed the fiscal regime governing the sector and recommendations have been made on the required amendments to the relevant pieces of legislation. The expectation here is that a new tax regime for the mining sector will be finalised as part of a wider review of the mining code.

Diamond mining
While Lesotho’s alluvial deposits have historically yielded a number of large, high-quality gem diamonds, it was not until the 1950s that the source of these gems was discovered in the Maloti Mountains. These diamondiferous kimberlite deposits were mined by artisanal diggers between 1959 and 1968, and thereafter by large mining companies such as Rio Tinto (1967-1972) and De Beers (1977-1982), with the latter mining the Letšeng-la-Terai deposit situated about 70 kilometres from Mokhotlong. Mining production reached its peak in 1980, when diamonds to the value of M24.7 million were exported. The mine was closed in 1982 as it became less profitable.

The Letšeng Diamond Mine www.letsengdiamonds.co.ls reopened in 2004, and was in 2006 purchased by Gem Diamonds, with the balance of interest (30 percent) being held by the Lesotho Government.  At an altitude of over 3 kilometres above sea level, it is the highest diamond mine in the world. Letšeng is also famous for its large, top-quality diamonds, with the high percentage of large diamonds making it the highest dollar value per carat kimberlite diamond mine in the world.
 
Ore at Letšeng is processed from two kimberlite pipes, the main and satellite, both bearing extremely low grade ore (under two carats per hundred tonnes), as well as from existing stockpiles. The mine can currently process around 7 million tonnes of ore per year, producing about 100 000 carats.

Letšeng is renowned for its production of historic diamonds. In August 2011, a 550-carat white diamond, the Letšeng Star became the fourth major recovery at Letšeng since Gem Diamonds took over in 2006. It was preceded by the 478-carat Leseli la Letšeng (‘Light of Letšeng’) white diamond in 2008, the 493-carat Letšeng Legacy in 2007, and the 603-carat Lesotho Promise in 2006. Add the 601-carat Lesotho Brown, recovered in 1960, and Letšeng has produced five of the 20 largest rough white gem diamonds on record.

Exceptional recoveries made during 2014 include two rough diamonds (a 162.06 carat type II diamond and a 161.74 carat type I diamond) during January, and a 198-carat white diamond at the end of July which fetched a price of US $10.6 million. During 2013, a rare 12.47-carat blue diamond was sold for US $7.5 million.
 
Production at Letšeng was temporarily stopped in the first quarter of 2013, when cone crushers were installed to increase diamond liberation and reduce breakage. Gem Diamonds nonetheless reported a US $21.2 million profit at the mine in 2013 compared with a US $117.9 million loss the previous year, with Letšeng realising a 5.7 percent higher average carat price than a year earlier. While expansion plans to double production at Letšeng to 200 000 carats a year have been delayed, the company remains confident of increasing production of these precious stones.

Revenue from Letšeng rose by 80 percent to US $147.8 million in the first half of 2014 as a result of reduced diamond damage and the higher quality of gems mined coupled with a strong market for large, good-quality rough diamonds. Carats recovered increased by 29 percent to 45 678 carats, boosted by the higher share of satellite pipe ore mined during the period. The average value per carat from the first five tenders of the year leapt by 58 percent to US $2 747. It is expected that the diamond market will remain robust as a result of further growth in demand from non-traditional markets in Asia and healthy activity in traditional markets.

Known as one of the world’s most important sources of exceptional quality, large diamonds, Letšeng has in less than a decade produced four of the 20 biggest rough white gem diamonds to be documented.

Liqhobong Diamond Mine is located at the head of the Liqhobong Valley in the Maloti Mountains. It comprises a main and satellite pipe, covering areas of 8.5 hectares and 0.8 hectares, respectively. The mine has since September 2010 been operated by Liqhobong Mining Development Company (LMDC), which is 75 percent owned by Firestone Diamonds and 25 percent by the Government of Lesotho.

A substantial resource of over 90 million tonnes, at an average grade of 34.3 carats per hundred tonnes containing 31 million carats, has been identified at Liqhobong’s main pipe by independent mining and geological consultants. LMDC holds a mining lease covering an area of 390 hectares in respect of both pipes. Although the lease expires in August 2017, it is renewable for a further ten years.

The diamond assortment at Liqhobong is diverse and comprises some high-quality stones, including large white and Cape yellow diamonds, intense fancy yellow stones and near gem diamonds. An unbroken 74-carat light yellow diamond found in April 2012 is the largest undamaged stone recovered at the mine to date.

Production at the pilot plant began in June 2011. During the 2012/13 financial year, 156 131 carats of diamonds were produced, achieving an average price of US $93 per carat, compared with 164 000 carats produced and sold for an average price of US $86 per carat in 2011/12. Although tonnes treated rose substantially, fewer carats were recovered because of the lower grade areas mined and treated.

The pilot plant was closed in October 2013 and decommissioned, with preparatory work for construction of the 500-tonne-per-hour main treatment plant and supporting infrastructure begun. The new plant, which will facilitate improved diamond value management by reducing diamond breakages and enable the recovery of intact stones in excess of 100 carats, is the next step in Firestone’s plan to expand annual diamond output to over 1 million carats. Construction work on the main plant started during the second quarter of 2014 and the project should be completed in the first half of 2016.

London-listed Namakwa Diamonds holds a 62.5 percent interest in Storm Mountain Diamonds (SMD), the operator of Kao Diamond Mine. The Government of Lesotho holds 25 percent and Kimberlite Investments Lesotho Limited (KIL), a public vehicle for local investors, holds the remaining 12.5 percent.

At 19.8 hectares, the main kimberlite pipe at Kao is the largest in Lesotho and the fourth-largest in southern Africa. Situated within a 20 kilometre radius of the Letšeng and Liqhobong mines, Kao has a total resource of 173 million tonnes, containing about 12.6 million carats.

The open pit mine is being developed in two phases. Phase 1, which has an envisaged three and a half year horizon, was in full ramp-up from January 2012. Mine infrastructure investments amounting to around M380 million include a 500 000 cubic metre freshwater dam, ongoing development of the slimes dam, plus the installation of a 500-tonne-per-hour hybrid process plant facility. Phase 2 has an anticipated life of 15 years and offers substantial ‘blue sky’ potential, with plans to invest a further M1.5 billion and upgrade the plant to process 1 000 tonnes per hour.

During 2013, 153 639 carats were recovered against 121 521 carats in 2012. This includes eight stones of more than 45 carats, the largest of which was 74.47 carats. Output in the first quarter of 2014 was estimated at around 19 000 carats per month. At full production, output at Kao is targeted at 360 000 carats per annum.

The Kao resource yields rare coloured diamonds ranging from pink, purple, yellow and light brown to the classic ‘blue white’.

Kao’s remote location means it is not connected to Lesotho’s electricity grid, and power is presently supplied by a generator plant. There is the possibility of connecting the mine to the Lesotho grid by 2016.

Located adjacent to and directly on trend with Letšeng, the Mothae Diamond Project comprises an estimated 8.8-hectare diamondiferous kimberlite pipe, containing a resource of large, high-value type lla diamonds. The project operator is Mothae Diamonds, a subsidiary of Lucara Diamond Corporation, which holds the interest in partnership with the Government of Lesotho (25 percent). A mining license has been granted until September 2019 and is renewable for a further ten years.

In September 2012, the company completed a two-year trial mining period which gathered data on diamond grade, size, distribution and value. During this time, more than 20 000 carats were sold, creating a solid foundation for revenue modelling. The updated resource estimate was completed in the first quarter of 2013 and revealed an inferred resource of 987 390 carats at 2.7 carats per hundred tonnes.

Lucara is currently reviewing development options for Mothae. One of the major challenges to resuming production is an insufficient supply of electricity, considering the high production costs when alternative energy sources such as diesel powered generators are used to supplement the shortfall.

The Lemphane Kimberlite Project is one of five known diamondiferous kimberlite pipes within the region, and lies in close proximity to both the Letšeng and Liqhobong deposits. A ten-year mining lease for the concession, renewable for a further three consecutive ten-year periods, has been awarded to Meso Diamonds, a wholly-owned subsidiary of Aim-listed explorer Paragon Diamonds.

Paragon holds 80 percent of the equity in the project, while the Government of Lesotho holds 20 percent, and there are provisions to maintain a 15 percent local Basotho shareholding arrangement. An initial royalty of 4 percent will be payable to Government on production and is subject to review within five years.

The bulk sampling initiated in 2012 was significantly accelerated in 2013. Lemphane has the potential to yield large high-quality diamonds of up to 8.90 carats with values greater than US $2 400 per carat having been recovered. Commencement of Stage 1 production, targeting 500 000 tonnes of ore and an estimated recovery of 10 000 carats per year at a minimum average value of US $750 per carat, is scheduled to begin in the first quarter of 2015, with connection to the national electricity grid planned for later that year.

The company anticipates extracting 1 million tonnes of kimberlite over a two-year period and, according to an independent report, is expected to recover more than 100 diamonds larger than 9 carats, including stones over 100 carats in size. The capital costs of Stage 2 production should be significantly less than the initial scoping study suggested because of new XRT technology, which has been shown to significantly improve diamond recoveries compared with conventional recovery technologies.

Paragon has since December 2011 also been involved in the Motete Project, which is situated 10 kilometres north-east of Lemphane and comprises a kimberlite dyke over 1 kilometre in length with an average width of 1.4 metres. Micro diamond analysis results show the dyke is highly diamondiferous, with results to date including 2 175 diamonds from 1 086 kilograms of samples at 2.0 stones per kilogram. This comprises a high proportion of clean crystal forms with exceptional colour and transparency. Early modelling estimates a potential for more than 1 million carats. Additional bulk sampling is planned along with a scoping study for a narrow-vein underground mine at Motete, and Paragon is currently in discussions with potential joint venture partners.

Mining services
Mining involves complex and considerable risks with huge capital investments and requires unique, specific skills to be successful. Key to success is safety, health and environment issues and taking care of other attendant risks.

Aon Lesotho www.aon.com currently provides Broking Services and Risk Consultants to almost the entire mining industry in Lesotho by virtue of its unparalleled expertise and experience in mining and construction risks, as well as access to the world’s leading resources via the parent Company, Aon Group, and the highest qualifications in engineering insurance, not only in Lesotho but also in the wider region.

MGC Mining contributes to Lesotho’s mining sector through hauling, drilling and blasting in the Mokhotlong region. The company’s commitment to expansion in this sector has since paid off with the discovery of lucrative new markets in Africa.

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