Foreign Trade & Investment
Lesotho’s geographical position within South Africa has led to close economic integration, with the domestic economy relying heavily on foreign trade and investment.
As an active member of many regional groupings and their associated trade agreements, Lesotho is provided with the opportunity to address obstacles posed by its limited domestic market and the scope to diversify its export markets. The future growth of Lesotho’s economy is closely linked to deepening regional integration, which has yet to be adequately exploited. With South Africa accounting for the bulk of Lesotho’s regional trade, there is much potential to create new markets in the region. At present, the country relies mainly on its larger neighbour as a source of imports and the United States as the market for its textile exports. Clothing, textiles and livestock are Lesotho’s most important value chains and have the potential to contribute enormously to economic growth and poverty reduction.
THE BASOTHO ECONOMY
Lesotho’s economic development presents a mixed picture over the past decade, with growth having ranged between 3 and 6 percent, driven primarily by textiles, water and diamond exports. Relatively strong growth in recent years has nonetheless not had a significant effect on poverty, inequality and unemployment, particularly outside the urban areas.
As Lesotho is a member of the Common Monetary Area (CMA) and Southern African Customs Union (SACU), there is a fixed exchange rate regime between itself and South Africa. This loti-rand peg means that Lesotho has limited monetary policy, with the result that overall macroeconomic management is driven by fiscal policy. The country also benefits from SACU revenue, which once funded close to 60 percent of its national budget. Such revenues fell substantially in the aftermath of the financial crisis as imports of goods and services to SACU member countries declined. As a share of GDP, SACU receipts registered 27.9 percent in 2013 compared with 26.6 percent in 2012.
Like other countries, Lesotho uses the Gross Domestic Product (GDP), as a measure of economic performance. However, as a substantial amount of Lesotho’s income comes from abroad, an appropriate measure of economic growth in the country could be Gross National Income (GNI) rather than GDP. Lesotho also receives a significant amount of net transfers from abroad, mainly because of SACU receipts.
Agriculture, which was once the mainstay of the economy and a major employment creator in rural Lesotho, has had to cope with drought and floods wrought by climate change. This has threatened the country’s food security efforts and has seen the contribution of the sector to GDP falling from 20 percent in 1983 to just under 14 percent by 1999 and 7.9 percent in 2013.
The minerals sector, which is mainly focused on diamond mining and to a lesser extent sandstone, has over the past several years registered positive gains, with mining activities growing from 0.1 percent of GDP in 1999 to some 7.9 percent by 2013. Lesotho’s diamonds, which are of an exceptional size and quality, continue to fetch good prices in international markets, and Government is presently developing a robust policy framework for the minerals sector that takes into account value addition and employment creation.
Lesotho’s business environment is ranked 14 places above the sub-Saharan African average in the World Bank’s 2015 ‘Ease of Doing Business’ report.
Economic activity in the 1990s was driven by the construction boom which accompanied the first phase of the Lesotho Highlands Water Project (LHWP), an extensive water transfer scheme to supply the needs of South African industry. Around the turn of the millennium the manufacturing sector, specifically the textile and apparel industry, took over as the primary source of foreign revenue and jobs, with its contribution to GDP peaking at 21.3 percent in 2002 underpinned by the favourable trade terms of the United States’ African Growth and Opportunity Act (AGOA). Despite having been challenged by increased competition from Asian producers and concerns about the continuation of duty-free access to the US market, the industry has recovered substantially over the past two years.
The high wage bill in the public sector has often been cited as one of Lesotho’s major challenges, and efforts to reform the public service have been a consistent feature for the past decade, with limited success. To this end, the Government has embarked on the resuscitation of the Performance Monitoring System, with assistance from the United Nations Development Programme (UNDP) and the United States Agency for International Development (USAID), in an effort to improve service delivery. Positive steps have been taken in establishing agencies that operate on corporate governance systems with boards of directors, with the Lesotho Revenue Authority (LRA) having been a driving force in the improved collection of taxes in the country.
National Strategic Development Plan
Running from 2012/13 to 2016/17, the five-year National Strategic Development Plan (NSDP) has as its overarching aim the creation of productive jobs, reduction of poverty and achievement of sustainable development through the pursuit of a number of goals in the short to medium term. These include: providing conditions necessary for high, shared and employment creating economic growth; developing key infrastructure across all economic sectors, especially in support of private sector investment and development; enhancing the skills base, technology adoption and foundation for innovation; improving health and its services, combating HIV and AIDS, and reducing vulnerability; reversing environmental degradation and adapting to climate change; and promoting peace, democratic governance and building effective institutions.
The 2014/15 national budget is anchored on the NSDP and National Vision 2020. As such, Government adopted the following policy targets as priorities and a basis for resource allocation:
- Identifying sectors with high potential for contributing to growth levels of between 5 and 7 percent per annum, including creation of 10 000 jobs per year on average
- Reducing food insecurity by 25 percent by 2017
- Reducing child and maternal mortality by at least 25 percent by 2017
- Reducing the incidence of HIV by at least 15 percent and increasing coverage for anti-retroviral treatment to at least 80 percent of the population that needs it by 2017
- Broadening the skills base to take into account the needs of the labour market
- Reducing environmental degradation and preserving heritage
- Promoting peace and security
To be able to provide adequate funding within the scope of these policy targets, proposals for 2014/15 budget allocations were restricted to priority programmes and interventions considered to have the potential to contribute towards: facilitating job creation, inclusive growth and economic diversification; reducing economic and social vulnerabilities; and improving public sector delivery and efficiency.
As reported by the International Monetary Fund (IMF) in its World Economic Outlook (WEO) of October 2014, global growth is forecast to rebound to an annual rate of about 3.7 percent in the second half of 2014 and move slightly higher in 2015, around 1 percentage point faster than in the first half of 2014. The increase in growth is being driven by a recovery in advanced economies – particularly the United States – and emerging markets. Expansion in most emerging markets and developing economies is expected to be supported by the waning of temporary setbacks to domestic demand and production (including geopolitical tensions and domestic strife), policy support and the gradual lifting of structural impediments to growth, as well as strengthening external demand from advanced economies.
These projections imply a robust outlook for low-income developing countries such as Lesotho, with overall growth in these countries projected to exceed 6 percent in both 2014 and 2015. Stronger growth in advanced economies will buoy low-income developing countries’ net external demand, although the projected easing in non-fuel commodity prices will induce some deterioration in the terms of trade for the net exporters of commodities. Domestic demand is expected to remain resilient as in recent years.
The IMF also highlights Sub-Saharan Africa’s impressive growth. Output in the region climbed from 4.4 percent in 2012 to 5.1 percent in 2013, and is projected to remain steady at 5.1 percent in 2014, rising to 5.8 percent in 2015. However, prospects vary across countries.
Resurgent growth in the global economy bodes well for Lesotho’s economy, indicating increased demand for manufacturing exports. However, external risks remain over continued international demand for diamonds and the renewal of AGOA, which is presently set to terminate in 2015. Furthermore, growth in South Africa, which has historically influenced Lesotho’s economy, was hamstrung in 2014 by industrial tensions and delays in fixing infrastructure gaps, including electricity constraints, and is likely to remain subdued.
Developments in the domestic economy
During 2013, growth in real GDP was estimated by the IMF to have slowed to 5.7 percent from 6.0 percent in 2012. While the primary sector deteriorated due to the slower performance of the mining and quarrying subsector, there was a positive contribution from the tertiary and secondary sectors. Growth came from construction, textiles and clothing, transport and communications, as well as financial intermediation. Construction and building received a boost from continuing work on the Metolong Dam as well as other government construction, while textiles and clothing responded to increased activity in the United States as well as the relocation of a number of South African based producers to Lesotho. The tertiary sector, which made up almost two-thirds of Lesotho’s GDP in 2013, continued to expand, albeit at a lower rate than in 2012.
Inflation decelerated to an annual average of 5.0 percent in 2013 compared with 6.1 percent during 2012, mainly because of the drop in food prices. However, by June 2014 inflation had risen to 6.5 percent from 5.6 percent in March 2014, which was attributed to price hikes in food and non-alcoholic beverages, clothing and footwear, housing, electricity, gas and other fuels and transport. Given the trade linkages between South Africa and Lesotho, much of the latter’s inflation is explained by price developments in her larger neighbour.
The IMF predicts real GDP growth in Lesotho’s economy of 4.3 percent in 2014, followed by 4.7 percent in 2015 and 5.5 percent by 2019.
Lesotho’s overall external position, as measured by the overall balance of payments, recorded a surplus of 3.6 percent of GDP in 2013 and is expected to register surpluses of 2.4 percent of GDP in 2014 and 0.8 percent in 2015. The overall surplus is largely predicated on continued good performance in current transfers, with the trade balance going from a deficit of 54.1 percent of GDP in 2012 to 50.3 percent in 2013. The current account deficit narrowed to M187.3 million in the second quarter of 2014, from a deficit of M239.7 million in the quarter ending in March 2014. This improvement came largely from higher SACU transfers as well as interest earned by the Central Bank.
According to the 2014 African Economic Outlook, aggregate demand was buoyed by growth in gross capital formation (GFCF), public consumption and higher exports, with financial sector reforms improving access to credit and government capital investment. The government surplus in 2013 supported private investment, with government consumption increasing as a result of better salaries for state workers. Exports were also boosted by the depreciation in the exchange rate which enhanced international competitiveness. It is anticipated that output growth in the medium term will be supported by fixed capital formation and net exports, and that the private sector will be crucial to the process, dependent upon continued structural reforms and an improved investment climate.
In the medium term, there are expectations of recovery in the primary sector as a result of further investment in agriculture and accelerated output from diamond mining as operating conditions improve and robust demand in international markets, particularly the US, China and India, continues into 2015. Growth in the secondary sector should be driven once more by textiles and clothing as well as construction, in view of ongoing public infrastructure projects and the implementation of the second phase of the LHWP, which will include the generation of hydropower to serve domestic needs as well as the energy requirements of neighbouring South Africa. Further growth is also anticipated in the tertiary sector, supported by strong financial intermediation, transport and telecommunications, and government efforts in health and social welfare.
Exports grew by 2.3 percent in 2013 following a decline of 5.4 percent in 2012, mostly driven by a 6.4 percent increase in textile and clothing exports against a decline of 3.1 percent during the previous year. Exports of diamonds fell marginally due to capacity constraints stemming from a lack of electricity supply, which impacted negatively on the operations of the mines.
In the second quarter of 2014, the European market continued to receive the largest share of Lesotho’s exports (41.2 percent), which comprised mainly rough diamonds. The second largest market for Lesotho’s exports during the quarter was the United States, which is the primary destination for Lesotho’s textiles and clothing exports, with an increased share of 29.2 percent of total exports. This was followed by the African market (mainly South Africa) with a share of 28.6 percent, and then Asia and Oceania with respective shares of 0.2 percent and 0.7 percent.
Exports of textiles to the United States and diamonds to the European Union account for more than four-fifths of Lesotho’s external trade. This points to the need for further market and product diversification within the economy.
INVESTING IN LESOTHO
Lesotho’s free enterprise and free market economic system forms the basis for sustained development and growth, and the business environment is becoming ever-more investor-friendly. Tax and financial incentives are as follows:
- 10 percent corporate tax on profits earned by manufacturing companies exporting outside SACU
Corporate tax rate of 10 percent on profits earned on exports within SACU
- No withholding tax on dividends distributed by manufacturing companies to local or foreign shareholders
- Unimpeded access to foreign exchange
- Easy repatriation of manufacturing profits
- Training costs are allowable at 125 percent for tax purposes
- Payments made in respect of external management skills and royalties related to manufacturing operations are subject to withholding tax of 10 percent
- Import VAT credit facility that provides for an input tax credit upon importation and local purchasing of raw materials and capital goods
- Bank administered foreign currency accounts are permissible
- Double taxation agreements with South Africa and the United Kingdom
Situated centrally in Southern Africa, Lesotho has access to a substantial consumer market in neighbouring South Africa as well as the more sophisticated transport and communication networks of its larger neighbour. There are good road links to both the economic hub of Gauteng and the port of Durban on the Indian Ocean, and thus access to the wider international community, making it suitable for export-orientated manufacturing industries.
Lesotho’s labour force is young, predominantly English-speaking, literate and well-motivated, with a tradition of manual dexterity at competitive wage rates. Serviced industrial sites, factory shells and commercial buildings are available for rental at reduced rates, and there are special incentives provided to investors who erect their own factories at designated sites.
Foreign direct investment (FDI) in Lesotho was around 0.4 percent of GDP in 2012, rising to 0.7 percent of GDP in 2013. The current trend indicates increases in 2014 and 2015 at an annual average of 1.0 percent of GDP, with much of this investment expected to go into clothing and textiles firms.
The legal framework is solid and based upon the rule of law, and there is full Government support on trade and investment issues. Backstopping services from the Lesotho National Development Corporation and a One-Stop Shop for business brings together a streamlined and integrated suite of services for businesses and investors, and includes Trading and Manufacturing Licences, Import and Export Issuances, Residency Visas and Work Permits. Recent developments have seen the establishment of commercial courts for business arbitration, development of an industrial licensing bill and the establishment of commercial and other new tribunals. Import and export procedures have also been greatly improved in terms of number of procedures, length of time and cost.
Further investment climate reforms are regarded by Government as the foundation for attracting higher levels of private investment, with an impact of more than 2 percent of GDP predicted over the next five years through efficiency gains. The United Nations Conference on Trade and Development (UNCTAD) is working with Government to develop an investment policy to enable Lesotho to market itself as an investment hub.
Investment in Lesotho’s priority sectors is encouraged in the form of foreign direct investment (FDI) as well as joint ventures, with preference given to joint ventures for sustainability and developmental purposes. The spotlight is on ventures that contribute towards the diversification of Lesotho’s industrial base to include manufacturing other than textiles and apparel. Government directs development to areas where Lesotho has a comparative advantage and therefore stands a chance of competing with the rest of the world.
The Lesotho National Development Corporation, in its January-March 2014 newsletter, identifies the following priority sectors for investment
- Manufacturing: Textiles and Garments (high value garments, fabric mill, accessories such as zippers and buttons, home textiles); Automotive Components (leather car seats, wire harnesses); Consumer Electrical and Electronic Appliances (electronic assembly, chip assembly, circuit breakers, energy saving products); Plastic Products (plastic tubes for irrigation and construction, plastic covers for car batteries)
- Mining: Sandstone Mining; Diamonds; Diamond Polishing and Cutting; Mining Supplier Park
- Power Generation: Hydro, Wind and Solar Power; Bio Energy
- Construction: Lesotho Highlands Water Project; Industrial Infrastructure (factory shells)
- ICT Infrastructure & Services: National Broadband Network; Innovation Hub; Call Centre Services (outbound and inbound); Shared Services Centres
- Creative Services: Fashion and Graphic design; Media Technologies
- Tourism: Tourism Facilities (accommodation); Recreation Centres; Theme Parks
LESOTHO NATIONAL DEVELOPMENT CORPORATION
Operating under the auspices of the Ministry of Trade and Industry, Cooperatives and Marketing, the Lesotho National Development Corporation (LNDC) strives to facilitate economic growth and development in the kingdom while promoting it as an attractive investment destination to foreign and local investors. In addition to a robust Government-administered incentive regime, the LNDC enjoys clear channels of communication with relevant state departments and parastatal organisations in order to speed up service delivery.
LNDC also offers pre-investment and after-care services to both prospective and existing investors as an expedient means to simplify and shorten the processes related to investment issues. 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. Subsidies are given to investors wishing to construct their own industrial buildings at LNDC-serviced sites.
Factory inspections are conducted to assess workplace circumstances and thereby ensure harmonious relations between employers and employees, as well as investor-compliance with the country’s labour laws. A specifically-designed checklist of all labour-related issues facilitates prompt detection and intervention where necessary.
LNDC is a member of the Africa Investment Promotion Agency Network (AfrIPANet), a United Nations Industrial Development Organisation (UNIDO) programme that aims to provide African Investment Promotion Agencies with up-to-date and accurate investor survey information to enable them to readjust investment promotion interventions in areas expected to bring the most impact in terms of linking domestic investment to FDI.
The corporation administers the Partial Credit Guarantee Scheme, where the commercial banks provide loan guarantees (on a 50/50 risk sharing basis) to entrepreneurs who wish to start or expand medium to large businesses but do not have sufficient collateral/security.
The Lesotho National Development Corporation may be contacted at: Private Bag A96, Maseru 100; tel +266 2231 2012; e-mail email@example.com; website www.lndc.org.ls
Investors’ Road Map
The Southern African Trade Hub (SATH), in conjunction with the LNDC, has carried out an audit on the implementation of the Investor Road Map to review progress to date and recommend further steps to facilitate trade and investment in Lesotho. The Road Map, which was developed in March 2013, aims to improve the business climate and spur private sector investment in Lesotho. It examines the individual procedures that constitute the critical path to starting and operating a business, as well as creating a series of action plans to eliminate costly and time consuming red tape.
The LNDC opened a one-stop business facilitation centre in Maputsoe during 2014 to complement the centre currently operating in the capital of Maseru.
It was established that the process of registering a company now takes only three days and trade licenses are issued in one day. However, there is a need to improve on police clearances, which are hampering the issuance of residence permits. On the issue of internal taxes, the country is developing an integrated tax administration programme that aims to make tax compliance manageable. This programme includes online tax filing and e-payment systems.
The audit also noted the introduction of trade facilitation tools through the Lesotho Revenue Authority’s Customs Modernisation Programme (CMP), consisting of the modernisation of customs legislation, establishment of a trade portal, preferred trade system, border infrastructure refurbishment and introduction of scanners. The CMP is due for completion by December 2015.
The SATH has subsequently conducted training workshops for business people and officers from various government ministries on aspects of easing intra-regional trade within the SADC region. Participants have been trained on the Notification Authority, a body which governs procedures on trade issues in a given country, and Entry Point, a call centre to be established under the aegis of the Ministry of Trade and Industry, Cooperatives and Marketing. It is expected that these two entities will enhance information flows between WTO member states and Lesotho, and assist local businesses in establishing markets outside the country’s borders through the liberation of trade conditions.
Trade shows, expos and investment promotion
During 2014, the LNDC was involved in a number of trade shows and expos. The Silo Expo, sponsored by the LNDC and held at Maseru Club from the 23 to 26 September 2014, focused on showcasing different breeds and varieties of livestock and crops, with the theme of ‘The Dynamics of Commercial Farming’. Experts from different organisations presented on topics such as aquaculture and aquaponics, irrigation and water storage, wine making, vegetable production under hydroponics systems, range management, piggery and poultry infrastructure, and more, including a presentation on investment opportunities in agriculture.
Facilitated by USAID’s Southern African Trade Hub, LNDC has once more, together with top local textile, apparel and footwear manufacturers, represented Lesotho at the Source Africa trade event. Held at the Cape Town International Convention Centre from 18 to 20 June 2014, the event included a trade show, networking events and business seminars designed to boost sales and investment in the sector. Demonstrating that African suppliers and manufacturers can compete on price, quality and standards, Source Africa brings together manufacturers from across the continent in one major integrated event, enabling buyers to examine a wide array of products on one trip.
LNDC launched the Lesotho-RSA Trade and Investment Roadshow in Johannesburg, South Africa, on 24 March 2014, under the stewardship of the Ministry of Trade and Industry, Cooperatives and Marketing and with partnerships from the Private Sector Competitiveness Project, Enhanced Integrated Framework (EIF), Lesotho Tourism Development Corporation (LTDC) as well as the Basotho Enterprise Development Corporation (BEDCO). The roadshow, which is touring South Africa’s various provinces, aims to encourage more investors to expand or establish presences and partnerships in Lesotho, particularly in subsectors such as light engineering and automotive components, agro-processing and financial services. Business opportunities available in the second phase of the LHWP were also highlighted.
Following a site visit by the China-Africa Development Fund (CADFUND) in Lesotho, where the LNDC presented opportunities for collaboration with the fund, the two parties signed a Memorandum of Understanding during March 2014. CADFUND and LNDC have identified the potential for providing both financial and non-financial assistance to one another, and intend collaborating on the identification of Greenfield projects and investment opportunities in country.
The LNDC participated in the 10th CII-EXIM Bank Conclave on the India-Africa Project Partnership held in New Delhi in March 2014, with the theme of ‘Accelerating Economic Growth through Innovation, Transformation, Inclusion and Governance’. India’s development model is considered the most appropriate for African economies, focusing as it does on education and training, science and technology, infrastructure development, agriculture and food security – areas which all possess immense scope for partnerships. The objective of the conclave was to encourage Indian exporters to increase their presence on the continent.
The LNDC also explored the potential for linkages with Finland, when that country’s Honorary Consul and his spouse embarked on a familiarisation tour of Lesotho in February 2014. It emerged there is scope for creating linkages with Basotho entrepreneurs aspiring to invest on a large scale, particularly through initiatives such as the LNDC Partial Credit Guarantee Scheme.
During 2014, the corporation met with the Commonwealth Business Council at an investment forum convened in London. It also formed part of the Prime Minister’s delegation in Tokyo, Japan, where investment opportunities were presented to over 100 Japanese investors and development partners. Lesotho is already well-regarded for the high quality trout which it exports to Japan.
TRADE & MARKET ACCESS
Regional integration is of prime importance given Lesotho’s small size and geographical position within the larger economy of South Africa. Benefits to this relationship include ready access to its neighbour’s excellent transport network, technology, expertise, goods markets, investment resources and capital and financial markets. To take full advantage of these opportunities, Lesotho is engaged in a variety of initiatives, such as the upgrading of border post facilities and access roads, the establishment of a dry port, and discussing with South Africa ways in which the handling of transit cargo and policy coordination may be enhanced.
Key achievements have been in the area of harmonisation and simplification of customs rules and procedures, including:
- Introduction of a single administrative document to import/export goods
- Development of a model customs law
- Transit management and training manuals for building capacity of customs administration in the region
- A review of border customs procedures and processes by the Lesotho Revenue Authority (LRA), leading to the development of a ‘Clearance of Goods Process’, with new standard operating procedures developed based on the principles of seamless flow of commercial traffic and facilitation of legitimate cargo
Lesotho has signed a number of trade agreements which afford expanded access to regional and international markets. In addition, its status as a Least Developed Country in the World Trade Organisation (WTO) gives it duty-free access to the markets of industrialised countries. Lesotho is also a member of the Land-Locked LDC group, which lobbies for special consideration to be shown to exports-driven countries lacking their own direct sea-freight facilities. The Enhanced Integrated Framework (EIF) is an aid-for-trade partnership for LDCs that supports such countries in being more active in the global trading system by helping them to address supply-side constraints to trade.
Along with South Africa, Botswana, Namibia and Swaziland, Lesotho is a member of the Southern African Customs Union (SACU), the regional framework for trade cooperation. Its products therefore enjoy duty free access to a market of more than 55 million consumers with a combined GDP of US $307 billion.
Countries in the common customs area are able to negotiate new Free Trade Area (FTA) agreements with third parties as a bloc. Together with other SACU members, Lesotho enjoys a Preferential Trade Agreement (PTA) with the Common Market of the Southern Cone (MERCOSUR), comprising Argentina, Brazil, Uruguay and Paraguay (a total market of 385 million consumers), as well as the European Free Trade Area (EFTA), made up of Switzerland, Norway, Iceland and Liechtenstein. Lesotho can also export all products to the European Union (500 million consumers) duty-free under the SACU Economic Partnership Agreement (EPA).
The United States (US) and SACU signed a Trade, Investment and Development Cooperative Agreement (TIDCA) in 2008. The TIDCA establishes a forum for consultative discussions, cooperative work and possible agreements on a wide range of trade issues, with a special focus on customs and trade facilitation, technical barriers to trade, sanitary and phytosanitary (SPS) measures, and trade and investment promotion.
Five priority areas are currently under review, comprising: the regional industrial development policy, revenue sharing arrangement, trade facilitation, development of SACU institutions, and unified engagement in trade negotiations. Achievements include streamlining of the work programme on regional industrial development, with the agro-processing and automotive subsectors targeted as suitable for cross-border collaboration. Regarding trade facilitation, the launch of the regional Preferred Trader scheme was scheduled for 2014, and while no conclusion has been reached regarding revision of the SACU Revenue Sharing Formula and the expansion of SACU membership, important steps have been taken in studying the merits of these proposals.
The SACU Regional Customs Trade Forum launched at the end of 2013 creates a platform for engagement between member states and the private sector, and will assist in trade facilitation and improving customs operations. SACU has also embarked on a Regional Trade Partnerships Project, funded by the Swedish Government, which will serve to establish and strengthen partnerships between customs authorities, the trading community and government agencies in the trade supply chain.
Lesotho is a member of the Southern African Development Community (SADC), a grouping of 14 countries with a combined population of some 260 million and a cumulative GDP of US $471.1 billion. Other members of SADC include South Africa, Zimbabwe, Zambia, Malawi, Tanzania, Mauritius, Seychelles, Angola, Democratic Republic of Congo, Namibia, Botswana, Swaziland and Mozambique.
SADC launched an FTA in 2008 involving zero tariff levels for 85 percent of all goods traded among member states. Liberalisation of tariffs on the remaining 15 percent of goods considered to be sensitive products continues, with further consolidation of the FTA underway to address outstanding tariff phase down obligations, rules of origin, tariff lines and non-tariff barriers. The SADC FTA is one of the first milestones of the SADC Regional Indicative Strategic Development Plan (RISDP) towards regional integration and a common market.
Notable progress relating to SADC integration has included the ongoing mid-term review of the RISDP, the finalisation of the Industrial Development Policy Framework for the region and the implementation of the Regional Infrastructure Development Master Plan. Progress has also been achieved in establishing a SADC monetary union in terms of developing a clear roadmap for the process as well as assessing its costs and benefits.
Provisions under the Cotonou Agreement for trade between the EU and African, Caribbean and Pacific (ACP) countries came to an end on 31 December 2007, with the Interim Economic Partnership Agreement (IEPA) signed by Lesotho, Botswana, Swaziland and Mozambique during June 2009 replacing the Goods Chapter of the Cotonou Agreement. The EU concluded negotiations on an Economic Partnership Agreement (EPA) on 15 July 2014 with the SADC EPA Group comprising Botswana, Lesotho, Mozambique, Namibia, South Africa and Swaziland. The EPA guarantees access to the EU market without any duties or quotas, and gives asymmetric access to partners in the SADC EPA region, who are able to shield sensitive products from full liberalisation and deploy safeguards when imports are growing too quickly.
The EU is the SADC EPA Group’s largest trading partner. These countries are strong in the export of diamonds, which in South Africa, Botswana, Lesotho and Namibia constitute a dominant share of exports to the EU. At the same time, the EU exports a wide range of goods to these countries, including vehicles, machinery, electrical equipment, pharmaceuticals and processed food.
Lesotho is also participating in negotiations on a Tripartite Free Trade Area (T-FTA) between SADC, the East African Community (EAC) and the Common Market for Eastern and Southern Africa (COMESA).
The US has historically proven a ready market for Lesotho’s exports of apparel. The African Growth and Opportunity Act (AGOA) will until 2015 provide eligible African countries with duty and quota-free access to the US market of some 310 million consumers. Lesotho, which has been exporting to the US under AGOA since 2001, is allowed to utilise third-country textile inputs because of its LDC classification. This provision, which was due to expire in September 2012, was extended to 2015. President Obama, the US trade representative and various congressional leaders have stated their commitment towards the renewal of AGOA before its scheduled expiry on 30 September 2015.
The Southern African Trade Hub (SATH) is a regional body which works to simplify trade regulations among SADC countries.
Lesotho’s products also benefit from preferential market access to the Australian market of 22 million consumers, with products entering either duty-free or at reduced rates of duty. Under the GSP system, a long list of products (excluding dairy, poultry and eggs) have been granted duty-free entry to Canada with its population of 34 million people.
Furthermore, close to 100 percent of Lesotho’s industrial products, including textiles and clothing, can be exported duty and quota free to Japan with its 127 million consumers. Lesotho’s products are eligible for duty free access to New Zealand in terms of a GSP scheme introduced in 1972, while Turkey also provides duty free access for Lesotho’s industrial products.
In conjunction with her regional partners, Lesotho is keen to foster closer economic ties with Asian countries, including China, India and Pakistan, creating new opportunities for product and market diversification.Go to top