Lesotho - Executive SummaryLesotho - Executive Summary

The Government of Lesotho (GOL), through its National Strategic Development Plan, recognizes the critical role that domestic and foreign investment and the development of the private sector play in driving shared economic growth. The government actively encourages foreign direct investment (FDI) in all areas of the economy, with limited restrictions on foreign ownership of small businesses. Foreign investors enjoy the same rights and protections as Basotho investors. Lesotho’s standards of treatment and protection of foreign investors are good in practice, but the legal framework guaranteeing these norms remains weak. There is no foreign investment law, and there are limited bilateral investment treaties (BITs) to protect foreign investors and ensure their fair treatment.

Lesotho’s performance in attracting FDI has been credible by regional standards, particularly for a landlocked nation. In recent years, FDI inflows have been mainly driven by investments in the mining sector. Despite some political uncertainty, the investment climate is reasonably conducive to U.S. investment; Lesotho, a relatively small market of only 1.9 million people, is a member of the Southern African Customs Union (SACU) and the Southern African Development Community (SADC) market, which allows foreign businesses to use Lesotho as a gateway to larger regional markets.

The commercial legal, regulatory, and accounting systems are transparent and consistent with international norms. The judicial system is an effective means for enforcing property and contractual rights, though case backlogs can lead to a slow process. Lesotho has a written and consistently applied commercial law. A Commercial Court was established in 2010, with the support of a U.S. government-funded Millennium Challenge Corporation grant, in an effort to improve the country’s capacity in resolving commercial cases. Foreign investors have equal treatment before the courts in disputes with national parties or the government. The government has little history of investment disputes involving U.S. or other foreign investors or contractors in Lesotho, though in the past two year two foreign companies with government contracts have had disputes.

Though corruption remains a problem in Lesotho, no U.S. firms have identified corruption as an obstacle to foreign direct investment. Giving or accepting a bribe is a criminal act under the Prevention of Corruption and Economic Offences Act of 2006.

Lesotho is a member of the International Labor Organization (ILO) and has ratified 23 international labor conventions, including all the eight fundamental human rights instruments. Lesotho's Labor Code Order of 1992 and its subsequent amendments are the principal laws governing terms and conditions of employment in Lesotho. The law provides for freedom of association and the right to bargain collectively. The law stipulates that employers must allow union officials reasonable facilities for conferring with employees.

Lesotho has accomplished significant recent policy reforms, and the government plans to undertake further reforms. The Land Act of 2010 reformed the land tenure system, allowing foreign investors to hold land titles so long as 20% of the company is owned by local investors. The Land Act has also allowed the use of land as collateral, which has expanded access to credit. The Companies Act of 2011 reduced the time it takes to start a business from 40 days to five days and strengthened investor protections. As a result of these reforms, Lesotho’s rank in the World Bank’s Doing Business report improved from 153 in 2012 to 136 in 2014 to 114 in 2016.

Table 1

Millennium Challenge Corporation Country Scorecard

The Millennium Challenge Corporation, a U.S. Government entity charged with delivering development grants to countries that have demonstrated a commitment to reform, produced scorecards for countries with a 2012 per capita gross national income (GNI) or $4,085 or less. A list of countries/economies with MCC scorecards and links to those scorecards is available here: http://www.mcc.gov/pages/selection/scorecards. Details on each of the MCC’s indicators and a guide to reading the scorecards, are available here: http://www.mcc.gov/documents/reports/reference-2013001142401-fy14-guide-to-the-indicators.pdf