LESOTHO SEPTEMBER 2007 ECONOMIC ROUNDUP: ARRESTS, ANALYSIS,

UNCLAS SECTION 01 OF 03 MASERU 000549 SIPDIS SIPDIS DEPT ALSO FOR AF/S, AF/EPS; PASS TO MILLENNIUM CHALLENGE CORPORATION E.O. 12958: N/A TAGS: ECON EINV EMIN EFIN PGOV CH LT SUBJECT: LESOTHO SEPTEMBER 2007 ECONOMIC ROUNDUP: ARRESTS, ANALYSIS, AND ANOTHER BIG DIAMOND MASERU 00000549 001.2 OF 003 ¶1. SUMMARY: - Fitch Puts Lesotho's Economy Under Microscope - Article IV Consultations: Good Numbers, No Poverty Impact - Principal Secretary of Justice Arrested - High-level Chinese Trade Delegation Visits Lesotho - "One Stop Shop" to Simplify Trade - Promise in the Mining Sector END SUMMARY. -------------- Fitch Puts Lesotho's Economy Under Microscope -------------- ¶2. In its recently released ratings of Lesotho, Fitch Ratings maintained the nation's sovereign credit scores: the nation's long-term foreign currency rating remained at "BB-", while the short-term foreign currency rating stayed unchanged at "B". The local current long-term rating is at "BB" -- also unchanged. The long-term rating of "BB-" implies the possibility of a credit risk developing. Fitch observed that Lesotho is vulnerable to near-term changes in financial and economic conditions. ¶3. Lesotho's credit rating falls in the same bracket as Georgia, Nigeria, Turkey, Sri Lanka, and Ukraine. The country owes its credit strength to strong public finances due to SACU revenue windfalls. In addition, Finch viewed the structural and institutional reforms to be funded by the Millennium Challenge Corporation (MCC) as a strength. Also, the doubling of mining output spurred a GDP growth rate of 6.2% in 2006 -- the highest level in ten years. Finch cited Lesotho's low level of development and weak business environment compared with its peers as a source of fundamental credit weakness. Lesotho's per capita income in 2006 was US$925, compared a median of US$2,500 among its "BB" peer group. -------------- -------------- Article IV Consultations: Good Numbers, No Poverty Impact -------------- -------------- ¶4. On August 31, an IMF/World Bank joint mission met with Lesotho's development partners as part of its Article IV Consultations in Lesotho. The mission informed the group that Lesotho's macroeconomic performance has improved over the last two years. They attributed this sound macroeconomic performance and strong external position to SACU revenue sharing, the recovery of the textile industry from its 2005 downturn, and increased output in the mining sector. Lesotho maintained a fiscal surplus of 15% of GDP, while the current balance registered a surplus of 3.7% of GDP. ¶5. The delegation's greatest concern was that Lesotho had not been able to translate this good fiscal situation into broad-based sustainable economic growth reaching the population. Good macro-level numbers have not led to poverty reduction. The development partners, including the U.S. Embassy, noted that the country does have robust access to donor resources, but must tackle a number of domestic problems including a lack of data to inform policy decisions, the GOL's low absorptive capacity of donor funds, and various human resources gaps. The IMF/World Bank mission concluded that the GOL must develop sound policies MASERU 00000549 002.2 OF 003 to facilitate broad-based sustainable growth and meet the goals outlined in Lesotho's Poverty Reduction Strategy (PRS). They also noted the necessity of the GOL's development of a strategy to address the anticipated decline in SACU revenues in the medium to long-term. -------------- Principal Secretary of Justice Arrested -------------- ¶6. Principal Secretary of Justice, Human Rights, Correctional Services, Law, and Constitutional Affairs Ponts'o Lebotsa appeared before the Maseru Magistrate Court on September 2007 charged with two counts of abusing her position. She is alleged to have misused public funds between December 2006 and June 2007 in connection with an information technology procurement from Lesotho Telecom. Magistrate Mojela Mothebe ordered her released on bail. ¶7. In an interview on the case, Director of Public Education and Corruption Prevention for the Directorate on Corruption of Economic Offences (DCEO) Mr. Litelu Ramokhoro stated that individuals suspected by his Directorate of crimes are generally arrested before trial only if they are not cooperative. -------------- -------------- High-level Chinese Trade Delegation Visits Lesotho -------------- -------------- ¶8. As a follow on to the 2006 Beijing Summit of the China-Africa Cooperation Forum, a high-level delegation from the People's Republic of China (PRC) led by the Assistant Minister of Trade (the Ministry responsible for Chinese overseas development assistance) visited Lesotho from September 20-22. The stated purpose of Assistant Minister Fu Ziying's visit was to sign three agreements between the Government of Lesotho and the PRC regarding: 1) a grant of 19 million maluti (US$2.8 million); 2) forgiveness of 44 million maluti ($6.4 million) in debt incurred by Lesotho during the PRC's construction of the National Convention Center in Maseru; and 3) the construction of two rural schools funded by a M10 million PRC grant ($1.4 million) signed in 2006. ¶9. During the signing ceremony, Lesotho's Minister of Finance and Development Planning, Timothy Thahane, lauded the expanding relationship between the two countries and noted that the PRC has provided 255 million maluti ($36.4 million) to the GOL through grants and loans. Major projects supported by China in Lesotho include an industrial park in Butha Buthe District, Lesotho's National Library, the expansion of state television and radio coverage (to be completed October 2007),on going assistance for a new Parliament building, food aid, office equipment, and farm supplies including tractors. -------------- "One Stop Shop" to Simplify Trade -------------- ¶10. In recognition of the importance of private sector development and the growth of the export sector due to the African Growth and Opportunity Act (AGOA),the Ministry of Trade and Industry and the Lesotho Revenue Authority (LRA) launched a "one stop shop" facility on September 18 to cut down on the red tape necessary to trade across Lesotho's borders. In his remarks during the launch ceremony, Minister for Trade and Industry Popane Lebesa said the new organization will improve MASERU 00000549 003.2 OF 003 the country's international ranking on the ease and cost of doing business. [COMMENT: According to the International Finance Corporation, Lesotho is number 114 out of 175 countries in terms of the cost and ease of doing business. It takes roughly 92 days to complete the 11 procedures necessary to start a business in Lesotho, and it takes an average of 285 days to complete the 49 steps necessary to enforce a contract. END COMMENT.] The facility will provide integrated services to businesses including export and import coordination and a new simplified and computerized licensing regime. -------------- Promise in the Mining Sector -------------- ¶11. A 494-carat stone, believed to be the world's 18th largest uncut diamond, was unearthed at Letseng Diamond mine in August. The diamond will be sold at auction in Europe in the coming months. Recent developments in the mining sector, particularly at Letseng mine, show a great deal of promise -- promise which is greatly needed in light of the nation's minimal industrial diversity. In the last financial year, diamonds from Letseng generated revenues of 750 million maluti ($107 million),of which Letseng mines paid 57 million maluti ($8.1 million) as royalties to the GOL and 80 million maluti ($11.4 million) as income tax to the Lesotho Revenue Authority. [COMMENT: The Letseng mine is 30% owned by the GOL and 70% owned by South Africa-based private corporation Gem Diamonds. END COMMENT.] NOLAN