LESOTHO: 2008 COUNTRY COMMERCIAL GUIDE

UNCLAS SECTION 01 OF 10 MASERU 000062

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TAGS: BEXP ECON EINV ETRD BTIO LT
SUBJECT: LESOTHO: 2008 COUNTRY COMMERCIAL GUIDE

REF: STATE 163400

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1. Lesotho 2008 Country Commercial Guide

Chapter 1: Doing Business in Lesotho

The economy of Lesotho, a mountainous southern African nation
completely surrounded by the Republic of South Africa, is based
on agriculture, livestock, light manufacturing, water exports,
earnings from the Southern African Customs Union (SACU),and, to
a decreasing extent, remittances from migrant laborers employed
in South Africa. Lesotho also exports garments, diamonds, wool,
and mohair. Due to its geography, Lesotho is economically
dependent on South Africa in many sectors. The majority of
households subsist on farming or migrant labor.

Mountainous Lesotho is the source of all of neighboring South
Africa's major rivers. The nation's multi-billion-dollar
Lesotho Highlands Water Project (LHWP),which was initiated in
1986, is designed to capture, store, and transfer water from
mountain sources to South Africa's greater Pretoria-Johannesburg
capital region. Completion of the first phase of the project
has made Lesotho nearly self-sufficient in the production of
electricity and generates approximately $24 million annually
from the sale of water (and limited amounts of electricity) to
South Africa. The project was financed by the World Bank, the
African Development Bank, the European Investment Bank, and
other bilateral donors.

Lesotho has taken advantage of the African Growth and
Opportunity Act (AGOA) to become one of the largest exporters of
garments to the U.S. from sub-Saharan Africa. Exports totaled
$443 million in 2007, and employment reached 47,000 workers.
Lesotho's 19 garment factories are primarily owned by East Asian
manufacturing conglomerates.

Lesotho receives economic aid from a variety of sources,
including the United States, numerous United Nations
organizations, the World Bank and other international financial
institutions, Ireland, the European Union, the United Kingdom,
Germany, the People's Republic of China, Japan, various Arab
funds, and several dozen international non-governmental
organizations.

Lesotho has nearly 6,000 kilometers of roads. There is a short
rail line (freight) linking Maseru, Lesotho's capital, with
South Africa. Lesotho is a member of the Southern African
Customs Union (SACU),and as such does not pay tariffs to export
goods to other SACU members (Botswana, Namibia, South Africa,
and Swaziland). With the exception of Botswana, these countries
also form a common currency and exchange control area known as
the Common Monetary Area (CMA). The South African rand can be
used interchangeably with the Lesotho loti, the nation's
currency (plural: maloti). The loti is pegged at a one-one
ration with the South African rand.

Lesotho, classified as a Least Developed Country, suffers from a
serious HIV/AIDS pandemic which has ravaged the country's human
resources, leading to declines in population, standard of
living, and economic potential. The Government of Lesotho and
the international community have engaged in an aggressive
campaign to mitigate the effects of the world's third highest
HIV prevalence rate and to reverse an alarming increase in new
infections. To support these efforts, the United States
coordinates the resources of two presidential initiatives, the
President's Emergency Plan for AIDS Relief (PEPFAR) and the
Millennium Challenge Account (MCA),to implement programming in
prevention, care and treatment, health infrastructure, and human
resources.

National Statistics:

GDP (2007): $1.52 billion
Population (2007): 1.8 million
Annual Growth Rate (2006): 7.2%
Per Capita GNI (2007): $5,926
Average Inflation Rate (2007): 9%
Natural Resources: Water, diamonds, and other minerals
Labor: Lesotho is an exporter of excess labor
Agriculture (2006 est.): 17% of GDP
Agricultural Products: corn, wheat, sorghum, peas, beans, wool,
mohair


General Incentives

The following are Lesotho's current investment incentives
(including incentives available only to companies who coordinate
their investment through the parastatal Lesotho National
Development Corporation):

- Unrestricted repatriation of profits;

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- Grants for employee skills training (up to a maximum of 50
percent of labor costs during the initial training period for a
newly established manufacturing company);
- Unimpeded access to foreign exchange;
- Certain loan guarantees;
- Direct loans from the Lesotho National Development
Corporation (LNDC);
- Equity participation (in selected cases) by the LNDC, in
the absence of a private investor;
- Rebates on imported raw materials or components for use
solely in the processing or manufacturing of goods for the
export market;
- Provision of serviced industrial plots, customized
factories, and commercial and residential properties for lease;
- A free enterprise and free market economic system; and
- No withholding tax on dividends distributed by
manufacturing companies to shareholders

Export Incentives

Lesotho has an "Export Finance Scheme" to enable exporters to
better compete in world markets. The main components of this
mechanism are:

- Credit Guarantee Scheme: Provides LNDC loan guarantees to
exporters' banks;
- Pre-Shipment Credit Scheme: Finances exporters' working
capital needs on the basis of confirmed export orders;
- Post-Shipment Credit Scheme: Provides loans which enable
the exporter to begin a new manufacturing cycle from the day of
shipment until payment from the foreign buyer is received, thus
allowing companies to offer favorable credit terms to their
customers;
- Refinance Arrangement: Grants Central Bank capital to
commercial banks in order to provide exporters with
concessionary export finance; and
- Counter-Guarantee Arrangement: The Central Bank assumes 95
percent of the risk associated with guarantees issued by the
LNDC.

Investment Guarantees

While no investment code exists in Lesotho, the Government of
Lesotho provides incentives to investors through legislation and
the nation's constitution protects the rights of investors.

Lesotho is a signatory to the International Center for
Settlement of Investment Disputes (ICSID) agreement which allows
for foreign investors to gain international jurisdiction in
legal disputes concerning investment in Lesotho. Lesotho is
also a member of the Multilateral Investment Guarantee Agency
(MIGA).

Taxation

As of 2007, the key features of the Lesotho tax system are:

- A corporate tax rate of 25 percent;
- 10 percent tax on manufacturing profit;
- 10 percent tax on farming operations;
- A zero percent corporate tax on income generated from
exporting manufactured goods outside of SACU; and
- A maximum individual tax rate of 35 percent.

The government introduced a Value-Added Tax (VAT) in July 2003
at a uniform rate of 14 percent. Important food items are
exempted from VAT. Double taxation agreements exist with South
Africa, Mauritius, the United States, and the United Kingdom. A
self assessment system was introduced in April 2004 to give
taxpayers the responsibility of assessing their own tax
liabilities and to comply as required.


Chapter 2: Economic and Political Environment

GOVERNMENT AND POLITICAL CONDITIONS

The Lesotho Government is a constitutional monarchy. The Prime
Minister, Pakalitha Mosisili (elected in 2002; re-elected in
2007),is head of government and has executive authority. The
King serves a largely ceremonial function; he has only limited
executive authority and is proscribed from actively
participating in political initiatives.

The Lesotho Congress for Democracy (LCD) controls a majority in
the National Assembly (the lower house of parliament),with the
All Basotho Congress (ABC),the National Independent Party
(NIP),the Basotho National Party (BNP),and the Lesotho Workers
Party (LWP) among the 9 opposition parties represented. The
upper house of parliament, called the Senate, is composed of 22
principal chiefs whose membership is hereditary, and 11

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appointees of the King, acting on the advice of the prime
minister.

The constitution provides for an independent judicial system.
The judiciary is made up of the Court of Appeal, the High Court,
Magistrate's Courts, and traditional courts that exist
predominately in rural areas. All but one of the Justices on
the Court of Appeal are South African jurists. There is no trial
by jury; rather, individual judges make rulings or, in the case
of criminal trials, with two other judges as observers. The
constitution also protects basic civil liberties, including
freedom of speech, association, and the press; freedom of
peaceful assembly; and freedom of religion.

Lesotho held its first post-independence local government
elections in 2005 using a quota system that reserved one-third
of electoral divisions for women candidates. In these elections,
53% of the victorious candidates were women. For administrative
purposes, Lesotho is divided into 10 districts, each headed by a
District Administrator.

Chapter 3: Selling U.S. Products and Services

Foreign manufacturers and exporters are represented in the
market either through their own branch offices or through
authorized agent distributors. Distributors provide technical
support to end users and usually have contractual arrangements
with their principals.

Franchising

Franchising is used to a limited extent in Lesotho, successfully
operating in the sectors of fast food, clothing, office
cleaning, motor vehicle sales and repair, insurance, and fuel.
KFC is the only American franchise currently operating in
Lesotho.

Direct Marketing

Direct marketing is used in Lesotho for the sales of a variety
of products, from insurance to household equipment. Companies
such as Avon, Amway, and HerbaLife have built large businesses
by direct marketing through local distributors.

Joint Venture/Licensing

In Lesotho, a local joint venture partner is often required,
especially in the area of government procurement and tenders.

The Ministry of Trade and Industry operates as a "one-stop shop"
for investors and, in 2007, reduced bureaucratic procedures to
apply for required permits and licenses prior to foreign
investment in Lesotho. The Lesotho National Development
Corporation also plays a facilitating role for foreign investors
by providing information to prospective investors, arranging
site visits, and assisting with permits and licenses as well as
certain operational problems.

To open a local office of a foreign company in Lesotho, a firm
must first establish itself as a legal entity by registering
with proper authorities: the Ministry of Trade and Industry, the
Ministry of Labor and Employment, and the Department of
Immigration within the Ministry of Home Affairs. The following
documents should be submitted: 1) a letter of the company's
intent to begin operations in Lesotho; 2) a letter appointing
the company's official in-country representative; 3) the c.v. of
the company's in-country representative; and 4) the work permit
and identity documents of the company's representative. These
documents should be submitted to the following address:

Commissioner of Trade
Ministry of Trade and Industry
P.O. Box 747, Maseru -100
Tel: (266) 22-317-454

Representative offices in construction, engineering, or related
consulting are fields required to register with the Ministry of
Public Works. Foreign firms may fully participate in government
procurement. Government procurement rules do not give Lesotho
nationals preference in bids for goods and services contracts.
However, the Ministry of Trade encourages joint ventures.
Lesotho is not a signatory to the WTO Agreement on Government
Procurement.

Advertising

Advertising through local media, including weekly newspapers and
other periodicals, is recommended for introducing a new product.
Television advertising has grown rapidly and now outstrips
print advertising in cost, although target audiences are limited
to urban areas. Electronic commerce is not widely used, but the

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Ministry of Communications has developed proposals for it to be
more widely developed.

Pricing

U.S. firms may conduct their own market research to ascertain
consumer preferences, cost of delivery, and preferred methods of
distribution and advertising. Produce prices are best developed
with advice from the local distributors who are generally well
attuned to the competitive factors at play in specific markets.

Protecting Intellectual Property Rights

Lesotho's Industrial Property Order (1989),Copyright Order
(1989),and Industrial Property Regulations (1989) are the
nation's legal foundation for the protection of intellectual
property rights. Patents are valid for 15 years from the
application date, but have rarely been issued in Lesotho.
Trademark protection, however, is widely sought and granted.
Lesotho is a member of WIPO and the African Regional
Intellectual Property Organization (AIPO). The law protects
patents, industrial designs, trademarks, and copyrights. There
is no apparent enforcement of intellectual property laws with
regards to copyrighted music or films.


Chapter 4: Leading Sectors for U.S. Exports and Investment

According to the Lesotho National Development Corporation
(LNDC),Lesotho's lead sectors for investment and export, and
their appropriate codes, are as follows:

HS2-61: Articles of apparel and clothing accessories, knitted
or crocheted
HS2-62: Articles of apparel and clothing accessories, not
knitted
HS2-XX: Diamonds
HS2-60: Iron and steel
HS2-90: Electrical machinery and equipment and parts, sound
recorders and reproducers, television recorders and reproducers,
parts and accessories

HS2-XX: Knitted or crocheted fabrics
HS2-XX: Optical photographic, cinematographic, measuring,
checking precision, medical or surgical instruments and
apparatus parts and accessories
HS2-XX: Plastics and articles
HS2-XX: Wool and fine or coarse animal hair including yarns and
woven fabrics
HS2-68: Articles of stone plaster cement asbestos, mica or
similar materials

Lesotho's exports changed significantly in 2004 due to
reinvigoration of the diamond mining sector. By the end of
2006, the sector generated exports worth $90 million,
positioning it second behind the textile industry in terms of
importance for the country's export base. Three mines are
currently operational: Letseng, Liqhobong, and Kao. A further
two mines are expected to open in the coming years. Letseng
diamond mine is expected to generate revenues of approximately
$40 million a year.

Textile sector growth was 1.3% in 2006 after a decline of 8% in
2005 in the wake of the expiration of the Multifibre Agreement.
In 2006, exports were roughly at $387 million, as compared to
$391 million in 2005 and a peak of $456 in 2004. Lesotho's
small but expanding tourism sector is also viewed as a potential
destination for foreign investment. Other potential industries
include consumer electronics, leather goods, toys, plastics, and
sporting goods.


Chapter 5: Trade Regulations, Customs and Standards

Lesotho applies the SACU common external tariff. Additional
charges include customs clearing fees ranging from $130 to $175
per shipment. Lesotho also enforces an import permit system for
all imports from non-SACU member-state companies. This system
is applicable to all consignments imported by individual
consumers or investors. Manufacturers are accorded preferential
treatment, however, and granted blanket import rights for a
period of 12 months and an additional grace period of three
months.

The agricultural sector benefited from structural reforms in
recent years, including removal of price subsidies and import
controls on maize and wheat. The Agricultural Marketing Act
controls the importation of bread, legumes, sugar, eggs, meat,
dairy products, fruits, and vegetables.

With the exception of eggs, sugar, and legumes, import

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restrictions include provisions allowing for small consumer
purchases made outside the country. The Department of
Marketing, under the Ministry of Trade and Industry, monitors
the level of production of these commodities and issues import
licenses in the event of short supply. National production does
not meet local demand in most sectors, and as result, import
permits are routinely issued. Non-automatic licenses are
necessary to import used clothing.

Membership in Free Trade Agreements

Lesotho is a party to the SACU-EU Free Trade Agreement, the
Africa Caribbean and Pacific-European Union (ACP-EU) Agreement,
and the Cotonou Trade Agreement. Lesotho is also a member of
the World Trade Organization.

STANDARDS

Lesotho does not have a national standards body. The Standards
and Quality Assurance Section of the Ministry of Trade and
Industry functions as a focal point for standards and quality
assurance issues. No national standards have been developed to
date. Industries in Lesotho have traditionally relied upon the
South African Bureau of Standards for voluntary standards
facilities and quality assurance mechanisms. Local exporters
have developed their standards in accordance to technical
quality requirements of importing countries and international
standards.

Lesotho participates in a SADC regional program on
standardization, quality, and accreditation. The program aims
to harmonize standards across member states.


Chapter 6: Investment Climate Statement

Openness to Foreign Investment
--------------

Lesotho is open to foreign direct investment (FDI) and generally
treats foreign investors favorably. However, Lesotho's legal
framework with regards to FDI is not well developed, and thus
problems exist with regards to transparency and consistent
application of the law. Lesotho has found success in attracting
FDI to its export sector. Foreign investors in the apparel and
footwear industries have created new jobs and contributed to
poverty reduction. Current business taxation and regulation
provisions only partially address investor needs, and the
Government of Lesotho (GOL) is under pressure to update relevant
laws affecting investors in various sectors.

Ninety percent of FDI in Lesotho flows into export-oriented
manufacturing, a sector stimulated largely by the U.S. African
Growth and Opportunity Act (AGOA). This FDI created an apparel
sector which now provides over 40,000 jobs. The single largest
investment is believed to the US$90 million capital
infrastructure investment of Nien Hsing Group in Taiwan.
Foreign firms in Lesotho concentrate their production on a
narrow range of products, such as knit apparel and blue jeans.
Foreign companies also invested smaller amounts in footwear
production, electronics components assembly, food processing,
and miscellaneous small-scale manufacturing.

Lesotho's telecommunications sector has also attracted FDI. An
international consortium composed of ESKOM Zimbabwe's Econet
Wireless International and Mauritius Telecom owns 70% of Telecom
Lesotho. Lesotho has a relatively high penetration of telephone
connectivity relative to its low per capita income.
Communications services have been extensively modernized and
expanded over recent years, although significant portions of
mountainous rural Lesotho remain without such services.

FDI in air transportation has not been successful. The
parastatal Lesotho Airways closed in 1997 due to its inability
to attract FDI. Air routes to and from Maseru are now handled
exclusively by South African Airways, and are limited to the
Maseru-Johannesburg route. Foreign investors have not
contributed significant capital in the tourism sector, including
activities aimed at protecting the natural environment and
ecological attractions.

FDI in the mining sector has experienced a revival through the
reopening in 2004 of Lets'eng Diamonds, a partnership between a
South African-owned company and the Lesotho Government. The
mine in the northeast Lesotho district of Makhotlong employs
about 50 people, most of whom are Basotho nationals. A European
mining company and the GOL jointly operate another diamond mine
in Liqhobong, as well as the Kao kimberlite pipe in the northern
district of Butha Buthe. South African companies are currently
prospecting the Kolo mine in southern Lesotho. In its attempt
to attract FDI in the mining sector, the GOL offers a number of

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concessions to foreign investors including VAT exemptions on
inputs used during construction and withholding tax exemptions
on dividends and interests payments. In return, the Government
of Lesotho is granted an eight percent royalty on gross diamond
sales, a 12.5% equity interest in joint ventures with foreign
companies, and a 12.5% share of dividends. Major diamond finds
in 2006 and 2007 generated worldwide media coverage.

The Origin of Foreign Investors

Lesotho's apparel sector is entirely East Asian and South
African-owned, and currently employs approximately 40,000
people. Two factories are under Taiwanese ownership, two are
owned by Hong Kong concerns, one is Singapore-owned, and eight
are owned by South African firms. The rest of the approximately
19 factories are owned by PRC investors. None are under local
ownership. South African FDI is present in footwear factories,
four electronics firms, the Sun Hotel chain, air transportation,
insurance, telecommunications, financial services, and mining.
FDI from other countries includes Canadian mining interests and
U.S. and Chinese investment in food processing industries.

Lesotho's success in attracting FDI has been limited largely to
export-oriented manufacturing. No foreign ownership at any
level, including positions on boards of directors, is permitted
in reserved trading license businesses (i.e., small scale retail
and services operations). The restrictions on foreign
involvement in small scale services provision and manufacturing
are perceived as instruments of immigration control, as there is
a great deal of political sensitivity regarding small business
owners from Asia. Many trading businesses and all medium to
large manufacturing businesses are open to FDI. Nevertheless, a
relevant trading or industry license is required and must be
renewed annually.

Generally, foreign investors are treated equally with domestic
investors. One significant exception is a prohibition on
foreigners holding land lease titles (land may not be purchased
in Lesotho, as all land is officially owned by the crown).
Lesotho has no legal provisions discriminating among various FDI
source countries. Lesotho's membership in SADC does not lead to
preferential treatment for investors from other SADC countries.
Lesotho's standards of foreign investment protection are good in
practice, but the legal framework guaranteeing these norms is
weak. For example, there is no foreign investment law, and
Bilateral Investment Treaties (BITs) have been concluded with
only two countries -- the United Kingdom (1981) and Germany
(1985).


Conversion and Transfer Policies
--------------

Lesotho uses traditional foreign exchange controls, though its
participation in the Southern Africa Common Monetary Area (CMA)
restricts the independence of its monetary policy. The CMA
includes Lesotho, Namibia, South Africa, and Swaziland. Under
the CMA, the South African rand, alongside the Lesotho loti, is
legal tender in Lesotho. Under CMA rules, the loti must be
exchanged at a one/one ratio with the rand, and the rand/loti
peg must be maintained with reserves in rand and other foreign
exchange. There are no exchange controls between Lesotho and
South Africa, but CMA members agree to enforce exchange controls
with third parties.

The Government of Lesotho delegates authority to commercial
banks to undertake current account transactions, and Lesotho has
acceded to Article VIII of the International Monetary Fund.
However, dividend payments still require the Central Bank
approval. The Central Bank of Lesotho (CBL) maintains direct
powers of approval over foreign exchange requirements for all
capital account transactions including FDI, capital
disinvestment, and contracting and servicing offshore debt.
There has never been a case of CBL blockage of such transfers.
Lesotho is a member of the Southern African Common Policy on
approval of foreign loans. However, policies on foreign
borrowing are not strongly developed as there is insufficient
foreign borrowing by resident businesses.


Expropriation and Compensation
--------------

Lesotho's constitution states that the acquisition of private
property by the state can only occur for specified public
purposes and in exchange for full and prompt compensation. Any
party subject to such expropriation has the right to appeal the
action or the compensation offered to the nation's High Court.
The constitution does not address whether compensation may be
paid abroad in the case of a non-resident. Under existing
constitutional provisions, several mining companies filed a case

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in 1999 against the Lesotho Water Highlands Project and its
financiers alleging that their mineral lease rights were
unlawfully expropriated without compensation when a new dam
flooded a potential mining area. Lesotho's courts found in
favor of the Lesotho Highlands Water Project and its financiers,
stating that all proper regulations and notifications were
followed prior to the dam construction.


Dispute Settlement
--------------

Foreign investors have full and equal recourse to Lesotho's
courts to settle commercial and labor disputes. The nation's
courts are regarded as fair and impartial in cases involving
foreign investors. In complex commercial cases, overseas judges
may be invited to the bench. Under Lesotho's BIT agreement with
United Kingdom, an investor may take a dispute with the
Government of Lesotho to international arbitration, but the BIT
agreement with Germany does not address this issue. Lesotho is
member of the Multilateral Investment Guarantee Agency (MIGA)
and has acceded to the Convention on Settlement of Investment
Disputes between States and Nationals of Other States.


Performance Requirements
--------------

There are no blanket incentives specifically for foreign
investors and no performance requirements imposed exclusively on
foreign investors as a condition of investment. The principal
business taxes in Lesotho are income tax, customs fees, excise
duties, and value added tax. Corporate income taxes heavily
favor investment in manufacturing, as income is taxed at zero
percent and there is no withholding tax on dividends paid to
non-residents. Income in all other sectors is taxed at 35%, and
there is a further 25% withholding tax on non-resident
dividends. Moreover, only industrial buildings qualify for
depreciation allowances. Buildings for services, tourism, and
farming are not depreciable. Also, infrastructure such as land
improvements and site services do not qualify.


Right to Private Ownership and Establishment
--------------

Foreign entities have the right to establish enterprises in
Lesotho, but many types of new businesses require specialized
licenses (see section A.8. below). Lesotho has no competition
law or overall competition regulator. Instead, under the
industrial and trading licensing system, a business can apply
for protection from competition for up to 10 years.


Protection of Property Rights
--------------

As discussed in the sections on intellectual property rights and
expropriation/compensation, Lesotho generally respects private
property rights. Lesotho's constitution forbids the deprivation
of private property from individuals and businesses without
proper legal proceedings.


Transparency of the Regulatory System
--------------

The judicial system is fair and competent in commercial matters.
The government is willing to supplement the bench with foreign
judges in cases requiring specialized expertise. Generally,
there is adequate regard for contracts with foreign parties and
equal treatment of foreign investors before the courts in
disputes with national parties or the government.

Corporate law is based on the Companies Act of 1967 which
provides reasonable standards for corporate behavior. However,
it has been criticized as both incomplete and overly complex.
Technical improvements were incorporated in a 1998 draft of a
revised law, though it was never passed by parliament.

The regulatory framework for utilities is modern, while many
analysts judge mining regulations to be outdated. Lesotho's
current mining legislation gives the authority to grant land
rights to the King and traditional chiefs upon the
recommendation of a Mining Board, rather than to a government
ministry. Financial services regulation is sufficient.
However, the industrial and trading license system, which
requires licenses for 44 types of business, has over the years
lost its original purpose of protecting new firms from
competition. Some enterprises can require up to four licenses
for legal operation.

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The Lesotho Telecommunications Authority (LTA) acts as an
independent regulator of the telecom industry. The LTA sets the
conditions for the entry of new competitive operators, although
it maintains Lesotho Telecom's monopoly on fixed line and
international services.

Current banking regulations do not grant the Central Bank of
Lesotho power to direct interest rates, exchange rates, margins,
or the range of services offered by banks operating in Lesotho.
This is due to the currency peg with the South African rand,
which relinquishes Lesotho's leverage with regards to monetary
policy and also creates a lower political risk environment for
banking investment.


Efficient Capital Markets and Portfolio Investment
-------------- --------------

Lesotho hosts three foreign-owned banks: First National Bank,
Ned Bank, and Standard Bank (the latter bought a 70% share in
state-owned Lesotho Bank). The financial base of these banks is
sound, as they are supported by foreign-based capital.
Judgments as to the market-orientation of credit provision by
these banks are difficult as very little credit is extended to
local consumers. Industrial and commercial credit is provided
by the parastatal Lesotho National Development Corporation
(LNDC). The LNDC's mandate is to promote and facilitate foreign
investment.


Political Violence
--------------

Rioting and violence associated with an attempted coup d'etat in
1998 still cast a shadow over today's investment environment.
The country has made considerable strides in the intervening
decade to consolidate and strengthen democracy, but there is
room for improving investors' confidence. Following a free and
peaceful February 2007 general election, Lesotho experienced
several civil disturbances and general strikes associated with a
political impasse over the allocation of parliamentary seats.
In the wake of June 2007 attacks by unknown gunmen on the
residences of prominent government and political leaders, the
Government of Lesotho imposed a two week long dusk until dawn
curfew in Maseru. Political tensions between governing and
opposition parties continue, but the national political
atmosphere is generally calm.


Corruption
--------------

Investors reported that corruption is not a significant factor
affecting their investments. Anti-corruption legislation passed
in 1999 was implemented through the creation of an autonomous
anti-corruption unit, the Directorate on Crime and Economic
Offenses (DCEO). The Government of Lesotho actively prosecutes
corruption cases at various levels of authority, including
recent cases against the former Principal Secretary of Justice
and Constitutional Affairs, a former Deputy Commissioner of
Police, and various foreign and domestic parties engaged in the
Lesotho Highlands Water Project. According to independent
indicators used by the Millennium Challenge Corporation, Lesotho
scores among the top nations in its economic peer group with
regards to the control of corruption.


OPIC Insurance Program
--------------

The Overseas Private Investment Corporation (OPIC) insures one
American investment in Lesotho, Seaboard Corporation's joint
venture with Lesotho Flour Mills, which began operations in 1998
and currently employs approximately three hundred people. This
is OPIC's sole current activity in Lesotho.


Labor
--------------

Lesotho's employers operate under the Labor Code Order of 1992
which regulates terms of employment and requirements for worker
health, safety, and welfare. It was amended in 2004 to address
HIV/AIDS policies in the workplace. Unionization is permitted.
The law created an independent Directorate of Industrial Dispute
Prevention and Resolution. Statutory minimum wages are set
annually by the Ministry of Labor and Employment in accordance
with recommendations from a Wages Advisory Board including
worker, management, and government representatives. In 2001,
Lesotho ratified ILO Convention 182 on the Prohibition and

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Elimination of the Worst Forms of Child Labor and Convention 138
on Minimum Age of Employment.

The Labor Code Order of 1992 requires every non-citizen employee
or self-employed person to have a valid work permit. A work
permit is issued by the Labor Commissioner who, by regulation,
must be satisfied that no qualified Lesotho citizen is available
for the position. The statutory maximum duration of a work
permit is two years.


Foreign Direct Investment Statistics
--------------

Lesotho's FDI statistics since 2004 are estimated as follows:
(currency figures are in millions)



Year 2004 2005 2006 2007

FDI Stock
in Maloti 343.68 364.37 623.00 745.03

FDI Stock
in $ 49.09 52.05 89.00 106.43

FDI as %
of GDP 0.03 0.04 0.06 0.07

GDP Purchasers'
Prices in $ 1419.85 1438.94 1445.71 1481.89


Source: FDI stock data from the Central Bank of Lesotho, GDP
data from the Bureau of Statistics Website (National Accounts)

Lesotho's FDI data is incomplete and does not currently meet the
needs of policy makers. The Central Bank estimates FDI using
information received from Lesotho National Development
Corporation (LNDC) and, as such, the data sometimes include
planned (not actual) projects, leading to possible
overestimation. This data does not capture the reinvestment
element of FDI inflows. By confining this data to initial
equity investments, the figures ignore later investments
financed by retained earnings from foreign companies already in
Lesotho. This could lead to an underestimation of FDI volume.


Chapter 7: Trade and Project Financing

Banking System

Lesotho's banking system is essentially foreign owned by South
African Banks (Standard Bank, NedBank, and First National Bank).
Lesotho's banks are supervised by the Central Bank of Lesotho
through the Financial Institution Act of 1999. Local currency
accounts for individuals can be opened with any bank through the
presentation of a valid identity document. For the opening of
business accounts, applicants must submit an application letter
with copies of authorized signatures.

Due to Lesotho's currency peg with the South African rand,
Lesotho's banking regulations do not give the nation's Central
Bank power to direct interest rates, exchange rate margins, or
the spread of services offered by banks. Lesotho partially
liberalized capital account transactions in 2003, and abolished
current account controls in 1993. There are no credit rating
agencies in the country, but Fitch Credit Rating has given
Lesotho sovereign credit ratings for the last three years, which
is currently "B" for the nation's short term issuer default
rating.

Project Financing

Multilateral financial institutions such as the World Bank, the
African Development Bank, the European Union, the Kuwait Fund,
the Saudi Fund, and BADEA all lend capital to Lesotho for
infrastructural development. In addition, in 2007 Lesotho
signed a compact agreement with the USG-financed Millennium
Challenge Corporation for a $362.5 million grant for investment
in water, health, and private sector infrastructure.


Chapter 8: Business Travel

All U.S. citizens traveling to Lesotho are urged to visit the
Embassy's website (http://maseru.state.gov) for the latest
travel information. Basotho traveling to the United States
require visas and must schedule an appointment and complete a
visa application form online and personally present themselves

MASERU 00000062 010.2 OF 010


for an interview at the U.S. Embassy in Maseru. All visa
applications must be completed online. For more information,
please visit U.S. Embassy Maseru's consular information website
(http://maseru.usembassy.gov/visa_services.ht ml).

Business Custom

Business meetings in Lesotho are normally held in offices rather
than over meals, although there are occasionally one-hour
breakfast or lunch meetings. Business attire is similar that in
the United States. It is advised to reconfirm appointments as
delays are common. Meetings are generally conducted in English.
Most businesses are open Monday through Friday and close for
lunch between 1:00 p.m. and 2:00 p.m. Business cards are an
important feature of the professional environment.

The time difference between Lesotho and United States is seven
hours during daylight savings time in the U.S., six hours during
the rest of the year. The currency unit is loti or the South
African rand, and the average exchange rate for the current
period is 1 USD = 7 Maloti/Rand. Lesotho uses metric system for
weight, volume, and length measurements.

Chapter 9: Contacts Market Research and Trade Events

No large trade shows are currently planned in Lesotho for 2008.
The Government of Lesotho's primary contact for market research
is Mr. K. Cekwane, Director of the Marketing Division of
Lesotho's Ministry of Trade and Industry (telephone:
+266-22-31-7454).

Chapter 10: Guide to Our Services

Commercial Advocacy

The U.S. Embassy's Economic Section provides commercial advocacy
to U.S. firms intending to do business in Lesotho. Primarily,
this involves scheduling meetings with potential business
agents, partners, and government officials and performing
limited research in areas of interest. The Economic Section
also liaises with American firms in specific
development-oriented sectors to assist in identifying trade
opportunities with local partners.
NOLAN