HAVE A SHARE OF THE HIGHER GROUND

INVESTMENT

OPPORTUNITIES IN

LESOTHO

INVESTMENT OPPORTUNITIES IN LESOTHO

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PROFILE OF LESOTHO

Lesotho is a democratic, sovereign and independent country which is located within Southern Africa. It is a landlocked country entirely surrounded by RSA. The name Lesotho translates into “the land of the people who speak Sotho”. Formerly a British protectorate until she gained independence in October 1966, the Kingdom of Lesotho is one of the three remaining monarchies in Africa. The country has a land area of approximately 30 355 km², roughly the size of Bel-gium or Taiwan, or the American state of Maryland. Located at the southern tip of Africa, Lesotho is completely outside the tropics and enjoys a cool, temperate cli-mate. Often referred to as the “Switzerland of Africa”, it is blessed with a beauti-ful, often snow-capped range of mountains, the Maluti. The Kingdom’s central posi-tion in the heart of Africa’s most developed economy, that of South Africa, is well served by air, rail and road links to all its major centres. The capital, Maseru, is only 600 km away from South Africa’s busiest harbour, Dur-ban, and is one-hour drive from Bloemfontein, a judicial and academic centre. It is also only 45 minutes by air or four hours by road from Johannesburg, in the Republic of South Africa. Is well served by air, rail and road links to the latter’s major cities. The Kingdom is home to the largest and most ambitious civil engineering project in the whole of Africa, the Lesotho Highlands Water Project (LHWP), which has har-nessed and commercialised her upstream surplus water resources – often referred to by Basotho as their “White Gold”.

BASIC FACTS ABOUT LESOTHO

Size: 30 335 sq. km Altitude: Lowest 1 388m (above sea level) Highest 3 400m (above sea level) Capital city: Maseru Population Country: 2 million (2009 est) Population (Maseru): 393,000 Languages : Sesotho & English Monetary Unit : Loti, plural Maloti; at par with South African Rand (ZAR) Measuring System: Metric system Exchange Rate: M8,27 = 1 US$ (2009 average) G.D.P. Growth: 1.4% (2009)

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WHY INVEST IN LESOTHO? Lesotho offers investors a dynamic and business environment complemented by a healthy Government administered incentive regime which includes: Stability A stable social and political environment which is investor friendly. A free enterprise and free market economic system, which forms the basis for sustained development and growth. Labour Young, abundant, predominantly English speaking, literate, well motivated Labour force with a tradition of manual dexterity at competitive wage rates. Market access • Lesotho is part of the Southern African Customs Union (SACU) comprising Botswana, Lesotho, Namibia, Swaziland and South Africa. There are about 52 million consumers in the region. • Duty free and quota free access provided by the regional trade and investment block of the Southern African Development Community (SADC). • Preferential market access of Lesotho originating products into the Australian market, affording them duty free access or reduced rates of duty. • Duty free access for a large list of products except for dairy, poultry and egg products granted by Canada under the GSP system. • A preferential treatment agreement between SACU and MERCOSUR (comprising of Argentina, Brazil, Paraguay, and Uruguay,) grants trade preferences on specific products originating from Lesotho as member of SACU. • The SACU EFTA gives SACU originating industrial and fish products duty free and quota free access to Switzerland, Norway, Iceland and Liechtenstein. • Lesotho can also export all products to the European Union duty free provided under SACU EPA Agreement. • 99% of Lesotho’s industrial products, including textiles and clothing can be exported duty and quota free to Japan. • Lesotho’s products are eligible to duty free access to New Zealand and Turkey under a GSP scheme • Lesotho benefits from the lucrative American market provided by the African Growth Opportunity Growth (AGOA).

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Tax incentives

• 0% corporate tax on manufacturing profit generated from exporting manufactured goods outside of the Southern Afri-can Customs Union (SACU).

• A maximum manufacturing corporate tax rate of 10% on prof-its for intra-SACU trade.

• No withholding tax on dividends distributed by manufacturing firms to local or foreign shareholders.

• No advanced corporation taxes are paid by companies on the distribution of manufacturing profits.

• Training costs are allowable at 125% for tax purposes. • Payments made in respect of external management skills and

royalties related to manufacturing operations are subject to withholding tax of 10%.

• Easy repatriation of manufacturing profits. • A VAT rate of 14% (ensuring harmonisation with the RSA).

Furthermore, the Lesotho Revenue Authority has introduced flexible VAT payment systems, to tax compliant firms, to ease cash flows

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1. Investment opportunities in knitted fabric mill, accessories and Packaging materials

Lesotho’s garment sector produces approximately 90 knitted garments and 26 million pairs of jeans annually. There is therefore need to ensure local access to all the raw materials and accessories required by the garment sector in order to satisfy the international market access conditions de-mand for a fully integrated garment industry,. An opportunity, therefore, exists for investment in knitted fabric mills, trims and finishing facilities.

2. Leather and footwear

The leather industry in Lesotho is at its infancy stage. The country has 3 shoe manufacturing factories despite the fact that shoes qualified for all the benefits under AGOA. The 3 firms produce mainly for export while a large share of the domestic market has to rely on imports from South Af-rica. Foreign direct investment in this sector would give a boost to the leather industry particularly in tanning and finishing, footwear and foot-wear components, leather garments, leather goods including bags, car seat covers, wallets, belts, gloves and other accessories.

3. Assembly of consumer electrical and electronic appliances The country boasts a pool of labour resource which includes people who have graduated with different technical diplomas. The knowledge and skills acquired will enable them to work on subassemblies or the final assembly of an array of finished electrical and electronic products or components. Opportunities exist in the production of a wide range of finished goods from manufactured parts or subassemblies. These could involve assembly of intricate manufactured products, such as engines, computers, electrical and electronic components, radio or test equipment, machine-tool controls, and prototypes of different types of products to meet the domestic and international markets. Currently Lesotho hosts 4 companies in electronic, electrical accessories and electrical assembly. They supply the SACU mar-ket competently.

4. Food processing Opportunities also exist in processing of organic, fortified foods and grain. Historically, processing of fruit and vegetables in its simplest form like pickling, sun drying or making preserves was practised in the country from very ancient times in almost every home. The practice has been abandoned with the result that these products are now being imported.

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As such there is a market for these products locally and internationally.

In the case of canned foods, a Cannery already exists which produces mostly for the EU market and operates for seven months per annum, from September to March of the following year. During the asparagus, apricots and peaches off season, the Cannery processes juices from the peaches purity and also processes vegetable salad. Through an improved supply chain management and additions of more product lines, the facility can operate at full capacity for nine months per annum. Therefore, there is potential to expand the facility.

5. Water bottling

Lesotho’s major natural resource is water, often referred to as ‘White Gold’ by the Basotho people. The water is considered one of the most pure in the world with very little microbiological and chemical contamination which does not require intensive treatment. Many natural springs of Lesotho flow year round. They are fed by renew-able groundwater reserves recharged by rainfall and cleaned by the natural environmental system with little or no anthropogenic influence. The waters from most of these springs are physically, chemically and biologically clean/acceptable and are sparkling, cool and refreshing. The country has about 137 documented springs and 6 springs are within close proximity of Maseru the capital town. The 6 springs have an average yield of 0.5 litres of water per second which is low in concentration of mi-cro organisms and chemical pollutants. There are also a total of 90 docu-mented boreholes countrywide.

Bottled water is also considered a food product internationally, thus in-vestment in water bottling would have the benefit of creating a positive impact on public health in the region by providing safe drinking water for areas with poor water supply.

6. Accessories and Packaging Materials

Lesotho’s garment industry produces approximately 90 million knitted gar-ments and 26 million pairs of jeans a year. It is estimated that 220 metric tons of knitted trims and accessories such as collars, ribbed cuffs and hems are used by the garment industry per annum. In addition, over 20 million pieces of packaging materials are consumed by the industry per annum.

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Knitwear and jeans manufacturers in Lesotho manufacture large volumes of clothing mainly for the US market, which require a lot of finishing accesso-ries and packaging materials. All accessories and most of the packaging materials are imported into Lesotho. Thus opportunities exist in the manufacture of accessories and packaging material to different customer specifications, especially in materials which will provide a complete range of packaging products for the local and ex-port markets.

7. Resources-based projects. e.g. ceramic ware, brick making and sand-

stone Sandstone deposits are found all over Lesotho and can be exported in dif-ferent forms and thicknesses. The whole industry is in the hands of small artisans with limited investment capabilities. In Lesotho, sandstone is extensively used in the construction of residential houses, office buildings, commercial complexes, hotels, restaurants and special monuments. Artifacts made of sandstone have become popular. The present demand is to make such carvings in the best possible manner with man and machines. However, for large scale production, mechanization is required to some extent.

The demand for sandstone slabs and tiles as well as veneering stones has been increasing every day and different applications, in different designs, are being made. The main advantage of using these stones has been that they require negligible maintenance. It is hoped that with additional capital that could be brought in by joint venture partners and proper marketing it would be possible that the export market of natural and calibrated sand-stone shall also increase.

Joint venture partnerships are encouraged with local companies which can-not only create value addition, but also generate employment and earn for-eign exchange for the country, while reviving the talent of artisans in a significant manner.

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8. Environmental projects. e.g. Waste recycling The textile industry includes dyeing, finishing, and printing, and final cut-ting into garments, and fabrics, etc. These include products such as cotton, flax, rayon, nylon, acrylic, polyurethane and others. The primary environ-mental aspects of the textiles industry involve water use and wastewater discharge from washing, chemical use in dyeing and finishing, and manage-ment of scrap and solid waste. There are many low-cost improvements possible at every stage in the tex-tile production life cycle. Therefore, investment opportunities exist which will include process measurement and control, water recycling, chemical substitution and reduction, energy efficiency, and new product develop-ment using waste materials.

9. Development of infrastructure

Further opportunities exist in developing commercial and industrial proper-ties on LNDC sites: 37m² of serviced land at Tikoe industrial estate situated in Maseru is available for lease and further factory shells construction 31 hectares Nyenye industrial area which is 80km North of Maseru 140 hectares tourist attraction site at Caledonspoort for the develo -pment of an eco-lodge. 9,400 m² Clifford commercial site 7160 m² Fairways commercial site

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THE LESOTHO ECONOMY

Exports trend (million Maloti)

Year 2004 2005 2006 2007 2008 2009 Manufacturing Exports 1064 987.9 1129 1218 1215 1228.6* Total Exports 4522 4255 5141 6106 6942 5093* Destination of Exports

Year 2004 2005 2006 2007 2008 2009 % % % % % % SACU 14 17 24 27 38* 42.8 North America 70 63 60 48 35* 36.6 Europe 15 17 13 21 24* 19 GDP Composition by industry Primary: 15.9% Secondary: 45.4% Tertiary: 37.8% (The manufacturing sector accounts for 17.2% of the country’s GDP)

WHAT LNDC CAN DO FOR YOU

LNDC is the first point of contact for investors who intend to set up projects in the manufacturing and processing industries in Lesotho. The Corporation’s mandate is to initiate, promote and facilitate the development of manufacturing and processing industries, mining and commerce in a manner calculated to raise the level of income and employment in Lesotho. Investment promotion and industrial development The Lesotho National Development Corporation (LNDC) is a development institution created by an Act of Parliament. It is a statutory body and a quasi Government institution which seeks to facilitate economic growth and development in Lesotho.

Lesotho national development Corporatio Private Bag A96, Maseru 100, Lesotho Tel: (+266) 22 312 012. Fax: (+266) 22 310 038. info@lndc.org.ls Website: www.lndc.org.ls

INVESTMENT OPPORTUNITIES

IN LESOTHO

SERVICES OFFERED BY LNDC

The LNDC offers a host of supportive services which include the following:

• Serviced industrial and commercial sites at com-petitive rentals.

• Provision of industrial and commercial buildings at competitive rentals;

• Financial assistance to investors on a selective basis;

• Investment facilitation services; • Assistance to procure all permits and licenses; • Provides assistance in company registration; • Provides assistance in industrial relations issues; • Undertakes investment projects appraisals;