Doing Business in Lesotho
Lesotho has diamond mines that produce some of the world's most remarkable white diamonds including the 478 carat D color white, Light of Letšeng, which sold in the difficult market conditions prevailing at the end of November 2008, for US$18.4 million. Lesotho is one of the top ten exporters to the United States under AGOA. In 2008, the United States was estimated to be the second largest destination of Lesotho‟s total exports (35.4%), after African countries (39.8%), and it is followed by the European Union (24.4%).
Key features of the Lesotho tax system are as follows:
A company tax rate of 25 percent; 10 percent tax on manufacturing profit; 10 percent tax on farming operations; A zero percent company tax on income generated from exporting manufactured goods outside of the Customs Union, a maximum individual tax rate of 35 percent and;
A Value-Added Tax (VAT) rate of 14 percent. Double taxation agreements exist with South Africa, Mauritius, the United States of America, and the United Kingdom. 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 loti, the Lesotho currency. The loti is pegged to the South African rand. Lesotho is also a member of the Southern Africa Development Community (SADC). The SADC free trade area (FTA) became effective in August 2008, eliminating tariff and non-tariff barriers to trade between the SADC member states. Through this FTA, U.S. exporters and investors will gain easier access to the regional market. SADC also has signed an economic partnership agreement with the European Union, giving Lesotho duty and quota free access to the European market for its products.
Market Challenges
Lesotho is a small, landlocked, least developed country and its main market challenges are:
- Undiversified industrial base: economic growth and exports depend on a manufacturing sector that is nearly entirely driven by the export-oriented apparel industry. However, the industry could relocate easily should the trade privileges (such as those extended through the African Growth and Opportunity Act) erode. The challenge for Lesotho is to attract more Foreign Direct Investment (FDI) in order to diversify its economy and reduce its dependence on this single activity. The country must develop competitiveness in FDI in the manufacturing sector and improve access to international markets.
- The high prevalence rate of HIV/AIDS is affecting the labor force and other areas of business.
- Unemployment remains high, and the lack of job creation is a key structural problem.
- Physical and financial infrastructure is under-developed.
