According to UNCTAD's World Investment Report 2023, FDI inflows into Lesotho have been declining during the past years. They were negative for the second year in a row in 2022, at USD -8 million (following USD -12 million one year earlier). At the end of the same period, the FDI stock in the country amounted to USD 958 million, around 38.6% of its GDP. The textile industry traditionally attracts most investments and others are expected for hydroelectric facilities. Lesotho's small-scale manufacturing sector is also a recipient of FDI. South Africa, Turkey, Mauritius, and Southeastern Asian countries are the main investors.
Lesotho is open to and eagerly seeking FDI, but recent measures seem to suggest a turn towards economic nationalism (U.S. Department of State): the Trading Enterprises Regulations of 2011 (TER 2011) and the Business Licensing and Registration Regulations of 2020 (BLRR 2020) designate specific businesses exclusively for Basotho ownership, limiting foreign investors to minority shares, capped at 49%. These reserved businesses, totaling 47, include agent services for foreign firms, barber shops, butchers, snack bars, fuel dealers, dairy shops, cafes, greengrocers, brokers, small supermarkets (under 250m²), and hair/beauty salons. While primarily impacting micro and small enterprises, some medium-sized foreign-owned businesses will also be affected. Lesotho's government has recently made significant strides in improving the business landscape through streamlined licensing, registration processes, and utility connections. Moreover, under the Business Licensing and Registration Act 2019 (BLRA 2019), foreign investors must either demonstrate a capital of USD 123,152 or furnish evidence of a USD 123,152 investment during the registration or renewal of their traders' licenses. Alternatively, they can deposit USD 123,152 with a local institution. Diamond mining operations, irrespective of their scale, fall under the large-scale mines licensing system, where foreign ownership faces no limitations. However, the Government retains the prerogative to hold a minimum of 20-35% ownership in such mines. The Ministry of Trade and Industry is mandated by law to impartially screen foreign investments routinely to ensure alignment with national interests. High port authority expenses due to Lesotho's landlocked territory and the relatively low quality of its infrastructure are real constraints to investors. High credit and setup costs, skills mismatches, and gaps in legal and dispute resolution frameworks, insolvency resolution, and property rights continue to inhibit business development (IMF). Lesotho is prone to corruption, and the country ranks 93rd among the 180 economies on the 2023 Corruption Perception Index. It also ranks 133rd out of 184 countries on the latest Index of Economic Freedom.
Lesotho | Sub-Saharan Africa | United States | Germany | |
---|---|---|---|---|
Index of Transaction Transparency* | 3.0 | 5.5 | 7.0 | 5.0 |
Index of Manager’s Responsibility** | 4.0 | 3.5 | 9.0 | 5.0 |
Index of Shareholders’ Power*** | 9.0 | 5.5 | 9.0 | 5.0 |
Source: Doing Business - Latest available data.
Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action.
Foreign Direct Investment | 2020 | 2021 | 2022 |
---|---|---|---|
FDI Inward Flow (million USD) | 28 | -12 | -8 |
FDI Stock (million USD) | 1,129.0 | 1,023.6 | 958.0 |
Number of Greenfield Investments* | 2.0 | 2.0 | 0.0 |
Value of Greenfield Investments (million USD) | 11 | 197 | 0 |
Source: UNCTAD - Latest available data
Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.
Income tax | Progressives rates from 20% to 30% |
From LSL 0 to 64,200 | 20% |
Above LSL 64,200 | 30% |
Lesotho | Sub-Saharan Africa | United States | Germany | |
---|---|---|---|---|
Number of Payments of Taxes per Year | 32.0 | 36.6 | 10.6 | 9.0 |
Time Taken For Administrative Formalities (Hours) | 327.0 | 284.8 | 175.0 | 218.0 |
Total Share of Taxes (% of Profit) | 13.6 | 47.3 | 36.6 | 48.8 |
Source: Doing Business - Latest available data.
Setting Up a Company | Lesotho | Sub-Saharan Africa |
---|---|---|
Procedures (number) | 6.00 | 7.51 |
Time (days) | 15.00 | 21.30 |
Source: Doing Business.
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Latest Update: May 2024