A DELEGATION of government officials and business executives led by Deputy Prime Minister Mothetjoa Metsing toured the United Kingdom this past week to solicit for investment into Lesotho. Lesotho is in dire need of foreign direct investment to stimulate economic growth and create jobs.
Ahead of the trip, Trade and Industry Minister Joshua Setipa told our sister paper, Lesotho Times, the sectors for which investment was sought were mining, tourism, agriculture and infrastructure.
At the Lesotho Investment Forum in London this past week, the delegation highlighted the country’s effort in diversifying its economy, presenting a host of investment projects, ranging from renewable energy and agriculture to information communication technology and tourism, not to mention the burgeoning diamond mining industry.
“There are certain things that we cannot change,” said Mr Setipa at the forum, referring to the country being landlocked. “But what we can do is improve efficiency, bringing down the cost of doing business.”
In an interview with Global Trade Review (GTR), Mr Setipa discusses what else the country wants to achieve and what challenges it faces in the trade and investment space. GTR is a leading news source, publisher and event organiser for the global trade, commodity, export and supply chain finance industries.
GTR: You became minister last year. What goals would you like to achieve by the end of your mandate?
Setipa: We have a number of priorities which fall in different categories of our work. If we talk about the policy reform side, we have a policy agenda that includes reviewing certain pieces of legislation, such as consumer protection, putting in place new legislations, putting in place a new investment policy and a new industrial policy, both of which we have done, and working on an overall trade policy, which we will begin working on in the next two-three months.
GTR: What are the priorities for your trade policy?
Setipa: The priority is on how to use trade to develop our development strategy, so anything that would help us reposition ourselves and have the right mix of trade policy to facilitate growth, which of course drives development, is good. We also want to use that to drive our capacity to trade. At the end of the day a brand new shiny trade policy in place is useless if we cannot trade, so we need to improve our capacity to trade.
GTR: How does that relate to enabling access to finance?
Setipa: Financing is an integral part of that strategy. Over 80 percent of our economy is made up of small and medium enterprises (SMEs) and those SMEs need access to trade finance. Being a small market, trade finance is very costly. It’s not possible for the average company in Lesotho to walk into a bank and get a letter of credit. Banks find them highly risky so they will only work with them if there is an intervention by the state or another institutional bank to mitigate that exposure.
Banks in Lesotho are sitting on so much liquidity of government resources, but they are still not lending. Clearly the solution is not on the banking side anymore, it is on alternative ways to mitigate risk or to provide that type of financing. We have got innovative things that can be done, such as warehouse receipts systems that hedge against the actual harvest, which is what you do for clients who do not have balance sheets at the moment. Those are the type of interventions that we need.
GTR: One of the most promising sectors in Lesotho is the diamond mining industry. Zimbabwe has recently pushed for nationalisation: what is your strategy to develop the sector?
Setipa: I don’t think the idea of nationalisation has ever crossed our minds and I don’t think in 2016 we should even be talking about that. Our objective is to drive increased investment into the sector, not just foreign direct investment, also domestic investment mobilisation. Our preoccupation is to continue to improve the value proposition.
GTR: South Africa, one of your most important trading partners, is going through a period of economic downturn. How does that affect Lesotho?
Setipa: Unfortunately for us, all our major economic partners are going through a rough patch. The slowdown in the US saw a very big decline in the demand for our products, particularly in clothing, so we felt it. South Africa is our second-biggest export market for clothing and 35 percent of our exports go to South Africa. We do see a decline in that market so we feel it.
GTR: Which other markets are you turning to?
Setipa: We are looking at non-traditional markets. I was in Poland, I am going to Turkey: we are going to new alternative markets to try mitigate all that. I think the US is saturated.
GTR: How does the US negotiation of big trade agreements like the Trans-Pacific Partnership (TPP) affect your trading relationship with the country, with whom you enjoy preferential trade relations under the African Growth and Opportunity Act?
Setipa: Our preliminary assessment is that TPP is bad news for us. The TPP includes a country like Vietnam, which exports the same line of products that we export to the US and is already much more competitive than we are. What the US gives on one hand it takes with the other hand.
GTR: Lesotho is one of the 10 African countries to have ratified the WTO’s Trade Facilitation Agreement. How important is the WTO for a country like Lesotho?
Setipa: For countries like Lesotho the WTO is the only insurance policy we have that we won’t be trampled and run over. It levels the playing field, it gives us the same weight and the same attention that the US gets.