By Robert Likhang – FCIS, ACMA, CGMA, CA(L)
RL Consulting – Chartered Accountants & Business Consultants (www.yourfd.co.ls)
BUSINESS in Lesotho is experiencing several threats from a sluggish economy, diminishing national foreign reserves, low government capital expenditure, increasing input costs on utilities, impending road toll fees and minimum wages. On the positive side, the nation could soon enjoy social and political stability as a result of the implementation of the long-awaited multi-sector reforms under SADC supervision.
There are also imminent economic reforms given the visit by International Monetary Fund (IMF) to the country. The increase in wages for the factory workers will increase money circulation and thus boost economic activity. The state coffers funds will also benefit from Value Added Tax (VAT) increases as a result of this increased economic activity.
While the factory employers could respond to the increased minimum wage by retrenching some workers, this would only be momentary as Lesotho provides an investment haven for them better than anywhere else in the world.
The foreign factory investors enjoy the lowest tax rates amongst the AGOA beneficiary countries which is only 10 percent compared to other countries where it ranges from 25 to 35 percent. The factories are allowed by our tax system to carry forward their trading losses as deductions on their taxable income and this does not incentivise them to declare profits and operate efficiently. Lesotho’s wage costs are extremely low (only higher than Ethiopia which is under increasing pressure to introduce a minimum wage).
The uncapped profit and capital repatriation, weak protection against transfer pricing gives the investors a reason to stay despite the result of the wage negotiations.
The sad fact is that AGOA will come to end and the behaviour of the foreign textile investors in this recent wage dispute tell us that there is no reason for them to stay a day beyond AGOA’s end.
Lesson to the government
The country has not prepared for the end of AGOA. There is no plan at all. Since the first factory was erected in my home town of Maputsoe in 1976, Basotho have not had a meaningful participation in this industry since then. Our investment policy has not been made to jive tango with domestic economic policies or the Small to Medium Enterprise Development policies to promote linkages between our local and the foreign-owned businesses. There are no Supplier Development Programmes to ensure that the Basotho are able to provide supplies to these factories. The low taxes they enjoy have no accompanying requirements for skills transfer, equity participation or any other vehicle that would transfer skills and ownership during and when AGOA comes to an end.
Neighbouring South Africa has very clear policies and laws that provide foreign investors with a conscience when it comes to employees and South Africa’s national businesses. The industrial relations laws, which include Equity Employment, Black Economic Empowerment (BEE) regulations promote responsible foreign investment. Most of big businesses in South Africa have enterprise development programmes where they assist the incubation of small businesses and suppliers’ development. Lesotho must encourage and only permit in her land responsible investment for those benefitting from her minerals, water and labour.
A simple rule would be to say that ‘Only responsible investors are welcome’.
The small and medium businesses in Lesotho can only grow if a hand of partnership is handed to them by all those interested in her resources. This also relates to our wool and mohair. This issue of wool and mohair should not attract politicking but solutions that will enable value addition in the country and jobs and businesses for Basotho.
The government must review its policy making capabilities and /or its appetite for promoting responsible investments that provide long-term value and benefits to the indigenous people of Lesotho. I am not being racist and I am aware that there are Basotho of Asian and European origin and they deserve equal treatment with the native Basotho. I however, embrace affirmative action where a particular race or people within the nation (especially when in our context the natives are losing their land and have no capital) that are disadvantaged are given preferential treatment before it is too late. Unashamedly, South Africa has put in place the BEE programme and I think this is responsible investment that can be promoted without fear.
Lessons for local business
The responsibility for responsible investments lies not only with the government but also with the business world. Our businesses need to go into the real economy. Increasingly our young people go into non-value adding businesses but enjoy tenderpreneurship where they irresponsibly increase prices putting pressure on our taxes to buy services, works and goods at high prices. Such practices waste our hard-earned taxes and leave nothing for infrastructure development, health and education. Our own people rob their own country. I am not against trading but we can make a more meaningful contribution by engaging in export-orientated manufacturing and agro-industries in order to participate in the global economy. Our manufacturing fails because of high input costs, particularly of equipment and raw materials and this is because we do not sufficiently use technology and our traditional manufacturing processes promote inefficiencies. We should also stop importing from South Africa and instead import from India, China and Brazil which is where South Africa imports from. We should even export to South Africa and take advantage of the size of its population and economic muscle. South Africa should be our market and not the other way around.
Lessons to consumers
Basotho should buy Lesotho products and be proud of that. Only when we buy our products shall we provide jobs to our people. We should abandon the impoverishing culture of high expenditure on non-value adding activities such as funerals, weddings, spending too much on consumables such as cars, clothing and unhealthy foods. We should rather invest more to create capital and to buy business assets.
I hope the lessons learnt from this recent industrial action will make us change, otherwise the prophesy as recorded in Deuteronomy 28:43-44 shall be fulfilled here.
The prophecy states that, “Foreigners who live in your land will gain more and more power, while you gradually lose yours. They will have money to lend you, but you will have none to lend them. In the end they will be your rulers”.