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Sacu: A bitter pill to swallow

MASERU — This week we put Finance Minister Timothy Thahane in the HOT SEAT to talk about the future of Lesotho’s economy without the usual financial resources from the Southern African Customs Union (Sacu). We ask him about the state of the economy and the country’s food security. Below are excerpts from the interview:

 SE: There have been reports that the Sacu revenue-sharing formula will be changing and that smaller members like Lesotho will suffer greatly as a result. What would the change mean for Lesotho?

 Thahane: It’s not the formula that we should focus on. The global economy is changing and so is world trade. We are getting more into services.

If you look closely you will realise that the duty incomes under the World Trade Organisation (WTO) have been reducing over the years. The liberalisation of world trade means that there is going to be even less revenue from duties.

That means Sacu will have to change as well. The revenue is going to decline and so will the transfers to the member countries. For countries like Lesotho it means we will have to focus more on production. That is precisely what the finance ministers from the member states discussed when they met recently. The ministers decided that we should review the formula used to share the VAT, excise duties and customs. If we push more on production we will not have to rely heavily on the income from duties.

SE: Some economic analysts have painted a rather gloomy picture about the economic prospects of the smaller Sacu members like Lesotho and Swaziland if the formula changes. They also say the formula change is necessary because South Africa has been subsidising smaller countries in the union. 

 Thahane: Well, that perception is not true. The money that comes to Lesotho does not come from South Africa’s taxpayers. That money comes from duty payers. If we had a separate customs union then every product from South Africa into Lesotho would have to attract duty. That money we get from Sacu belongs to us. We are not getting it from South Africa’s taxpayers. We are getting a share of the VAT that our people pay when they buy products from South Africa.

 SE: But there are still people in this country who don’t submit receipts of the products they would have bought in South Africa, perhaps because they don’t know how important they are to the country.

 Thahane: That happens a lot but it only shows that we need to educate our people that the VAT they pay on goods in South Africa belongs to this country. That practice might end soon because we are working on creating one border. That means people from the South Africa revenue authority can come to our side and our people can go to their side.

 SE: Can Lesotho survive without the Sacu revenue which has been making up 60 percent of the country’s annual budget?

 Thahane: Sure it can. We have to restructure our development so that our economic growth is not heavily linked to the Sacu revenues.

 SE: How is that feasible?

Thahane:  It takes time but it’s possible. The development of industries should not be left to government alone. Government is only there to facilitate and promote business. Government is there to create an enabling environment for business to thrive. The private sector will have to take advantage of that environment.  We are doing our best to remove the impediments so businesses can grow. The key is in having a strong industry.

 SE: In your budget speech you said the government was going to review traffic fines and charges for other government services to raise funds. What progress has the government made in that regard?

 Thahane: There has been some progress. The issue of traffic fines has to go through parliament so that the laws are reviewed. Traffic fines are stipulated by a 1983 law which will have to be amended by parliament. So far there has been a significant improvement in revenue collection.

Our revenue collection for the first quarter was up 28 percent on last year.

That shows that if you improve the efficiency the leakages will stop. We have established a taskforce to look at the service charges. The Lesotho Revenue Authority (LRA) is looking at the mechanisms.

 SE: But government systems are still fraught with bureaucracy. For instance, it takes several visits to many different government offices to get a vehicle registered.

 Thahane: We are working towards a one-stop shop. We want to do away with this ridiculous system of people having to go to the police to get a clearance and then to LRA to pay. These things must be done in one office efficiently. We want the systems to be more congruent to improve efficiency. 

 SE: When will this be possible?

 Thahane: We are looking at next year. There is already a taskforce that is working on that issue. We want to integrate the systems. We are going to extend this process to work permits.

 SE: Lesotho’s investment environment is still rated very lowly. It still takes months to register a company and even longer to get a work permit.

 Thahane: This has been a problem for Africa. Our laws have not been conducive for businesses to invest in our economies. Lesotho is still ranked lowly when it comes to the “Ease of Doing Business”. We are looking at those laws that hinder investment and we are working on them. These are things that we have to deal with if the private sector is going to come to Lesotho.

 SE: But there is still a problem with promoting local investors. Local businesses are still concentrating on government tenders. It seems there are very few people prepared to build institutions.

 Thahane: If you look at it historically you will see that most of those business people who have made it started by supplying government. This cannot be avoided because government is the biggest buyer in this country.

 SE: Doesn’t that worry your ministry and the government?

 Thahane: We are concerned. But what worries us more is that most of the South African companies that have been winning tenders have been supplying government through local agencies.

This is where we have to change to ensure that local companies benefit and there are more locally made products that are supplied to government.

But we are doing more than just that to promote local businesses. When the Lesotho National Development Corporation was established its mandate was to help foreign investors and Bedco was for locals. Unfortunately this did not work. We want to reform these institutions so that they give priority to both local and international investors. 

 SE:  Has the economy started recovering?

 Thahane: It has been a difficult phase but we are seeing some improvement. The textile industry has registered marginal growth despite the firming exchange rate. There are slightly more people employed in the sector. The economy has stabilised and the recovery has started.

 SE: What is the state of the country’s food security situation?

 Thahane:  It’s still precarious because we do not have many resources. We are currently looking at improving the small-scale holders so that they become commercial farmers.

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