OVERVIEW OF THE SERVICES ECONOMY IN LESOTHO

1. OVERVIEW OF THE SERVICES ECONOMY IN LESOTHO NATIONAL SEMINAR ON TRADE IN SERVICES NEGOTIATIONS UNDER SADC AND SADC-EPA 2-4 JULY 2012 MASERU SUN, MASERU, LESOTHO

2. Introduction • Services are inputs into all that an economy produces, brings to market, trade or invest in, • Many services are critical therefore critical for poverty alleviation and economic development e.g. health, education, transport, communications, • These has a far-reaching implications for services policy and regulatory design • Services liberalisation generates pro-development outcomes if supported by clear policies, regulatory and institutional frameworks • There is need to regulate to ensure • Avoidance of market failure, • Level the playing field for effective competition, and efficiency, • Protect public/consumer interests. • Well-functioning institutions are crucial for promoting the development of the economy and addressing challenges in the services sector. Email: lerntlopo@yahoo.com

3. Lesotho’s Services Economy • The services sector is the biggest contributor to Lesotho’s GDP • Its relative contribution to national output has been falling during the last 2 decades (62.4 % in 1990 to 57.9 % in 2010) • Between 2008 and 2009, the services sector exports grew at a rate of 9.3 % • The main services sectors in Lesotho are education, wholesale and retail trade, financial intermediation, public administration, and transport and communication • Lesotho remains a “net importer of services”.

4. Lesotho’s Services Economy Trade • Lesotho’s main services exports include travel (business and personal travel), royalties and fees and other business services (business and management consulting and public relations services) • The country’s services exports increased during the period 2005-2009 • Exports peaked in 2007 and promptly contracted in 2008, with a particularly severe decline in the travel sub-sector • The relative performance of Lesotho’s services exports has been poor in comparison to the country’s total merchandise exports over the past 2 decades • Services exports account for only 5.7 per cent of Lesotho's goods and services exports and 2.4 per cent of GDP • Trade in services also plays an important role in widening gap between exports and imports with $468 million deficit • In the last 5 years, the main services imported into Lesotho have included transportation services (particularly freight sea transport) and travel services (education-related expenditure)

5. Policy and Regulatory Conditions of Lesotho’s Services Economy Policy Environment • Lesotho's Vision 2020 guides Lesotho’s long-term development plan • The National Development Plan (set for implementation over the period from 2011/12–2015/16) sets out the government’s strategic plan for promoting economic growth and reducing poverty • Services are a key strategic component of Lesotho's development plan and the GoL has acknowledged the need to develop and strengthen the existing services sectors in Lesotho and support the expansion of new sectors • The broad economic priorities and objectives for the services sector include: • increasing investment • upgrading and improving legal and institutional frameworks (particularly licensing procedures and the tax regime) • developing key social services (health and education) to promote a healthy and well-developed human resource base in Lesotho

6. Policy and Regulatory Conditions of Lesotho’s Services Economy Regulatory environment • Regulation remains a challenge in several sectors (e.g. even the financial sector which is one of the most extensively regulated sectors in Lesotho has laws that are outdated and it has taken a very long time for repeals and amendments to be effected) • Some key regulation is still lacking (e.g. competition law)

7. Policy and Regulatory Conditions of Lesotho’s Services Economy The Institutional Framework • MTICM is responsible for trade in services policy development in the Lesotho • As an international trade contact point, oversees that all services policies and laws/regulations are in compliance with multilateral rules, and recommends reform to comply with regional and Multilateral Agreements. • The Ministry is further mandated to licenses some of the services sectors, e.g. construction. verify • Most services sectors have one entity in charge of policy making and another in charge of regulation • E.g. in the financial services sector: - MFDP is responsible for overall economic and development policies relating to the financial sector - CBL is responsible for supervising both banking and non-banking financial and operates as a financial adviser to the GoL

8. Policy and Regulatory Conditions of Lesotho’s Services Economy Investment • Lesotho's investment climate is favourable with regards to currency conversion, monetary transfer policies, and a lack of undue burdens to investors • Its main weakness may be an under-developed legal framework for investors (particularly regarding business taxation) and the need for land reform • The country’s ability to attract FDI in the services sector will impact on the potential of the sector in terms of growth and employment expansion

9. Financial Services • The financial intermediation sector is important to national economic development. Lesotho’s Vision 2020 calls for the financial intermediation sector to be diverse and highly responsive to customer demands and needs • Access to credit and good loan management and repayment mechanisms are to be the corner stone for development and promotion of the SMME sector and informal sectors • Furthermore, the GoL is looking to increase competition in the banking sector and improve access to services for those beyond the reach of the established banking network in Lesotho • The GoL seeks to encourage more competition through the provision of more banking, capital markets and insurance services • An underdeveloped financial sector has contributed to a lack of access to finance and, hence, remains an important obstacle to business expansion.

10. Communication Services • Lesotho has developed a sectoral policy for the telecom sector • The Lesotho Telecom Authority was established in 2000 to: - promote competition in the sector, - protect consumers, - advance universal service access and - manage the electromagnetic spectrum • The legal framework for telecom is open and progressive • The sector has succeeded in achieving continued expansion and investment in value-added services • But telecom tariffs remain high making it more difficult to enter the knowledge economy

11. Communication Services • An under-developed telecom sector increases costs of other sectors in the economy which use these services as inputs • In 2008, less than 2 % of households had access to fixed-line services (CURRENT) • The same year, mobile operators were given a grace period to roll-out services to commercially viable, rural areas

12. Tourism and Travel-related Services • The tourism sector is key in pursuing an export-led economic growth strategy • Comprise crucial components of Lesotho’s overall policy for economic diversification • It has been recognised as an important source of jobs (including temporary employment through construction works) and foreign exchange • Certain barriers to entry and restrictions on market access continue to affect investment in this sector • e.g. regulations on foreign workers relating to visas, work permits and nationality requirements have served to restrict the movement of professionals into the sector, • regulations on foreign equity, land ownershipandmarket access controls on hotels and restaurants.

13. Construction and Related Engineering services • Construction is regarded as the most dynamic services sector in Lesotho • This sector is a link and a foundation of other sectors through infrastructural development in the form of roads, commercial property • GoL recognises an urgent need to uplift this sector as it is an incentive to development of other sectors and enables universal access to services like transportation • Construction growth peaked in the 1990s as a result of the Lesotho Highlands Water Project (LHWP) • There are currently no restrictions placed on foreign owned firms who want to engage in construction work in Lesotho

14. Energy-related Services • The energy sector is currently highly regulated by the government • The Government of Lesotho recognises that all sectors depend on energy and lack thereof impact directly on the economy and foreign investment. • Lesotho’s energy policy vision is that “Energy shall be universally accessible and affordable in a sustainable manner, with minimal negative impact on the environment. • The energy policy goals: • Contributing towards the improvement of livelihoods • Contributing towards economic growth and investment • Ensuring security of supply • Contributing towards the protection of the environment. • Lesotho Electricity Authority established in 2002 • to regulate and supervise activities in the electricity sector; • to make provision for the restructuring and the development of the electricity sector

15. Energy-related Services • Establisment of Lesotho Electricity and Water Authority (LEWA) in 2011 Email: lerntlopo@yahoo.com

16. Transport Services • This is a sector that is largely dominated by Basotho nationals in taxi, bus operations. • In air transportation sector, Lesotho has not been successful in attracting foreign investment to date

17. Email: lerntlopo@yahoo.com

18. The Way Forward • A good understanding of Lesotho’s policy, regulatory and institutional environment for the various services sectors is seen as an important element in the decision-making process linked to the services negotiations • e.g. in a given sector the decision to (further) liberalise may be taken in function of whether or not there is adequate regulation is in place • the services negotiations can also provide the impetus to promote necessary policy or regulatory changes • While there may still be gaps and improvement required, • e.g. a need to ensure systemic promotion of mutually reinforcing policy actions across policy making institutions and services regulators, upgrading and improving regulatory and institutional frameworks and development of a services export strategy (for services exports) • these may have to be undertaken in parallel to the development of the country’s overall trade positions • Stakeholders are encouraged to provide their views and feedback both with respect to what they feel is required in terms of the services policy, regulatory and institutional environment and with respect to the countries negotiating positions (both offensive and defensive)