Lesotho makes strides to ease import, export hurdles

Francis Mukuzunga

Lesotho’s trade balance is still at a worrying stage despite some slight growth experienced in the past years, thanks to growing mining activity as well as the manufacturing sector. Even with the knock-down effects of the Covid-19 as well as external shocks on the back of current global recession, the country managed a growth estimated at around 14% percent in its trade with the rest of the world, but the setback has always been import figures that are almost double those of exports. Lesotho’s export mainstay has largely depended on the manufacturing sector, with the AGOA market in the United States (US) and now a growing market strength in the sub-Saharan region, mainly South Africa. The recent recovery of the diamond prices has also boosted the country’s mining sector with the main players, especially Letšeng, Mothae and Kao, recording some significant recoveries in the early parts of 2022.

The past financial year saw major trade setbacks as activity grounded to almost zero at the peak of the Covid-19 pandemic which affected the smooth flow of imports and exports. However, import and export business continues to grow steadily as the effects of pandemic subside in 2022, mainly due to the reopening of trade routes between Lesotho and its partners.

The import and export of goods services in Lesotho is managed by the Ministry of Trade and Industry, which negotiates and signs the agreements on behalf of the government while the Lesotho Revenue Authority (LRA) is the implementing agency for the trade agreements. The ministry also plays an oversight role to ensure all imports and exports adhere to the internationally agreed practices and standards.

The most important trade agreement for Lesotho is the Southern African Customs Union (SACU signed between the five member countries namely; Botswana, Eswatini, Namibia, South Africa and Lesotho. Established on 29 June, 1910, SACU is the oldest customs agreement in the world. The SACU agreement was renegotiated and amended in 2002. Under the SACU Agreement there is free movement of goods and services between the member countries and there are no customs duties except value-added-tax and to promote conditions of fair competition in the Common Customs Area (CCA).

The other objectives of the SACU agreement are: to substantially increase investment opportunities in the CCA; to promote the integration of Member States into the global economy through enhanced trade and investment; to facilitate the equitable sharing of revenue arising from customs, excise and additional duties levied by Member States; and to facilitate the development of common policies and strategies.

Lesotho also benefits from the AGOA agreement with the United States of America, but the deal is ending in 2024 with no extension on the cards. Other markets that the country has preferential access to include the All But Arms deal with the European Union, the African Union Trade opening as well as the Asia-Pacific openings.

In his 2022/23 Budget Speech Finance Minister Thabo Sophonea highlighted that Lesotho’s exports have been increasing, but at a much lower rate than what the country import from as far back as 2012/13 and beyond. The minister noted that merchandise exports in 2021/22 increased by 14.8% to M15.6 billion against imports of M26.6 billion, largely driven by diamond and textile exports.

According to the preliminary estimates, the current account deficit for 2022/23 will widen to M2.2 billion from M2.1 billion in 2021/22. The widening of the deficit will be on account of expected decline in SACU revenue share from M6 billion received in 2021/22 to M5.8 billion.

Consistent with projected GDP growth of 2.3% and inflation rate of 5%, total revenue collection including SACU receipts and grants is projected at M19.7 billion. Tax revenue will reach M9.5 billion, grants will average M2.3 billion, while non-tax revenue is estimated at 13% of the total revenue at M2.6 billion.  SACU revenue is projected to fall below last year’s collection by M608 million and to a total of M5.4 billion.

According to the latest data on Lesotho from the World Trade Organisation (WTO), the country imported 87.9% of its products and services from other countries in 2017. Most of the imports are from South Africa, the SADC region, Europe, Asia and the United State of America and are classified as Agricultural products;

Lesotho is affiliated to WTO, a body that oversees and regulates all international trading best practices. Data from WTO pegged Lesotho’s GDP at US$2,068 billion while its GDP per capita was US$1,087 billion. The country’s trade per capita between 2018-2020 was pegged at US$792 billion while trade as a percentage of the GDP was US$72.9 billion.

The data from WTO suggests that the country’s imports as a percentage of the gross domestic product (GDP) in 2019 were as follows:  Agricultural products – 21.7%; Fuels and mining products – 9.7%; Manufactured goods – 57.8% and other goods and services – 0.8%.

The same data also indicates that Lesotho exported 5.6% from the agricultural products, 1.5% in fuels and mining and 60.9% in manufactured goods while other goods and services comprised of 32% of the country’s total exports.

Trade Agreements signed by Lesotho

Lesotho has signed several trade and related agreements, offering an investor an array of opportunities in the region and abroad.

According to the LRA, there are two types of trade agreements that Lesotho uses and these are the Reciprocal Preferential Trade Agreements that were negotiated for and that Lesotho is committed to and Non-Reciprocal Preferential Trade Agreements that were not negotiated for but came as a specific offer to Lesotho.

Reciprocal Preferential Trade Agreements Lesotho is party to include:

• Southern African Customs Union (SACU)
• African Continental Free Trade Area Agreement (AFCTA).
• Southern African Development Community Free Trade Agreement (SADC FTA)
• Southern African Customs Union-European Free Trade Association Free Trade Agreement (SACU-EFTA FTA).
• Southern African Customs Union-Southern Common Market Preferential Trade Area (SACU Mercosur PTA)
• Southern African Development Community-European Economic Partnership Agreement (SADC–EU EPA)
• AFCFTA Member states (54 AU countries out of 55 AU states have signed the agreement)
• SACU, Mozambique, United Kingdom of Great Britain and Northern Ireland Economic Partnership Agreement (SACUM-UK EPA)

Non- Reciprocal Preferential Trade Agreements

Non-Reciprocal Preferential Trade Agreements that Lesotho is party to are part of the Generalized System of Preferences (GSP). In 1968 the first United Nations Conference on Trade and Development (UNCTAD) recommended the creation of a Generalised System of Tariff Preferences under which industrialized countries would grant autonomous unilateral trade preferences to all developing countries.

Lesotho is eligible for GSPs in the following countries and regions: Canada, United States (US), European Union (EU), Japan, Turkey, China, Australia, New Zealand, India,          African Growth Opportunity Act (AGOA), Hungary and Czech Republic.

To facilitate the smooth flow of imports and exports of goods and services to countries that Lesotho has signed trade agreement with, a Proof of Origin certificate is issued by the relevant authority or trade body to authenticate the product source. In Lesotho’s case the Ministry of Trade oversees the issuance of such certification.

The proof of origin under agreements include Statement of Origin and the Origin Declaration.  There are different types of Certificates of Origin used by Lesotho and these are: SACU; SACU-EFTA, SADC-EU-EPA and SADCCU, Mozambique, UK EPA and SACU-Mercosur. Countries such as China, Canada and GSPs have their own Certificates of Origin. The Ministry of Trade also issues the Lesotho Movement Certificate and Statement on Origin under the EU GSP.

Lesotho Revenue Authority’s role in Imports/Exports

While the LRA is the Government’s principal revenue collection agency, it has other varied functions that enhance the facilitation of smooth trading between Lesotho and other countries, particularly in terms of imports and exports and the requisite tariffs thereof.

To facilitate the smooth running of imports and exports between Lesotho and other countries, the LRA has signed trade agreements with several international trade organisations, the most important being the SACU agreement.

The LRA is the implementing arm of these agreements while the Government, through the Ministry of Trade, facilitates and accents to these agreements.

Apart from implementing the customs duties for these agreements, the LRA also exercises the function of Border Clearance for goods entering Lesotho from other counties. In recent months, the LRA has digitalised most of its border clearing procedures so that importers and exporters may not waste time while clearing their goods. Importers of goods can access some of the documents that  are obtainable through the LRA website: www.lra.org.ls

By visiting the LRA website, importers and exporters can have access to a number of helpful documents and guidelines including:

• Explanatory Memorandum (on Border Clearance – HS 2022
• Guidelines on Clearing Agents Licensing
• Guideline on Customs Administrative Penalties
• Guidelines for Private Shoppers
• Lesotho Preferred Trader Brochure
• Declaration guide
• Tariff Specification Codes (TSCs)
• Prohibited and Restricted goods guideline

Through its website, the LRA also provides useful information and links on the Customs and Excise Acts that are currently in use or have been amended such as: Customs and Excise Amendment Act No.6 of 2021 and others.

Other related services offered by LRA to importers and exporters include:

• E-Customs clearing procedure whereby importers and exporters use the ASYCUDA World (AW) systems that is used to control the movement of goods in and out of Lesotho. This includes calculating and collecting Duty. AW provides a robust, comprehensive, declaration processing capability which uses the European SAD (Single Administrative Declaration) as the standard declaration form.
• Information on Customs Procedures for Traders and Clearing Agents.
• The
• Provision of a comprehensive list of registered Clearing Agents so that importers and exporters will know they are working with companies that are accredited to the LRA and agents that are familiar with the Customs and Excise Duty procedures within the region and elsewhere.
• Publication of the current tariff schedules at the points of entry in Lesotho as well as other countries and regions of the world as mandated under the Customs and Excise Act 1982 (Tariff Book).
• All these services are offered online, the LRA head office as well as at the border posts, advice centers and inland ports.

LNDC’s role in Imports/Exports

Government of Lesotho is committed to increase its exports base through state-owned-enterprises (SOEs) such as the Lesotho National Development Corporation (LNDC). LNDC is the main parastatal of the Government of Lesotho charged with the implementation of the country’s industrial development policies and attracting investments from both foreign and indigenous investors.

The LNDC provides market access to all exporters through a duty-free and quota-free access of Lesotho made products to millions of consumers within the SACU, SADC, EU, US and other markets.