10 key points on ease of doing business in Lesotho
PSCEDP makes use of a results-based approach by using the World Bank Report, Ease of Doing Business Report. This report collects data on indicators that create a conducive environment for private sector development. PSCEDP focuses on this following five indicators:
According to the indicator on the Doing Business Report 2019, it takes 7 days to register a business in Lesotho which was reduced from 28 days with a ranking of 119 out of 190 countries. This rating is based on the procedures, time, cost pain in minimum capital to start a business. Registering a business has moved to a fully integrated online process from application, payment, to obtaining a business registration through the One-Stop Business Facilitation Centre (OBFC), portal implemented by the Ministry of Trade, Industry, Cooperatives, and Marketing. As of April 2019, 32,671 businesses are registered in Lesotho, with 15,949 active companies. These businesses range from Construction, Real Estate/property management, Mining, Catering, Cleaning services, Consultancy, Security services, printing, and Sewerage.
Small and medium enterprises, SMME is considered as one of the key vehicles that will reduce unemployment. According to the World Bank, unemployment remains high at 24 to 28%, coupled with high inequality and poverty. Lesotho made progress in poverty reduction in the 2000s by lowering its headcount poverty rate ($1.9/day PPP) from 61.3% in 2002 to 59.7% in 2011. Estimates for 2018 suggest that 53.7% of the population is still trapped under the $1.90 poverty line. The ability and ease of registering a business enable formalization of sectors and industries. A registered business is in a better position to comply with licensing and tax regulations. Compliance in turn leads to access to finance and investments. When an entrepreneur experiences challenges in registering a business due to policy and regulation, this reduces their eagerness to start a business.
In 2006, it took 93 days to register a business, placing Lesotho at 36th rank among the 45 SSA countries ranked for this indicator. In comparison, it took 13 days in Burundi, 259 Days Guinea – Bissau to register a business. Some of the reasons that contributed to this included processes that required different departments as custodians activities for registration and licensing.
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Lesotho is ranked 171 out of 190 countries on dealing with a permit indicator. It takes 183 days to obtain a construction permit. This ranking is measured the processes, and number of days required to obtain a construction permit.
While the ranking is low compared to other South African Development Countries (SADC), there has been a significant improvement in this indicator. Construction permits in Lesotho are provided by Maseru City Council (MCC), through a streamlined online platform. This platform outlines procedures and costs required to obtain a construction permit. The benefit of having an online system is the improvement of quality service delivery, increased transparency, reduces opportunities for rent-seeking, time, and regulatory burden for the private sector.
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Lesotho is ranked 85 out of 190 countries on the indicator of access to credit. This indicator is measured by Movable collateral laws and credit information system.
Establishment of a credit Bureau
Businesses face challenges with access to capital. The fundamental issue of access to credit facilities is the lack of individuals and businesses credit records. The credit bureau will be housed under the Central Bank of Lesotho. The credit bureau will assist with the sharing of credit information, which will open up access to business financing since banks will have a clear record of individuals and business financial history. The credit bureau will be supported by a Movable collateral Registry.
The registry aims to increase the chances of securing loans, by using the movable property as collateral. Traditionally, the only fixed property was accepted as a means of security, creating a barrier for businesses who have not yet developed an asset base.
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Lesotho is ranked 38 out of 190 countries, this ranking measured on time and costs (excluding tariffs) associated with documentary compliance, border compliance and domestic transport. It is estimated that border compliance for exporting can take up to 4 hours, and document compliance for exporting taking 1 hour. To import goods, border compliance can take up to 5 hours, while document compliance can take up to 1 hour. This complex process has been simplified with the phased implementation of the Automated System for Customs Data (ASYCUDA) World, a customs data management system developed by UNCTAD, in 2017. The implementing agency of the customs system is the Lesotho Revenue Authority (LRA). The use of ASYCUDA has created an effective streamlined communication between organisations working to facilitate trade across borders between government officials and private sector agents. To be competitive in a globalised economy, the ease of trading across borders for imports and exports is a competitive advantage for any country. A disaster recovery system is being completed to ensure that data stored on this platform is secure and available for the country.
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The rating for Lesotho is 126 out of 190, making it one of the worst performing indicators. PSCECD has assisted them to improve the country’s legal framework in this area but the indicator is still low. This can be attributed to the challenges of Lesotho’s political situation which has not been stable enough, for real change to happen in the legal sector.
The ability for a creditor to recover losses in the process of insolvency has proved difficult because of the lack of a central information system for financial records. The indicator is rated according to the time, cost and outcomes of insolvency proceedings involved in the county. It can take up to two and a half years to get a resolution on insolvency.
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