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Report of
the National Dialogue on Privatisation and Restructuring of the Lesotho
Economy- Maseru, 1-2 September 1999 -Privatisation Unit September 1999 I Introduction The National Dialogue on Privatisation and Economic Restructuring of the Lesotho Economy was held at the Lesotho Sun Hotel, Maseru on 1st and 2nd September 1999. The objective of the Dialogue was to review the implementation of the privatisation programme and restructuring of the Lesotho economy with a view to soliciting suggestions aimed at strengthening the private sector and more actively involving local and foreign private investors in the Lesotho economy. The Dialogue was attended by representatives from the Government of Lesotho, the Parliament of Lesotho, foreign missions, donor community, Lesotho parastatals, business community, trade unions and various private organisations and institutions. II Summary of Proceedings 2.1 The Dialogue was formally opened by the Right Honourable Dr. Pakalitha Mosisili, the Prime Minister of Lesotho. In his address the Prime Minister re-affirmed the Government’s commitment to restructuring the Lesotho economy and highlighted its political aspects. He emphasised that the objective of the economic restructuring is to ensure sustained economic development in which the private sector takes the lead and Government provides an enabling environment. He stated that Government acknowledges that it cannot operate certain enterprises efficiently hence its decision to pull out of commercial activity leaving it to the private sector. The private sector was in turn urged to critically review its limitations and seek ways to address them. The attention of participants was then directed to the fact that in the changed international environment with limited donor assistance available to developing countries, it is crucial for Lesotho to attract foreign investment. The Prime Minister therefore called on all involved to rise to the challenge of creating an attractive investment environment. In conclusion, the Prime Minister urged all participants to make constructive contributions towards reviewing and refining Lesotho’s economic strategies with the objective of combating poverty, creating employment and achieving sustainable economic growth. 2.2 The keynote address was delivered by Honourable Kelebone Maope, the Deputy Prime Minister and Minister of Finance and Development Planning. He emphasised the importance of basing the economic debate on factual information. He then discussed the limitations of state enterprises in Lesotho, their resulting distressed condition, and the consequent impact on the allocation of resources. He emphasised that Lesotho simply can no longer afford to continue subsidising non-performing state enterprises at the expense of other national priority needs. The Deputy Prime Minister stated that the Government is committed to facilitating local participation in the privatised enterprises directly and indirectly. To that end shares in privatised companies have been reserved, and are available for placement with Lesotho citizens. In addition, establishment of a Unit Trust, an investment vehicle which will enable the Basotho to benefit from the privatisation programme through indirect share ownership in the privatised enterprises, is underway. The Deputy Prime Minister discussed the importance of foreign investment to Lesotho, stressing that it is incumbent upon the country to seek to derive maximum benefits from such investment in terms of employment, taxation, transfer of skills and access to new markets. Finally, the Deputy Prime Minister pointed out that privatisation, although a key component of the economic restructuring, is just one part of a much larger reform programme which includes market liberalisation and regulatory reform. He said that it is crucial that the culture of entrepreneurship be developed in Lesotho if the private sector is to play a leading role in the economy, allowing the Government to concentrate on its regulatory role and provision of an efficient legal system, including the establishment of a Commercial Court to facilitate resolution of business disputes. 2.3 The two opening addresses were followed by lively discussion with comments and questions from participants relating to particular issues, such as the need for special empowerment strategies for Basotho participation, as well as the general policy implications of economic restructuring and privatisation. One of the concerns that featured prominently in the discussion was the prices for which the privatised enterprises were allegedly sold as against their perceived value. The comments and questions were dealt with directly by the Deputy Prime Minister. 2.4 Mr. Mashologu, Director of the Privatisation Unit, followed with an overview of the privatisation experience in Lesotho. He discussed difficulties in implementing the privatisation programme due to such factors as distortions arising from politically driven perceptions, conflicting ideas about the desired pace of privatisation, and fear of change. The Director stressed the need to reassure the public that the economic transformation would, in the long run, benefit the nation despite certain initial negative implications, such as job losses. Mr. Mashologu also mentioned difficulties of marketing the enterprises in the privatisation pipeline due to the loss making history of the majority of them, the small local market size, the historically unattractive investment environment and existence of alternative investment opportunities elsewhere. These challenges called for special efforts on the part of all Lesotho citizens to improve the prospects of successful economic restructuring. In conclusion, Mr. Mashologu appealed to the participants to make suggestions that would improve the implementation of privatisation in Lesotho, and ensure maximum local participation in the process. 2.5 Mr. Swaray, the Governor of the Central Bank of Lesotho, reflected on the rationale for the original establishment of state enterprises in developing countries and subsequent developments leading to the present distressed condition of many of state enterprises. He then discussed the reasons which had prompted the Lesotho Government to embark on the programme of privatisation and economic restructuring. Mr Swaray emphasised that there is no alternative to privatisation as the Government is unable to continue spending some M3 billion per annum in subsidies to state enterprises. He stressed that it is important that Basotho investors recognise their limitations, such as lack of capital and technical expertise, and collaborate with foreign investors in order to ensure maximum participation in the economy. 2.6 Ms. Chondoma of Lesotho Chamber of Commerce and Industry (LCCI) stressed the importance of an extensive public awareness campaign to the privatisation process. She pointed out that inadequate dissemination of factual information about the performance of state enterprises and the resulting burden on the Treasury, reasons for privatisation and benefits that it brings in the form of saving taxpayers’ money, led to misconceptions and ultimately opposition to the process. She expressed hope that the public awareness campaign will be intensified in order that the nation be timeously informed about opportunities presented by the privatisation programme and educated about new ways of facilitating local participation such as the Unit Trust. Ms. Chondoma acknowledged the weaknesses of the local private sector such as lack of entrepreneurial culture, management skills, technical know-how and capital. She said that, in view of these limitations, broadening direct participation by Basotho and facilitating partnerships with foreign investors is a real challenge that LCCI and the nation at large has to face. She suggested that the Government consider setting up a venture capital fund to address the problem of lack of capital. Training institutions, such as the Entrepreneurship Training Programme should intensify their work in developing business skills among Basotho and retrenched workers in particular. Ms. Chondoma also recommended that, during the period of formulating privatisation strategies for enterprises, special efforts should be made to encourage Basotho participation. 2.7 Mr. Jonathan, Secretary General of the Lesotho Trade Union Congress, expressed concern about the adverse effect that privatisation-related retrenchments are having on the labour market in Lesotho where the unemployment rate is already 40%. He recommended that employees of the enterprises in the privatisation portfolio be involved in the process at its early stages to afford them an opportunity to make contributions in formulating privatisation strategies, to prepare for possible acquisition of shares and to decide whether they wish to remain with the enterprise under its new ownership. In addition, Mr. Jonathan urged the Government to consider using part of the proceeds from the Lesotho Highlands Water Project to develop irrigation schemes in Lesotho as this would potentially stimulate agricultural activity and create alternative employment opportunities. 2.8 Ms. Ntho, Deputy Principal Secretary in the Ministry of Communications, gave an overview of developments in the Lesotho telecommunications sector in recent years. She stated that the telecommunications facilities in Lesotho had long been unable to meet the increasing demand for service. This discouraged investment in Lesotho’s industrial and service sectors and impeded the country’s overall economic growth. The sector situation can be explained by the poor efficiency and the financial distress of the only operator, Lesotho Telecommunications Corporation (LTC). Ms. Ntho said that, in view of these problems and in line with the regional trend in the telecommunications sector, the Government initiated a process of policy reform in order to improve quality of service, ensure universal service access and promote competition. To that end, a National Telecommunications Policy was developed in 1998 and approved by Cabinet. Subsequently, the Telecommunications Bill of 1999, which provides for the establishment of a Regulatory Authority, was prepared and is currently under consideration by Cabinet. Ms. Ntho said that significant work has been done to prepare LTC for sale and described the proposed privatisation strategy. 2.9 Mr. Majara, Managing Director of the Lesotho Electricity Corporation (LEC), highlighted the changes that had occurred in recent years in the Lesotho power sector with the emergence of another major player in addition to LEC, the Lesotho Highlands Development Authority, as well as the introduction of private sector participation through out-sourcing of the non-core activities of LEC. He mentioned that the sector co-ordinator, the Power Sector Policy Committee, had prepared a Policy Statement on Power Sector Institutional Reform, Tariffs and Connection Fees which outlines the general framework for the process of transformation of the electricity sector. The document proposes the removal of monopoly for transmission and distribution, the restructuring of tariffs to cover operating and investment costs, and the introduction of an independent regulator. Mr. Majara indicated that a study to finalise the legal and regulatory framework in the electricity sector is underway. Mr. Majara also described the present constraints of LEC and emphasised the need for change. He said that the Government intends to commission a study to develop strategic options for private sector participation in the power sector to ensure that it is introduced in an effective, feasible and regulated manner. 2.10 The next presentation on the water sector was given by Mr. Makhoalibe, Managing Director of the Water and Sewerage Authority (WASA), and Ms. Pholo, its Corporate Secretary. They described preparatory work that the Authority’s management undertook in an effort to streamline its operations, notably imminent out-sourcing of a number of non-core activities. At the same time they acknowledged certain constraints that WASA faces at present, such as lack of capital to extend and resources to adequately maintain its network. While supporting the need to introduce private sector participation in WASA and the water sector in general, they emphasised that this has to be carried out with extreme caution given the fact that water is a social as well as economic good. They also stressed the need to have in place an efficient legal and regulatory framework to enable adequate monitoring and regulation of service delivery by the private sector. 2.11 Mr. Baffoe, Managing Editor of Southern Star newspaper, presented a view from the press highlighting the important function that the media is expected to fulfil in society. He acknowledged the limitations of the Lesotho press, notably in the area of economic reporting, but at the same time stressed the difficulties experienced in accessing information. Mr. Baffoe recommended that (i) the Ministries appoint information officers to ensure timely information dissemination, and (ii) Government hold regular press conferences to keep the press, and consequently the nation, abreast of the latest developments in the country. 2.12 Day one of the Dialogue concluded with another lively round of comments and questions from the participants which were handled by the Deputy Prime Minister assisted by the Director of the Privatisation Unit and the Governor of the Central Bank of Lesotho. Some of the issues raised related to whether the proposed regulators would provide effective protection to consumers and whether sufficient account had been taken of Lesotho’s economic circumstances in devising current privatisation strategies. 2.13 Day two of the Dialogue started with a presentation by Mr. Khali, President of Lesotho Association of Hotels and Hospitality. He noted that it is widely recognised that the tourism sector is an essential component of a modern market economy, as well as being an important source of employment generation. He emphasised that, in view of Lesotho’s limited mineral resources, it is imperative that the country’s tourism potential be fully realised. Mr. Khali acknowledged that it is the private sector that needs to drive growth in the tourism sector but urged the Government to play its facilitative role. 2.14 Mr. Wooler, General Manager of the Standard Bank (Lesotho) and Lesotho Bank 99, who spoke on behalf of the Lesotho banking sector, stated that the three commercial banks in Lesotho are fully aware of the key role they are expected to play in the economy. To that end, the banks are continually working on improving their services to the public and new products will be introduced in line with market requirements. Mr. Wooler drew attention to the fact that market based banking sector requires prompt repayment of loans. He pleaded for assistance in changing the apparently widespread perception that loans received from local banks do not need to be repaid which was a major factor that had led to the downfall of the two state-owned banks in Lesotho. He emphasised that the operations of banks, notably lending, are governed by principles aimed at protecting their depositors’ money, producing a return to their shareholders and investors, as well as generating a profit. Mr. Wooler said that at the same time banks are continually looking for sound investment opportunities. He therefore encouraged prospective borrowers to do their homework more effectively so as to present the banks with viable propositions. 2.15 Before breaking into working groups there was spirited discussion among participants regarding the privatisation of Lesotho Bank, and further clarifications on the proposed banking sector reforms were provided by the Deputy Prime Minister and the Governor of the Central Bank as well as Mr. Wooler. Assurances were given that the tourism sector was finally being accorded high priority in the economic reform programme. 2.16 The participants then separated into five working groups and proceeded with detailed discussions of the main issues that arose from the presentations. Group I, Labour Issues, focused on the effects of privatisation and economic restructuring on the labour market and job creation. The group also discussed the various possibilities of worker participation in the privatised companies. Group II, Participation by the Nationals of Lesotho, discussed how Lesotho citizens can participate as investors in the privatisation process through direct acquisition of shares in the privatised enterprises or indirect share ownership via mechanisms such as the Unit Trust. Group III, Future Implementation of Privatisation in Lesotho, considered possible changes that could be introduced in order to improve the implementation of the privatisation process and achieve increased participation of the private sector in the Lesotho economy. Group IV, Public Awareness, discussed how to improve dissemination of essential information about privatisation and economic restructuring and ensure effective publicity of the opportunities for participation in the process by the Basotho. Group V, Restructuring of Utilities, looked at the possibilities for introducing private sector participation in telecommunications, water and power sectors. Following detailed discussions of their respective issues, the groups presented their recommendations. These are summarised in section three of this report. 2.17 The closing session of the Dialogue commenced with observations by Ms. Chandiwana, Deputy Resident Representative of the United Nations Development Programme (UNDP). She highlighted the urgency for economic reforms due to the sharp decline of donor assistance to developing countries, the need for their rapid industrialisation and the special demands of the process of globalisation. Ms. Chandiwana said that countries worldwide recognised that many of the performance limitations of the public sector can be addressed by the private sector. She mentioned that a Private Sector Unit was recently set up in UNDP in recognition of the important role of the private sector. She stressed that UNDP supports privatisation and economic restructuring, and an increased role for the private sector in the economy. Ms. Chandiwana noted that the Dialogue addressed issues which are critical to the success of privatisation, such as political commitment, transparency, access to capital, the role of foreign investment as well as the overall transformation of the economy through deregulation, liberalisation and an improved investment climate. Finally, she emphasised the importance of good governance for a nation to succeed in the rapidly changing world economic environment. 2.18 Mr. Chetty, representing the World Bank, expressed his delight at the constructive and pragmatic discussion at the Dialogue, where privatisation was framed as part of an overall restructuring process, and the political commitment reflected in the speeches. He stressed the need not to lose sight of the key objective of economic restructuring which is to enhance efficient service delivery to the maximum number of people, foster economic growth and reduce poverty. Mr. Chetty noted that the steady speed of privatisation is important in order to minimise social, environmental and economic cost to the country. He highlighted the importance of raising public awareness and transparency, developing appropriate mechanisms to mobilise local participation, as well as enhancing Lesotho’s human capital. After acknowledging that privatisation is difficult in developing countries, Mr. Chetty said in conclusion that Lesotho has to meet the challenge of finding its own solutions that will stand the test of time. 2.19 In his closing remarks, Mr. Mashologu expressed hope that the Dialogue had contributed to an increased understanding of the complexities of the privatisation process, and the difficulties faced in its implementation, especially given the Privatisation Unit’s capacity constraints. He expressed his appreciation for the constructive criticisms and practical recommendations made by the participants, such as the need to strengthen the public awareness campaign. Finally, Mr. Mashologu requested the assistance of the participants in disseminating privatisation-related information and implementing the recommendations made at the Dialogue. 2.20 The National Dialogue was closed by the Honourable Kelebone Maope, Deputy Prime Minister and Minister of Finance and Development Planning. In his closing address, the Deputy Prime Minister noted that the Dialogue had provided an opportunity for participants from all walks of life to air their views on the process of privatisation and economic restructuring in Lesotho. He acknowledged that in the past economic discourse in Lesotho was often characterised by incomplete disclosure of the actual state of affairs in the state enterprises and the economy as a whole. He then expressed hope that this Dialogue, by providing relevant factual information, would help to clarify and correct any distorted visions that the public might have had before. The Deputy Prime Minister re-iterated the Government’s continued commitment to the implementation of economic reforms in Lesotho, including the privatisation programme. He urged the participants to help the entire nation to understand that there is simply no alternative to such economic transformation. The Deputy Prime Minister further stated that at the Dialogue it had become apparent that there still is a strong aversion to foreign investment among some local people. He said that at the same time discussions had indicated that, in view of the existing limitations of the local private sector, collaboration with the foreign investors is absolutely essential to the strengthening of the Lesotho economy. In conclusion, the Deputy Prime Minister expressed his appreciation for the useful contributions made by the participants at the Dialogue, and he urged all to do their part to implement the recommendations. III Recommendations 3.1 Group I - Labour Issues A. Establish a Committee comprising representatives of Government, trade unions and the business community to discuss with South African counterparts the possibility of Lesotho based transport companies delivering their services to South Africa and vice versa as this would create employment opportunities; B. Carry out general counselling of employees of state enterprises prior to the privatisation in order to inform them about the privatisation process and its implications; C. Advise employees who are affected by retrenchment about retraining opportunities and provide them with financial counselling; D. Use existing institutions for retraining; E. Government to provide some financial assistance towards the cost of retraining; F. Government to promote co-operatives by granting them special incentives as these can contribute to economic development in the country by mobilising individual resources; G. Implement divestiture of shares reserved by Government for workers through Employee Stock Ownership Plans; H. Government to strengthen the informal sector as alternative source of employment. 3.2 Group II - Participation by Nationals of Lesotho A. Empower people to participate in the privatisation process through (i) publicity aimed at reaching various interest groups throughout the country, and (ii) intensive public training and education about such concepts as share ownership, unit trusts and other forms of participation; B. Encourage participation in the Unit Trust by publicising the opportunity and conducting educational campaigns which should continue even after the Trust has been established; C. Encourage stockvels, burial societies and other existing savings groups to invest directly in the profitable privatised enterprises; D. Encourage people to form consortia to invest directly; E. Encourage managements of the privatised enterprises to bid, give their bid preferential treatment and allow deferred payments; F. Reserve shares for future employee participation and encourage them to buy shares through Employee Stock Ownership Plans with payments deducted at source; G. Amend the Privatisation Act to (i) to provide that some shareholding be reserved for local participation in all privatised enterprises, and (ii) require that all Sale agreements include a clause to allow future buy-back of shares by Basotho; H. Improve technical capacity of Basotho to bid by upgrading existing institutions which provide proposal preparation services (BEDCO, IEMS, NUL etc.); I. Request local banks to assist in privatisation; J. Restrict all privatisations through out-sourcing to Basotho; K. Establish a venture capital fund and matching grant scheme to assist local investors who qualify technically, but lack adequate financial resources; L. Strengthen capacity of existing institutions that provide entrepreneurial training (BEDCO, ETP, IEMS etc.) and encourage Basotho to use their services. 3.3 Group III - Future Implementation of Privatisation in Lesotho A. Strengthen the private sector to enhance efficiency in the delivery of services and products by using innovative means such as special awards; B. Intensify the public awareness campaign in order to ensure transparency of the privatisation process; C. Enhance Basotho participation in the privatisation process and private sector development through various schemes such as Unit Trust and guarantee schemes; D. Review the terms of reference and reporting provisions of the Privatisation Unit and the Private Sector Advisory Committee with a view to enhancing their operating capacity; E. Ensure that there are adequate mechanisms in place to safeguard assets of state enterprises in the privatisation pipeline; F. Government to develop and promote a long-term vision Lesotho 2020 and strategy with the objective of developing a culture of productivity and quality service. 3.4 Group IV - Public Awareness A. Increase dissemination of printed information about privatisation to various target groups; B. Engage voluntary services of different organisations, such as youth groups to assist with information dissemination; C. Hold regular radio programmes and various public gatherings in order to update the public about progress in the privatisation process, and advise on opportunities that it presents; D. Incorporate privatisation issues in the high school curriculum; E. Strengthen capacity of institutions that provide training to retrenched employees. 3.5 Group V - Utilities A. Ensure maximum local participation in the privatisation of the three utilities; B. Ensure transparency of the privatisation process; C. Review the composition of Boards in order reduce political interference and increase professional expertise; D. Reduce bureaucracy in order to increase speed of Government decision making; E. Set up an independent national regulator before privatisation of utilities; F. Where possible promote competition as part of privatisation and restructuring of utility services; G. Pursue management restructuring and related improvements in parallel with all privatisation options; H. Provide appropriate training to retrenched workers to enable them to provide some of the utility-linked services allotted to the private sector. Privatisation Unit Private Bag A249 Maseru 100 |
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Designers