Economic situation remains precarious
…as investors demand guarantees that the government will last its full term
FINANCE Minister Moeketsi Majoro says the economic situation remains precarious as international investors’ skepticism about the government’s ability to last its five-year term have affected the country’s ability to attract new investments.
Dr Majoro said this in a recent wide-ranging exclusive interview with the Lesotho Times where he also revealed that the government was toughening its stance on all non-performing parastatals and companies in which it has interests.
He said the likes of Lesotho Flour Mills (LFM), Econet and Avani Hotels had all been told to start making profits because the government had not entered into strategic partnerships for charity but to make profits.
Dr Majoro said while the advent of the four-party coalition government in 2017 had been welcomed by the international community as an important milestone in the restoration of the rule of law in Lesotho following a period of widespread impunity and instability from 2015 to 2017, investors had nonetheless continued to sit on the fence.
The four party coalition comprising the All Basotho Convention (ABC), Alliance of Democrats (AD), the Basotho National Party (BNP) and the Reformed Congress of Lesotho (RCL) came to power in the wake of the 3 June 2017 national elections.
The advent of the new government brought to an end the impunity and instability manifested in the commission of serious crimes by senior military officials. These included the assassination of former army commander Lieutenant General Maaparankoe Mahao and many other ordinary civilians.
And while the new government has ushered relative stability, Dr Majoro said investors remain doubtful of its ability to last the distance.
He said the situation had not been helped by the apparent policy discord within the government which was evidenced by some ministers going on radio to attack the finance ministry’s efforts aimed at restoring macroeconomic stability.
Dr Majoro said it had dawned on him that restoring investor confidence “was not an automatic event like switching on a light and “it will take longer than we first thought”.
He said the government had its work cut out in restoring confidence and growth as it inherited a weak “post conflict” economy where there was only M1, 5 billion in the reserves down from M3, 5 billion in the 2015/2016 financial year.
“In a sense you could call 2015/16 a period of conflict. It was a period of confusion and divisions in society and now we are under-going a post-conflict situation where trust is slowly being restored but it will not happen in an instant,” Dr Majoro said.
“We have been in power for several months and we realise that restoring investor confidence is going to take longer than we thought. I didn’t know this at the beginning and I just thought things would revert to normal like switching on a light.
“The first thing that happened when we came in was the investors saying, ‘it is great that you are here and things have changed. We are no longer fearful and that’s good. But are you really going to survive the next five years?’ So now it becomes a situation where they say, ‘we will watch you. Let’s wait and see before we put our money in’.
“This (fence-sitting by the investors) is what we are currently experiencing. I had informal discussions with some investors and they said that the change of government was powerful but for them to dig into their pockets, they need guarantees that the government will survive for five years. So, they are saying, ‘demonstrate to us before we do anything’.”
Dr Majoro conceded that investors were well within their rights to be cautious and demand guarantees of stability because it was the duty of any government to demonstrate that it was stable and it could guarantee the safety of investments.
“It is going to take a lot more work from us politicians to provide guarantees that we will in fact survive the five years and that we are committed to providing peace and macroeconomic stability.”
Dr Majoro said the investor confidence was also affected by the apparent policy discord where some ministers went on radio to attack investors over contracts that the latter had already signed with the government.
He urged his colleagues to refrain from making such attacks because they created the impression that Lesotho was neither stable nor an investor-friendly destination.
“We don’t want to go to radios and start making noise about contracts that we signed because we are trying to attract investors for so many other things. When you chase away a particular company they (investors) begin to ask, ‘do these people provide the stability we need to invest in their country’.
“Our approach needs to be cleaned up-it has to be firm, but it must also be one that does not paint Lesotho as unfriendly to investors. If we go and make noise about foreign investors, the domestic investors will also wonder and ask why government deals are negotiated on the radio. We have to be careful how we send out our message.”
Dr Majoro said finance ministers the world over will always come under intense criticism from their cabinet colleagues about the way they manage the purse strings.
He said the attacks did not matter “as long as the finance minister continued to enjoy the support of his Prime Minister”.
There have been rumours that Dr Majoro and Dr Thabane do not see eye to eye and whenever a reshuffle is mooted, Dr Majoro’s name is the first to be mentioned by observers among the likely casualties.
Dr Majoro however, dispelled any notions of bad blood between him and Dr Thabane, saying, “I’m still here because of the support of the Prime Minister”.
“He (Dr Thabane) is the one who would have kicked me out but he hasn’t. So it is obvious that there’s a lot of pressure coming from elsewhere but he hasn’t thrown me out and that’s because I have his support.
“Dr Thabane is a very experienced prime minister and he has had many finance ministers. He knows his relationships and he will tell you that, ‘I know your colleagues will try to undermine you but I will protect you because it is my responsibility to protect you.’ There are a lot of controversies that I need to stay away from and what’s important is that my anchor is the prime minister. Everybody else doesn’t matter.”
Dr Majoro also revealed that he has been meeting with companies in which the government has a stake to emphasise the need for turnaround strategies that will ensure profits and dividends.
One of these companies is the LFM which is run as a joint venture between the government and the American-based Seaboard Overseas and Trading Group which bought a controlling stake for US$10 million in 1998.
Twenty years down the line, LFM has never declared profits or dividends thus depriving the government and the nation of its share of revenue from the strategic investment.
Despite its failure to make profits or declare dividends, Seaboard is reportedly seeking a new 10 year contract to continue as the investor in LFM.
Dr Majoro said he met Seaboard officials last week and told them that the government was only interested in a deal that would guarantee profits.
“In my budget speech I complained about Econet, Avani and Lesotho Flour Mills. But I also indicated that Avani paid a dividend of M7 million. I’m happy to report that there is considerable cooperation with Avani. In fact, since the budget speech our cooperation with these three companies has improved considerably.
“They (companies) can come to my office to negotiate but we have a very clear policy that they are in business for profit and we want to see profit.
“Last week I had a meeting with Lesotho Flour Mills together with the shareholder representatives, namely the finance, agriculture and trade ministers. We explained to Seaboard the simple concept, saying, ‘gentlemen we are in business for profit and if you are in business for charity you are not the partner that we want’.
“The conclusion of our discussions was that the issues that the government side is raising are important and they need to be looked at.
“We are proving leadership to Lesotho Flour Mills and before we discuss a renewal of their contract, the important thing is to reset Lesotho Flour Mills on a business footing where it will make a profit,” Dr Majoro said.