THE government recently announced that it had licensed five new companies to the trade wool and mohair as part of its efforts to localise the industry. The new entrants have effectively ended the brokering and auctioneering monopoly in the market. In this wide-ranging interview with the Lesotho Times’s (LT) Bereng Mpaki, Small Business Development minister Chalane Phori (CP) says more licences are available in the wool and mohair business. He also unpacks the government’s vision with the wool and mohair policy and some of the lessons learnt along the way. Below are some of the excerpts of the interview.
LT: The government recently announced that it has licensed four new companies to trade wool and mohair on behalf of Basotho farmers. What motivated this decision?
CP: Actually, these licences have always been open for interested persons to apply for provided they met the requirements. However, following the incessant court cases between the government and wool farmers culminating into a demonstration, the government decided to reduce the size of the operating space for wool and mohair brokering from 10 000 square metres to 5 0000 square metres. This change which was done by the cabinet, is the one that has resulted in increased interest from the market.
LT: Are there any other provisions of the regulations that have changed?
CP: As I have already indicated, the regulations have not changed except the part which talks about the operating space for a brokering licence. This decision was arrived at after we observed that the provision was an obstacle, and now that this change has been made, players in the industry are happy.
But due to the politicisation of the issue, there are still some politicians trying to influence some farmers to continue pushing for permission to trade their fibre outside the country even though the broker who was operating from the outside is now going to operate from within the country.
LT: You have alluded to the outcry of farmers regarding the introduction of the wool and mohair regulations. Do their concerns make sense to the government?
CP: With change, there will always be some level of resistance to be expected. As government, ours is to consider the substance of the farmers’ complaints and determine if they are genuine. Where we agree that the farmers’ concern was legitimate was on being forced to trade with one broker, especially now that now that broker is experiencing payment challenges as we can all attest.
In response, our government which is at the service of the electorate, has indeed heeded that concern hence the decision to licence more players to give farmers freedom of choice to trade wool and mohair within the country.
LT: With some of the licensed companies based in South Africa, where are they going to operate from?
CP: They are expected to set up facilities in this country as required by the law. The regulations stand as they are except the size of the operating space for wool and mohair brokering licence. The regulation basically centres on the domestication of the wool and mohair sector so that its trading can be done in the country. And barring a few challenges, the localisation policy has been hugely successful to date.
For the first time, we have seen US$33 million coming into Lesotho’s economy to increase our foreign reserves. For the first time, we saw our transport operators generating M4 million, and for the first time, we collected dipping levy amounting to M1, 9 million remitted to the relevant ministry since 2010. For the first time, we have not had ‘tax deductions’ from farmers’ proceeds as has been the case with BKB in the past.
LT: How do the new entrants affect the existing licence holder Lesotho Wool Centre (LWC)?
CP: That will be for LWC to respond to. But from a competition point of view, I believe competition is healthy. As a businessman, for me to be able to supply the product that is needed by the market, competition keeps me on my toes. And from government point of view, the people who are going to benefit most are the farmers as they will now have the liberty to choose which broker to trade with depending on the prices offered.
Besides better earnings for the farmers, the arrival of the new licensees is going to bring more job opportunities. Already the LWC has employed over 100 employees and this means that the others will increase those numbers. We can also expect skills transfer and foreign currency flowing into the country.
This will have many spinoffs. It is unfortunate that many people are only concentrating on brokering licences, but the truth is that the regulation provides for many other licences people can apply for. There is brokering licence, auctioneering licence, testing licence, trading licence and processing licence among others. Many people are only focused on the brokering licence as if it is the only one available.
But it says to us as the ministry that we still have to improve our efforts to propagate information on the regulations on what it actually entails.
LT: Farmers have often expressed concern that government makes policy decisions affecting them without their consultation. Were they involved during the decision to award more wool and mohair licences?
CP: This is not true because I never knew the Chinese investor (Stone) Shi until I was introduced to him by the farmers. So, I do not understand their claim that they are not involved in these decisions. Also, when we started developing the policy we consulted the farmers. It is one thing to involve the famers and quite a different thing if they refuse to be consulted. Therefore, the government wouldn’t abandon its policy position if the farmers are choosing not to participate.
So, when we realised that the association is not intending to be involved, we approached the private traders and individual farmers. But since the association is more influential in disseminating information to the people, it would appear as if all the stakeholders were not consulted in the process. Besides, the decision to award more licences is the responsibility of the government as the policy maker, and has nothing to do with farmers.
LT: In the past BKB expressed its unwillingness to work with the current government citing its hostility towards it. Has the relations between the government and BKB improved?
CP: This one will be for BKB to answer, but from the government’s point of view, we are happy that they have finally reconsidered and decided to come work here with us. People say and do certain things during a battle but after the dust settles, you will find that some of the decisions that were made in the past are reconsidered. I was not fighting BKB as a company, but I was merely against its practice that was against the laws of this country.
LT: You have previously held a view that there is some money that BKB owes to Lesotho. Do you still hold that view?
CP: That is still so, and I maintain that our tax authorities must stand firm on this one. There is a notion that BKB does not owe Lesotho Revenue Authority (LRA) any tax but owes Basotho farmers. But I beg to differ because the money was deducted from farmers’ earnings by BKB and this was done under pretext that it was tax meant to be remitted to the tax authorities. There is no way someone will; for example, hold a public hearing claiming to be a Minister of Small Businesses and then, I, as the substantive minister, do not react to correct this.
Similarly, if someone collects tax pretending to be a tax agent then a responsible tax authority has to have a say in that. That is my argument. The fact is that farmers’ earnings have been significantly reduced through a deduction that has been described as tax deductions and I therefore think the belief that BKB does not have a case to answer lacks substance.
LT: What is the status of the three month moratorium to trade the remaining wool and mohair that was announced by Prime Minister Thomas Thabane?
CP: The moratorium was announced during a period when our fibre was banned in South Africa due to the anthrax outbreak in some parts Lesotho. So, given that ban, and the lack of clarity on what needs to be done to suspend the regulations, that made it impossible to immediately allow for trading of fibre from outside the country under those circumstances. And now that the brokers that were operating from South Africa are now here, that issue has been overtaken by events.
LT: The Central Bank of Lesotho has claimed that LWC has exchanged farmers’ wool and mohair for machinery thereby violating its license provisions. Does the Ministry condone this trading behaviour?
CP: During the 2016/17 shearing season, LWC undertook a pilot phase of trading of wool and mohair locally where fibre from selected districts including Mafeteng, parts of Qacha’s Nek, Butha-Buthe and Mohale’s Hoek among others were involved. It was during this stage that LWC established the market to sell the fibre. The centre also used money from its coffers to pay the farmers whose fibre was involved in the pilot. The centre then used the wool and mohair proceeds to buy the machinery to recoup the funds used to pay the farmers. This means that no machinery was bought from the proceeds of the auction that began in November 2018 for the 2018/19 season.
LT: There are farmers who have still not yet paid by LWC…
PHORI: (Cuts in) Yes, there are some farmers who have not yet been paid, the reason being the anthrax outbreak that we experienced in the country. As a result of South Africa temporarily banning our fibre, 19 containers of fibre were unable to be shipped to the buyers. And since the nature of the brokering business is such that you get paid upon releasing fibre, LWC was therefore unable to pay the farmers with fibre still in the country. In this case, circumstances were beyond the LWC’s control.
The outstanding amount yet to be paid to the farmers is currently at M3 million although it was initially M6 million but LWC paid from its coffers to halve it. I understand the remaining payments will commence from 28 August this year.
