…to enhance investor confidence and economic stability
Moroke Sekoboto
THE Private Sector Foundation of Lesotho (PSFL) has urged the government to abandon its outdated administrative industrial model and adopt a modern, legislated Special Economic Zones (SEZ) framework to boost investor confidence and strengthen economic stability.
The recommendations are contained in a report issued this week by PSFL Chief Executive Officer, Thabo Qhesi, following the 2026 SEZ Conference held in Durban, South Africa, last week.
The report recommends the enactment of a dedicated SEZ Act, the establishment of an autonomous one-stop investment authority, land tenure reforms, performance-based investment incentives and stronger cross-border integration with neighbouring South Africa’s Maluti-a-Phofung SEZ.
According to Mr Qhesi, Lesotho’s current investment framework places the country at a competitive disadvantage in attracting foreign direct investment. While South Africa has operated under a dedicated SEZ law since 2014, Lesotho continues to rely on administrative incentive packages managed by the Lesotho National Development Corporation (LNDC).
The report warns that Lesotho’s garment and textile industry, which employs between 30 000 and 40 000 people at its peak, remains highly vulnerable to external shocks, particularly changing tariff regimes and uncertainty surrounding the United States’ African Growth and Opportunity Act (AGOA).
It argues that international benchmarking across 13 high-performing economies shows that countries with legally protected and specialised economic zones are better equipped to withstand such external pressures.
“Lesotho’s export manufacturing base has, for four decades, been built around the LNDC’s industrial estates rather than a legislated SEZ regime,” Mr Qhesi states in the report.
“The LNDC provides factory shells, serviced industrial land and an incentives package, including tax holidays, that helped the textile and garment sector grow from a handful of factories in the 1990s to becoming the country’s largest private-sector employer, supporting an estimated 30,000 to 40,000 jobs, mostly held by women, and historically contributing between 12 and 21 percent of GDP.
“That success has, however, been narrowly based. Garment exports reached roughly US$300 million (M4.9 billion) in 2024, split almost evenly between South Africa and the United States under AGOA preferences. The sector remains heavily exposed to shifts in US trade policy, as illustrated by the factory closures reported in 2025 despite a reduction in tariffs from 50 percent to 15 percent. Vertical integration into upstream inputs, including denim milling and a proposed knit fabric mill, is underway but remains incomplete.”
To modernise Lesotho’s investment policy, the report outlines several urgent structural reforms.
These include fast-tracking a comprehensive SEZ Act to provide a statutory framework governing land use, customs administration and international arbitration.
The report also recommends the creation of an autonomous SEZ Authority with an independent governing board to serve as a one-stop investment centre.
It further calls on the government to commit predictable public funding towards industrial infrastructure, ensuring that utilities, roads and other essential services are fully developed before attracting international investors.
On land reform, the report recommends reviewing Lesotho’s restrictive citizen-only leasehold system to allow secure, long-term lease arrangements for foreign investors.
It also proposes replacing blanket tax incentives with performance-based incentives linked to independently audited export targets and employment creation.
“The government must overhaul land tenure by revising the restrictive citizen-only leasehold system to offer secure, multi-decade lease mechanisms directly to foreign companies. It should also ban unconditional corporate tax breaks upon entry and instead tie fiscal incentives directly to audited export milestones and job metrics,” Mr Qhesi says.
The report stresses that transforming the economy will require active participation from the private sector.
Mr Qhesi says domestic businesses and industry associations must reduce their dependence on clothing manufacturing and diversify into higher-value sectors such as logistics, regional business services and agro-processing.
He cites Mauritius’ gradual economic diversification strategy as a model Lesotho can emulate.
The report further recommends that private sector representatives be given voting rights on future SEZ regulatory boards to ensure commercial interests are directly represented in policy decisions.
Regional integration is also identified as a key driver of future growth.
The report highlights South Africa’s Maluti-a-Phofung SEZ, located along the Free State border, as an immediate opportunity for cross-border industrial development and supply chain integration.
It further urges Lesotho to lobby the Southern African Development Community (SADC) Secretariat to establish a dedicated SEZ annex under the SADC Trade Protocol to harmonise rules of origin and facilitate integrated regional manufacturing networks.
According to the report, such measures would allow Lesotho to leverage its geographical proximity to South Africa and position itself as a competitive regional manufacturing hub.
