Bank governor rolls up her sleeves

By Tsitsi Matope

MASERU — The Central Bank of Lesotho (CBL) governor, Dr Retšelisitsoe Matlanyane, says the implementation of broad-based strategies aimed at developing the country’s economy should be prioritised by every stakeholder.

Speaking on a wide range of economic issues this week, Matlanyane said stimulating the economy demands commitment, competence, focus and innovative solutions from both the public and private sector.

Matlanyane further highlighted that while the Central Bank designs and implements the country’s monetary policy, advises the government on the national budget and other macroeconomic policy issues, all stakeholders have a critical role to play in ensuring Lesotho’s economic well-being.

“There is great potential and opportunities in all sectors of the economy,” Matlanyane said. “But the question is: how can we all collaborate to ensure maximum exploitation of what we have to better benefit and serve the nation?”

The governor emphasised the importance of removing the hurdles stifling the growth of both primary and secondary sectors of the economy.

“There is a lot of under-utilisation of opportunities and potential in most of our sectors; we need a set of initiatives to unlock and grow these under-performing sectors for Lesotho to fully realise her economic potential.”

Matlanyane said the agriculture sector has immense potential to diversify and improve the economy.

“The development of the agricultural sector involves a number of issues such as the education of farmers on the best farming methods, development of organised markets, storage and packaging, infrastructure development to enable easy and quick movement of produce, abattoirs, quality assurance, irrigation systems, financial support, diversified production, value addition facilities and skills development.

“This value chain presents massive employment opportunities.”

She, however, conceded that commercialising the agriculture sector requires a complimentary land tenure system.

“The land question is of utmost importance because it resolves the challenges around access to finance, lack of adequate land and sustainability of operations if the land is on a lease basis.”

Matlanyane said a fresh look at how to continue fixing the economy as a whole, is urgently needed.

“We are in a period where the global economy is emerging from the recession that has hit us for the last five years. And yes, some economies are severely depressed particularly in the developing world where countries like Lesotho would not recover overnight. It is a gradual process that would demand honest, hard work, especially in the areas where we have potential to see better results.”

She also noted that Lesotho has a demand-driven economy, which makes the development of the production and manufacturing sectors critical.

“This would ensure we are able to satisfy our needs while at the same time not forgetting the importance of an efficient service sector.”

The service sector which includes tourism, health, water, disaster and early warning systems management, retail, social security, education, defence and security and financial among others, plays a critical role in furthering the development of the economy, the governor added.

“The government is responsible for formulating policies and also provides the bulk of the basic services needed on a daily basis. However, partnering with the private sector can see us achieve more. The government understands this and has, in the past few years, been pushing hard for the creation of both a stable and conducive environment that strengthens the capacity of the private sector,” Matlanyane said.

The government, Matlanyane added, is continually working at creating more space for the private sector through the National Strategic Development Plan (NSDP).

The NSDP was formulated by the government last year to act as an economic-stimulant and guide various sectors on what they need to focus on to realise the required growth.

“The government continues to work at providing both soft and hard infrastructure to cater for various needs. For example, the formulation of legal reforms for the protection of consumers, facilitation of the establishment of businesses and ensuring their sustainability, are a result of the soft infrastructure-development.”

Such efforts, she noted, would help the private sector perform better, attract more foreign investment, make it easy for more businesses to register and access finance  in a more secure and regulated environment.

At the same time, there are provisions that allow financial institutions to get justice from the commercial courts, in case of disputes with debtors, Matlanyane said.

She added that the designing of the Millennium Challenge Compact was necessitated by the need to grow businesses and make the private sector the engine of the country’s economic growth.

“One of the challenges we identified during the design-process was the inaccessibility of finance from banks by many small to medium-sized enterprises. Further analysis also showed the banks were sometimes not to blame because in some cases they found it too risky to lend money, especially when some business proposals were not convincing enough to recover their money. It is a fact that some banks have failed to recover some of the money they lent because of the inability to trace borrowers.”

Such challenges, Matlanyane said, saw the Central Bank joining other stakeholders to advocate for the provision of national identity documents, which have unique identification numbers for each individual.

“Another critical issue was the need to facilitate the operations of a Credit Bureau by passing relevant legislation.”

The Central Bank last year registered and licensed a Credit Bureau, which is expected to start operating before the end of this year.

“The Bureau will help to screen borrowers to establish their credit-worthiness. Together with the unique identification document (ID), this will also help trace borrowers to facilitate debt recoveries,” Matlanyane noted.

Matlanyane highlighted the establishment of modern commercial courts as a sure-fire way to ensure the swift handling of money-related cases.

“Apart from efforts to tackle credit issues, we also participated in processes that sought to define property rights for use as collateral and this is where the Land Administration Authority and land-leases come in.”

The collaborations, she added, also led to the formulation of the legal rights of married persons, which saw women intending to start businesses being able to independently borrow money from various financial holdings.

Most of the interventions put in place so far are working and yielding the desired results of unlocking credit, Matlanyane declared.

“I am happy to say credit is growing for both businesses and households. The latter is, of course, higher than credit to businesses. We would like to see more credit for business although we are aware there is a significant number of people who use personal loans for business because they are easier to get. This is actually small to medium enterprises lending.”

She said although credit has grown to approximately 70 percent of deposits,  interest rates remained stable last year with an average of 5.5 percent.

Matlanyane further explained that other interventions have created more jobs, particularly in the manufacturing, textile, construction, mining and service sectors.

“The fact that the global economy is recovering can also be attributed to improved performance in various sectors.”

According to the CBL, although the mining industry last year operated under its expected capacity due to expansions at most companies, the sector performed well in 2012 and also showed promise for the future.

The boom in the construction sector since 2010, she said, is also positively impacting on the country’s economic growth.

“This has not only created employment in the construction sector but also facilitated more investment.

“The shopping malls, for example, attracted foreign businesses and new partnerships.”

She said the current construction of dams and roads countrywide also showed efforts to improve the quality of life and have made developed areas easily accessible and attractive to investors.

“We are monitoring the water sector, which we think is poised to grow even more with the coming of the Polihali Dam, which is the second phase of the Lesotho Highlands Water Project, and the current construction of the Metolong Dam.”

Lesotho, the governor said, can do better this year considering the stable inflation rate, currently at five percent.

“Our inflation rate has been lower than that of South Africa for a number of years now.”

Matlanyane further said stability in the inflation rate has also stabilised food prices while last year’s improved farming output also helped the situation.

She further explained that there were also multiple strict inflation control measures in place which helped keep inflation in check.

“We target the reserve money because we should have reserves equivalent to every Loti on the market or money in circulation. This is because our policy is geared towards protecting the value or purchasing power of the Loti, which can be affected by inflation if prices go up.

In so doing, we indirectly control the prices using certain market-based instruments. The supply and demand factors also control the prices.”

Other responsibilities that bring stability to the financial sector are through the financial intelligence unit that investigates money-laundering, financial terrorism and other financial crimes, Matlanyane said.

“This is all covered in our financial regulations. If we notice suspicious transactions, we react immediately in concert with law-enforcement agencies. We have suspicious cases reported to us and the financial intelligence unit, by financial institutions.

However, Matlanyane said the CBL has been collaborating and pushing for a strong, stable, improved and user-friendly financial sector for the last two years.

The bank spearheaded the development of a Financial Sector Development Strategy which is an extension of the financial sector chapter of the NSDP.

This strategy received cabinet approval late last year and will be disseminated and launched later this month, the governor added.

The strategy, she said, addresses issues of resource-mobilisation, regulation of financial institutions, development of markets and financial inclusion.

Financial inclusion, she noted, looks at access to finance and services-provision, creating understanding and participation of all people in the financial sector, other collaborations and the implementation of new financial technologies.

Matlanyane explained the importance of fostering a culture that promotes resource-mobilisation, which can help improve savings and trigger new investments.

“It’s a source of investment. If we don’t save, we can’t invest.”

She said the development of markets can help people access long-term finances for long-term projects.

“Take for example, if companies can access the pension fund when they want to recapitalise and then pay beneficiaries with interest. By so doing, companies can, for example, buy stocks and the beneficiaries expect more payouts.”

On the other hand, she said continued efforts to strengthen financial regulations created confidence in the public, which in turn gains confidence in investing in well-regulated banks.

“We are happy to say we have gone a long way in terms of establishing modern payment systems through electronic cards, mobile phones and the internet. Last year, we were able to join a regional system called the Southern Africa Development Community Interbank Regional Electronic Settlement System  for electronic transactions with countries like Swaziland, South Africa and Namibia.

Before the end of the year, we would have automated cheques to clear in a day and this would allow funds to move quickly and create convenient transactions.”

Another score made by the Central Bank includes the formulation of the Insurance Law, which has, so far passed through parliament and is currently being reviewed by the Senate.

The Insurance Law is expected to improve the regulation of the insurance sector.

“The ultimate goal is to ensure we have a financial sector built on principles of integrity and strong enough to withstand financial turbulences and shocks, both internal and external.

We want to promote the growth of a healthy economy and empower those that would like to walk with us on this journey,” she said.

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