Only a competent govt can stop the economic rot

0

Staff Writer

FINANCE Minister Moeketsi Majoro recently made startling revelations about how the government continues to be prejudiced of millions of maloti in potential revenue by companies where it has interests.

Dr Majoro’s disclosure that government only receives a pittance, if at all, from those companies that declare dividends while others have never declared anything in more than 20 years, is a serious indictment on successive governments’ failure to negotiate contracts and structure deals to benefit the country.

The revelations also demonstrate why it is essential that competent and professional individuals like Dr Majoro himself are appointed to oversee critical ministries and other government entities.

Such appointments are necessary to ensure the government does not walk blindly into lopsided deals like that of the Lesotho Flour Mills which has not posted a single lisente as profit or dividend in 20 years.

In a recent interview with the Lesotho Times, Dr Majoro was at pains to explain that despite all the glittering local and international headlines about the massive diamond finds that Lesotho routinely makes at its mines, the reality is that very little by way of profits and/or dividends have found their way to the fiscus.

Even when the country recovered and sold the 910 carat ‘Lesotho Legend’ diamond for a staggering US$40 million (about half a billion maloti), the government only realised US$3, 2 million.

The diamond, which was found at the Letšeng Diamond Mine in Mokhotlong in January this year, is the fifth largest ever recovered in the whole world.

But as Dr Majoro revealed, Lesotho is not raking in much from this and other diamonds. The reason is what the minister sees as lopsided contracts that successive governments have negotiated with mining companies.

Dr Majoro attributed the poor returns for government on the fact that ministers and their officials negotiated from a point of weakness where they did not know the true value of the mines and their operations. He said this lack of expertise and knowledge ultimately forced them to rely on the information that was provided by the mining companies.

He revealed that the government is entitled to only 10 percent royalties from the sale of diamonds but even that amount has been whittled down to eight percent after the mining companies successfully talked the government into settling for less.

“The thing is that we have agreements that out of every diamond we get a royalty of 10 percent…and you just know right away that this is a tiny figure,” Dr Majoro said.

“Our laws are such that even that 10 percent can be lowered by the relevant minister and all these mines and the previous ministers lowered that so right now Letšeng pays only eight percent. So, on this US$40 million diamond you can calculate what eight percent is and that is what we got.”

Dr Majoro attributed the poor returns for government on the fact that ministers and their officials negotiated from a point of weakness where they did not know the true value of the mines and their operations. He said this lack of expertise and knowledge ultimately forced them to rely on the information that was provided by the mining companies.

He added that in some instances the information provided by the mining companies was not a true reflection of a mine’s value or its potential.

“This is a matter of negotiation and the company says, ‘minister things are difficult’. The company says, ‘trading is difficult and we are depressed because of that’. As a minister, you then believe their story and sign the (royalties) deal with them.

“But after you have signed off, you discover that the real figures are different from what you have signed. But that is the contract that you have already signed for a fixed period of time.

“So it is clear that the government knows nothing about mining; does not have the capacity for mining and is therefore in a very difficult position to negotiate for these things. The private sector will always know a bit more than we know,” Dr Majoro said.

And this unfortunate situation extends beyond mining to other sectors including hospitality and manufacturing where the likes of Lesotho Flour Mills (LFM) have achieved infamy for operating 20 years without declaring any dividend or profit.

LFM 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.

Despite its glaring failure to make profits or declare dividends, Seaboard is reportedly seeking a new 10 year contract to continue as the investor in LFM.

And to his credit Dr Majoro told Seaboard officials a fortnight ago that the government would only enter into strategic partnerships to make profits and not for charity.

“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.

Lesotho cannot continue on the path of self-defeating policies. Business is for profit and if strategic partners cannot ensure returns then it is time to found new ones.

What is it that Seaboard will do differently to ensure that this time it makes profits? It is also worth asking why they have waited more than 20 years before implementing a turnaround strategy if at all they have one?

Even if they or any other company had a turnaround strategy, the success of such a plan can only be possible in the context of a government partner which fully understands business. That is why it is important that the government must be staffed with personnel who are capacitated to negotiate fair and favourable deals from an informed position and not that of ignorance as has been the case with previous governments.

Leave A Reply

Your email address will not be published.