Transforming the business environment

Transforming the business environment

MASERU – SINCE inception in 2007 the government’s Private Sector Competitiveness and Economic Diversification Project (PSCEDP), in the Ministry of Trade and Industry, has helped transform the business environment by helping remove obstacles that hinder investment. Funded by the World Bank, the project has been instrumental in improving the business environment and diversifying sources of growth for Lesotho’s economy. And recently, the project has added another crucial element to its mandate. It is now also the Prime Minister’s Delivery Unit (PMDU) whose role is to remove obstacles to investment, create public-private dialogue and drive economic reforms. This week we spoke to Chaba Mokuku, the head of the PSCEDP and the PMDU, about the project’s milestones and future plans.

Tell me how is the project going so far?

First, it is important to mention that this is a Lesotho government project. As such, all that it has achieved has been a result of collaboration from all stakeholders within the government and outside. We have the World Bank-financed project which is the Private Sector Competitiveness and Economic Diversification Support project (PSCEDP). Its primary objective is to enhance the private sector’s competitiveness by improving the business environment and supporting economic diversification.

The project is founded on the National Strategic Development Plan whose emphasis is making the private sector the engine of economic growth and reconfiguring the economy from being consumer-based to export-based. The idea is to attract both domestic and foreign direct investment by removing obstacles making it difficult to start, operate and even close businesses. We are also diversifying the economy by strengthening specific value chains in tourism, commercial agriculture and manufacturing. There is also the economic diversification support project financed by the African Development Bank.

What have been the project’s milestones so far?

Our guide is the World Bank’s annual Ease of Doing Business survey which collects data about the business environment in 190 countries. There are indicators on which we opted to focus based on the lifecycle of a business. By lifecycle we mean the whole journey from registering your business, obtaining the required licenses, getting permits, applying for electricity connection and getting credit. We are also talking about the process of winding up a business because if the insolvency regime is cumbersome the cost of credit goes up and it puts off the investors.

What has been the progress in improving their indicators?

Removing barriers is not an event but an ongoing process. You have to start with the targets within reach. On starting a business, we established the One-Stop Business Facilitation Centre (OBFC).
It used to take months to register a company and you needed a lawyer. A woman needed her husband’s permission to register a business. The company registry was located within the Law Office while licensing was done by the Ministry of Trade. Both systems were manual.

It would take weeks and even months just to reserve a company name because officers had to go through hundreds of paper files to avoid duplication. All that changed when we replaced the old Companies Act and established the OBFC. That helped streamline business processes. Everything is done online and the payment system is automated. It now takes a few days to register a company and it can be done in hours if documents are in order.
It’s been transformational because apart from making it easy to register companies, the OBFC also formalises businesses and widens the tax base.

What is the next innovation for the OBFC?

The next phase will be the registration of all SMME’s. I must also mention that the business licensing and registration law is going to help formalise a lot of businesses. The objective is not necessarily to make them pay tax but to have a database that informs the government’s policy interventions to help the private sector. We saw the importance of a database during the distribution of the Covid-19 relief fund. Registered companies could easily present their credentials but we had to start building a database for informal businesses and that delayed the payments.

So, what’s next?

Access to finance has always been a problem for both companies and individuals. We supported the establishment of the electronic credit reporting system to facilitate efficient supervisoion of the Credit Information Bureau by the Central Bank. We supported the establishment of an automated Credit Information Bureau. The credit information bureau was already there but it was very difficult for the Central Bank to supervise because it was done manually.

The coverage of the credit bureau is slightly over 15 percent of the adult population, which is quite good.
Being covered makes it possible for financial institutions to assess your creditworthiness.
Together with the Central Bank, we are now exploring ways to assist financial institutions with a credit scoring system. It’s one thing to have credit information and quite another to be able to interpret the data, make an informed decision and assist the person.

Is the credit information bureau related to the Movable Collateral Registry?

We have helped engage a consultant to assist the government to develop a policy for use of movable assets as collateral. Right now, you can only use immovable assets like a house and land as collateral.
The new policy was translated into secured transactions law which then led to the regulations that saw the establishment of a collateral registry where movable assets are registered for use as security.

A lender will check the registry for the property registered under your name before giving you a loan that is less than the value of the registered asset. This can be furniture, electronic goods or livestock.
That system has been transformative in countries like Liberia and Colombia where it has been implemented.
It unlocked millions of dollars in credit.

That, of course, is also the spirit of the leasing regulations you have helped design.

Precisely. You can be a good engineer who can construct roads but you won’t be able to deliver if you don’t have the right equipment. That is where leasing comes in. You can rent equipment and use it to make money.
That means you don’t need to have the huge capital for equipment. We have assisted the government to develop the regulations for that. Leasing significantly reduces the start-up costs. It incentivizes knowledge rather than capital.

What have you done about facilitation of cross-border trade which is one of the indicators in the Ease of Doing Business report?

We assisted the Lesotho Revenue Authority (LRA) with the Automated System for Customs Data (ASYCUDA) which helps with the movement of goods and services across borders.
That is a trade facilitation issue. The goal is to reduce the time, cost and procedures of trading across borders. Our assistance came in the form of upgrading a system they already had. We have also connected the LRA and the South African Revenue Services so they share information in real time. We are currently working on establishing a single window for the border agencies. The current system of multiple offices and forms doesn’t help trade.

If you want to export or import something today you probably need approval from the Ministry of Trade and Ministry of Agriculture and Food Security. Then you need to approach the LRA for the necessary documentation.
There might be the elements of the port health and phytosanitary measures in there. At all those offices you have different forms to complete manually based on their respective legal frameworks. You can imagine the cost and time needed for that process. We are saying one front-office can handle those things. Each ministry or agency can collect the information it requires electronically.

But for that to happen you have to electronically connect the different departments. Each trader will have a unique reference number which will make it easy for information to be populated in the different ministries and departments. Together with the Ministry of Trade and LRA, we have engaged a consultant to work on that project.

Then there is the property registration indicator.

We have assisted the Land Administration Authority (LAA) to introduce online services for land transactions to facilitate implementation of the recently published amendments to Deeds Registry Regulations and Land Regulations. One can lodge applications for land transactions online. The system also has a module for online payments. This will significantly reduce the time, cost and procedures in property registration. That system is ready for launch.

Is that the same intervention on the construction permit?

The construction permit system has been automated as well. That means architects can apply for building permits electronically. This significantly reduces the time it takes to get a construction permit.
Apart from the huge financial savings that come with the automated system, there is also the fact that it reduces human interaction and red-tape. This instantly unlocks the potential of the construction sector to contribute to the economy. There have been some teething problems with the system but recent reports indicate that there is some improvement.

How far is the insolvency law you mentioned initially?

The insolvency law is still pending. That law is crucial because it determines how fast a business is wound up or rescued. It’s not an easy subject or law. We had to sensitise all stakeholders about the importance of the law. I think now there is appreciation and understanding. There are two key features of the law that are going to be transformational. The first is that it is going to help speed up recovery. When a company becomes bankrupt the liquidation becomes faster.

Second, there is provision for business rescue which the current regime does not provide for. This is where a business is struggling but analysis shows that it can be rescued instead of being liquidated. This is an important provision because it helps to save jobs. There’s also cross border insolvency issues. We also want to harmonise our insolvency regime with that of other countries.

But these reforms work well if there is a comprehensive investment policy for the country.

That’s true and it is why the government is in the process of reviewing the investment policy which will inform the development of a comprehensive investment law that will help protect both local and foreign investors, thereby attract more investment.

But that is futuristic. What is happening now?

Right now, we want to promote economic diversification. We have to scale up the fruit farm project that has been successful. We are going to roll it out by attracting foreign direct investment in the project. We want communities to consolidate their land and use it as equity to partner with investors.
There are other models we can use but the plan is to scale while making the communities the cog.
We are looking to strengthen the value chain for the whole agriculture sector.

The focus is on manufacturing, agriculture and tourism. With tourism we will work closely with the Lerotholi Polytechnic which we have just supported, through the African Development Bank, to develop a very good curriculum on hospitality and tourism. The aim is to improve the skills and services which are critical in strengthening the value chain in tourism. Similarly, skills development is going to be crucial in strengthening the value chains within the agricultural sector. For horticulture, the intention is to partner with the National University of Lesotho to establish a centre of excellence. You cannot develop any industry without having a comprehensive skills development programme in that sector. Developing the entrepreneurship ecosystem is key.

We often talk about access to finance but that is not the only constraint. I can give you money now but if you are not an entrepreneur you are going to blow it and the business will collapse. You need to build an ecosystem that ensures there is an effective and efficient business support system that includes incubators and accelerators. That is where the African Development Bank project is going to focus. We have to find innovative ways of financing start-ups.

We are working with the World Bank and the African Development Bank to build a comprehensive entrepreneurship ecosystem. We are going to expand the Business Plan Competition by partnering with the private sector. We also have a business linkages programme that encourages big businesses to source inputs and services locally. The idea is to have a registry of SMMEs where companies can find suppliers of goods and services.

But you need a strong policy framework to support such initiatives.

We are currently working with the Ministry of Small Businesses to develop an SMME policy that will translate into law. We are also working on a microfinancing programme under the African Development Bank.
We are saying there should be financial inclusion for businesses and individuals. Financial institutions have to develop products that meet the needs of SMMEs. You can raise finance from huge institutions for onward lending to the SMMEs. The interest rate will be lower and the products will be tailor-made for the SMMEs. We need to support financial institutions, the intermediaries and the beneficiaries so that the default rate is low and the businesses thrive. We are working on capacitating everyone within the whole entrepreneurship ecosystem.

The project now also looks after the Prime Minister’s Delivery Unit. How did that come about?

As a project, we have always been facilitators. We work with implementing agencies that include regulators, parastatals and ministries. We have been working with those institutions that formulate policies and implement laws. We have worked with the operational arms of these institutions to strengthen their operations. We are working with the private sector to improve their competitiveness. The goal is to improve the business environment. But the question is how do we ensure that we remove obstacles and constraints to investment? An investor is looking for a lease and the LAA delays. He goes to the Ministry of Local Government to complain but nothing happens.

Who removes that roadblock? There is no institution with the mandate to deal with that. That is why the Prime Minister and the Cabinet made a conscious decision to say we need a unit that will help to coordinate reforms and remove obstacles. That institution is the Prime Minister’s Delivery Unit. We have a cabinet sub-committee on investment promotion and economic reforms. This sub-committee is responsible for attracting investment and creating an enabling environment. We as a delivery unit are a secretariat to that sub-committee. We also facilitate public-private dialogue to deal with investors’ concerns.

Our role is to ensure that the committee’s decisions are implemented. This is in addition to our role as a facilitator of public-private dialogue where we have all role players in the economy, including the Prime Minister, ministers, regulators, civic society and private sector. In those meetings, investors will raise project-specific issues that need to be addressed. There is also a platform for information sharing. In the last two webinars, we were focusing on access to finance.

How has been the journey so far?

The journey has been exciting and the feedback from stakeholders is great. My humble opinion is that we should institutionalise the Prime Minister’s Delivery Unit. We have to legislate it to make it a permanent unit.

Staff Reporter

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