Why Lesotho should or should not invest in a scouring plant

Vol.4, Issue 12

Writes Tjonane Matla

While we would all agree that the largest and most successful commodity association in Lesotho which controls 90% of Lesotho’s wool and mohair exports and recently contributed not less than, M300 million revenue to the Gross Domestic Product (GDP), the Lesotho National Wool and Mohair Growers Association (LNWMGA) seems to be taking a rather strange turn in its long desired investment in a scouring plant, just when the Government of Lesotho had leveled the grounds.

In this article, we would like to take our readers on a comprehension tour emanating from interviews with both LNWMGA CEO – Mr. Lefu Lehloba and the Lesotho National Development Corporation (LNDC) CEO – Mr. Joshua Setipa.

LNWMGA

According to LNWMGA CEO –Acquisition of a Scouring plant had always been a  desire of Lesotho’s small stock farmers but previous regimes never had interest, until in 2009 when the then Assistant Minister of Trade and Industry, Co-operatives and Marketing was invited to the LNWMGA Annual General Meeting held at Ha Mohale as keynote speaker. At that conference Hon. Khotso Matla requested the small-stock farmers to write to the ministry and formally seek assistance and guidance towards venturing into scouring. Further attempts were made in several lobbying and networking meetings by the then Assistant Minister but to no avail, which included one that he held with the former CEO – of BEDCO [now Minister of Communications Science and Technology] – Hon. Tšeliso Mokhosi and former High Commissioner of Lesotho to India Dr. Pieerbae at the association’s premises in Moshoeshoe II, to explore the idea, but still nothing transpired.

Years later a new Minister of Trade,  Dr. Leketekete Ketso was appointed, and he was more optimistic to the project than the previous minister, Popane Lebesa who never responded to the small-stock request until  leaving office. At the time that the ball started rolling, both the minister and farmers went to China in a search of a technical  investor/shareholder and to request the Chinese Government to lift up the sanctions it had previously imposed on Lesotho wool, which was still entering China through brokers, not with Lesotho as a country of origin.

We are told that the trip was a huge success as the Chinese lifted the sanctions, and also managed to attract a scouring company by the name Nimbo (Pty) Holdings Limited to co-invest with LNDC and LNWMGA where shareholding would be spread  51%, 30% & 19% respectively. LNDC was however gradually going to sell its stake to LNWMGA or the other wool and mohair sector entities  not affiliated to LNWMGA and forming 10% of the wool and mohair exporters.

According to Lehloba, the drafting of the shareholders agreement was rather not very convincing in terms of credibility as it appeared more of a scam- for lack a better word. The most critical clauses were either omitted or vague. For example the total capital amount required; consideration in terms of determining selling price methods; where the commodity would be tested, as wool or mohair has to be tested by an independent body accredited by international professional associations.

There were other issues like the prosessing capacity of the proposed scouring plant which was twice the production capacity of Lesotho’s. The issue of proposed site not being central – in Butha-Buthe, not in Maseru, thereby bringing in transport challenges for Qacha’s Nek farmers. Furthermore, LMPS already has infrastructure based in Maseru, where there is abundance of water as compared to Butha-Buthe, where the Mohokare River is still in its formation stages, leaving scouring with borehole water as the only option. Furthermore electricity and other basic infrastructure needed for a factory were yet not available at the proposed site.

“It was only when the small stock farmers requested for the explanations that the association was interpreted wrongly, and this even attracted lobbying and private meetings between us and the government officials”. Added Lehloba.

It is however worth mentioning that some issues were settled while on others, the LNWMGA was still not convinced. Most importantly the deal comes at the time that scouring business generally is not doing well in the region due to good wool and mohair prices when sold raw to international markets.

Lehloba concluded our interview by indicating that the association should not be interpreted as supporting the scouring investment plan. Unfortunately it has currently committed all its financial resources elsewhere, including the IFAD Wool and Mohair program. But what probably surprised not only the Government of Lesotho and LNDC should be why they declined signing the shareholders agreement and pay their stake over say, ten years?

LNDC

In an attempt of not only cleaning the window to enable transparency – the forth pillar of good governance; as a media house –  the Silo editor met with LNDC – CEO Mr. Joshua Setipa together with the corporation’s Public Relations Officer Ms. Ntšiuoa Sekete. From that interview, one could probably extrapolate why the trial balance could still not balance. We refer to trial balance simply because the initiative was still in fingerling stage and ought to have been simple and straight forward, but still we could still not put the pieces of the puzzle together!

“This issue had always been in every Mosotho child, it is a long standing desire of Basotho to have a scouring facility. I for one was born in Mokhotlong, and wool and mohair revenue contributed in not only financing my education but most of my basic needs when I grew up”. This was Setipa when breaking the ice.

He further confirmed that this initiative was pioneered and championed by the Ministry of Trade and Industry, Co-operatives and Marketing – resulting in a trip to China where two main objectives were met, that of negotiating the Chinese market access of wool and to magnet Foreign Direct Investment to partner with Lesotho in scouring wool and mohair.

The LNDC CEO further said: “This initiative falls within the mandate of LNDC to build industry, and furthermore adding value by scouring our wool and mohair makes sense as it creates more jobs for our people, let alone a saving for the farmers as BKB (the current LNWMGA broker) charges a premium for their service”

Setipa then confirmed what Lehloba had mentioned, that the selling price issue was resolved by guaranteeing the small-stock farmers proposal of selling at the open market price. He furthermore commented that apart from agreeing on selling at market price (to be based on the previous day’s index in Port Elizabeth & Australia), unlike the current situation where small stock farmers have to wait months before getting paid, the new model shall involve real time payment once pricing had been done.

In our interview with both LNDC and LNWMGA, we were made aware that there is a M360 million project on improving the quality of wool and mohair fibre in Lesotho. An initiative that we understand the LNWMGA does not want to implement concurrently with the scouring project. However it might be of paramount importance to mention that in the proposed shareholders agreement with LNWMGA, LNDC and Nimbo this component was key but vague on how it shall be implemented, yet very crucial in the whole wool and mohair price determination formula.

On the other hand, we were also made aware that IFAD and other stakeholders somehow advised LNWMGA on this investment in scouring initiative! Speculations therefore reveals that, IFAD must have advised LNWMGA to either delay, or not completely venture into scouring due to many reasons including that LNWMGA is registered as an association and its constitution does not allow scouring. Furthermore LNWMGA must have been cautioned for its lack of technical knowhow in scouring business, and the dynamics and complexities of the business.

It is therefore on this note that Setipa argued with IFAD in several of their meetings that ‘why should Lesotho wait for six years before investing into scouring?’ – ‘What a weak argument’ – ‘IFAD’s comments are not cost effective’. This commend might be driven by the fact that the Chinese company is actually bringing its 8 million kilograms capacity scour plant of which the opportunity cost of securing that kind of investment shall surely not be constant while the dynamic industry keeps on shifting.

‘IFAD in that debate ended up agreeing that their advice was based on own self-interests but not patriotism and Lesotho’s best interest therefore withdraw’; Setipa defending his case.

Setipa confirmed that in the mist of all these chess game, several unofficial meetings and lobbying took place including some which were held at the State House, where LNDC and Government would prove that there is zero risk for LNWMGA while LNWMGA would always found reasons for shifting the goal posts. For example involvement of notorious John Tsae (Jackpot & Meraka Abattoir owner) in the Chinese company Nimbo,  an issue which  Setipa dismissed by saying that John was not part of the company, even though he introduced the company to LNWMGA. He said Nimbo was a state owned company , therefore that issue should be interpreted as irrelevant and confusing to the matter on the table.

It must again be noted that the Butha-Buthe location was one of the key issues presented to LNDC. Unfortunately, it looks more like there is no record of response or rational from LNDC to LNWMGA on this matter, but if there was any, it was not brought to our attention. However on this note Setipa mentioned that a lot of factors were considered in selecting the Butha-Buthe location. One it that is a completely new industrial site, and hence the only way they could consider and properly mitigate the environmental concerns which LNDC is always criticized for (‘Mabolou). therefore waste management was the  key consieration. There was also a mention of other factors in support, including the fact that in few months’ times, Qacha’s Nek wuold only be three hours’ drive to Maseru. Moreover the Caledon Border post in Butha-Buthe was a fully commercialized port of entry with full functions of customs. IT therefore made sense to erect factory in Butha-Buthe as part of LNDC’s already existing plans to build a network of production centers across the country.

Why build scouring while everybody is closing?

In conclusion, the confident but despairing Setipa addressed many other concerns basing his line of argument from the Law of Comparative Advantage saying that Lesotho’s industrialization program has been proven to outshine other nations in terms of efficiency. Therefore it does not mean that because South Africa’s scouring plants are not at full capacity, Lesotho should factor that into its own plans. He said that South Africa used to be either number one or two in Africa in terms of textile exports to the United States, but has now been overtaken by Lesotho, who is leading the whole continent, and that is thanks to the brains that thought out of the box to make Lesotho what it is today.

“Trade is very volatile therefore does need dynamism and aggression, there are always solutions to challenges, or at least alternatives. I cannot commit tax payers funds on a hand shake with LNWMGA. I need commitment, and if they are over-subscribed financially there are alternatives. They must understand that. Above all wool and mohair are national commodities of which we could not possibly continue to create jobs for other nations”; Setipa in conclusion.

N.B.:

a)

Questions mostly asked by farmers?

  • If something goes wrong with the project, after LNWMGA resorting to selling locally, who shall bail out farmers?
  • Though Jackpot owner not an official stakeholder, what is it that can convince the farmers that the scouring plant shall not be white elephant, as the Chinese Government also has interest in Meraka Lesotho Abattoir, the same way as in this proposed venture?
  • If resources are invested in a scouring plant capable of handling twice country’s production capacity, where shall we procure more material to ensure no idle plant time?

b)

Quotable – quote!

•             “Just like other sectors – trade booms and recession is sometimes factored in. The diamond industry was not doing well for the last 18 months but now picking. In bad situations we shall stockpile and release our product when the markets are favourable. But remember our payments shall be real-time”.

•             “We shall become an immediate market for Free State farmers, who also suffer the same challenges as Lesotho. This is the same situation as for Basotho Canners whose 90% supply of asparagus is imported from South Africa under contract farming model.”

•             “We are not refusing to sign, but need some issues to be straightened.  Above all we shall sell our commodities to Lesotho scouring should the price be favourable.”

c)

Our opinions!

  • This issue needs a very serious, well scientifically – debated political decision by the Government of Lesotho, wool and mohair are more like oil in the Gulf – States. It is about envisioning and re-engineering the future of Lesotho.
  • Wool and Mohair are national commodities whose future shall determine the size and strength of (future) King Lerotholi’s empire and his decedents, therefore a proper national dialogue is essential in this matter.
  • In our opinion there is lack of trust derived from lack of consultation between stakeholders.

 

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