Cereals
Cereals Sector
Lesotho’s location, climate and soil present opportunities to invest in cereal processing for export to the region and major markets.
Introduction
The project is about adding value to cereals such as maize, oats, wheat, sorghum and sunflower by investing in processing facilities.
Potential products include maize meal, instant infant porridge, healthy snacks, confectionery, breakfast cereals, pasta, oil, and animal feeds for export. The immediate market is the SADC region. In the longer-term products could be exported to the EU and USA, subject to compliance with health standards. There are potential sites for processing in Leribe, Berea, Maseru and Mafeteng.
Convenient
export to neighboring
markets in the
SADC region.
Strengths &
Opportunities
Although lacking extensive plains that would facilitate commercial cereal farming on a large scale, Lesotho is an agrarian country.
LIVE IN RURAL AREAS
where the workforce is heavily engaged in subsistence agriculture.
Currently, Lesotho imports most of its cereals.
The production of cereals such as maize, wheat, oats, sorghum and sunflower could go hand in hand with investing in processing facilities to add value to the products which could then be exported.
- Milling, drying, storage
- Packaging; logistics, branding and marketing;
- Supplying inputs and machinery to farmers.
This project is primarily about incentivising
local farmers to produce surplus crops
of the right quality.
But there are also opportunities to invest in
commercial farming: foreign investors are permitted to own land in Lesotho, subject to
From the perspective of investing in processing facilities, one of Lesotho’s key advantages is its competitively priced labour. Wages compare well with those of South Africa. At the same time, Lesotho’s workforce is trainable, thanks in part to a literacy rate of 76% and labour relations are relatively harmonious. 90% of the population speak English, which is taught in school.
The Lesotho National Development Corporation rents serviced factory shells at reasonable rates to investors. Potential sites can be found in Leribe, Berea, Maseru and Mafeteng. The government also offers tax
incentives for investors in the agricultural sector. It levies a corporate income tax of just 10% on farms and agro-processing firms. It also subsidises agricultural inputs.
This project would align with SDGs 1, 2, 8, 9, 10 and 15.
Strengths &
Opportunities
Lesotho’s membership of SADC and SACU therefore allows Lesotho to export cereal products to SADC countries without paying tariffs. Lesotho’s geographical position and good road connections with South Africa permit short lead times and reasonable costs to transport produce from the Maseru area to Johannesburg, Cape Town and Durban (the port of dispatch for exports by sea)
Markets
Lesotho’s membership of SADC and SACU allows Lesotho to export deciduous fruit to SADC countries without being subject to quotas or tariffs. The estimated market size is 300 million consumers. Lesotho’s geographical position and good road connections with South Africa permit short lead times and reasonable costs to transport produce from the Maseru area to Johannesburg, Cape Town and Durban (the port of dispatch for exports by sea). Lesotho has already trialled the export of fruit to South Africa to supply supermarket chains, with encouraging results.
A wide range of cereal products are AGOA-eligible, so they can be exported to the USA provided that US health standards are met. Cereal products may also be exported to the EU under the EU/SADC EPA, again subject to compliance with relevant standards.
Lesotho still imports most of its cereals from South Africa and the size of the local market is relatively small. Investing in processing facilities is therefore primarily about serving international markets and creating high quality (preferably organic) products that comply with international health standards and contribute towards a distinctive, quality Lesotho brand.
The cereal sector is mostly dominated by subsistence farmers. There is an opportunity for processors to incentivise the farmers to expand production and improve quality through adopting new farming technologies, including better varieties of seeds.
Government agricultural extension services
also have a role to play in upskilling local farmers.
Potential investors are advised to perform their own due diligence about the investment climate in Lesotho. The Lesotho National Development Corporation stands ready to help.
Fiscal Incentives
Corporate tax: 10% on profits from sales of agricultural goods produced in Lesotho Training: Cost of Lesotho citizens allowable at 125% for tax purposes
Withholding tax:
- 10% on service contracts with non-residents
- 25% on dividends distributed from income by resident companies to non-resident shareholders
- No withholding tax on dividends distributed to Lesotho residents
VAT:
- 15% on goods and services sold in Lesotho
- 0% on direct exports
Risk guarantees:
- Partial credit guarantee through the LNDC
- Tailor-made, agriculture-specific loan through the Post Bank of Lesotho
Specific incentives for the horticulture sector:
- Access to a Sesotho language technical training manual for local workers in on-farm and crop management
- Access to demonstration and crop pilot plots
- Facilitation support to identify and mobilize village level farmer engagement
- Access to technical data on historical crop performance
Support from the LNDC includes:
- Serviced industrial and commercial sites at competitive rentals
- Provision of industrial and commercial buildings at competitive rentals
- Financial assistance on a selective basis
- Investment facilitation services
- Assistance with permits and licenses
- Assistance with company registration
- Assistance with industrial relations issues
- Appraisal of investment projects
- Assistance with preparation of project briefs for the Environment Impact Assessment (EIA) Certification
The project would align with SDGs 1, 2, 8, 9, 10 and 15.
Financial Analysis
working capital of approximately LSL 500k
will be required for the establishment of the
cereal production enterprise. The graphs below
illustrate a financially viable operation with
the opportunity expected to generate a profit
throughout its operational life.
In addition to the positive NPV and IRR, the initial investment cost of the project is expected to be fully recovered in just over 5 years. The investment opportunity further responds favourably to the country’s developmental objectives through its positive socio-economic impact in terms of employment creation, economic agglomeration and potential forex earning opportunities.
In year 10. Similarly, the projected cash flows
of the envisaged project indicate that it will
generate positive net cash flows throughout
the 10-year operational period.
Financial Analysis
The financial analysis of the cereal production investment opportunity is computed over a tenyear period. Revenue and expenditure projections are in line with industry growth prospects and market potential and have been informed by and benchmarked against industry standards
and norms. In addition, assumptions relating to inflation; depreciation and salvage value; and
company tax, have been worked out based on the existing laws and directives of the country.
The figures above represent high level estimates as of January 2021 and are not derived from a full
feasibility study. Investors are advised to conduct their own due diligence.
Lesotho National Development Corporation
Email: [email protected]