Lesotho National Development Corporation

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Invest in Lesotho’s

Call Centres Sector

South African call centre companies can drive down costs by locating operations in
Lesotho, which enjoys good international connectivity

Introduction

Lesotho is an excellent location for South African call centre companies seeking to outsource their operations.

It has first class international connectivity, a pool of English-speaking graduates, and proximity to South Africa which simplifies setting up and managing business operations there. Costs are highly competitive: LSL* 50 per call centre seat per hour. The best location for call centres is Maseru, home to 10% of Lesotho’s population.

Strengths &
Opportunities

Lesotho has important strengths as a location for outsourced South African call centre operations.
FAVOURABLE LOCATION
Despite being landlocked, Lesotho has true global connectivity – as good as most developing countries. It has excellent road access to South Africa’s business centres and ports. There are regular flights between Maseru and Johannesburg. This makes setting up and maintaining South African business operations there straightforward.
EXCELLENT TELECOMS CONNECTIVITY
Lesotho has high levels of connectivity through three main submarine cables: Eastern Africa Submarine Cable System; Seacom and the West Africa Cable System. Within the country the Lesotho Communications Authority has deployed 46 base stations to remote areas via the Universal Service Fund, the most successful in Africa.
The emergence of skilled, English-speaking graduates provide a potential labour pool for call centre employers. Labour costs compare well with other markets. A call centre cost modelling exercise indicated that Lesotho could achieve a globally competitive cost per call centre seat per hour
OF CIRCA
LSL 50

This compares favourably with the Philippines
at LSL 242 and Eastern Europe at LSL 167.
Lesotho’s graduates speak English and are
easily trained for call centre operations. Lesotho has a tradition of relatively harmonious labour relations. Lesotho’s geographical location in the same time zone as South Africa and Western Europe is a further operational advantage

Lesotho can support call centre companies employing 100-300 per site. Lesotho’s urban and business park environments could provide the infrastructure and connectivity for South Africa based call centre companies including Aegis, Capita, Excel, Teleperformance and Merchants.

Call centres will enjoy a reduce level of corporate income tax of 10%, with a 0% tax on dividends.

The project aligns with SDGs 8, 9 and 10.

Project
Assumptions

The Maseru area accounts for 200,000 of the national population of 2.14m. The estimated labour market for innovation/ICT employment is potentially up to 5,000. This labour pool could however be extended through training and skills development.

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.

Operational fruit farm in Mahobong, Lesotho.

Financial Analysis

TOTAL INVESTMENT
A total investment of approximately:
LSL* LSL 17.4m
comprising entirely of fixed assets will be required for the establishment of the Call Centre opportunity. 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 under 7 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.
NET PROFIT
The enterprise’s annual net profit after tax increases from approximately:
LSL 2.5
in year 1 to approximately:
LSL* 3.6m
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

Maseru’s central business district.
NOTE
The financial analysis of the Call Centre investment opportunity is computed over a ten-year 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.
For more information please contact:
General Manager: Investment & Trade Promotion
Lesotho National Development Corporation
Email: ip@lndc.org.ls
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