A shock wave ripped through the country when Lesotho’s longstanding wool and mohair trade with South Africa was severed by the promulgation of the Agricultural Marketing (Wool and Mohair) Regulations No 37 of 2018.
Adding insult to injury, the regulations also prohibit Basotho farmers from trading wool and mohair without a licence from Lesotho’s Ministry of Small Business Development, Cooperatives and Marketing.
In addition, the newly opened Lesotho Wool Centre (LWC) auction venue in Thaba-Bosiu was built by a Chinese broker. Its purpose is to auction Lesotho wool and mohair on behalf of farmers in a joint business venture between the Lesotho National Wool and Mohair Growers’ Association (LNWMGA) and Chinese businessperson, Stone Shi, who runs the Maseru Dawning Trading Company.
Many Basotho farmers are quoted as being “bitterly opposed” to the new regulations. It is said that they feel deprived of their higher earnings in South Africa and fear their future as wool and mohair farmers is in danger.
Showing their antipathy and fighting for their economic rights, Farmers Rock Wool and Mohair, Mahloenyeng Trading and Highland Wool and Mohair approached the High Court to have the new regulations nullified. The judgement delivered by High Court Judge Moroke Mokhesi was not in their favour. They then approached the Court of Appeals in January this year to challenge the regulations, but the matter was dismissed.
A South African perspective
Both the South African broker companies OVK and BKB have been denied licences to continue trading in Lesotho.
Pierre van der Vyver, manager of mohair at OVK, says the Chinese have secured a government deal to auction and export wool and mohair exclusively under the umbrella of the LWC.
“I believe South Africans should take notice of what is happening in Lesotho. There are Chinese opportunists who are running the show to the disadvantage of the wool and mohair farmers in Lesotho.”
Pierre says OVK runs a company with a street address and facilities registered in Lesotho. “The company, Poli Ea Thaba, handled the largest portion of the mohair clip. We sold the mohair in South Africa and returned the profits to the 13 000 mohair farmers in Lesotho.
“One of the rules of Lesotho’s new regulations is that a mohair facility must have a total floor space of 9 000m2. Due to a lack of suitable buildings, OVK rented two separate facilities that gave us that total. But they still turned down our licence application, citing that it must be one building and not two separate ones. I then pointed out that the law doesn’t stipulate that it must be one building.”
Although the Lesotho arm of OVK qualifies in all aspects of the new law, the licence was still denied. “In fact, OVK was encouraged to strike a deal with Stone Shi.”
According to Isak Staats, general manager of wool and mohair at BKB, the loss of the wool and mohair clip in South Africa is definitely having a negative impact on the country’s wool traders’ bottom line.
“Lesotho is a sovereign country with its own rules and law, and we will have to accept the decisions they make. We can help the government where needed, if asked, but our heart is really with the farmers.”
On 20 February a meeting was conducted in Maseru with King Letsie III of Lesotho, the committee of principal chiefs in Lesotho, some BKB delegates, South African ram breeder Eddie Prinsloo, and the managing director at G Modiano SA (Pty) Ltd, Andrew Pape.
Isak says it provided an opportunity for both sides to clear up some misunderstandings, such as the value added tax (VAT) issue. “The new regulation in Lesotho contains an implication concerning VAT on fibre that is sold, which the Lesotho government wants to be paid to themselves and not to South Africa.”
He says VAT can only be levied, according to the Southern African Development Community (SADEC), in the country where a service such as wool testing takes place. “The VAT service on the Lesotho wool that came to BKB in Port Elizabeth used to be levied in South Africa. That is why they have started a broker service in Lesotho – to keep the VAT in their country. Sadly, we believe the extra cost will be passed on to the farmers. It also means the Lesotho government will possibly face a net loss in the end.”
A crisis of growing proportions
It is alleged that corruption between the Lesotho government and certain Chinese individuals has played a role in the current situation. There are rumours that the money for the first wool sold and paid to Stone Shi has gone to some Lesotho ministers. A lack of transparency at the LWC was also noted.
According to Isak and Eddie, who both attended the meeting in Maseru, there is unprocessed mohair at the LWC that is not being sold, while the seasonal window for mohair fibre is closing. “We are concerned that it will affect the quality of the mohair, and in the meantime the mohair farmers haven’t been paid yet,” says Isak.
“What will happen to the mohair, since most of the mohair in the world is being processed in South Africa? It is also very likely that mohair brokers will start looking elsewhere if the market in Lesotho stays unfavourable.”
Business with Basotho farmers
“The problem the ram breeders in South Africa face, is that many of our clients will not be able to buy rams from them in the foreseeable future,” says Eddie. “In the past, the Basotho farmers received their wool money in the second week of November, which enabled them to send their children to school, buy food and clothes. But so far, hardly any of them have received any money for their wool.”
Eddie says it was suggested at the recent Maseru meeting that the focus should be on getting Lesotho wool sold as fast as possible, regardless of the buyer.
In transit to China
On 16 February, 1 248 bales of wool worth R21 million, ferried in twelve trucks from Thaba-Bosiu and destined for China, were refused entry into South Africa at the Maseru border.
The reason was that the LWC failed to secure a veterinary transit permit for the wool being shipped to China. It is believed that Maseru Dawning Trading Company has previously succeeded in evading mandatory procedures and that wool had been moved unlawfully through South Africa to China.
Shi claims that his business is being sabotaged. “Shi believes there is an element in South Africa working against him, but I very much doubt it,” says Isak.
Shi showed the centre his export certificates issued by Dr Relebohile Mahloane, the Lesotho director general of Veterinary Services.
Dr Mahloane responded that the wool should not be subjected to any intrusive inspection while in transit to China. “We have a sanitary and phytosanitary agreement under the auspices of the World Trade Organisation. South Africa questions our authority, and I’m convinced they are influenced by external forces with an ulterior motive,” he says.
Dr Mahloane also dismissed claims that the wool may be blocked from crossing the border due to the suspension of greasy wool importation by China. He said that if that was true, China would have refused to accept wool from Lesotho.
Maseru Dawning Trading Company spokesperson, Manama Letsie, said that any further delay in the wool’s shipment might result in escalated costs or worse, the shipment being rejected altogether.
In 2017, the LWC conducted a pilot study to directly market the Lesotho wool to international markets; eight companies from China put in bids for the wool.
According to the deputy minister of Home Affairs, Machesetsa Mofomobe, findings showed that 17 of the 22 wool classes fetched more money compared to what South African-based traders received. He also said that to market wool directly to manufacturing companies would skip several stages, such as transport to Port Elizabeth and VAT paid at the border, which would increase payments to the local farmers.
In 2018, the Lesotho government put new wool and mohair licencing regulations in place due to its decision that all wool and mohair should be auctioned in-country through a bidding system and be globally recognised as originating from Lesotho.
The licence system, under the Agricultural Marketing (Wool and Mohair) Regulations No 37 of 2018, will allegedly prevent a decades long monopoly in the sector that prohibited Lesotho from deriving maximum benefits from its produce.
Mofomobe said that to localise and directly market Lesotho wool and mohair to international markets would improve the business environment, and enhance monitoring and evaluation of transactions, among others.