Chapter two: Country background and context 70. According to the United Nations Economic Commission for Africa (UNECA) Study on Monitoring Good Governance14, Lesotho is attracting external economic assistance, most of which is directed to alleviating the scourge of HIV and AIDS and reducing poverty. There are significant donorsupported development programmes as a result of the country having recently qualified for the US Millennium Challenge Corporation (MCC) so as to specifically stimulate investment. Benefits include: the improving access to credit; decreasing transaction costs; the increasing participation of women in the economy; increasing water supply for industries and domestic needs, and the enhancing of urban and rural livelihoods through improved watershed management; and increasing access to life-extending, antiretroviral therapy and essential health services by providing a sustainable delivery platform. It is envisaged that the MCC will result in good prospects for economic policy and growth in Lesotho. These commitments require the government to deepen democracy, uphold human rights, and implement programmes for reducing poverty in Lesotho through economic growth. 71. The country has a growth strategy document which all line ministries must abide by in developing budget proposals that work toward achieving economic growth in the country and thus poverty alleviation. The country has also embarked on tax reforms to improve the investment climate and provide incentives and opportunities for companies to establish businesses in the country. For instance, in 2006/2007, company tax was reduced from 35 per cent to 25 per cent of profits. The Central Bank of Lesotho (CBL) and the government have also taken drastic measures to inspect the operations of financial institutions in Lesotho. For example, pyramid schemes and unauthorised banking are currently under investigation for the purpose of ensuring proper licensing and the maintenance of financial stability in the country. 72. Lesotho, Swaziland, Namibia and South Africa also form a common currency and exchange control area known as the Common Monetary Area (CMA). The institutional arrangements under the CMA do not permit the pursuit of an independent exchange rate policy. The CMA, however, allows unrestricted movement of capital across member states, thereby reducing transaction costs and foreign exchange. 73. In 1997, Lesotho withdrew from the Common Market for Eastern and Southern Africa (COMESA) and cast its regional trade with the Southern African Development Community (SADC). Under the SADC Free Trade Area Protocol signed in 1996, Lesotho is obliged to remove import restrictions over a period of eight years. It is estimated that this agreement will result in a 17 per cent reduction in its customs revenues, which will have a negative impact on development. 74. Lesotho is a signatory to the Southern African Customs Union (SACU). SACU arrangements provide for the sharing of customs revenue among member countries according to an agreed formula. The implementation of the 1969 SACU agreement was essentially tilted in favour of South Africa as a dominant power, while the other countries lost out in terms of developing their own industrial bases. They were meant to remain labour reserves for South Africa rather than industrial competitors. Be that as it may, receipts from SACU provide much of Lesotho’s income, accounting for over 50 per cent of the public revenue from 2002 to 2008. Since the positive political changes in South 14 36 UNECA Study on Monitoring Good Governance in Lesotho 1993–2003, M Mapetla and T Petlane (eds), Institute of Southern African Studies (ISAS), Roma, 2007.