by Zurayda Mayet
Introduction
Private equity (PE) in Lesotho is a question of degree rather than a simple yes or no. There is scope but it is uneven, and the themes that dominate the South African and pan-African PE conversation do not transfer evenly to a small, landlocked economy operating inside a shared monetary area. This article sets out, objectively, the current state of the industry, the legal and structural foundations on which PE activity depends, where the genuine scope lies, and the barriers that any investor or fund manager should expect to encounter. It is written for general information and does not constitute legal, tax or financial advice.
Is there a private equity industry in Lesotho?
The honest position is that Lesotho has the building blocks of a PE industry, but not yet a mature one.
Several features confirm that institutional and patient capital is present and being deployed locally:
- Domestic institutional capital exists. A sizeable PE fund managed locally is invested largely in Lesotho on behalf of institutional pension money, which confirms that local limited-partner (LP) capital is real and can be channelled into local deals.
- A state-aligned co-investment vehicle is in place. The Lesotho National Development Corporation (LNDC) operates a de-risking equity fund that can co-invest alongside private capital in strategic sectors, providing a public-sector partner for PE-style transactions.
- Development-finance capital is flowing in. The African Development Bank’s 2025–2030 Country Strategy Paper for Lesotho is built around private-sector-led growth and, for the first time, introduces non-sovereign (private-sector) operations under an indicative operations programme valued at around US$209 million. Signalling a deliberate push to crowd in private investment.
Set against this, the market is thin: the pool of locally domiciled funds is small, deal flow is limited by the size of the economy, and there is no deep, liquid stock exchange to serve as an exit venue. In short, the demand-side and capital-side signals are encouraging, but the supporting infrastructure is still developing.
The legal and structural foundations
Any assessment of PE scope in Lesotho has to start with the legal system, because fund formation and exit planning depend on it.
Lesotho inherits Roman-Dutch common law together with Cape Colony statutes. Partnerships, however, are not purely a common-law matter: they are governed by the Partnerships Proclamation of 1957, Part II of which repealed and substantially re-enacted the Cape Special Partnerships Limited Liability Act of 1861. Lesotho therefore does have a statutory special (limited-liability) partnership, the en commandite-type vehicle, on its books. What it lacks is a modern, fund-optimised limited partnership statute of the kind found in the United Kingdom, Mauritius, the Cayman Islands, Jersey, Guernsey or Luxembourg.
This distinction matters. The Proclamation is the operative law, and compliance with it is mandatory: the Lesotho Court of Appeal has held that the Proclamation is peremptory and all-embracing, with the consequence that a partnership which meets the common-law requirements but does not comply with the Proclamation is not valid or enforceable. A promoter cannot simply fall back on an unregistered common-law structure.
The practical problem is that the regime is dated and ill-suited to fund use. A 1957 Proclamation re-enacting an 1861 Cape statute carries a number of features that sit awkwardly with a private equity fund: a statutory ceiling on the number of partners (understood to be 20), which is fundamentally incompatible with a fund that needs to admit many limited partners; the absence of separate legal personality; limited statutory safe harbours for passive LP activity; and no purpose-built mechanics for transferring LP interests on a secondary basis. The company-law alternative under the Companies Act, 2011 avoids the partner-number problem but does not deliver the tax-transparent, flow-through treatment that institutional PE investors expect. (The precise current contours of the Proclamation, in particular the partner-number limit and the special-partnership provisions, should be confirmed against the consolidated text.)
Where the scope actually lies
Mapping the standard PE themes onto Lesotho produces a clear pattern: the cross-border and regional dimensions have real traction, while the purely domestic, market-depth-dependent themes have much less.
Strong scope: cross-border exits and disposals
Cross-border exits are probably the most natural fit for Lesotho-based legal work. Any meaningful PE exit that involves payment offshore engages the Central Bank of Lesotho (CBL) as gatekeeper under the Common Monetary Area framework and the Exchange Control Regulations. Approvals may be required for outward investment, dividend repatriation and offshore lending, and cross-border transactions above prescribed thresholds require CBL clearance. This is substantive regulatory work, preparing the application, engaging the CBL, and tying conditions precedent in the transaction documents to that approval. Withholding tax on dividends to non-residents and the evolving capital-gains position add a further layer of structuring.
Meaningful scope: cross-border listings
Domestically, the Maseru Securities Market (MSM) is nascent and cannot realistically absorb a PE portfolio listing in the way the Johannesburg or Nairobi exchanges can. The credible listing routes for a Lesotho company of regional scale are therefore offshore. The JSE (including its AltX board for smaller issuers), or other African venues for Africa-focused portfolios. The associated legal work, dual-listing structuring, CMA capital-movement clearance, tax structuring and Lesotho-law disclosure in the prospectus, is genuine and Lesotho-specific.
Real scope: longer holding periods
The global trend toward longer holds, continuation vehicles and evergreen structures maps unusually well to Lesotho. Because the market is structurally illiquid, few strategic buyers, no deep equity market, even funds that intend to exit on a conventional five-to-seven-year horizon may find exit options thin and end up extending. Development-finance capital is patient by design, reinforcing the pattern. The legal toolkit (drafting and amending partnership deeds, continuation-vehicle terms, LP consent processes and conflict provisions) needs to support this reality.
Modest but growing scope: intermediated processes
In the regional mid-market, larger sale processes are routinely run by merchant banks. Domestic merchant-banking depth in Lesotho is limited, so larger Lesotho deals are often run cross-border out of South African corporate-finance teams, with Lesotho-side counsel providing the local-law inputs. That makes local advisory relevant even where the lead process sits elsewhere.
Limited scope today
Three themes have limited near-term traction:
- Warranty & indemnity (W&I) insurance. There is little to no domestic transactional-risk underwriting capacity; such cover would be placed offshore, and premium economics tend to exclude smaller mid-market deals. It is most relevant on larger cross-border transactions where a foreign investor requires it.
- LP secondaries. A meaningful market for trading fund interests needs both a pool of domiciled funds and a fund-suitable limited-partnership framework. Lesotho has a statutory special partnership under the 1957 Proclamation, but its dated features, including the partner-number ceiling and the absence of secondary-transfer mechanics, together with the thin pool of domiciled funds, mean such a market does not yet exist at scale.
- Local portfolio listings. As above, the MSM is not currently a credible IPO or exit venue for a PE portfolio.
Barriers to entry
For investors and fund managers weighing a Lesotho strategy, the recurring barriers are:
- A dated, fund-unsuitable partnership regime. Partnerships are governed by the Partnerships Proclamation of 1957 (re-enacting the Cape special partnership of 1861), not by a modern limited partnerships statute. The regime carries a statutory ceiling on the number of partners (understood to be 20) that is incompatible with a fund needing many LPs, lacks separate legal personality, and offers no purpose-built secondary-transfer mechanics. The company-law alternative under the Companies Act, 2011 avoids the partner cap but is not tax-transparent.
- CMA capital controls and exchange control. Cross-border flows are subject to CBL approval above prescribed thresholds, and repatriation, outward investment and offshore lending can all require clearance. These are real and binding, and they shape every cross-border exit. (Exact thresholds change over time and should be confirmed against the current regulations for any specific transaction.)
- Shallow capital markets and constrained exits. With no deep stock exchange, exit options are limited largely to trade sales and cross-border disposals, which lengthens hold periods and complicates liquidity planning.
- Thin deal flow and a small asset pool. The size of the economy limits the number of investable, scalable targets, and the small number of local funds constrains the recycling of assets between managers.
- Tax friction. Without a tax-neutral flow-through vehicle, exits and distributions can attract multiple layers of taxation; withholding tax on non-resident dividends and an evolving capital-gains position require deal-by-deal analysis (subject to applicable double-tax treaties).
- Limited domestic intermediation and underwriting capacity. Local merchant-banking and transactional-insurance capacity is shallow, so larger processes and risk products typically draw on offshore providers.
- Macroeconomic and external-shock exposure. As a small, open economy pegged to the rand, Lesotho is exposed to regional monetary conditions, commodity and fuel-price shocks, and SACU-revenue volatility, all of which affect valuations and exit timing.
The opportunity and forward outlook
The barriers are real, but so is the upside, and several factors point to a genuine, if measured, opportunity.
The clearest is legislative: if Lesotho modernised the Partnerships Proclamation of 1957, lifting the partner-number ceiling for fund vehicles and adding fund-suitable features such as flow-through tax treatment and secondary-transfer mechanics or enacted a dedicated limited partnerships statute alongside it, it could position itself as a small but credible fund-vehicle jurisdiction for the SADC region. This is a policy opportunity in which a forward-looking firm could constructively participate. Patient development-finance capital, the LNDC co-investment vehicle, and the AfDB’s private-sector pivot together suggest a more investment-friendly environment is being built deliberately. The structural tendency toward longer holds aligns with continuation-vehicle and evergreen structuring work. And regional integration, through the CMA, SADC and the African Continental Free Trade Area, strengthens the case for Lesotho assets with cross-border reach.
For legal practitioners, the coherent and credible positioning is Lesotho as the local-law counterparty on regionally led private equity work: cross-border exit and regulatory advisory, CBL and revenue-authority engagement, cross-border M&A on Lesotho-incorporated targets, offshore-listing structuring, and local-law input on continuation vehicles and longer-hold structures. That offer is anchored in what Lesotho law and the Lesotho market actually demand today, while the broader domestic market continues to develop.
Frequently asked questions
Is there private equity activity in Lesotho? Yes, but on a modest scale. Institutional capital is deployed locally, a state-aligned co-investment fund exists, and development-finance money is flowing in but Lesotho does not yet have a deep, self-sustaining domestic PE market.
Can a private equity fund be domiciled in Lesotho? Partnerships are governed by the Partnerships Proclamation of 1957, which provides a statutory special (limited-liability) partnership. However, it is a dated regime, understood to cap partners at 20 and lacking modern fund features. So it is poorly suited to a typical PE fund. Company structures under the Companies Act, 2011 avoid the partner cap but are not tax-transparent. Lesotho has no modern, fund-optimised limited partnerships statute.
What are the main barriers to private equity in Lesotho? A dated partnership regime under the 1957 Proclamation (including a 20-partner ceiling and no modern fund features), CMA capital controls, shallow capital markets and limited exit routes, thin deal flow, tax friction, limited domestic intermediation capacity, and exposure to external economic shocks.
How do private equity investors exit in Lesotho? Most realistically through trade sales and cross-border disposals. Any exit involving offshore payment is likely to require Central Bank of Lesotho approval under exchange-control rules. The domestic securities market is not currently a credible listing-based exit venue.
Where is the best opportunity for law firms? In cross-border and regional work, exits, offshore listings and intermediated processes, where Lesotho-side regulatory and transactional advice is genuinely required.
This article is provided for general information only and does not constitute legal, tax or financial advice. Regulatory thresholds, tax rates and the legislative position may change; specific transactions should be assessed against the current law and with professional advice.