Daily Maverick Lesotho’s Finance Minister, Moeketsi Majoro, has raised a red flag over the 19-year failure of the country’s largest milling company, Lesotho Flour Mills, to pay dividends to the Lesotho government, its 49% shareholder. By BILLY NTAOTE for MNN Centre for Investigative Journalism reporters.
Last year the MNN Centre for Investigative Journalism reported that a former Lesotho Flour Mills board member had condemned the company’s inability to generate sufficient profits to pay dividends as a deliberate strategy
Ramahoana Matlosa complained that the joint venture between government and the Seaboard Overseas and Trading Group, which holds a majority stake in Lesotho Flour Mills (LFM), did not serve the interests of the government or Lesotho.
“The agreements signed in 1998 are written in a manner that is clearly skewed in favour of Seaboard’s interests,” he said. “Seaboard indulges in extensive manipulation of… financial statements and transfer pricing to paint a negative financial picture which negates the payment of dividends.”
At a joint sitting of Lesotho’s Senate and National Assembly during the 2018/2019 budgetary estimates this past week, Minister Majoro mentioned LFM as one of the government’s corporate partners that “have not consistently declared profits nor dividends”.
“Basotho are very concerned about this and have openly called for a review of government’s shareholding in these companies,” he said.
“It is also notable that companies that have struggled with profits happen to extensively use management contracts and buy services from their holding or sister companies.”
Established in 1979, LFM was privatised in 1998, when Seaboard and a sister company bought a controlling stake for $10-million.
Seaboard is head-quartered in Kansas and operates in South America, the Caribbean and Africa.
Insiders said that after Seaboard bought into LFM, its Bahamas-based subsidiary, Seaboard Overseas Management Company, took over procurement for the Lesotho operation.
The offshore operation is supposed to provide management and technical advice in the operation of the flour mill, maize mill, feed mill, sugar packaging plant and silo storage complex in Maseru.
Seaboard’s sister company, Saxonvale Investment, which holds the remaining 1% of the company, is registered in tax haven the British Virgin Islands.
Under the management agreement, Seaboard provides a managing director, director of finance and administration, a technical director “and such other staff as may be agreed with the (company) for a yearly $300,000 (about R3.99-million) management fee adjusted in line with inflationary charges …”.
The management contract provides that for all trips to LFM beyond the annual inspection and consultation visits, the Lesotho company must reimburse Seaboard to the tune of $500 (about M6,659) per day per employee.
Sources said Seaboard had failed to make the profits needed to declare dividends for 19 years.
MNN heard allegations that the milling company has exclusively procured its raw materials from or through Seaboard, a charge repeated by the Minister in his budget speech.
Reacting, the company said the allegations were “misplaced and inaccurate”.
It said LFM occupies an important position in the agricultural life of Lesotho, as it purchases “the entire crop of Basotho farmers for a market-related price which protects them from having to compete with larger milling operations.
“Flour Mills also provides stability in the Lesotho agricultural sector for flour, maize and sugar – a clear reflection of how (it) serves both the Government’s interests and those of the Lesotho community.”
The company said the MNN had not mentioned “the significant capital inputs … required to upgrade and maintain the existing mills”.
It said dividend payments had been used “to develop the industry and move the business and its operation forward without relying on government’s capital input”. DM
This story was produced by the MNN Centre for Investigative Journalism in Lesotho, in association with the amaBhungane Centre for Investigative Journalism