Private Sector Development
The Lesotho Private Sector Competitiveness and Economic Diversification Project has been the principal instrument to provide to private sector development. Approved in 2007 and closed successfully in June 2013, the project supported the government on a range on issues that helped
- improve the business environment and access to infrastructure and basic services,
- develop the financial system and promote access to finance
- promote the creation of a strong, dynamic, competitive, and innovative private sector and,
- promote the priority sectors, broadening entrepreneurship, and creating jobs (including in agriculture, tourism and manufacturing)
There has been substantial progress made on business environment reforms and improving economic diversification. As part of the project, the Companies Act was prepared and implemented in May 2012, the first since 1967. The Act finalized company regulations and supported the successful launch of the company registry. Trading enterprises regulations have been amended, approved and published and came into full operation in April 2012. The Industrial Licensing Bill has been drafted and presented to Parliament for approval. The Financial Institutions Act, which includes legislation on leasing, has been passed.
With a view to diversify the economy, the project has supported two Skills Development Centers to help train unemployed workers demonstrating that unskilled workers can be employed through training. These skills centers are now under a Public Private Partnership arrangement. Further, the horticulture pilots have proved that high quality fruit yields can be produced in rural Lesotho with a harvest season that is a few weeks earlier than South Africa, implying promising price advantages for Lesotho fruit exports. Achievement in supporting the tourism industry includes the establishment of the World Hotel Link (WHL) online reservation portal, which has 28 tourism establishments and the participation of two tour operators, as well as support to the Lesotho Tourism Development Corporation (LTDC) on tourism promotion and marketing, adoption of a tourism concessions manual and helping to facilitate concession contracts for major tourism assets. Finally, the Lesotho Enterprise Assistance Program (LEAP) matching grant scheme has supported 168 firms and private sector associations. Most of the beneficiary firms reported substantial growth in sales and employment. To build on the reforms initiated under the PSCED Project, a follow on project was approved on October 31, 2013. The Project Financing Agreement was signed between Government of Lesotho and the World Bank and the project became effective on January 9, 2014. This $13.1 million Second Private Sector Competitiveness and Economic Diversification Project (SPSCEDP) aims at supporting the government’s strategy by;
- improving business environment
- increasing access to finance
- supporting investment promotion in new sectors with increased backward linkages to the local economy and
- targeted support to new growth sectors such as horticulture and tourism that have tremendous potential for job creation and poverty alleviation
The Project aims to build on reforms initiated under its predecessor as well as undertake reforms in new areas to support government priorities that would lead to greater private sector development. Specifically, the follow up project will:
- extend the reform in business registration to all types of firms and extend the regulatory reforms to the other aspects of business environment
- address the main financial regulatory infrastructure gaps which affected bank lending to businesses (e.g. insolvency regime and lack of reliable credit and collateral information)
- undertake reforms in financial infrastructure such as the establishment of the first ever credit bureau and collateral registry that would serve the unbanked population
- improve tourism statistics
- pilot a commercial industrial site targeting new FDI, and
- scale up the results of the horticulture pilots to a commercialization level
Lesotho’s education system has achieved substantial gains in recent years, but much remains to be done. After introducing free primary education in 2000, the primary net enrollment rate (NER) rose from 60% in 1999 to 81% in 2006, among the highest in Sub-Saharan Africa. However, it has remained stagnant at that level for the past few years. At the same time, Lesotho has achieved gender parity in primary education. Approximately 49% of primary school students are male and more than 50% of secondary school students are female. The transition rate between primary and lower secondary education is also high, with 81% of primary students advancing to secondary education. Learning outcomes as measured by the Southern and Eastern African Consortium for Monitoring Education Quality (SACMEQ) results are below the average in the sub-region, but have begun to improve: over the 2000-2007 period, SACMEQ reading scores rose from 451 to 468 and math scores from 447 to 477.
Lesotho has also made advances in other areas such as in Early Childhood Development (ECD) with the establishment of 240 pre-primary reception classes for the poorest children and training of care givers. Enrollment in secondary education has increased with the construction of 20 new secondary schools (in 2009 and 2010) and the establishment of combined primary and secondary schools. Lesotho is now focusing on improving the quality of basic education through introduction of a new curriculum for early grade reading and math, while focusing on a skills development agenda for post-basic education levels. The new education sector plan 2015-2020 under preparation is expected to focus on skills development.
For the past four years, the Bank has been working closely with the Global Partnership on Education (GPE), Irish Aid, and the local donor group to improve in-country donor harmonization. As part of this harmonization effort, the Education Sector Strategic Plan 2005-2015 was updated in 2009 and Lesotho benefited from a (the third) GPE Fund grant, with the World Bank as supervising entity for the grant implementation The funds from this grant are pooled with a $6.8 million grant from Irish Aid, which created the first pooled fund in the education sector in Lesotho. This project includes an impact evaluation of a teachers’ incentive scheme which data has just been collected. The Bank has also carried out two surveys on education, skills and employability (household and employers surveys) and prepared a report on education, skills development and equity, which summarizes the findings of the surveys. The report is expected to contribute to the revision of the education sector plan and for further reform in post-basic education.
Water is one of Lesotho’s most important renewable assets and central to the country’s long-term growth prospects. The sector contributes roughly eight% to the overall gross domestic product (GDP), a large portion of which is derived from revenues associated with the Lesotho Highlands Waters Project (LHWP). This will increase with development of Phase 2 and construction of the Polihali Dam, associated water transfer infrastructure and the Kobong pump storage scheme.
Phase 2 was officially launched on March 27, 2014, includes provision for augmenting the water transfer to South Africa through construction of a new dam and transfer tunnel, and the development of a pump storage scheme to generate electricity for the benefit of Lesotho. The sharing of benefits under the LHWP is based on the lower cost of the project compared to alternatives in South Africa. The benefits are split between Lesotho (56%) and South Africa (44%), with South Africa saving on the lower cost and Lesotho benefitting from royalties, ancillary developments and hydropower. Royalties are based on a fixed portion paid over 50 years reflecting the lower capital cost for full delivery of 70 m3/s compared to the alternative Orange-Vaal Transfer Scheme and a variable portion due to the lower operation and maintenance, and electricity costs based on the volume of water delivered. Under Phases 1A and 1B water transfers are currently 18m3/sec and 12m3/sec of water.
The Bank continues to support the process toward implementation of the LHWP through analytical work. The LHWP is one of the world’s most ambitious water transfer projects. Support to the Lesotho government dates back to the 1980’s, when the Bank was the executing agency on behalf of the government for United Nations Development Programme-financed design studies. Since then the Bank has provided $165 million in support of the LHWP, including through the Lesotho Highlands Water Engineering Project (1986), which assisted the government in the design and preparation of the LHWP, and two loans for Phase 1A and 1B of the LHWP. Total revenues from water sales since November 1996 amount to over $400 million with an additional $90 million in electricity sales to the Lesotho Electricity Company and another $1 million in sales to Eskom.
The Bank has also supported the government in its effort to capitalize on the development opportunities afforded by the countries abundance of water, high altitude and a geographically strategic location. Sustained Bank support to the water sector began in the late 1970s with support for the construction of piped water systems in seven small towns, serving about 50,000 inhabitants, which was complemented with measures to strengthen the Water and Sewerage Branch. Establishment of the Lesotho Water and Sewerage Authority (WASA) as an independent entity in 1991 and its subsequent strengthening has resulted in a decrease in unaccounted-for water from 40% to 30% and a 67% increase in the customer base (from 35,000 in 2004 to 55,000 today). The utility’s revenues have consistently covered its operational costs and meet its debt service requirements. However, a significant investment program, supporting a rapid increase in household consumers within the lower tariff band has compounded debt obligations placing the utility under financial strain. This is likely to be compounded with the operation of the Metolong Dam and water supply infrastructure over the next few years.
Phase 1 of the Water Sector Improvement Project (WSIP1) was the first of a two-phase program to continue the reforms and address national priorities in parallel to support for the LHWP. Phase 1 closed in July 2011. The $14 million project has provided support to the office of the Commissioner of Water to lead water sector policy development, strategy setting, and coordination, and to support decision-making regarding a long-term solution to water supply for industrial growth and domestic use in the regularly water-stressed and rapidly growing Maseru area. The Water and Sewerage Authority has also supported capital investments, network extensions, a successful pilot peri-urban expansion program, and improvements in its systems and operational efficiencies, including support for a Performance Agreement between WASA and the Ministry of Finance.
Phase 2 of the Water Sector Improvement Project (WSIP2: $38 million) is supporting the Metolong Dam and Water Supply Program (MDWSP), which is a multi-donor partnership developed with the GoL over many years to realize an extensive infrastructure program in support of continued socio-economic growth. WSIP2 provides specific support to continued reforms in the sector, the water conveyance to the town of Teyateyaneng, and management of the environmental and social program for the MDWSP. The project is now supporting WASCo and the regulator to consolidated the financial position and improve the consumer confidence through improved service standards.
The Bank is also supporting an assessment of the potential transfer of water from the highlands of Lesotho to Botswana. This is being financed through the multi-donor trust fund for Cooperation in International Waters in Africa (CIWA) within the context of the Memorandum of Understanding signed by Botswana, Lesotho and South Africa in March 2013 under the auspices of the Orange Senqu River Commission (ORASECOM). Additional support through the GFDRR to a multi-sector assessment of climate change in Lesotho and through an Africa wide study of infrastructure related climate change risks in seven river basins across Africa is also helping to understand the potential impacts on the long term sustainable yields in the Lesotho Highlands, changes in water demand downstream, and the financial and macro-economic implications for Lesotho.
Lesotho’s transport infrastructure development program largely concentrated its activities in the Lowlands strip that borders the Republic of South Africa, leading to a neglect of the basic access needs of populations that reside in the Mountains and other remote regions. This social exclusion has been identified as the underlying dynamic in the structure of inequality in the country today. The Integrated Transport Project (ITP), funded by the Bank, the EU and the Government of Lesotho, aims at improving transport network connectivity so that populations located in isolated rural areas will have more reliable access to basic services. This project has contributed to an increase in the length (shares) of roads in “good” and “fair” condition as a share of total classified roads. The percentage of roads classified as “good” has risen from 27% to 38%. This is set to increase further with the rehabilitation of the Nyenye-Mapoteng-Makhoroana Road, currently under design. The local population in Senqu-Senqunyane rivers area, estimated to be about 9,400 people of which about 51% are female, benefited from the World Bank-financed Senqu-Senqunyane civil works project. Average travel cost to social services and markets has been reduced from original 1,500 Maloti per trip to 900 Maloti in 2010. A Social Impact survey is currently ongoing and current data is expected during the second half of 2013. Share of rural population with access to an all-season road (within Senqu-Senqunyane project area) has reached the target of 42%.
In addition to improving access to basic services, the World Bank assistance to the transport sector is also helping link people in rural areas to markets, creating the legal and regulatory framework for effective roads management, strengthening the institutional capacity of relevant agencies in the sector, and creating employment for inhabitants of rural and urban areas. This has resulted in the establishment of a fully functioning Directorate for Roads to manage the newly established Roads Fund, which provides sustainable financing for routine and periodic maintenance of the road networks. This Directorate is the first of its kind in the history of the country and it followed the passage of the Roads Directorate Act by Parliament in March 2010 and the drafting of the Road Directorate Regulations. Twenty road safety workshops and campaigns have been undertaken; more than 700 government drivers have been trained, and the integration of road safety education into the school curriculum is on-going.
In 2010, the World Bank and the Lesotho’s Ministry of Health and Social Welfare concluded the Health Sector Reform Program, which achieved a sustainable increase in the access to quality preventive, curative, and rehabilitative health care services. The project targeted the huge imbalance between overcrowded government health centers and non-government health centers, the high cost of medical care, long distances to medical facilities in mountain areas, and insufficient numbers of health personnel, especially in rural areas. Specific results from the project include:
- an increase in the tuberculosis cure rate from 52% to 72%
- a decrease from 4.5 to three hours in average waiting time at the country’s largest hospital
- an increase from nine to 136 in the number of facilities providing mother-to-child HIV transmission prevention
- expanded coverage of the DPT3 vaccine;
- an increase in the number of mothers who received ante-natal care from a health professional
- an increase in the percentage of births delivered in a health facility
More recently, the Global Partnership on Output-based Aid (GPOBA) grant of $6.25 million financed both the provision of outpatient services at the three newly refurbished filter clinics in Maseru as well as selected additional inpatient services at the main hospital. The OBA subsidies were disbursed based on the achievement of performance targets for key service delivery indicators. The refurbishment of the three filter clinics in Qoaling, Likotsi and Mabote was completed on schedule in April and May 2010 and the Queen ’Mamohato Memorial Hospital opened in October 2011. Health outcomes from the project have been significant: the pediatric pneumonia death rate at the new facilities dropped 65% in just five years compared to the old facilities; maternal deaths fell by 10%; overall death rate at the facilities reduced by 41%. The new health network not only includes new and improved primary care facilities, but additional services not available before, like a neonatal intensive care unit. As a result, 70% of extremely low birth weight babies now survive, virtually all of whom would have died before.
The HIV and AIDS Technical Assistance Project ($5 million) is recognized as an important contribution to the national AIDS response. The project’s objective is to build capacity of government’s agencies and civil society organizations at both national and local levels to address the identified key gaps in implementing the National HIV and AIDS Strategic Plan in an effort to contain and reverse the epidemic. Focusing on high-priority capacity gaps such as building non-government organizations’ (NGOs) capacity to access and manage grants, strengthening the supply chain to improve HIV commodity availability, and supporting district and community councils to mainstream prevention activities – the project is implemented by the Lesotho Council of NGOs (LCN), Ministry of Health (MOH), and Ministry of Local Government and Chieftainship (MOLGC). To date, contributions have been made in the development of training materials for Auxiliary Social Workers and provision of training on Orphans and Other Vulnerable Children (OVC) identification and referral, development of an OVC adoption policy and guidelines, update of national public health laws with a view to ensuring access to quality services, empowering the regulatory and control mechanisms and protecting the public and support to implementation of the Essential Service Package (ESP) of HIV prevention interventions at community level.
The Maternal Newborn Health (MNH) Performance Based Financing (PBF)
The Bank and the Ministry of Health have prepared a Maternal Newborn Health (MNH) Performance-based Financing (PBF) Project which was approved by the World Bank Board on April 2013. The project’s goal is to improve the utilization and quality of maternal and newborn health services in selected districts in Lesotho. Through PBF, the project will promote a continuum of care during pregnancy, childbirth, postpartum and the neonatal period in order to combat Lesotho’s serious worsening of maternal and child mortality. The project will contribute to improving the quality and uptake of MNH services by stimulating performance of health workers at health centers as well as Village Health Workers, and improving the capacity to provide MNH care through facility-level support, including training of health professionals and monitoring and evaluation. The project became effectiveness on February 2014. The project activities are being piloted in Quthing and Leribe districts during the first year. The project will be gradually scaled-up to all districts excluding Maseru district.
The Smallholder Agriculture Development Project (SADP) is funded jointly by the World Bank and the International Fund for Agricultural Development (IFAD) with total investment of about $25 million. The objective of the SADP is to increase, over a six-year period, marketed output among project beneficiaries in Lesotho’s smallholder agriculture sector. The two main project outcomes are an increase in agricultural market opportunities in the project area, and productivity and output of smallholder farming activities in the project area increased. The project operates in four of Lesotho’s 10 districts (Botha-Bothe, Leribe, Berea, and Mafeteng). The project became effective in March 13, 2012 and has been on the right track since its implementation.
Public Financial Management (PFM) Reform
The government and development partners have committed to move to a new phase of PFM reforms founded on greater implementation of the new rules and regulations, tighter internal controls and greater attention to the benefits of PFM reforms for Ministries, Departments, Agencies (MDAs) and sectors. In preparation for this new phase, the government and development partners have been working together since late 2011, through the Integrated Reform Steering Committee (IRSC), on creating a future reform program. An initial program was approved in principle by the IRSC in May 2012, and then further refined and finalized with technical assistance from the International Monetary Fund (IMF) during the last quarter of calendar 2012. A final version of the Government Public Financial Management Reform Action Plan (PFMRAP) 2012-2017/18, with a foreword by the Minister of Finance, was approved by the IRSC in March 2013. A High Level PFM Workshop was also hosted by the Minister of Finance on 11 November, 2013 with representation from Parliament (specifically the chairperson of the Public Accounts Committee); several Ministers (including Finance, Development Planning, Health, Education and Social Development); Development Partners (DPs, including the IMF, EU, AfdB and UNDP); several Principal Secretaries, Component Leaders for the PFM Reform Action Plan (PFMRAP), and other key staff involved in its implementation. The GoL provided an overview of the PFMRAP, and the associated implementation arrangements, and the workshop concluded with overwhelming support for its implementation and appreciation to the DPs for their support.
The approved PFMRAP covers a number of strategic actions, that have been structured into 8 components and linked to key results (with reference to the associated PEFA performance indicators where possible). Key outputs have been defined for each of the components as follows:
- Modern PFM regulatory framework implemented: (a) Regulatory framework updated to underpin PFM reforms; (b) Capacity developed to implement and sustain the PFM regulatory framework
- Transparency and effectiveness of policy orientation of the budget assured: (a) Demonstrable links between development plans, fiscal strategy and budget appropriations; (b) Budget process redesigned to provide space for enhanced engagement by policymakers; (c) Effectiveness of macro-fiscal management enhanced; (d) Comprehensiveness and quality of information included in budget documentation progressively improved.
- Cash flow forecasts a major determinant of internal debt and financial investment: (a) Cash Management Unit and Liquidity Committee established; (b) Access to consolidated information on government cash balances; (c) Cash forecasts accurate to 90%
- Internal Controls ensure strengthened operational efficiency and effectiveness: (a) Ex-ante controls on non-salary expenditures compliant with contextually relevant components of the COSO framework; (b) Compensation of employees and pension payments consistent with employee/pensioner number and entitlements; (c) Internal audit compliant with COSO and IIA controls and standards
- Accounting and fiscal reporting fully compliant with the regulatory framework and accounting standards: (a) Government accounting cadre reform implemented; (b) Accounting systems and application software upgraded to comply with regulations and standards; (c) In-year and annual fiscal reports published in accordance with regulations and standards
- Public Procurement aligns with international best practice in efficiency and transparency: (a) Legislative and regulatory framework revised and upgraded; (b) Management and operations of the public procurement system re-engineered and reconfigured; (c) Public procurement achieves transparency through outreach to public and suppliers; (d) Human resource capacity within public procurement is significantly increased
- External audit and oversight compliant with INTOSAI standards (ISSAI): (a) Legal and regulatory framework updated to comply progressively with international standards; (b) HR capacity to deliver on prescribed external audit mandate established; (c) Legislature empowered to perform oversight functions
- Governance and institutional management of PFM reforms improved to facilitate ownership, monitoring and evaluation of progress: (a) Management of PFM reform institutionalized.
The Bank has signed a Project Financing Agreement with the Government of Lesotho on 24 February 2014. The project is expected to be effective on 26 May 2014.
This operation will support the GoL with the implementation of key result (b) of component 5 above of its PFMRAP. Essentially this will entail stabilization and improving the effectiveness of the IFMIS platform.
The main beneficiaries of this project are: the core Integrated Financial Management Information System (IFMIS) team, PFM staff who depends on the IFMIS for the execution of their functions, Program Managers and Heads of Ministries, District Councils, the Auditor-General, Cabinet, the Public Accounts Committee, Parliament, the Central Bank, development partners and citizens and suppliers who transact with the Government.
Other components / activities of the PFMRAP will be supported by the EU, African Development Bank (AfDB) and IMF, under oversight and coordination from the IRSC. AFDB will be providing financial support approximating USD 4.2m primarily for activities related to procurement, internal audit and external audit. IMF will be providing technical assistance on cash management and PFMRAP coordination. The EU will be supporting the remainder of the components with financial support and technical assistance in total approximating EUR 10m.
The rationale for the PFM reform support project is consistent with, and aligned to Pillar 6 of National Strategic Development Plan (NSDP) 2012-2016. The emphasis under this Pillar on PFM related interventions is primarily focused on efficient delivery of quality, timely services in an accountable and transparent manner; and political governance, including decentralization and local government transformation. This pillar also recognizes the fact that a sound PFM is crucial to achieve the national development goals of promotion of peace, democratic governance and building effective institutions.
Last Updated: May 28, 2014