World Bank Documentdocuments.worldbank.org/curated/en/...Document of The World Bank Report No:...

Document of

The World Bank

Report No: ICR00002957

IMPLEMENTATION COMPLETION AND RESULTS REPORT

(IDA-42750, IDA-H2810)

ON A

Grant

IN THE AMOUNT OF SDR 2.8 MILLION

(US$4.2 MILLION EQUIVALENT)

AND A

CREDIT

IN THE AMOUNT OF SDR 2.6 MILLION

(US$3.9 MILLION EQUIVALENT)

TO THE

KINGDOM OF LESOTHO

FOR A

PRIVATE SECTOR COMPETITIVENESS AND ECONOMIC DIVERSIFICATION

PROJECT

December 17, 2013

Finance and Private Sector Development Unit

Country Management Unit for Southern AFR 1

Africa Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective December 17, 2013)

Currency Unit = Lesotho Maloti (LSL)

LSL 1.00 = US$ 0.10

US$ 1.00 = LSL 10.33

FISCAL YEAR

April 1 – March 31

ABBREVIATIONS AND ACRONYMS

AFR Africa Region

AGOA Africa Growth and Opportunity Act

BCL Business Counsel of Lesotho

BDS Business Development Services

CAADP Comprehensive Africa Agriculture Development Program

CAS Country Assistance Strategy

EDF Enterprise Development Facility

EIA Environmental Impact Assessment

ERR Economic Rate of Return

ESMF Environmental and Social Management Framework

EU European Union

FDI Foreign Direct Investment

GDP Gross Domestic Product

GISDC Garment Industry Skills Development Center

GOL Government of Lesotho

ICR Implementation Completion and Results Report

IDA International Development Association

IRIN Integrated Regional Information Networks

LBC Lesotho Business Council

LCT Lesotho Council of Tourism

LEAP Lesotho Enterprise Assistance Program

LHHA Lesotho Hotels and Hospitality Association

LHWP Lesotho Highlands Water Project

LIMS Lesotho Immigration Management System

LNDC Lesotho National Development Corporation

LTDC Lesotho Tourism Development Corporation

MAFS Ministry of Agriculture and Food Security

MCC Millennium Challenge Corporation

MHAPS Ministry of Home Affairs and Public Safety

MIP Minimum Infrastructure Platform

MOF Ministry of Finance

MOHAPSPA Ministry of Home Affairs, Public Safety & Parliamentary Affairs

MSME Micro, Small and Medium Sized Enterprise

MTEC Ministry of Tourism Environment and Culture

MTICM Ministry of Technology, Industry, Cooperatives and Marketing

NICS National ID Card System

NPV Net Present Value

OBFC One-Stop Business Facilitation Center

PAD Project Appraisal Document

PCG Partial Credit Guarantee

PHRD Japan Policy and Human Resources Development Fund

PMU Project Management Unit

PPP Public-Private Partnership

PPSC Public-Private Steering Committee

PRC Project Review Committee

PRS Poverty Reduction Strategy

PSC Project Steering Committee

PSFL Private Sector Foundation of Lesotho

SNP Sehlabathebe National Park

TOAL Tour Operators Association of Lesotho

UNESCO United Nations Educational, Scientific and Cultural Organization

WHL World Hotel Link

Vice President: Makhatar Diop

Country Director: Asad Alam

Sector Manager: Irina Astrakhan

Project Team Leader: Smita Kuriakose

ICR Team Leader: Xiaofeng Hua

KINGDOM OF LESOTHO

Private Sector Competitiveness and Economic Diversification Project

CONTENTS

Data Sheet………………………………………………………………………………………….i

A. Basic Information…………………………………………………………………………..i

B. Key Dates…………………………………………………………………………………..i

C. Ratings Summary…………………………………………………………………………..i

D. Sector and Theme Codes…………………………………………………………………..ii

E. Bank Staff………………………………………………………………………………….ii

F. Results Framework Analysis……………………………………………………………...iii

G. Ratings of Project Performance in ISRs………………………………………………….vi

H. Restructuring……………………………………………………………………………..vii

I. Disbursement Graph……………………………………………………………………...vii

1. Project Context, Development Objectives and Design ............................................... 1

2. Key Factors Affecting Implementation and Outcomes .............................................. 8

3. Assessment of Outcomes .......................................................................................... 16

4. Assessment of Risk to Development Outcome ......................................................... 21

5. Assessment of Bank and Borrower Performance ..................................................... 21

6. Lessons Learned ....................................................................................................... 24

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners .......... 25

Annex 1. Project Costs and Financing .......................................................................... 27

Annex 2. Outputs by Component ................................................................................. 29

Annex 3. Economic and Financial Analysis ................................................................. 33

Annex 4. Bank Lending and Implementation Support/Supervision Processes ............ 34

Annex 5. Beneficiary Survey Results ........................................................................... 36

Annex 6. Stakeholder Workshop Report and Results ................................................... 37

Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ..................... 38

Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ....................... 42

Annex 9. List of Supporting Documents ...................................................................... 43

MAP ………………………………………………………………………………….44

i

KINGDOM OF LESOTHO

Private Sector Competitiveness and Economic Diversification Project

DATA SHEET

A. Basic Information

Country: Lesotho Project Name:

Private Sector

Competitiveness and

Economic

Diversification

Project ID: P088544 L/C/TF Number(s): IDA-42750,IDA-H2810

ICR Date: 12/09/2013 ICR Type: Core ICR

Lending Instrument: SIL Borrower: KINGDOM OF

LESOTHO

Original Total

Commitment: XDR 5.40M Disbursed Amount: XDR 5.26M

Revised Amount: XDR 5.26M

Environmental Category: B

Implementing Agencies:

Ministry of Agriculture and Food Security

Lesotho National Development Cooperation

Ministry of Trade, Industry, Cooperatives and Marketing

Ministry of Home Affairs and Public Security

Lesotho Tourism Development Council

Cofinanciers and Other External Partners:

B. Key Dates

Process Date Process Original Date Revised / Actual

Date(s)

Concept Review: 06/23/2005 Effectiveness: 10/05/2007 10/05/2007

Appraisal: 01/18/2007 Restructuring(s): 01/06/2012

03/09/2012

Approval: 03/21/2007 Mid-term Review: 09/01/2010 09/13/2010

Closing: 06/30/2012 06/30/2013

C. Ratings Summary

C.1 Performance Rating by ICR

Outcomes: Moderately Satisfactory

Risk to Development Outcome: Moderate

Bank Performance: Moderately Satisfactory

Borrower Performance: Moderately Satisfactory

ii

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR)

Bank Ratings Borrower Ratings

Quality at Entry: Moderately Satisfactory Government: Moderately Satisfactory

Quality of Supervision: Moderately Satisfactory Implementing

Agency/Agencies: Moderately Satisfactory

Overall Bank

Performance: Moderately Satisfactory

Overall Borrower

Performance: Moderately Satisfactory

C.3 Quality at Entry and Implementation Performance Indicators

Implementation

Performance Indicators

QAG Assessments

(if any) Rating

Potential Problem Project

at any time (Yes/No): No

Quality at Entry

(QEA): None

Problem Project at any

time (Yes/No): Yes

Quality of

Supervision (QSA): None

DO rating before

Closing/Inactive status:

Moderately

Satisfactory

D. Sector and Theme Codes

Original Actual

Sector Code (as % of total Bank financing)

Central government administration 38 19

Crops 21 23

General industry and trade sector 13 16

Other industry 22 37

Vocational training 6 5

Theme Code (as % of total Bank financing)

Export development and competitiveness 28 23

Micro, Small and Medium Enterprise support 29 11

Other Private Sector Development 29 41

Regulation and competition policy 14 19

E. Bank Staff

Positions At ICR At Approval

Vice President: Makhtar Diop Hartwig Schafer

Country Director: Asad Alam Ritva S. Reinikka

Sector Manager: Irina Astrakhan Demba Ba

Project Team Leader: Smita Kuriakose Agata E. Pawlowska

ICR Team Leader: Xiaofeng Hua

ICR Primary Author: Xiaofeng Hua

iii

F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document)

The key objective of the project is to facilitate increased private sector investment by

improving the business environment and diversifying sources of growth. This goal will

be achieved by reducing the costs of doing business; strengthening the linkages and

integration of the Lesotho economy with the regional economy, especially with South

Africa; strengthening support for technical and business management skills thereby

improving productivity at the firm level, and improving access to finance for MSMEs.

These measures will also support the poverty reduction strategy dialogue and

implementation of agreed upon policy measures.

Revised Project Development Objectives (as approved by original approving authority)

n.a.

(a) PDO Indicator(s)

Indicator Baseline Value

Original Target

Values (from

approval

documents)

Formally

Revised

Target

Values

Actual Value

Achieved at

Completion or

Target Years

Indicator 1: Days required to start up a business

Value

quantitative or

Qualitative)

73 days <34 days <20 days 24 days

Date achieved 12/31/2006 06/30/2012 06/30/2013 06/30/2013

Comments

(incl. %

achievement)

Target largely achieved

Source (Jun13 data): Bank team ISR (No. 12)

Indicator 2: Number of new jobs created in private sector

Value

quantitative or

Qualitative)

Nil 2,500 new jobs 2,500 new

jobs 3,072

Date achieved 12/31/2006 06/30/2012 06/30/2013 06/30/2013

Comments

(incl. %

achievement)

End-target referred to new jobs created on LNDC premises in textile and garment

industry which might include those created through project interventions

Source (Jun13 data): LNDC data, Dec13

(b) Intermediate Outcome Indicator(s)

Indicator Baseline Value

Original Target

Values (from

approval

documents)

Formally

Revised

Target Values

Actual Value

Achieved at

Completion or

Target Years

Indicator 1: Days required to register a business

Value

(quantitative

or Qualitative)

28 days 1 days 1 days 7 days

Date achieved 12/31/2006 12/31/2010 06/30/2013 06/30/2013

iv

Comments

(incl. %

achievement)

Target not achieved although 75% reduction was made

Source (Jun13 data): PMU/MTICM ex-post project review, July 5, 2013

Indicator 2: Days required for obtaining an industrial license

Value

(quantitative

or Qualitative)

35 days <7 days <7 days </= 5 days

Date achieved 12/31/2006 12/31/2010 06/30/2013 06/30/2013

Comments

(incl. %

achievement)

Target achieved


Indicator 3: Trade license abolished and replaced by a notification procedure that takes one

day

Value

(quantitative

or Qualitative)

35-50 days

Trade license

abolished, and

replaced by a

notification

procedure (1 day)

Trade license

abolished, and

replaced by a

notification

procedure that

takes 1 day

15 days

Date achieved 12/31/2006 12/31/2010 06/30/2013 06/30/2013

Comments

(incl. %

achievement)

Target not achieved although at least 57% reduction was made


Indicator 4: Visa issued at 5 pilot ports of entry by mid-term review

Value

(quantitative

or Qualitative)

Nil 5 pilot POEs 5 pilot POEs Nil

Date achieved 12/31/2006 12/31/2010 06/30/2013 06/30/2013

Comments

(incl. %

achievement)

Target not achieved


Indicator 5: Credit guarantee scheme established by mid-term

Value

(quantitative

or Qualitative)

Nil Credit guarantee

scheme established

Credit guarantee

scheme of LNDC

established

Date achieved 12/18/2007 12/31/2010 07/20/2011

Comments

(incl. %

achievement)

Target achieved

Source (Jun13 data): PMU/MTICM ex-post project review, July 5, 2013 and

LNDC 2011 press release

Indicator 6: Leasing regulations in place by mid-term

Value

(quantitative

or Qualitative)

Nil

Leasing regulatory

framework in

place

Leasing

regulations in

place by mid-

term

Leasing regulations

in place

Date achieved 12/31/2006 12/31/2010 06/30/2013 04/25/2013

Comments

(incl. %

achievement)

Target achieved


Govt Gazette

Indicator 7: Average task efficiency per operator (no of pieces/worker/day)

v

Value

(quantitative

or Qualitative)

12 pieces 24 pieces

Date achieved 12/31/2006 06/30/2012

Comments

(incl. %

achievement)

Target dropped by Jan12 restructuring

Indicator 8: Average floor rejection/re-work rate

Value

(quantitative

or Qualitative)

30% 15%

Date achieved 12/31/2006 06/30/2012

Comments

(incl. %

achievement)

Target dropped by Jan12 restructuring

Indicator 9: % share of trainees placed from the training center increased

Value

(quantitative

or Qualitative)

Nil 95% 74%

Date achieved 12/31/2007 06/30/2013 06/30/2013

Comments

(incl. %

achievement)

Target largely achieved

Target added by Jan12 restructuring

Source: PMU/MTICM ex-post project review, July 5, 2013

Indicator 10: Operational PPP model established for the two training centers

Value

(quantitative

or Qualitative)

Nil

Operational

PPP model

established for

the 2 training

centers

Private operator for

the 2 skills

development

centers in operation

Date achieved 12/31/2007 06/30/2013 06/30/2013

Comments

(incl. %

achievement)

Target achieved

Target added by Jan12 restructuring


Indicator 11: Increased exports of horticultural products in pilot areas

Value

(quantitative

or Qualitative)

Nil 30% 30% 57%

Date achieved 12/31/2006 06/30/2012 06/30/2013 06/30/2013

Comments

(incl. %

achievement)

Target achieved


Indicator 12: Improved income retention among farmers participating in the pilots

Value

(quantitative

or Qualitative)

No data 40% 40% 66%

Date achieved 12/31/2006 06/30/2012 06/30/2013 06/30/2013

Comments

(incl. %

achievement)

Target achieved


vi

Indicator 13: Three new tourism concessions

Value

(quantitative

or Qualitative)

Nil

3 new

investments/conce

ssions in tourism

3 new

investments/co

ncessions in

tourism

4 concessions

signed and

operational

Date achieved 12/31/2006 06/30/2011 06/30/2013 06/30/2013

Comments

(incl. %

achievement)

Target achieved


Indicator 14: Increase in tourists from targeted market

Value

(quantitative

or Qualitative)

260,000 tourists 50% increase in

no. of tourists

50% increase

in no. of

tourists

63%

Date achieved 12/31/2006 06/30/2012 06/30/2013 06/30/2013

Comments

(incl. %

achievement)

Target achieved although might not be entirely attributed to project interventions


LTDC 2006 annual report

Indicator 15: Supported firms increase their sale/turnover at a rate 10% higher than before

LEAP support

Value

(quantitative

or Qualitative)

Data no available

10% higher than

non-supported

firms

10% higher

than before

LEAP support

56%

Date achieved 12/31/2006 06/30/2012 06/30/2013 06/30/2013

Comments

(incl. %

achievement)

Revised target exceeded although might not be entirely attributed to the Project

Source (Jun13 data): PMU/MTICM ex-post project review, July 5, 2013 based

on LEAP report

Indicator 16: Supported chambers or associations increase their membership income at a rate

10% higher than before LEAP support

Value

(quantitative

or Qualitative)

Data not available

10% higher than

non-supported

firms

10% higher

than before

LEAP support

15%

Date achieved 12/31/2006 06/30/2012 06/30/2013 06/30/2013

Comments

(incl. %

achievement)

Revised target achieved

Source (Jun13 data): PMU/MTICM ex-post project review, July 5, 2013 based

on LEAP report

G. Ratings of Project Performance in ISRs

No. Date ISR

Archived DO IP

Actual

Disbursements

(USD millions)

1 11/21/2007 Satisfactory Satisfactory 0.60




5 12/18/2008 Moderately Satisfactory Moderately Satisfactory 1.38



vii



10 03/13/2012 Moderately Satisfactory Moderately

Unsatisfactory 4.44


12 06/26/2013 Moderately Satisfactory Satisfactory 7.74

H. Restructuring (if any)

Restructuring

Date(s)

Board

Approved

PDO Change

ISR Ratings at

Restructuring

Amount

Disbursed at

Restructuring

in USD

millions

Reason for Restructuring &

Key Changes Made DO IP

01/06/2012 MS MS 4.27

Readjustment of project scope

to focus on what was achievable

Reallocation of IDA resources

to reflect re-focused needs

Modification of intermediate

results indicators

Extension of closing date for 12

months

03/09/2012 MS MS 4.44

Correct mathematic errors in

IDA resource allocation of 1st

restructuring to finalize

reallocation of IDA financing

resources

I. Disbursement Profile

1

1. Project Context, Development Objectives and Design

1.1 Context at Appraisal

1. Country context: Lesotho is a small and landlocked country surrounded by

South Africa. The economy registered impressive growth in the first half of the 2000s.

GDP per capita of Lesotho had been in the range of USD400 in the large part of 1990s.

After a decline to the USD300s in 2001 and 2002, GDP per capita grew to USD510 in

2003 and USD736 in 2006.1 However, the economy was heavily dependent on three

main external factors, and was in need of diversification in income sources, exports

markets and job creation. The construction of Lesotho Highlands Water Project (LHWP)

resulted in an unusually large construction sector (23% of GDP).2 While the export of

water and electricity would continue to provide jobs and foreign exchange, the

completion of the LHWP was expected to lead to a contraction of the construction sector.

The second external factor was the employment dependency on South African gold mines

where more than half of the male Basotho workforce worked. When the gold mines

retrenched in 2000 – 2001, remittances from Basotho miners declined to 21 percent of

GDP (as compared to an average 36% in 1987-98), and unemployment rose to 23.2

percent (2002/2003).

2. The third factor was the concentration of foreign direct investment (FDI) in the

textile and garment industry (over 90%), and that of the export market (all went to the

U.S.). The growth of the industry was closely correlated with the changes of the trade

policies of the developed countries.3 There was an influx of FDI in the early 2000s

thanks to the 2000 U.S. Africa Growth and Opportunity Act (AGOA). By 2005 – 2006

the textile industry had become the backbone and the largest employer of the Lesotho

economy. However, when uncertainties emerged about the expiration of AGOA in 2004,

the sector contracted sharply with factory closures and job losses. While the extension of

AGOA for Lesotho to 2012 helped the FDI manufacturing companies to comeback, the

local private sector remained tiny and completely disconnected with the regional supply

chains.

3. Sector issues: Key constraints to private sector competitiveness were found in

the business environment, access to finance, skills and institutional support.

4. Business environment: The deficiencies of the legal and regulatory framework

were high barriers to doing business in Lesotho for domestic and foreign and large and

1 The World Ban Databank: http://data.worldbank.org/indicator/

2 LHWP is a water supply and hydropower scheme which diverts the abundant water from Lesotho to one

of South Africa’s largest industrial provinces. The project was implemented by a partnership between the

governments of Lesotho and South Africa. 3 Lesotho’s textile industry started to emerge when South African companies moved into the country in the

1990s to avoid trade sanctions on South African apparels imposed by the US and European countries.

Taiwanese investments flew in followed by renewed South African capital when the AGOA offered trade

preferences to eligible African countries for quota or duty-free entry of the US market.

2

small investors alike. It took 73 days to open a business in Lesotho (93 days in 2006 by

the 2013 Doing Business methodology). This placed the country at 36th

rank among the

45 SSA countries ranked for this indicator.4 After the cumbersome company registration,

a separate industrial license had to be obtained before a business could start operation and

it took 30 days to obtain the license. If the businessman planned to engage in trade, he

had to obtain another separate license (it took 2-5 weeks). Procedures for routine

applications for visas, work and residence permits, import permits and other basic

business documents were onerous and time consuming (as much as 24 months). Investor

protection was weak due to the outdated legal provisions for business operations, trade

and investments.

5. Access to finance: Nearly half of Lesotho firms reported high cost of financing,

and close to 40% rated access to financing as a major or severe constraint. This could be

attributed at least partially to the failure to protect property rights. Contract enforcement

took an average of 695 days and 58 procedures, which was 100 days more than the sub-

Saharan average. Another cause of the problem was the lack of competition in the tiny

financial sector. There were three commercial banks and all of them were South African

owned. Banks each had their own groups of clients and did not have common clientele

base (e.g. households). Financial intermediation by non-bank financial institutions

accounted for only 11 percent of total financial sector assets. Alternative financing

channels such as leasing did not exist.

6. Skills gap: Labor productivity in Lesotho was similar to Tanzania, Mozambique

and many other countries of the region, but was lower than in the most productive

African countries, such as Kenya, Senegal and South Africa. An important factor of the

gap was the availability of worker training programs and the level of workers education.

Only 28 percent of the companies in Lesotho provided formal training for their

employees, which was lower than in Kenya, Tanzania, Uganda and Zambia. Among

Basotho workers, only about 15 percent had a secondary or greater education, as

compared to over 50 percent in South Africa. Lesotho had the highest rate of HIV/AIDS

(24%) among all IDA countries and one in nine persons aged 15-24 was HIV-infected.

Stopping or slowing down the trend was critical to Lesotho’s productivity and

competitiveness.

7. Institutional support: In developed economies, market institutions such as

trade/business associations play an important supporting role in private sector

development. Trade associations could influence public policy or enhance industry

public image on behalf of their members through lobbying, advertising and publishing.

A main role of those institutions is to ensure collaboration between members and

standardization throughout the industry. Many provide training opportunities. In

Lesotho those institutions were unable to fulfill their basic functions. Many of them were

new and had not yet clearly defined their role. Business development services (BDS)

4 According to the 2013 Doing Business methodology, it took 93 days to start a business in Lesotho in

2005/2006. Among the 45 SSA countries ranked, the least number of days required was 13 days (Burundi)

and the most was 259 days (Guinea-Bissau). The median was 40 days (Burkina Faso and Guinea).

3

were provided mainly by public-sector institutions and were heavily subsidized, which

hindered the development of private sector BDS business. Local firms seldom utilized

BDS services available from the neighboring countries due to a lack of information or

funding.

8. Government strategy: Lesotho became a member of the Integrated Framework

for trade-related assistance for Least Developed Countries in 2002, which recommended

institutional capacity building, regional and multinational integration, business

environment improvements and infrastructure development. The 2006 Poverty

Reduction Strategy (PRS) of the Government of Lesotho (GOL) aimed to (i) achieve

rapid job creation through the establishment of an enabling environment for private sector

led economic growth; (ii) deliver poverty targeted programs to empower the poor and

vulnerable; and (iii) ensure that policies and legal and regulatory framework were

conducive to the implementation of the priorities. There was a consensus among the key

stakeholders of private sector development (public and private sector representatives and

the donor community) on the need to establish a minimum infrastructure platform (MIP)

for increased private sector investments, productivity improvements and economic

diversification. The MIP included business environment, trade and investment

facilitation regulations and institutions, human capital, financial services, and physical

and supporting infrastructure. An action plan to build the MIP was developed and the top

priority was economic diversification into broadly based FDIs, new industrial clusters,

agribusiness, sandstone mining and tourism.

9. Bank strategy: The World Bank’s 2006 Country Assistance Strategy (CAS) was

aligned with the GOL’s strategy and directed the Bank resources to focus on

Employment and income generation; Fighting HIV/AIDS; Human development;

Decentralization and public service delivery; and M&E improvement. The Bank in

collaboration with the GOL developed a private sector development strategy for Lesotho,

which highlighted the following objectives: (i) retain foreign investors beyond the

phasing out of trade privileges and attract more FDI; (ii) diversify FDI away from one

activity (garment industry) and one market (the U.S.); and (iii) integrate the domestic

private sector with the FDI sector and the economy of South Africa.

10. The Project: Guided by the above GOL and Bank strategies, the Bank decided to

support the Ministry of Technology, Industry, Cooperatives and Marketing (MTICM) for

the preparation and implementation of the Lesotho Private Sector Competitiveness and

Economic Diversification (PSCED) project (the Project). The Project was approved by

the Bank Board in March 2007 and became effective about seven months later.

1.2 Original Project Development Objectives (PDO) and Key Indicators (as

approved)

11. The original PDO as presented in the Project Appraisal Documents (PAD)5 is as

follows:

5 The World Bank: Project Appraisal Document (Report No: 37756-LS), February 26, 2007.

4

“The key objective of the project is to facilitate increased private sector

investment by improving the business environment and diversifying sources of

growth. This goal will be achieved by reducing the costs of doing business;

strengthening the linkages and integration of the Lesotho economy with the

regional economy, especially with South Africa; strengthening support for

technical and business management skills thereby improving productivity at the

firm level, and improving access to finance for MSMEs. These measures will also

support the poverty reduction strategy dialogue and implementation of agreed

upon policy measures.”

12. The Financing Agreement (FA) streamlined the PDO by removing the planned

measures in the PDO statement and maintaining the objective as follows:

“The objective of the Project is to facilitate increased private sector investment in

the Recipient’s economy by improving the business environment and diversifying

sources of growth.”

13. There were two outcome indicators (i.e. key indicators) when the Project was

approved:

Days required to start up a business reduced from 73 in 2006 to less than 34 by

project end; and

2,500 new jobs created in the private sector by project end

1.3 Revised PDO (as approved by original approving authority) and Key Indicators,

and reasons/justification

14. There was no revision of PDO or key/outcome indicators.

1.4 Main Beneficiaries

15. At appraisal no beneficiaries were clearly identified. Based on the project design

as presented in the PAD, the primary target groups of the Project appeared to be:

(i) Lesotho’s micro, small and medium sized enterprises (MSMEs) and their trade

organizations; (ii) people who were seeking employment in the garment industry; and

farmers who were willing to participate in the horticulture outgrower scheme.

Immigrants and tourists were also main beneficiaries. Those target groups remained the

same during project implementation, except for the group of immigrants (including guest

workers) as the related subcomponent was terminated through the project restructuring.

1.5 Original Components (as approved)

16. The Project as approved consisted of two main components and seven

subcomponents. There was a third component of project management.

17. Component One, Improving business environment: The main objective of the

component was to support the implementation of policies aimed to improve the business

5

environment and reduce cost of doing business. The component had three

subcomponents:

18. Subcomponent A – Company registration and licensing reform (by MTICM and

Registrar General’s Office): This subcomponent aimed to achieve company registration

reform through the following main activities:

(i) Support implementation of trade and licensing reform

(ii) Design, procure, install, operate and maintain an integrated and computerized

system for business licensing, notification and company registration

(iii) Design and conduct training programs for MCTIM staff to support new licensing

regimes

(iv) Design and conduct training programs for RGO staff

(v) Support publishing and printing of laws and regulations

19. Subcomponent B – Immigration and passport service (by MHAPS): This

subcomponent aimed to (i) streamline and simplify the procedures to issue visas, work

permits and residence permits; (ii) improve productivity, courteousness and efficiency of

IPS staff; and (iii) reduce corruption at border crossings and in the dispensation of

immigration benefits. Those objectives were to be achieved through the following main

activities:

(i) Design and conduct three pilots for: (a) Visa Pre-Clearance and Port of Entry

visa issuance; (b) partial computerization of adjudication and information

services within the Ministry of Home Affairs and Public Safety; and

(c) computerization at selected ports of entry enabling them to communicate

electronically with each other and with the IPS headquarters;

(ii) Roll out of the computerized system for the port of entries;

(iii) Develop and implement a historical baseline database capable of providing

information and generating periodic management status report for the GOL;

(iv) Carry out related analytical studies.

20. Subcomponent C – Improving access to finance (by LNDC): This subcomponent

aimed to address SMEs’ difficulties in access to finance through the following main

activities:

(i) Provide technical assistance to assist the Lesotho National Development

Corporation (LNDC) to design an Enterprise Development Facility (EDF). EDF

would provide guarantees for SMEs’ borrowing from commercial banks in lieu

of collateral;

(ii) Train EDF staff on commercial risk assessment;

(iii) Support the drafting, adoption and promulgation of a leasing act consistent with

the corresponding law in South Africa and including provisions on the rights,

duties and obligations of the parties involved;

(iv) Assist the design of a tax regime applicable to the leasing industry.

21. Component Two, Supporting economic diversification: The main objectives

of this component were to (i) strengthen the linkages with the regional economy,

6

particularly South Africa; (ii) strengthening institutional support for employable skills

and business management; and (iii) improve productivity at the firm level. The

component had four subcomponents.

22. Subcomponent A – Skills development for the garment industry (by two GISDCs):

This subcomponent aimed to (i) improve garment manufacturers’ productivity; (ii) add

more value to commodity-type of products and support the emerging product

diversification initiatives; (iii) slow down the erosion of Lesotho’s market position under

AGOA and support diversification of exports market into South Africa and EU; and (iv)

prevent any further withdrawal of investors and loss of employment and encourage new

investors in the garment sector Those objectives were to be achieved through the support

to the two Garment Industry Skills Development Centers (GISDCs) for the garment

industry in Maseru and Maputsoe:

(i) Provide consultant services for the establishment and operation of the two SDCs;

(ii) Acquire and install equipment for training and provision technical support

services at the SDCs;

(iii) Refurbish the SDCs’ buildings and acquire and install required utilities, health

and safety equipment and facilities;

(iv) Improve access roads to the centers.

23. Subcomponent B – Horticulture outgrower scheme (by two pilot managers): This

subcomponent aimed to (i) improve quality, volume and delivery capability of Basotho

farmers of vegetables and tree crops; (ii) support the transition from smallholder farming

into group or block farming methods; and (iii) support production of organic products to

tap into high-premium niche markets. Those objectives were to be achieved through the

partnership with two large-scale South African companies at two demonstration plots to

explore the financial, agronomic and social sustainability of partnership.6 The Project

would finance consulting services, training, workshops, goods, works and operational

costs.

24. Subcomponent C – Tourism industry support (by LTDC): This subcomponent

aimed to support (i) public sector delivery of new investments, brand development and

targeted marketing activities; (ii) the rolling out of a market access tool (WHL) for

tourism enterprises, and (iii) the skills and business development of tourism enterprises.

Those objectives were to be achieved through the following activities:

(i) Launch and support the WHL to strengthen the marketing outreach of local

hotels, guesthouses and other tourism businesses;

(ii) Support Lesotho council of Tourism (LCT), which was an umbrella association

representing Lesotho private tourism sector;

6 They were: Alpha farms partnership with Basotho farmer to grow vegetables crops; and Denmar estates

partnership with Basotho farmers to produce apple and cherry crops for the local, South African and EU

markets.

7

(iii) Strengthen Lesotho Tourism Development Corporation (LTDC) to target

investor missions to Lesotho to showcase potential concession sites for

investment; develop a Lesotho brand and stimulate market demand through a

range of targeted marketing and information provision activities.

25. Subcomponent D – Lesotho Enterprise Assistance Program (by LEAP program

manager): This subcomponent aimed to (i) build international competitiveness and

capacity of Basotho-owned MSMEs; (ii) strengthen professional associations and

chambers of commerce so that they would better serve their members; and (iii) support

institutionalizing the public-private dialogue. The supports would be provided via the

following matching grant scheme under the LEAP program:

(i) Mentoring assistance and cost-sharing grants for the use of specialized services

(60% by LEAP and 40% by individual firm of service fees and invoiced travel

costs)

(ii) Cost-sharing grant for capacity building of representative business and

professional associations and chambers (75% by LEAP and 25% by association

of service fees and associated travel costs for the use of external services)

(iii) Support to the Lesotho Business Council (LBC) in the first five years of its

establishment for regular public-private sector dialogue

(iv) LEAP HIV/AIDS grants for firms’ expenditures incurred in contracting outside

specialists to conduct on-site HIV testing (for firms which were not covered by

the existing schemes in six industries)

26. Component Three Project implementation support: The main objective of this

component was to finance: (i) the consultants positions (e.g. procurement, financial

management and M&E specialists) of the Project Management Unit (PMU) and the

LEAP Business Advisory Unit; (ii) training of PMU/LEAP managers and staff; and (iii)

operational costs and goods needed for the functioning of the PMU and the LEAP

Business Advisory Unit.

1.6 Revised Components

27. There was no formal removal or addition of approved components, although the

implementation subcomponent 1B (immigration and passport reform) was terminated

before the relevant intermediate result was achieved.

1.7 Other significant changes

28. There were two project restructurings, in January and March 2012.

29. First restructuring: The main changes of the first project restructuring included:

(i) Readjustment of project scope – Subcomponent 1B was terminated due to a lack

of government commitment to the development of a national immigration policy,

and the needed institutional and IT framework.

8

(ii) Reallocation of IDA funding – As a result of the re-prioritization (within

Component 1 and 2) and the recognition of the funding gap (for Component 3),

IDA funding for Component 1 was reduced by 25 percent; that for Component 2

increased by close to 10 percent; and that for Component 3 increased by more

than 10 percent. A new disbursement category of Goods was created and the

eligible cost was moved from under GOL financing to under IDA financing

through reallocation. IDA financing for Consulting services was increased by 26

percent while that for the Matching grants was reduced by 20 percent. The

originally unallocated IDA funding presented as contingencies in the PAD was

earmarked for the different disbursement categories.

(iii) Modifications of intermediate indicators – Two indicators for Subcomponent 2A

were replaced with new indicators and another two for Subcomponent 2D were

modified, to reflect the refocusing of Component 2 activities (see Section of the

Datasheet for details).

(iv) Closing date extension – The original closing date of the Project was extended for

a year to June 30, 2013 to allow the completion of the reform measures in

business registration and licensing, the Public-Private Partnership (PPP)

transaction for the skills centers, and the rollout of a tree crops pilot at the village

level.

30. Second restructuring: This restructuring was conducted three months after the

first restructuring to correct a mathematic error in the first restructuring, so that the IDA

credit financing of goods was increased by 600% while that for consultant services

reduced by 15%.

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry

31. General: Project design was based on the Bank’s analytical work on Lesotho’s

economic structure and investment climate constraints. This enhanced the project

relevance in terms of alignment with the GOL and Bank strategies and targeting of

project interventions. Project design also benefited from a number of studies financed by

a Japanese Government PHRD grant of US$980,000 for project preparation (TF056152)7,

as well as extensive consultations between the main stakeholders including the

Government and the Bank. Thanks to the project preparatory work, the project design

was quite detailed with main activities planned and their cost estimated (which are basic

design requirements for a Specific Investment Lending operation). Previous lessons

considered were in four areas: Need for an integrated approach to nurture the private

sector; Presentation ability of the private sector in private-public dialogue; Importance of

integration with the South African economy; and Matching grant principles. Those

lessons guided the project design, for instance the inclusion of support to trade

7 Those PHRD funded studies were for/on a Design for a Matching Grant Scheme for the Private Sector in

Lesotho; Licensing, registration and immigration services reforms; Designing of a Credit Guarantee

Scheme; as well as Sectoral studies on horticulture, textiles and tourism.

9

organizations, a matching grant program, and the participation of South African

businesses under the horticultural pilots.

32. Scope of project: The Project was of a relatively lean design, having only two

main components and seven subcomponents, as compared to similar projects supporting

the financial and private sector development in Sub-Saharan Africa around the same time.

A common challenge of those projects was how to balance the need for adequate breadth

of support with that for effectiveness and efficiency of an operation. The main activities

were directly aimed at the main obstacles to private sector competitiveness and economic

diversification in Lesotho. However, complexity was a main issue raised at the Quality

Enhancement Review and the decision meeting in view of the limited IDA funding

available (USD8.1 million equivalent). The ICR review finds that the weakness was not

so much the complexity of design, but the overly ambitious project targets and a lack of

detailed design of implementation modality for the intended immigration and passport

reform. For instance the project was designed to deliver several important legal and

regulatory reforms from company registration to immigration regulation. While those

reforms were needed for improving the business environment, it seems that the

implications of the local legislative procedures for project implementation had been

overlooked at appraisal.8 The Bank has supported legal and regulatory reforms for

improving business environment in many client countries and is more effective when

local characteristics are given adequate consideration in project design and a good mix of

intervention models is used.9

33. Another omission in the project design was a realistic assessment of the local

capacity in developing and implementing several change programs in parallel within the

short life-span of the project (e.g. the interventions to shorten the administrative

processes for starting a business and those to improve immigration control practices).

Although the government’s request for support in all those areas was justified, there was

a need for prioritization and sequencing of Lesotho’s vast needs for development. The

Project could had a bigger impact if activities were more focused; for example on one or

two instead of three main hurdles of business environment or one potential source of

growth instead of two. Spreading the resources thin for each main activity affected the

effectiveness and efficiency of some of the project interventions.

34. Technical issues: Technically, the design of most of the main activities was

based on international experience (e.g. regarding company registration and licensing and

establishment of industrial skills development centers). The project design included the

development of a partial credit guarantee (PCG) scheme as the response to the limited

access to finance, probably in response to the government request. International

experience shows that the impact of PCGs in promoting access to finance is mixed and

failures are mainly due to moral hazard and elite capture concerns. On the other hand,

8 Legislative procedures worldwide including in many developed countries tend to be long processes as

they require different layers of reviews and approvals, and Lesotho was no exception. 9 See IFC publication: “Reforming Business Registration: A Toolkit for the Practitioners”, September 2013

www.wbginvestmentclimate.org

http://www.wbginvestmentclimate.org/

10

the PAD (based on the earlier investment climate assessment) highlighted the problem in

contract enforcement rather than a lack of guarantees among the main constraints to

access to finance. A partial guarantee scheme simply diverts that risk from lenders to the

guarantor (i.e. the LNDC under this Project), but cannot directly address some of the

identified important causes of credit risks, such as information asymmetry and contract

enforcement weaknesses.10

The inclusion of a PCG program could also be an attempt to

provide guidance on the international practices.11

It appears that the MTICM had

determined around the time of project appraisal to establish the program at the LNDC

which reportedly suffered heavy financial losses although was profitable around the time

of project appraisal. Furthermore, the local experience with several previous PCG

programs was not satisfactory.

35. The design of the horticulture outgrower scheme adopted the PPP approach which

was critical to achieving the final results (quality and early produce of fruits and access to

the nearby South African market). The objective of the scheme was clearly set as to add

value to horticultural products and to link the local farmers to the international markets.

However, the roles and responsibilities of the main stakeholders (District Agriculture

Offices, the participating farmers and the South African partners) were not well defined

at appraisal. While the role of the South African partners was generally described as

partner, it was not clear whether the pre-selected South African businesses would only

provide technical advice; or concurrently be an early-stage investor with a view to

commercial gains down the road.

36. Institutional arrangement: The Project was designed to have a multi-tier project

implementation arrangement. On the top of the institutional arrangement was a public-

private steering committee (PPSC) which would be led by a deputy prime minister and

involve five ministers and heads of three business associations. This committee might

have been too senior for the small project and in fact was never convened during project

implementation. The second tier management arrangement, i.e. a project review

committee (PRC) headed by the Principal Secretary of MTICM was more functional as it

was at the Principal Secretary level and supported by a Project Management Unit(PMU).

37. Risk and mitigation: Country-level risks were identified and appropriately rated

as substantial (e.g. those related to GOL’s implementation of an overall private sector

development agenda and provision of industrial land). Several project-level risks were

identified, ranging from weak private sector responses to low implementation capacity.

The risk of low implementation capacity was correctly rated as high but would take more

intensive mentoring programs than the proposed mitigation measures to manage.

38. The risk of weak supply response to the design of Component 2 (which was based

on the demand driven principles of supply chains) was rated as low at appraisal which

10 In many countries the problem of weak contract enforcement is addressed head-on with judiciary reforms

and adoption of out-of-court resolution procedures for example. 11

Many government funded partial credit guarantee programs were said to have led to elite capture where

elite groups took advantage of government programs.

11

turned out to be a much higher risk to implementation. This risk was to be mitigated

through project promotions and private sector management of the horticulture and

matching grant schemes. However, other aspects of the risk were not adequately

addressed at appraisal. For the horticulture outgrower scheme they included, inter alia,

challenges in turning maize growers into fruit growers, difficulties in consolidating small

landholdings into larger plots for block farming, and the time and political support

needed to establish a security buffer zone along the Lesotho/South African border. The

matching grant program experienced low uptakes for a number of years until the original

cost sharing proportions were changed. The experience shows that it would take more

than project promotions to get those schemes right.

2.2 Implementation

39. General: Project implementation overcame most of the design weaknesses and in

general achieved the expected results except for Component 1B (see the next paragraph).

Implementation started early and six months after the project effectiveness (in October

2007)12

a draft company law prepared by a consultant was ready for government review

although the conceptualization and consensus building of the draft law took a much

longer time thereafter. One of the two skills development center started to provide

training and the One-stop Business Facilitation Center (OBFC) was launched by

September 2008. Proactive actions were undertaken to address the major issues that

emerged, such as the financial viability of the two skills development centers and the

need to clarify the partnership arrangement for the horticulture outgrower scheme. The

Project Review Committee (PRC) met regularly to monitor progress and provide

guidance. The PMU performance had been consistently regarded as satisfactory.

40. Immigration and passport reform (C1B): Based on the feedback from the main

project counterpart (MTICM) and a number of project documents (e.g. the mid-term

review (MTR) report and the December 2011 project restructuring paper) it appears that

the proposed reform on immigration and passport service were not integrated into the

relevant line ministry’s reform agenda or strategy. While the need for reform was not

disputed and the whys were elaborated at appraisal, the whats and hows were not clear to

the staff and management of the implementing agency. The MTR conducted in

September 2010 found that implementation of the subcomponent was stalled and there

was no project task force or full time project manager at the implementing agency despite

the extensive reforms envisaged by project design. Actions to address the main causes of

the delays were recommended at the MTR (e.g. cabinet approval of a new immigration

policy and decision on system integration with South African Immigration) but had not

been undertaken by the time of the first project restructuring (January 2012). The lack of

ownership led to the termination of the subcomponent. 13

12 Project effectiveness took 180 days instead of the standard 90 days.

13 The only activity completed was the support to the design of a national ID system, which was to be

implemented under a MCC financed project. Due to the lack of a national immigration policy, the other

activities including visa preclearance and port of entry visa issuance and other IT support systems, could

not be implemented.

12

41. Horticulture outgrower scheme (C2B): The pre-selected South African partner

of the vegetable block farming pilot withdrew from the project shortly after the project

effectiveness, mainly out of security and other concerns. That part of the designed

horticulture scheme was then cancelled. The partnership arrangement for the tree crop

pilots was redesigned in 2008 and intensive mentoring was provided to the officials of the

Ministry of Agriculture and Food Security (MAFS) and the participating farmers. In

addition, the project restructuring allocated more financing for a community-based

(village-level) rollout program to test the feasibility of commercialization. In addition to

the provision of seedlings, equipment and inputs, the rollout program consolidated the

landholdings of the participating farmers into one single plot, organized the farmers into

an association and had the farmers company registered.

42. During the first year the planted fruit tree seedlings were damaged when poorly

set up hail nets collapsed. Commercial yields were achieved at the three pilots in

2011/2012 when hail-nets were set up properly, irrigation equipment installed and trees

replanted. The first export from the three pilot farms to South Africa (albeit only 54 kg)

took place in March 2012 after the signing of an agreement with the South African

partner to make the latter’s marketing network available to the Basotho produce. Another

problem addressed during project implementation was the livelihood of the participating

farmers, who turned their land to grow trees rather than the traditional maize. The GOL

provided livelihood support to the three participating farmers.

43. Mid-term review: The October 2010 mid-term review carried out detailed

analysis of the progress made and the challenges encountered in project implementation.

The recommendations were specific and practical. The PPP approach eventually

alleviated the financial viability concerns of the two skills centers. The recommended

increase of the government contribution and the changes of the matching grant

procedures enabled the program to take off.14

The recommendation to take the project

fiduciary function back into the PMU helped improve the project’s performance in

procurement and financial management. However, the MTR was conducted when there

were only 18 months left before the original project closing date. If the MTR were

conducted per the original schedule (September 2009) rather than one year later, the

Project could have been made more relevant, effective and efficient in achieving the

objectives.

44. Project restructuring: The two project restructurings in early 2012 re-oriented

project implementation to what was more achievable mainly by formalizing the MTR

recommendations. The increase in the IDA financing of subcomponent 1A (Company

registration and licensing reform) supported continuous industry licensing reform. IDA

funding for the horticulture scheme (C2B) was increased substantially to finance the

14 The grant contribution to matching grant and the changes in the individual companies was increased

from 65% to 80% while that to business associations remained at 75%. Direct payments were adopted

rather than letting the beneficiaries to pay the service providers first. Prior review threshold was raised

from US$15,000 to US$20,000.

13

acquisition of additional hail-nets, irrigation equipment and farming. This enabled the

scale-up of the horticulture pilots of three farmers to a village-level rollout program.

Originally goods were financed by the Government, but by June 2012 the counterpart

funding had been overspent.

45. The modifications of the intermediate results indicators of subcomponent 2A

(Skills development for garment industry) made the component-level targets more

realistic. However, for reasons unknown to the ICR review, the unrealistic PDO indicator

on job creation was maintained although as early as the MTR time there was recognition

of the problem. The project restructuring also failed to remove the component level

targets of subcomponent 1B although it was formally terminated. The restructuring

should have been conducted at least one year earlier, so that the project resources would

have been more effectively used.

46. Other: The LNDC’s partial credit guarantee program (US$1 million equivalent)

was established in July 2011 and by project closure had benefitted 16 borrowers. The

uptake was low as banks still found it difficult to find bankable borrowers. The Ministry

of Finance (MOF)’s review and approval of the LNDC PCG was slow for a while as the

finance ministry was establishing its own PCG at the time (US$5 million and 20

beneficiary borrowers by project closure). The on-line booking system (WHL) for

tourism accommodations and activities was installed by 2011, but utilization was low.

The development of a concession arrangement for the Sehlaba Thebe National Park (SNP,

a UNESCO designated world heritage) started in the second half of 2008 and a

concession agreement was finally signed off by project closure. The Lesotho Enterprise

Assistance Program (LEAP, the matching grant scheme) suffered initiation delays until a

qualified program manager was engaged and her office staffed and a grant approval

committee established by 2009. The original plan to support one or two consolidated

private-public dialogue platforms through the Private Sector Foundation of Lesotho

(PSFL) and the Business Council of Lesotho (BCL) was terminated. This was because

the PSFL encountered serious institutional problems. However, the LEAP continued to

support viable sectoral organizations. It appears that the time might not have been ripe

for a consolidated umbrella business association. All in all, the LEAP program supported

17 business associations.

47. Last but not at the least, the Project was implemented in the first a few years amid

the aftermath of the 2007 – 2008 global financial crisis and the follow-up economic

recession in Lesotho’s main export market (the USA) as well as its main source of

revenues (South Africa). The economy was hit hard. Textile exports declined more than

20% in the first half of 2009 from the first half of 2008. Immigrant workers were

retrenched and their remittances to home reduced.15

The country’s economic growth

started to recover in 2010 thanks to the rapidly increasing FDI inflows, which also

benefited the project implementation in the later years.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization

15 United Nations: Impact of Global Economic Crisis in Lesotho, August 2009

14

48. Project Development Objective: The PDO was composed of three parts:

(i) facilitating increased private sector investment; (ii) improving business environment;

and (iii) diversifying sources of growth. The PDO in general reflected what the Project

was intended to achieve, i.e. to improve the business environment in Lesotho and explore

the feasibility of two potential new sources of growth as main means to facilitate

increases in private sector investment. Improving the business environment was mainly to

be achieved by cutting red tape in the administrative processes for company registration

and licensing. Testing of potential new sources of growth was expected to be achieved

through a horticulture outgrower scheme and strengthening of the tourism industry. The

statement of the PDO could have been more realistic if the third dimension had been set

along the lines of exploring and/or testing the potential for economic diversification.

This is because the tree crop pilots and a start grading system for tourism facilities alone

could not turn horticulture or tourism into a main driver of economic development.

49. Outcome indicators: The first outcome target was a standard and direct

measurement of changes in one aspect of business environment (business process for

starting a company), which corresponded to one of the two groups of main interventions

of the Project (Component 1). The indicator was specific, measurable and attributable to

what the project was designed and intended to achieve (improving business environment

in order to facilitate increases in private sector investment). The second indicator,

however, measures job creation in the whole private sector which is typically affected by

factors beyond the reach of the Project, such as the business cycles. In addition, job

creations are the result of increased private investment, while the Project was targeted to

facilitate increases in project investment and not necessarily directly increase private

sector investment. The target was set to create 2,500 new jobs, but no detailed technical

analysis was provided in the project design on why and how the Project was expected to

create this many new jobs. No mechanism was provided for the collection and

verification of employment data for which the government capacity was quite weak.

50. No indicator was set up in the project design to measure the expected outcome

related to economic diversification. Based on the design of the second group of project

interventions including the original allocation of project resources, the ICR review finds

that the intended (inferred) outcome indicator for the second part of the PDO is

“Providing a demonstration effect for a new source of economic development”.

51. Intermediate indicators: The component-level indicators as designed were

specific and most were numeric. The metrics to measure changes in the company

registration and licensing processes were standard Doing Business indicators. Some

other indicators measured the successful completion of the main activities (e.g. adoption

of leasing regulations).

52. However, a number of the original intermediate indicators suffered attribution

problems, in particular for the main activities of Component 2. The problem was

addressed to a certain extent during project implementation. The original targets of

subcomponent 2A (on the overall garment industry’s task efficiency) were unrealistic and

15

would be difficult to be attributed to the main objective of the subcomponent, which was

to train potential workers through two skills development centers, so that they would

have the basic skills demanded by garment industrialists. The centers do not have the

capacity to train the whole industry’s work force.16

Even if the Project could have done

this, behavioral changes usually take time. The two new indicators added by the project

restructuring were more appropriate as they measured the placement rate of the trainees

and the centers’ management model. The project restructuring also modified the original

indicators for the matching grant program, from comparison with the non-supported

groups to that with the income levels of the beneficiaries before the LEAP support. The

revisions made the indicators more measurable, given the fact that no baseline and

follow-up surveys were built into the Project to assess the MGP impact against control

groups.

53. Data collection and project reporting: Project data collection relied on the

implementing agencies but data management capacity of those public sector institutions

was very weak. For instance the GOL does not publish consistent and reliable national or

sectoral statistics on employment and private sector investment regularly. This affected

data reliability. The PMU made extra efforts to collect data from different sources as the

implementing agencies did not report project status and progress regularly.

2.4 Safeguard and Fiduciary Compliance

54. Environmental impact management: The PSCED was a Category B operation

which required partial environmental impact assessment (EIA) mainly due to the

horticulture outgrower scheme under subcomponent 2B. The main potential

environmental risk identified in the EIA (financed by the PHRD project preparation

grant) at appraisal was the lack of regulatory framework, capacity and integrated systems

for proper management of the agrochemicals (e.g. pesticides and fertilizers) which would

be applied at the pilot farms. The EIA also found that potential environmental impacts

from the subcomponent were probably insignificant, if the following actions were

undertaken: (i) development and implementation of M&E systems to monitory and

evaluate environmental impacts on a regular basis; (ii) conduct training and awareness

programs at the farmer level; (iii) development and implementation of a Pesticide

Management Plan.

55. During project implementation, a leading sustainable agriculture consulting firm

in South Africa was engaged to provide training and mentoring to the participating

farmers. The participating farmers were trained on the adoption and maintenance of

Good Agricultural Practices, including, inter alia, environmental sustainability, food

safety and international certification of farms. The farmers kept a Blue Book to track the

production activities for EIA purposes. One of the pilot farms has been audited for a

certification to be issued by Global Gap towards the end of 2013. The Environmental

and Social Management Framework (ESMF) for the second PSCED project (PSCEDII)

16 In 2011 the industry employed 36,000 workers according to the Lesotho Textile Exporters Association:

Lesotho Textiles Gets a Lifeline, IRIN, Nov. 24, 2011.

16

was more specific and comprehensive.17

In addition to training and community

engagement, the ESMF contains an environmental and social screening form. The

detailed ESM framework sets out: (i) the concerns and the actions; (ii) the monitoring

arrangement and the measures; and (iii) the responsibilities of the PMU, the participating

farmers, the program manager, the Global GAP and the GOL. The overall safeguards

and environmental assessment policy were consistently rated satisfactory by the Bank

task team during the project implementation period.

56. Procurement: The procurement performance of the Project was rated as

satisfactory by the Bank task team most of the time. In the first part of project

implementation, there were delays, in particular in goods. Three Country Post

Procurement Reviews (PPR) were conducted in 2010, 2011 and 2013. The September

2011 PPR identified a number of capacity gaps which were addressed thereafter.18

With

the benefit of hindsight, procurement packaging could have been improved, in particular

with regard to the needs for the tree crop pilots. As mentioned in Section 2, the

acquisition of seedlings, hail-nets and irrigation equipment should have been better

coordinated. In addition, tree crop farming is characterized by seasonal changes, and the

Project’s procurement planning and packaging should have taken this into consideration.

57. Financial management: The Project’s financial management was rated from

moderately satisfactory to satisfactory by the Bank task team. Audit reports of the

project accounts provided on time and all the audit reports were unqualified. The less

than fully satisfactory performance in certain periods of project implementation related to

a lack of staff performing the financial management tasks which should have been

separated and calculation of tax treatments for example. Those problems were resolved

and the latest PRIMA (April 2013) found the project performance in financial

management satisfactory.

2.5 Post-completion Operation/Next Phase

58. The Bank has approved the Second Private Sector Competitiveness and Economic

Diversification Project to build on reforms initiated under this Project as well as reforms

in new areas to support government priorities that would lead to greater private sector

development. Specifically, the follow up project will: (i) extend the reform in business

registration to all types of firms and extend the regulatory reforms to the other aspects of

business environment; (ii) 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); (iii) improve tourism statistics; (iv) scale up the results of the

horticulture pilots to a commercialization level; and (v) continue to finance the

management cost of the LEAP program with GOL financing of the matching grants (a

17 The PSCEDII will scale up the pilots at the farmers-level (total of over 4 ha) and the village-level (10 ha)

to a larger community with joint land of 35 ha. 18

After subcontracting the procurement function to the LNDC in the first two years, the PMU moved the

function back into the project management unit and gradually gained more experience in procurement

under Bank financed projects.

17

clear sign of government commitment). For details please refer to the PSCEDII’s Project

Appraisal Document.19

The investments goods financed by the Project have been handed

over to the beneficiary institutions (e.g. the automated company registration system to the

OBFC), or the implementing agencies of the second project.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation

59. The Relevance of the PSCED Project is assessed in terms of: (i) consistency with

the current country and Bank strategies, and (ii) adequacy of prioritization based on local

capacity. Based on the following considerations, the Relevance of the Project is

considered as Substantial.

60. Strategic consistency: The current GOL National Strategic Development Plan

(2012/13 – 2016/17) aims to create the pre-conditions for high, sustainable, and private

sector-led economic growth and faster job creation. The strategy identifies four potential

long-term economic development drivers: i.e. agriculture, manufacturing, tourism and

deeper investment climate reforms. The project objectives as designed and implemented

were highly consistent with the GOL’s strategy for the private sector led economic

development.

Table 1: GOL Strategy and PSCED Project

GOL Strategy PSCED Project

Investment Climate reforms Development and adoption of laws and

regulations to improve business

environment (as designed and

implemented)

Commercialization and diversification of

agricultural sector

Horticultural outgrower scheme (as

designed and implemented)

Vocational training in manufacturing sector Establishment and operating of 2 skills

development centers for garment industry

(as designed and implemented)

Tourism development Concessions of operation of tourism sites

and adoption of international practices in

accommodation reservation and star

grading (as designed and implemented)

61. The early 2012 project restructuring further enhanced this strategic consistency as

it reoriented the Project towards what was more achievable or would have more impact.

The examples in place were (i) the development and adoption of the leasing regulations

to provide businesses with a new financing instrument other than the traditional bank

loans (improving business environment); and (ii) the scaling up of the tree crop pilots

19 The World Bank, Project Appraisal Document, Report No: 81069-LS.

18

from three individual farmers to a village-level community (diversifying sources of

growth). The GOL’s commitment to the objectives and implementation of the PSCEDII

project is another testimony of the first project’s consistency with the current government

strategy.

62. The World Bank’s current Country Assistance Strategy (CAS, FY10 -14)

concentrates in three priority areas including Competitiveness and Diversification. The

CAS Progress Report (2012) further indicated that “The strategic pillars of the CAS -

supporting fiscal adjustment and increased public sector efficiency, human development

and improved service delivery, and enhanced competitiveness and diversification of the

economy - , creating jobs,

inclusive growth, and private sector development.” The Project aimed to achieve the

same goals in the same identified priority area. The project implementation maintained

this consistency. The ICR review finds the Relevance of the Project as high in terms of

consistency with the Government and the Bank strategies.

63. Project scope: The scope of the Project responded well to the GOL and Bank

strategies. However, it was somewhat too ambitious, given the low capacity of the

government for implementing several large reform programs at the same time. While

identified as a high risk at appraisal, the low capacity constraint was not adequately

factored into the project design and materialized during project implementation. The

project design was clear about why the proposed reforms were needed, but was short on

the whats and hows in particular regarding the legal and regulatory reforms. Nevertheless

the project implementation made significant progress in the legal and regulatory reforms,

such as the adoption of the new company law and the leasing regulations. The Project

restructuring re-oriented the scope of interventions towards what was likely to be

achieved. The Relevance of the Project is considered as substantial in terms of designed

and implemented project scope.

3.2 Achievement of Project Development Objectives

64. The Project Development Objective was to “facilitate increased private sector

investment in the Recipient’s economy by improving the business environment and

diversifying sources of growth”.

65. Improving business environment: The following table provides a snapshot of

the pathway from the main project interventions to the achievement of the component-

level results.

Table 2: Progress towards improving business environment

Project interventions Results

Drafting and enactment of new Company

Act, amendments to Trading Enterprises

Regulations, and drafting of Industrial

Licensing Bill

Installation of a web portal for company

Registration

Days required to register a company

reduced from 28 days to 7 days (a

reduction of 75% in time needed)

Days required for obtaining an industrial

license reduced from 35 days to 5 or fewer

days (a reduction of 86% in time needed)

19


Staff training of Registrar General’s

Office

Training and TA for OBFC

Days required for obtaining a trade license

reduced from 35-50 days to 15 days (a

reduction of </= 57% in time needed)

66. Achieving first outcome (Starting a business): Those results at the component

level cuts down the red tapes in starting up a business, which are widely considered as an

important factor affecting increased private sector investment. At the project level, the

designed outcome indicator to measure improvement of the business environment was

“days required to start a business” (</= 20 days). Before the Project, it took 73 days to

start up a business (old DBI methodology), and by the project closing date the number of

days required was reduced to 24 days (GOL report). While this was four days short of

the target, it represented a 68 percent reduction from the baseline. According to the 2013

Doing Business report (new methodology), the number of days required to start a

business in Lesotho has been on consecutive declines from 93 days in 2006 to 40 days in

2010 and 29 days in 2013. In 2013 the Sub-Saharan African average was 30 days for

starting up a business.

67. Other achievements: In the five years (2007 – 2011) before the new company law

came into effect in May 2012, 179 companies registered on average per annum. Between

the milestone of the new law and the project closure (roughly 12 months), the registration

list saw an increase of 472 companies which was almost three times higher than the

average annual increase in the number of companies registered before the project result

was achieved. This could be an indication that the new law (and the automated registry)

encourages firms to move into the formal sector. The time to obtain industrial licensing

was also reduced by 86 percent from 35 days to 5 or less days. In addition, the leasing

regulations developed and adopted support the implementation of a new financial

services law. The gap in the legal and regulatory framework was removed and a

businessman can now finance capital goods through leasing in Lesotho. This is another

step towards improved business environment given the importance of improved access to

finance to an enabling business environment. Those achievements have been recognized

by the development partners’ community. For instance, a recent IMF staff report found

that "Financial sector regulation has been strengthened and the business climate has been

gradually improving, with progress made in enhancing the legal framework (e.g., the

Financial Institutions Act, the Insurance Act, and the Industrial Licensing Bill)."20

The

outcome indicator for improving business environment is considered as achieved.

68. Diversifying sources of growth: Table 2 summarizes the contribution of the

Project to the achievement of the component-level results related to the diversification of

sources of growth.

20 IMF Sixth Review under the extended credit facility for Lesotho, IMF Country Report No. 13/294

(http://www.imf.org/external/pubs/ft/scr/2013/cr13294.pdf)

http://www.imf.org/external/pubs/ft/scr/2013/cr13294.pdf

20

Table 3: Progress towards diversifying sources of growth


Establishment of a partnership

arrangement between a pre-selected

South African company and three

participating Basotho farmers

Provision of a variety of fruit tree

seedlings, equipment, inputs, technical

support, training and participating

farmers’ livelihood

Scale up to village level for

commercialization tests

Best performing varieties identified for

early-season yields (2-weeks earlier than

yields in South Africa)

First batch of apples (54 kg) exported to

South Africa in 2012

One participating farmer to be certified by

Global GAP by end-2013.

Farmers of the village-level pilot

consolidated their smallholding land into

one single plot and organized themselves

as a cooperative.

69. Achieving second outcome (Demonstration of new source of growth): Those

results provided two important demonstrative effects: technical feasibility of (i) tree-crop

farming as a new source of economic development; and (ii) consolidating smallholding

land and organizing farmers for the commercialization of tree crop farming. There had

been suggestions in the government strategies and by international experts that Lesotho

would need to move from smallholding farming (mainly of maize) to block farming of

cash crops in order to increase farmers’ incomes and reduce the economy’s reliance on

low-end garment manufacturing. However, the technical feasibility of those suggestions

was unknown before the Project. Because the tree crop pilots found the best performing

varieties suitable for farming in Lesotho and that they could be harvested two weeks

earlier than South African fruits, there is a good chance for Basotho farmers to earn a

price premium from the nearby South African markets. Despite the tiny quantity of

export, it proved that outward linkage could be established when Basotho farmers had

access to South African partner’s marketing networks. The village-level pilot initiated

after the 2012 restructuring succeeded in consolidating the community’s landholdings

into a single plot. The farmers organized themselves as a cooperative and registered a

company.

70. While it is too soon to see the results of this limited commercialization

experiment, the PSCEDII project will test the commercial viability of the tree crop

outgrower scheme by expanding the experiment and supporting the tree crop supply

chain development. Since the project design did not specify any outcome indicator for

diversifying source of growth, the ICR review uses the inferred indicator in assessing the

progress made, which is “providing a demonstration effect for a new source of economic

development”. Based on the above analysis, the ICR review considers that the inferred

outcome indicator for diversifying sources of growth was achieved.

71. Other achievements: In addition, a star grading system was adopted for hotels

and other accommodation in Lesotho under the Project. The system will inform tourists

and business travelers which accommodation can meet their needs for their budgets.

Four tourism sites including the UNESCO designated SNP were transferred to private

sector management under concession agreements. Those results are expected to attract

more tourists and other travelers to the country; and hence increasing the tourism industry

21

potential to become another new source of growth. The PSCEDII will continue to

support the growth of tourism to test the potential of the industry as a new source of

economic development in Lesotho.

72. Facilitating private sector investment: The achievement of the above two

outcome indicators is expected to facilitate increased private sector investment. Reduced

red tapes led to lowered cost for company registration and licensing, which shortened the

administrative process for starting up a business. Those are one but important aspect of a

country’s investment climate. The tree crop pilots would open up new investment

opportunities. If commercialization experiments are successful under the second project,

there would be high demand for agricultural inputs, irrigation and hail protection

equipment, and marketing services for example. Four tourism sites are now managed by

private sector tourism operators under concession agreements nailed down through the

project interventions. The private investors are expected to invest more in tourism sites

and services to ensure success.

73. The introduction of the PPP model in tourism and vocational training has set up a

good example of sustainable financing of the private sector driven economic

development. Given the small size of the Lesotho economy this was by no means a small

achievement: it could increase the leverage of limited public sector resources, bring

discipline and commercial practice to investment planning and management, and open up

more investment opportunities to the private sector. The ICR review finds that the

Project enhanced the environment for increased private sector investment.

74. In addition, the ICR review finds that economy-wide, private sector investment

might be increased significantly in Lesotho as measured by proxy metrics. The IMF

estimated that the gross capital formation of the private sector would increase from 16.6

percent of GDP in 2009/10 to 19.6 percent (projected) in 2013/14.21

Using the World

Bank FDI data as another proxy, the net inflows of FDI in Lesotho registered an average

annual growth of over 100 percent in 2006 – 2012.22

It may be too soon to quantify the

extent of the project impact in terms of increased private sector investment, and even if it

can be quantified, the impact of the Project on the nationwide changes must be quite

modest compared to the more important drivers of economic and sociological changes.

On the other hand it would also be quite difficult to disregard the likely impact of the

Project as it did contribute to the development of an enabling environment for increased

private sector investments.

75. Job creation: The project design set an outcome indicator measuring job creation,

which was 2,500 “new jobs created in private sector”. As discussed in Section 2.3, there

design weaknesses of the indicator. For the ICR review data is not available on the

specific number of job creations in the whole private sector which would also be

attributable to the project interventions. However, based on the verifiable statistics, the

two skills development centers created 1,156 new jobs in the textile and garment industry,

21 (http://www.imf.org/external/pubs/ft/scr/2013/cr13294.pdf)

22 Http://data.worldbank.org

http://www.imf.org/external/pubs/ft/scr/2013/cr13294.pdf

22

as they trained a total of 1,562 potential workers and 74 percent of the trainees were

placed by the centers. The impressive placement rate demonstrated that the training

centers’ curriculum and hands-on training met employers’ requirements. A PPP model

ensured financial sustainability of the centers, and thanks to the improved viability, the

centers are expected to continue to train and place workers; hence contributing to the

creation of jobs in the key manufacturing industry.23 In addition, the PMU reported that

during the project implementation period, textile and garment firms which operated on

LNDC premises added 3,072 formal jobs. This statistic could include the trained and

placed workers from the two centers. The best-effort assessment of the ICR review is that

the Project made positive contributions to job creations in Lesotho and directly to the

new jobs added in the textile and garment industry.

76. Local enterprise development: The Project also contributed to the achievement

of the above discussed outcomes through the LEAP (matching grant program). The

program financed over 70 business development services provided to 193 firms and 17

business associations. The BDS for trade fairs and exhibitions accounted for almost 27

percent of the total number of services provided; followed by those for website design

and development (10%) and design and capacity building of financial management

systems (6%). The ICR review notices that tourism was the sector where most of the

beneficiaries operated, followed by manufacturing, trade and retail, and ICT. The BDS

supported by the LEAP were reported as having contributed to the increased sales of

beneficiary firms (56%) and the increased incomes of industrial association members

(15%), although the impact of the small grants must be different for different sizes of

enterprises.24

For a detailed report of project outputs please refer to Annex 2.

77. Achievement of PDO: Based on the above analysis, the achievement of the

Project Development Objective is considered as Substantial.

3.3 Efficiency

78. Original economic analysis: At appraisal, an econometric model was developed

to assess the Net Present Value of the Project. The model was based on assumptions that

the planned interventions would generate economy-wide or sector-specific effects, and

interpreted the project benefits as a direct contribution to GDP. There are significant

drawbacks in using an econometric model on GDP growth to conduct economic analysis

of this type of projects which mainly financed dispersed consulting services and training

activities (82% of total IDA funding disbursed was in this category), as there is no hard

evidence that small consulting services and training directly led to GDP growth. In

addition, it appears that the economic analysis at appraisal was very optimistic and

23 A management council for each center was established which is composed of industrialists and

representatives of 4 ministries. The operational costs were shared with the GOL expected to gradually

reduce its financing and ownership. 24

The enterprise size distribution of LEAP grants was as follows: large firms accounted for 29%, medium

firms, 13%, and micro and small firms, 13%. The rest went to industrial associations.

23

unrealistic.25

The main drawbacks are found in the assumptions and here are a few

examples:

One assumption on economy-wide effects – Reduced time for business startup,

registration and licensing would increase net number of new businesses: there has

not been clear evidence that streamlined processes will automatically lead to net

increase of businesses without other major reforms in investment climate.

One assumption on sector-specific effects – Pilots of horticulture outgrower

scheme would increase agricultural exports on a commercial scale: this

assumption missed a critical factor in fostering new agricultural produce, i.e. the

need to first test the technical feasibility before commercialization can be carried

out. According to the Business Plan for Pilot Farms, the tree crop pilots at the

individual farmer’s level would start to generate a small net income only in year

eight (2016/17).26

79. ICR assessment: The ICR review takes a more qualitative approach to assess the

project efficiency as follows:

Benefits – Component 1 achieved the targets in shortening the administrative

processes starting a company in Lesotho which improved the country’s ranking in the

Global Doing Business Index (up 65 positions in terms of starting a business) and

improved the regulatory framework for leasing, which made Lesotho one of the top

DB reformers for the 2013 DBI. Component 2 demonstrated the technical feasibility

of the horticulture outgrower scheme which has the potential to become a new source

of growth if commercialization is successful (refer to Section 3.2 for details of those

and other benefits achieved).

Utilization of financing resources – The original financing resources were fully

utilized to achieve the benefits. In fact, the GOL increased the counterpart funding by

20 percent and by the project closure, close to 98 percent of the total funding was

disbursed (see Annex 1 for details).

Costs – Compared with the benefits achieved, the costs of the two main components

appeared to be reasonable in particular where consulting services and goods were

acquired through competitive selection or biddings. The cost of PMU was high (24%

of total actual project cost including the counterpart funding – see Annex 1). In a

way, it might probably be the cost that has to be paid to ensure the success of an

ambitious project in a low capacity country. The performance of the PMU had been

consistently rated as satisfactory by the Bank task team.

Cancellation – Subcomponent 1B on immigration and passport reform was

terminated before the expected target was achieved but the financing resources

25 For example, Component 1 (composed of mainly technical assistance interventions for improving legal

and regulatory framework) was projected to have a NPV of US$6.5 million and an ERR of 52 percent.

Component 2 (technical assistance plus limited investments in operational systems and equipment) was

projected to yield a NPV of US$10.3 million and an ERR of 49.7 percent. 26

Tree Crops in Lesotho: The Business Plan for the Pilot Farmers, Global Development Solutions, March

2013.

24

originally allocated to the subcomponent was reallocated mainly to finance the scaled

up (village-level) tree crop pilot and fully utilized.

Damage to tree crops pilot sites – Because of the poor workmanship, the hail-nets

collapsed on several occasions, causing damages to the tree crop seedlings planted in

the first year.

80. Based on the above analysis, the efficiency of the Project is considered as

Substantial.

3.4 Justification of Overall Outcome Rating

Rating: Moderately Satisfactory

81. This rating is based on the assessment under Section 3.1 – 3.3, in particular given

the significant on-the-ground results achieved in improving an important aspect of

business environment and testing the technical feasibility of tree crops as a new source of

growth. In addition, a regulatory gap for improved access to finance was removed

through the adoption of leasing regulations. PPP models were introduced in operating

tourism sites and vocational training centers. Basotho firms experienced the benefits of

business development services. Those results are likely to further facilitate increases in

private sector investment. The main downward factors considered include the ambitious

scope of interventions for a low capacity country, and the challenges associated with

employment data to assess the direct project impact on job creations.

3.5 Overarching Themes, Other Outcomes and Impacts

(a) Poverty Impacts, Gender Aspects, and Social Development

82. The Project was not designed to have direct poverty, gender and social

development impacts. Nevertheless, female-owned businesses accounted for 62 percent

(micro and small size), 39 percent (medium size) and 19 percent (large size) of all the

enterprises supported by the LEAP (matching grant program).

(b) Institutional Change/Strengthening

83. The most noticeable developmental impact on institutional strengthening under

the Project included (i) establishment and strengthening of the One-stop Business

Facilitation Center; and (ii) establishment and acceptance of PPP models in the

management of two skills development centers for the garment industry and the operating

of four tourism sites in particular that of Sehlaba Thebe which is an UNESCO designated

world heritage.

(c) Other Unintended Outcomes and Impacts (positive or negative)

Not applicable

25

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops

Not applicable

4. Assessment of Risk to Development Outcome

Rating: Moderate

84. In general, the risks are considered as low in the technical sustainability of project

results, the government commitment and the continuous reform for private sector

competitiveness and economic diversification. The second project (PSCEDII) is a clear

sign of continuous government commitment to and the Bank strategy on those reforms.

In a way, a large part of the risk to the project outcomes has been transferred to the new

project. For instance, the new project will support the development of a credit

information system and the legal and regulatory framework of insolvency, which could

help alleviate the credit risk associated with the LNDC’s partial guarantee program.

PSCEDII will also support an expanded rollout program of the tree crop outgrower

scheme and the development of the fruits value change, which is expected to mitigate the

commercial viability risk associated with the farmer-level pilots. On the other hand,

higher risks would materialize if the beneficiary agencies do not have the technical and

financial capacity for regular maintenance and upgrading of the IT systems acquired

under the Project. Similarly, there could be a question on whether the beneficiaries of the

LEAP program would be willing and able to continue using business development

services when in need on their own, although the second project will continue to finance

the LEAP program (GOL - matching grants and IDA – program management) and further

foster the practice of using business development services.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance

(a) Bank Performance in Ensuring Quality at Entry


85. The Bank’s early analytical works such as the country investment climate

assessment and those related to the preparation of the GOL’s poverty reduction strategy

informed the design of the Project. The Bank task team also adopted a participatory

approach in project design and thanks to that was able to reach a mutual understanding

with the GOL on why the proposed reforms would be needed during project preparation.

The project design was relatively lean and corresponded well to the GOL and Bank

strategies. On the other hand, it appears that the project design did not adequately factor

in the high risk of low implementation capacity, and the need for consensus on the whats

and hows of the reforms. The design of the results framework for project M&E suffered

from an inadequate consideration for attribution and local reality (e.g. the employment

target and the indicators on the average task efficiency of the garment industry).

26

(b) Quality of Supervision


86. The Bank team conducted regular and diligent implementation support to the

government counterpart and the implementing agencies. This helped in timely

identification of the hurdles to project implementation. For instance, the design weakness

of the horticulture outgrowers scheme was identified and addressed early on. The Bank

team played a crucial role in bringing the main stakeholders together by facilitating the

dialogue between the government, the South African company and the participating

farmers, which led to a mutual understanding on the stakeholders’ respective roles and

deliverables. The Bank team’s solutions to the main institutional problems during project

implementation were practical and effective, such as the PPP approach to address the

financial viability difficulty of the two skills development centers. Supervision reports

and aide memoirs were well organized and frank about the main issues. They were

focused on the technical issues as well as project processing problems. The main

developments in project implementation were well documented.

87. The main shortcomings affecting an otherwise satisfactory rating were the serious

delay in carrying out the mid-term review (a 12 months delay) and that in project

restructuring (15 months after the MTR). The delays postponed the much needed

readjustments in re-focusing the resources on what were more achievable and would

better contribute to the fulfillment of the project objectives. Another shortcoming was

the omission to improve the realism and attribution of the results framework.

(c) Justification of Rating for Overall Bank Performance


88. This rating takes into consideration the Bank team’s contribution to the project

design and effective implementation support, as well as the shortcomings in quality at

entry and quality of supervision although the downward factors are considered as

moderate when compared to the achievement of the project outcomes and results.

5.2 Borrower Performance

(a) Government Performance


89. The Government’s poverty reduction strategy guided the design of the Project.

The general political, policy and economic environment did not present major obstacles

to project implementation and the achievement of the project results. The Ministry of

Trade, Industry, Cooperatives and Marketing maintained a strong ownership of the

Project throughout project preparation and implementation. The consultations with the

main stakeholders carried out during project preparation facilitated consensus building on

27

the project design. The Government took lead in sensitizing the main parties involved

(e.g. Attorney General’s Office and Parliament members) in the drafting and review of

the new company law and the related bills and regulations. While the consensus building

process took time, the new company law was successfully pushed through the country’s

legislative path and is now under implementation. The prompt adoption of the PPP

approach for the management of the two skills development centers improved the two

institutions’ financial viability. The government increased its original counterpart

funding by 20 percent to finance the cost of goods, including those needed for the tree-

crop pilots. This was critical for the reduced days in company registration, training of

garment workers by the two skills development centers, and the implementation of the

tree-crop pilots. The Project Review Committee headed by the Principal Secretary acted

as the de facto oversight body of the Project. The PRC could have been more effective in

overcoming implementation delays in particular under subcomponent C1B (immigration

and passport reform). (b) Implementing Agency or Agencies Performance


90. For the purpose of the ICR review, the implementing agency performance is

assessed against the performance of their components/subcomponents. To that extent,

the performance of the MTICM (as the main implementing agency for subcomponents

1A and 2A) and the Ministry of Agriculture and Food Security (for the implementation of

C2B) was satisfactory. The PMU was effective in the day-to-day management of project

implementation activities and also participated in the implementation of several

subcomponents. The main downward factor to an otherwise satisfactory performance of

the implementing agencies as a whole was the failure to overcome the hurdles to the

immigration and passport reform under subcomponent C1B.

(c) Justification of Rating for Overall Borrower Performance


91. This rating takes into consideration the satisfactory government performance and

the overall moderately satisfactory performance of the implementing agencies.

6. Lessons Learned

92. The experience of the Project lends a few important lessons in supporting reforms

and experiments in a low implementation capacity environment.

93. Intensive mentoring pays off: Tree crop growing was new to not only most of

Basotho farmers but also local agriculture administration officials. Some common

knowledge of experienced orchard farmers were not known to the participating farmers

28

and the local officials as they were more used to maize growing for a subsistence living.27

Under the Project intensive hands holding was provided by international agricultural

experts to the farmers and local agriculture officials that was critical to the success of the

fruit tree pilots.

94. Knowledge transfer on whats and hows is equally important: The analytical

reports which informed the project design and the project appraisal document clearly

spelled out the needs for reforms in the administrative processes for starting a business

and facilitating travel documents processing (why the reforms were needed in Lesotho).

However, the government counterpart and the implementing agencies also need inputs

and guidance on what should be changed to achieve the reform objectives and how to

achieve them. As the whats and hows were not very clear to them at the beginning, it

took a while to reach consensus on what should be amended in the company law for

example. Once the consensus was reached, the legislative process moved on.

95. Project M&E should start from data management capacity building: Over

the last decade international development aid providers and research circles have paid

more attention to the monitoring and evaluation of intervention results and impact. The

World Bank requires that all projects financed by the Bank should develop and use a

results framework for the purpose. The implementation of the results frameworks often

requires basic capacity in data collection, verification and analysis on the part of project

units. This capacity, however, is usually one of the weakest in a low implementation

capacity environment. A project aiming to achieve sector-wide targets should plan and

budget for the strengthening of data management capacity at the government agencies

and/or public sector institutions as they are usually the authorities for collecting and

publishing macroeconomic and sectoral data. A major difficulty reported by the PMU of

the Project was the weak data management capacity of the government agencies. It

appears that the provision of one or two M&E staff at the PMU was not adequate to

overcome the difficulty.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners

(a) Borrower/implementing agencies

96. The PMU on behalf of the main government counterpart (MTICM) provided an

ex-post review of the Project shortly after the project closure. Below is a brief summary

of that report. For a more detailed summary, please refer to Annex 7 of this ICR.

97. The GOL saw the development objective of the Project as “to facilitate increased

participation of the private sector in the economy by creating conditions for improving its

productivity and competitiveness”. While no assessment of the overall achievement of

the project objective was provided, the GOL report reviewed the outputs and outcomes

by subcomponent and in general found that the performance of the two main components

27 For instance, after the first planted seedlings were damaged the pilots reportedly learned a lesson that

irrigation and hail protection were important to fruit trees.

29

was satisfactory. The Project was found to have significantly contributed to capacity

strengthening of the relevant stakeholders, especially the Project Focal Point in all

implementing agencies.

Component 1 – Most activities were successfully implemented, and the outcome was

satisfactory. Challenges were significant in implementing Immigration and Passport

Services Reform sub-component due to the complexity of the sub-component design,

lack of capacity within the implementing Ministry and the absence of a policy

framework for immigration.

Component 2 – The overall performance of this component was satisfactory as

measured by the achievements of the set targets. Most activities under this

component were successfully implemented. Some modifications were made to make

the targets for the subcomponents on the garment industry skills development and the

Lesotho Enterprise Assistance Program more realistic.

98. Apart from the problems encountered under subcomponent C1B, the following

main weaknesses were identified:

The project design had weak linkages between output and outcome indicators and as

a result affected the efficiency of the Project in translating activities into results under

some sub-components.

Some operations of the Project were based on assumptions that were unrealistic while

some others depended on external conditions beyond the project control which were

not captured in the project assumptions.

99. The government counterpart regarded the Bank task team’s regular supervision

visits most useful, as the Bank staff more often than not was able to resolve issues that

could possibly hamper the progress of the project if left unresolved. The Bank team was

appraised for the contributions to the design and modification/restructuring of the Project

by suggesting changes in priorities and in encouraging acceleration of some reforms. The

relationship between the Government and the Bank was good thanks to regular

communications and Bank task team’s commitment.

100. The GOL report listed the following main lessons learnt:

Policy consensus on specific reform areas is critical during the identification and

preparation phases of the Project to avoid delays in implementation.

It is important to strengthen the parliamentary counsel and develop a predictable

procedure for policy and legislative reform.

Good communication and decision-making modalities coupled with the adoption of

strong management tools among stakeholders are necessary for optimal utilization of

resources and expedite implementation of the project activities.

101. The ICR review agrees in principle the government’s comments and findings.

(b) Cofinanciers

30

Not applicable

(c) Other partners and stakeholders

Not applicable

27

Annex 1. Project Costs and Financing

(a) Project Cost by Component (in USD Million equivalent)

Component Appraisal Amount (USD millions)

2012

Restructuring

Estimate

(USD

millions)

Actual/Latest

Estimate

(USD

Millions)

Percentage

of Appraisal

Percentage

of 2012

Restructuring

Credit US

Million

Grant

US$ million

Total

US$ million

Component One - Improving the Business

Environment 1.01 0.70 1.71 1.29 1.13 66.16 87.71

A: Company Registration and Licensing

Reform 0.00 0.38 0.38 0.48 0.39 102.39

81.06

B: Immigration and Passport Service Reform

1.01 0.00 1.01 0.42 0.35 35.12

84.45

C: Improving Access to Finance

0.00 0.32 0.32 0.40 0.39 121.14

96.91

Component Two - Supporting Economic

Diversification 1.76 2.31 4.07 4.11 3.84 94.40 93.48

A: Skills Development for Garment Center

0.00 0.89 0.89 0.70 0.40 45.31

57.61

B: Horticulture Outgrower Scheme

0.87 0.42 1.29 1.89 1.84 142.31

97.13

C: Tourism industry support

0.89 0.00 0.89 0.68 0.77 86.63

113.38

D: Lesotho Enterprise Assistance Program -

LEAP (incl. LEAP

management) 0.00 1.00 1.00 0.84 0.83 83.20

99.05

Component Three: Project

Implementation Support 0.80 0.54 1.34 2.69 2.91 217.11 108.15

A: Project Management Unit (incl. annual

audit costs and LNDC Contract

Management) 0.04 0.54 0.58 2.17 2.42 417.21

111.51

B. Management of LEAP 0.76 0.00 0.76 0.53 0.49 64.40

28

Component Appraisal Amount (USD millions)

2012

Restructuring

Estimate

(USD

millions)

Actual/Latest

Estimate

(USD

Millions)

Percentage

of Appraisal

Percentage

of 2012

Restructuring

Credit US

Million

Grant

US$ million

Total

US$ million

92.34

Total Baseline Cost 3.57 3.55 7.12 8.10 7.88 110.71 97.32

Physical Contingencies 0.19 0.41 0.60 0.00 0.00 0.00 0.00

Price Contingencies 0.14 0.24 0.38 0.00 0.00 0.00 0.00

Government Counterpart Funding n.a. n.a. 2.00 2.40 2.40 120.00 100.00

Total Project Costs 3.90 4.20 10.10 10.50 10.28 101.81 97.93

Sources: Project Appraisal Document (Feb. 26, 2007) and Project Paper for project restructuring (Dec. 1, 2011), and PMU

Note: The Actual/Latest estimates are data as of 07/11/2013 from the Project Financial Statement

29

(b) Financing

Source of Funds Type of

Cofinancing

Appraisal

Estimate

(USD

millions)

2012

Restructuring

Estimate

(USD

millions)

Actual/Latest

Estimate

(USD

millions)

Percentage

of Appraisal

Borrower

Government

contribution 2.00 2.40 2.40 120.00

International Development

Association (IDA) IDA credit 3.90 3.90 3.83 98.21

International Development

Association (IDA) IDA grant 4.20 4.20 4.27 101.67

Total 10.10 10.50 10.50 103.96

Source: Project Appraisal Document (Feb. 26, 2007),Project Paper for project restructuring (Dec. 1, 2011),and PMU

Note:

1. The Actual/Latest estimates were data as of 12/18/2013 from the World Bank's ClientConnect.

2. The diffence between total actual cost and total actual financing was probably due to for instance SDR-USD exchange rate changes.

3. As of Dec 18, 2013, the original IDA financing in terms of USD equivalent would be $8.31 million and over

$210,000 were cancelled.

29

Annex 2. Outputs by Component

Component Main Output Implementing Agency

Component One: Improving the Business Environment

Subcomponent A:

Company

Registration and

Licensing Reform

Trading Enterprises Regulations amended, approved

and published

Draft Industrial Licensing Bill completed and

submitted to Parliament for discussion

The Companies Regulations and Companies Act

implemented

A Business Licensing and Reporting Workshop

conducted

A study on transition of Company registration from

old regime to the new system recommended

establishment of an electronic data base for a

commercial registry

Companies Registry digitized and automated

2,323 companies have been registered since May

2012 when the new Law came into force

Training designed and conducted for Registrar

General’s Office

Document Management System developed

Strategic Plan for the One Stop Business

Facilitation Centre (OBFC) developed

OBFC Organizational Structure and Institutional

and Human Resource Review undertaken and report

submitted to MTICM for implementation

Company Registration website developed and

operational

Training and international learning opportunities for

key government officials involved in company

registration and legal reforms provided

Needs assessment study for the Commercial Court

completed

Ministry of Trade and

Industry, Cooperatives and

Marketing (MTICM)

Subcomponent B:

Immigration and

Passport Service

Reform

Capacity Building and Training for revamping the

issuance of visas, residency and work permits

delivered

Feasibility Study for a National ID Card System

(NICS) completed and accepted by GOL for

implementation

Feasibility Study on revamping the residency and

work permits issuance protocol completed and

recommendations of the study and action plan

endorsed by GOL

Drafting of specifications and bidding documents

for procurement of the Lesotho Immigration

Management System (LIMS) completed and

endorsed by GOL for implementation

Ministry of Home Affairs

and Public Safety

(MHAPS)/ Project

Management Unit (PMU)/

Ministry of Trade and

Industry, Cooperatives and

Marketing (MTICM)

Subcomponent C:

Improving Access

to Finance

Study Tour to Madagascar by Lesotho National

Development Corporation (LNDC) for exposure to

an operational Credit Guarantee Scheme

undertaken. Working Paper on establishment and

implementation of Partial Credit Scheme developed

MTICM/Lesotho National

Development Corporation

(LNDC), Central; Bank of

Lesotho and Ministry of

Finance

30


LNDC Partial Credit Guarantee scheme is

operational with a capitalization of M10 million

Study on the development of a Financial Leasing

Framework undertaken.

Financial Institutions Act (2010) passed which

provides for, among others, regulation of the leasing

industry

Leasing Industry Regulations signed by central bank

Governor and published

Leasing training/work plan developed and training

of various target groups took place

A seminar on leasing was held to broaden

sensitization of key stakeholders on Leasing

Study tour to expose Central Bank staff to a

successful leasing regime in Tanzania took place

National Investment Promotion Strategy has been

developed and is ready for implementation

Investor Tracking system has been developed for

LNDC

Component Two: Supporting Economic Diversification

Subcomponent A:

Skills

Development for

the Garment

Industry

Two skills centers were established and became

operational in Maputsoe and Maseru

Assorted industrial machines (incubation

equipment) have been acquired for the two Centers

Refurbishments of Buildings completed for the two

centers

1,562 workers have been trained by the two centers

and 1,162 placed in industry by project end

The two centers were each managed by the

Management Council which comprised of

industrialists and four Government Ministries

(Operation of the skills centers under the PPP

arrangement started in January 2013)

MTICM/PMU

Subcomponent B:

Horticulture

Outgrower

Scheme

Three pilot farms have been established in

Mahobong, Qoqolosing and Thuathe

A total of 10,761seedlings of different varieties

were planted over an area of approximately 10ha to

test the performance of different varieties of apples,

peaches, plums, cherries, apricots as well as

blueberries.

Irrigation system installed in 3 pilots farms and is

functional

Hail netting completed in 3 farms

Fencing completed in 3 farms

The pilot farmers have been trained on different

aspects of farm management and business

management

Pilot farmers have started to export part of their

produce to South Africa

An end of Season Stakeholder Workshop was

conducted to sensitize stakeholders about the project

A community based roll-out project has been

launched in Mahobong (in March 2013 by MOAFS)

MTICM/Denmar/Ministry

of Agriculture and Food

Security (MAFS)

31


to apply lessons learnt at a commercial scale and

also to demonstrate to the local community and to

potential investors the advantage that Lesotho has in

producing tree crops

14,000 seedlings of different varieties of fruit trees

have been successfully planted over an area of

10.1ha at the rollout site

The site belongs to different households who

consolidated their individual land holding into a

single commercial plot

The different households who consolidated their

landholding into a single commercial plot organized

themselves into an association whose constitution

has been registered with the Law office

The association members have established a farmers

company which is registered with Registrar of

Companies

Fencing, hail netting and irrigation system have

been installed at the roll out site

A study tour took place to expose members of the

association and relevant staff of the Ministry of

Agriculture to a successful Farmers’ formation in

Swaziland

Subcomponent C:

Tourism Industry

Support

An online booking system (WHL) for tourism

accommodation facilities and other tourism

activities in Lesotho was established

Training workshops conducted for tourism

establishment to capacitate them with skills relevant

to on-line booking

Lesotho Council for Tourism (LCT) was granted

support to strengthen the capacity of industry

operators

A joint marketing strategy was developed and

executed by LTDC in collaboration with Lesotho

Hotels and Hospitality Association (LHHA) and

Tour Operators Association of Lesotho (TOAL)

through the matching grant scheme, the Lesotho

Enterprise Assistance Program (LEAP)

The concessions manual which sets out policies and

procedures for issuance of concessions within the

tourism sector has been developed MTEC and

LTDC Strategic plan has been developed

MTEC staff trained on PPP contract management

Signing of the SNP concession agreement done

(May 31, 2013)

Four new concessions were concluded and signed

by the project end: Lejone, Tsehlanyane, Kome and

Sehlaba Thebe National Park

Educational and Familiarization tour in the country

by LTDC’s Tourist Information Officers completed

Implementation of tourism grading system has been

completed and 12 establishments have been graded

and assessors trained

Ministry of Tourism,

Environment and Culture

(MTEC)/Lesotho Tourism

Development

Corporation/PMU

32


A subsector review for the handicrafts sector

completed

Feasibility study for the Maseru Information

Center/crafts market completed in collaboration

with the MTEC

Stakeholder dissemination and engagement event to

establish a handicrafts working group took place

Review and updating of the Tourism Statistics

System and Development of a Tourism Satellite

Account completed

Subcomponent D

Lesotho

Enterprise

Assistance

Program (LEAP)

The matching grant scheme (Lesotho Enterprise

Assistance Program (LEAP)) has been established

All procedures, systems and documentation are in

place including LEAP Approvals Committee for

effective management of the scheme

LEAP has assisted 193 firms and 17 business

associations since the inception of the project, with

a total LEAP beneficiaries/clients: 193 firms Plus

17 associations = 210

Percentage distribution of LEAP funds:

1. Associations – 30%

2. Large Enterprises – 29%

3. Small and Micro Enterprises – 28%

4. Medium Enterprises – 13%

Top 4 highest ranking assisted sectors:

1. Tourism

2. Manufacturing

3. Trading/Retail

4. ICT

LEAP beneficiaries by Gender:

1. Small and Micro Enterprises

Percentage of Small and Micro male owned

Enterprises – 38%

Percentage of Small and Micro female owned

Enterprises – 62%

2. Medium Enterprises

Percentage of Medium male owned Enterprises –

61%

Percentage of Medium female owned Enterprises –

39%

3. Large Enterprises

Percentage of large male owned Enterprises – 81%

Percentage of Large female owned Enterprises –

19%

MTICM/PMU

33

Annex 3. Economic and Financial Analysis (including assumptions in the analysis)

See Section 3.3 above.

34

Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members

Names Title Unit Responsibility/

Specialty

Lending

Ricardo Inzunza Consultant CICTI

Georgette B. Johnson Program Assistant AFTFW

Yasuo Konishi Consultant EASRE -

HIS

Shaun Mann Senior Investment Policy Officer CSAIC

Agata E. Pawlowska Lead Operations Officer ECCU8 Task Team Leader

Roy Pepper Consultant QLP -

HIS

Ganesh Rasagam Lead Private Sector Development

Specialist AFTFE

Dileep M. Wagle Consultant AFTFP

Supervision/ICR

Henri A. Aka Operations Officer SASHN

Slaheddine Ben-Halima Consultant MNAPC

Paramita Dasgupta Manager CSAIC

Wilfrid Bernard Drum Consultant AFTFW

Michael Olavi Engman Senior Economist AFTFE

Xiaofeng Hua Sr. Financial Sector Specialist AFTFE ICR team leader

Wedex Ilunga Sr. Procurement Specialist AFTPE

Djibrilla Adamou Issa Sr. Financial Specialist MNSF1

Sidonie Jocktane Executive Assistant AFMGA

Smita Kuriakose Economist AFTFE Task Team Leader

Hannah R. Messerli Sr. Private Sector Development

Specialist AFTFE

Tandile Gugu Msiwa Financial Management Specialist AFTME

Tanangachi Ngwira Operations Analyst AFTFE ICR team member

Jonathan Nyamukapa Sr. Financial Management

Specialist AFTME

Eavan O'Halloran Country Program Coordinator ECCU3

Magalie Pradel Program Assistant AFTFW

Ganesh Rasagam Lead Private Sector Development

Specialist AFTFE Task Team Leader

Joao Tinga Financial Management Analyst AFTME

Chitambala John Sikazwe Procurement Specialist AFTPE

Gert Johannes Alwyn Van

Der Linde

Lead Financial Management

Specialist AFTME

Michaela J. Weber Private Sector Development

Specialist AFTFE

35

Chunlin Zhang Lead Private Sector Development

Specialist AFTFE Task Team Leader

(b) Staff Time and Cost

Stage of Project Cycle

Staff Time and Cost (Bank Budget Only)

No. of staff weeks USD Thousands (including

travel and consultant costs)

Lending

FY05 18.04 125.97

FY06 33.75 180.71

FY07 42.84 256.31

Total: 314.23 562.99

Supervision/ICR

FY08 16.57 96.90

FY09 16.64 85.09

FY10 12.49 75.57

FY11 21.34 120.35

FY12 20.48 114.79

FY13 10.12 68.03

FY14 4.88 21.73

Total: 102.52 582.46

36

Annex 5. Beneficiary Survey Results (if any)

No end-of-project beneficiary survey was conducted.

37

Annex 6. Stakeholder Workshop Report and Results (if any)

No end-of-project stakeholder workshop was held.

38

Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR

The Project Management Unit at the Ministry of Trade, Industry, Cooperatives and

Marketing conducted an ex-post review of the PSCED project in July 2013. Below is a

summary of the report.

Overall Impact and Results

1. The key results were as follows:

The Component 1 outcome is rated satisfactory and the benefits are likely to be

sustainable.

As a result of company registration law, the overall performance of the country on the

ease of doing business index has improved.

The number of days to start a business as a result has been reduced from 40 to 24

according to Doing Business report that was released by the International Finance

Corporation and the World Bank in October, 2012.

The use of model articles of incorporation and the removal of the minimum capital

requirement have made positive impact on the creation of new enterprises in Lesotho;

especially the formalization of micro enterprises.

Capacity Building and investor tracking system was developed to build data base of

potential investors as well as existing ones including screening mechanism for

effective investment facilitation.

The overall project performance of Component 2 is rated satisfactory as measured by

the achievements made in relation to the set targets.

Establishment an operational PPP model for Garment centers and capacity building of

people and placement of trainees in the industry for jobs.

Expansion of production of best performing early variety tree crops on a commercial

scale and the pilot farms are to be used as training centers.

Increase in the number of tourists visiting Lesotho, and more than three tourism

concessions were signed. In addition, the design and implementation of

accommodation grading system is reflective of Lesotho’s offerings and which is

within the context of the established systems throughout the region.

Capacity building of private sector through financial and technical assistance.

2. The Assessments by subcomponent were as follows:

Subcomponent C1A – Most of the key performance indicator targets were considered

as met. As a result of the reform, the overall performance of the country on the ease

of doing business index has improved. The use of model articles of incorporation and

the removal of the minimum capital requirement made positive impact on the creation

of new enterprises in Lesotho, especially the formalization of micro enterprises.

Subcomponent C1B – The sub-component received the biggest financial allocation

(57% of total budget of Component 1), but was the worst performing sub-component

in terms of achieving the intended results. This was largely due to the complexity of

39

the sub-component design, limited institutional and human resources capacity within

the MOHAPSPA and the absence of a policy framework for immigration. The sub-

component was eventually dropped during the restructuring process of the project as a

consequence of unsatisfactory performance.

Subcomponent C1C – All key performance indicators targeted under this sub-

component were met or exceeded. An investor tracking system was developed to

build data base of potential investors as well as existing ones including screening

mechanism for effective investment facilitation.

Subcomponent C2A – The sub-component had progressed fairly well in terms of

establishing an operational PPP model for the training centers as well as placing

people trained by the centers for jobs.

Subcomponent C2B – Three pilot farms were established and performance of

different varieties of apples, peaches, plums, cherries, apricots and blueberries were

experimented. The lessons learnt from the pilots were used to expand production of

best performing early variety tree crops on a commercial scale. The three pilot farms

will be used as training and demonstration sites. The pilot farms are in the process of

being certified by the Global Gap, and once certified their produce will be sold

globally.

Subcomponent C2C – All key performance indicators targeted were met with the

number of tourists visiting Lesotho increased, and more than three tourism

concessions signed by end of the project. Another significant achievement was the

design and implementation of an accommodation grading system.

Subcomponent C2D – The targets were achieved, i.e. to increase the revenue of

LEAP assisted firms and the income of LEAP assisted association members.

Project Management

3. Project Review Committee (PRC): The PRC consisted of 8 members representing

the agencies responsible for the project implementation. After the Midterm Review, it

was decided that the PRC should be elevated to a Project Steering Committee (PSC) by

assuming the responsibilities of the PPSC in addition to its original function of technical

support. The committee met every month to review implementation progress and later on

changed its sittings to quarterly to monitor the implementation progress of the project and

help to resolve technical and implementation problems affecting project progress. The

meetings were convened by the Project Manager and chaired by the Principal Secretary

of MTICM.

4. Project Management Unit (PMU): The PMU was managed by a qualified project

manager and the provision of procurement, financial management and M&E services

were initially subcontracted to the Lesotho National Development Corporation (LNDC)

on a fee-based contract, however, the contract was terminated after the mid-term review

of the Project to allow the project to make direct recruitment of fiduciary staff.

40

Results Framework and Monitoring

5. Component 1: Although it is too early to predict the eventual impact of the PSC

Project through this component, most activities were successfully implemented. The

project outcome is therefore rated satisfactory and the benefits are likely to be sustainable.

Challenges that were encountered in implementing Immigration and Passport Services

Reform sub-component were significant due to the complexity of the sub-component

design, lack of capacity within the implementing Ministry and the absence of a policy

framework for immigration. Consequently, the sub-component was dropped during the

mid-term review of the project.

6. Component 2: The overall project performance on this component is rated

satisfactory as measured by the achievements made in relation to the set targets. Most

activities under this component were successfully implemented. Some modifications

were, however, made on intermediate income indicators of Skills development for

garment Industry and the Lesotho Enterprise Assistance Program (LEAP) to make new

targets more realistic.

World Bank Performance

7. The supervision missions which took place on a regular basis over the period

2007-2013, were regarded as most useful by the Ministry of Trade and Industry

Cooperatives and Marketing and the Project Management staff. Supervision mission

staff more often than not was able to resolve issues that could possibly hamper the

progress of the project if left unresolved. The mission also contributed to the design and

modification/restructuring of the project by suggesting changes in priorities and in

encouraging acceleration of some reforms. Throughout the project duration, the

relationship between the Bank and the Borrower were good as a result of regular

communication between the project office and the IDA. This was greatly assisted by the

commitment of the IDA Task Manager supervising the project.

Lessons Learned

8. Main lessons learnt include:

The Project design had weak linkages between output and outcome indicators and as

a result this affected the efficiency of the project in translating activities into results in

some sub-components;

Some operations of the project were based on assumptions that were unrealistic while

some depended on external conditions beyond the project control which were not

captured in the project assumptions;

Policy consensus on specific reform areas is critical during the identification and

preparation phases of the project to avoid delays in the implementation of the project;

It is important to strengthen the parliamentary counsel and develop a predictable

procedure for policy and legislative reform;

41

Private Sector Development (PSD) initiatives should be linked with public sector

reforms to ensure that the public service has requisite capacity and skills to support

the private sector ;

Institutionalize the reform agenda and integrate it into line function ministries’

strategic plans and action plans and incentives and professionalize the public sector

(“carrot and stick”);

Strengthen data management and M&E divisions/units within the public sector;

To avoid administrative bottlenecks, the Project Management Unit (PMU) should

directly recruit its own staff and should not sub-contract staff from other institutions;

Good communication and decision-making modalities coupled with the adoption of

strong management tools among stakeholders are necessary for optimal utilization of

resources and expedite implementation of the project activities; and

The PSCP has significantly contributed to the strengthening of the capacity of

relevant stakeholders, especially the Project Focal Point in all implementing agencies.

42

Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders

Not applicable

43

Annex 9. List of Supporting Documents

The following documents supported the ICR review:

The World Bank documents:

1. Project Concept Note for the Lesotho Private Sector Competitiveness and Economic

Diversification Project (PSCED, June 23, 2005)

2. Country Assistance Strategy for Lesotho (September 14, 2006)

3. Minutes of Quality Enhancement Review Meeting for PSCED (October 25, 2006)

4. Minutes of Decision Package Review Meeting for PSCED (January 10, 2007)

5. Project Appraisal Document for PSCED (February 26, 2007, Report No: 37756-LS)

6. Financing Agreement for PSCED (April 17, 2007)

7. Country Assistance Strategy for Lesotho (May 17, 2010)

8. Project Mid-Term Review Issues Paper and MTR mission aide memoir (October 19,

2010)

9. Environmental Evaluations of A Horticulture Demonstration Farm in Lesotho

(E1534)

10. Project Paper (December 1, 2011)

11. Project Paper (March 12, 2012)

12. Project Implementation Status and Results reports (No 1 – 12)

13. Bank team supervision mission aide memoires

14. Project Appraisal Document for PSCEDII (October 3, 2013, Report No: 81069-LS)

15. Environment and Social Management Framework for PSCEDII – Horticulture

(E4263)

Other:

1. PMU/MTICM end-of-project review report (July 2013)

2. PMU progress reports

3. PMU/Bank team presentation on horticulture subcomponent at end of season

Workship (March 11, 2012)

4. Golden Tulip presentation on Commercialization Fruits in Lesotho at CAADP

African Forum in Tunisia (November 2012)

5. Global Development Solutions, LLC: “Tree Crop Production in Lesotho: Business

Plan for the Pilot Farms” (March 2013)

44

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