LESOTHO ECONOMIC DIVERSIFICATION SUPPORT PROJECT


Overview

  • Reference: P-LS-KF0-002
  • Approval date: 16/12/2016
  • Start date: 25/04/2017
  • Appraisal Date: 16/09/2016
  • Status: OngoingOnGo
  • Implementing Agency: GOVERNMENT OF LESOTHO MINISTRY OF FINANCE
  • Location: Lesotho

Description

Development Objective: The overall development objective is to support the implementation of the national strategic development plan that would lead to a diversified and competitive economy. The specific objective of the Project is to support private sector development through improving partnership, entrepreneurship and skills development, access to finance and market, and investment promotion in the selected sectors critical for economic diversification.

Project components: The Project has three mutually reinforcing components: (a) promoting enterprise development,

(ii) enhancing economic diversification and strategic partnership; and

(iii) Project Management support. By focusing its support, the Bank will ensure that adequate resources can be given to ensuring sustainability of actions, through innovative approaches to capacity building and knowledge development. Reflecting the lessons of past support, more emphasis will be given to strengthening national capacity and ensuring national ownership of the project. Beneficiary institutions also clearly requested that future technical assistance ensure adequate skills transfer. Finally to ensure adequate implementation, coordination and monitoring of the EDSP, the Bank will collaborate with the World Bank to ensure that that the Project Management Unit is adequately resourced. The major activities are summarized below.

Table 1: Project Description (Budget UA 7.22 million including: UA 5 million loan, UA 2.22 million grant)

Component 1: Promoting Enterprise Development (UA 3 million)"Develop entrepreuship skills required for SME growth abnd development through training of SMEs firms and businesspersons "Promote access to finance for SMEs including matching grant, access to guarantee scheme, and capacity development for accessing finance "Improve access to market through (a) certification of products to meet quality standards; (b) linking SMEs to large scale enterprises; and (c) providing market workspace/facilities

Component 2: Enhancing Economic Diversification and Strategic Partnership (UA 3.72 million)"Provide technical support in key priority sectors for investment in areas such as PPP, product development, and marketing; "Support development of key sectors (textile, leather and footwear, and tourism) through promotion of value chains, provision of required technical, technological skills and equipment, and promotion of innovative ideas for investment. "Develop Tourism master plan, and support PPP ventures as well as tourism product development "Build capacity in industrial policy through staff training and research or knowledge generation and supporting production of periodic policy and technical briefs on investment opportunity, national, regional and international opportunities, etc "Improve product quality and standards by: (a) supporting creation of required policy and legal framework for quality certification; (b) creation of Standards Bureau; (c) proving specialized training to staff. "Improve partnerships through: (a) creation and institutionalization of Public-Private Dialogue Forum; (b) Support the setting up of an Investment forum and organization of targeted investment forum; and (c) production of policy briefs on topical issues for local domestic investment, FDI, and trade. "Technical assistance for Industrial policy planning, monitoring and capacity development (industrial cluster and special economic zones)

Component 3: Project Management (UA 0.5 million)"Project management support, monitoring and audit


Rationale

Alignment with the Country Development Agenda: The proposed operation is aligned with the country's vision and development plan. Lesotho's Vision 2020 identifies the following seven pillars of development: economic growth, management of the environment, technology, democracy, unity, peace, education and training. The elements of Vision 2020 are further articulated into actionable priorities in the National Strategic Development Plan (NSDP), 2012/13-2016/17. The six main strategic goals of the NSDP are to:

(i) pursue high, shared and employment creating economic growth (sustained real growth of at least 5% per annum) and creation of at least 50,000 private sector jobs over a five year period;

(ii) Develop key infrastructure;

(iii) Enhance the skills base, technology adoption and foundation for innovation;

(iv) Improve health, combat HIV and AIDS and reduce vulnerability;

(v) Reverse environmental degradation and adapt to climate change; and

(vi) Promote peace, democratic governance and build effective institutions. Moreover, the NSDP has identified agriculture, manufacturing, tourism, mining and improving the investment climate as the main growth drivers necessary to sustain economic growth and employment creation. The 2015 industrial policy aims to build on the existing industrial base for sustainable job creation through, among others, strengthening the industrial development support institutions, promoting Basotho Entrepreneurship as well as diversifying into a range of manufacturing products while increasing value addition.

Alignment with the Bank's strategy: The Project fits firmly with the objectives and priorities of the Lesotho Country Strategy Paper (CSP). The CSP is aligned with the Government's development agenda and focuses on the catalytic role the Bank can play to support the country in realizing its development goals. It supports Lesotho's development agenda by promoting two pillars:

(i) infrastructure development; and

(ii) institutional capacity building. According to the CSP, the priority objective of the institutional capacity building agenda is to enhance the efficiency and effectiveness of the public sector. The operation is also aligned to the Bank Group's Long Term Strategy (LTS, 2013-2022) priority areas (Private Sector Development, Governance and accountability), and the High Fives (Industrialize Africa, and Improve Quality of Life for Africans). The operation is in line with Pillar III (Investment and Business Climate) of the Governance Operational Framework and Action Plan (2014-2018), the Private Sector Development Strategy (2012-17), the Financial Sector Development Policy and Strategy (2014-19), and the draft 2016 Bank Group Strategy for Industrialization of Africa (fostering successful industrial policies, catalyzing funding into infrastructure and industry projects, and developing and driving enterprise development), all of which identify Private Sector Development as key to inclusive growth. The Project has specific interventions for supporting investment and Government's development strategies for inclusive.

Alignment with the sector strategy: The proposed operation is also consistent with the Lesotho Industrial Policy (2015); National Investment Policy (2015); Financial Sector Development Strategy (2013); Quality and Standards Policy (2014); Micro, Small, and Medium Enterprise Policy (2016); and Tourism Policy (2000). The policy papers provide a framework on which to base private sector development interventions by development partners including the Bank. The policies identify the main challenges, constraints and opportunities for private sector development identifying critical priorities in the short to medium term. The proposed Project will directly address challenges and priorities sets out in the Government policy and strategies with the aim of promoting and expanding the private sector's participation in the economy.

Complementary and synergy with the ongoing operations: The proposed operation will complement and enhance the effectiveness of the Bank's ongoing projects by focusing on the private sector development pillar. The ongoing Projects are focused on infrastructure (power and water), agriculture (livestock value chain study), and public finance management reform which also contribute towards creating a conducive environment to attract private sector investment in the country (e.g. reducing the constraints of electricity shortages). The livestock value chain study will further inform the design of the value chain activities under the Project. There are also synergies with the ongoing donors funded programs, in particular the PSCEDP financed by the World Bank.

Development challenges targeted by the project Lesotho's economic exposure to external risks, including the unpredictability of South African Customs Union (SACU) revenues and adverse weather conditions, underline the need for structural reform to foster private sector development and promote economic diversification if the NSDP targets are to be met. This includes improving the business enabling environment, skill and entrepreneurship development, promoting strategic partnership between government and private sector. Lesotho has implemented important reforms, notably in streamlining the process for starting a business but it still lags behind many of its comparators in the region. For example, the 2016 Doing Business Report shows a decline in Lesotho's rank in ease of doing business to 114 from 110 in 2015 (change in rank -4). There were declines in virtually all aspects but "starting a business" declined to 112th from 107th in 2016 and "Getting Credit" declined to 152 from 150 in 2015 (Annex IV).


Benefits

Social Impact and Poverty Reduction: The project will contribute towards meeting the objectives of the NSDP, which aims at achieving sustained and inclusive growth towards increasing employment and reducing poverty; all of which are critical challenges facing Lesotho. Through improved partnership between the private and public sector, business development support and technical assistance to economic diversification, the Project will foster private sector development and competitiveness to reduce poverty in Lesotho. The project will support development of small business to generate jobs, and thereby improving livelihood. The main beneficiary institutions will be the Ministry of Trade and Industry; the Ministry of Small Business Development, Cooperatives and Marketing; the Ministry of Tourism, Environment and Culture; the Basotho Enterprises Development Cooperation; and Lesotho Tourism Development Cooperation. The private sector through bodies such as the Lesotho Chamber of Commerce and Industry, and the Lesotho Hospitality Industry Association will also be engaged in trying to strengthen the public-private policy dialogue.

Impact on Gender: A preliminary assessment on gender shows that the project will contribute to gender equality (Annex VII). Lesotho is the highest ranked African country with regards gender equality . Women are highly present in the economy, dominating the formal MSME, informal sector and garment manufacturing, meanwhile their incomes are generally lower than men, and they remain economically disadvantaged by unequal access to property and finance. The country's strong gender policy has resulted into high enrolment rates for both genders. Lesotho remains a low gender gap country and is ranked 38 out of 142 countries in the overall Gender Gap Index for 2014. While the country's Gross National Income per capita (PPP US$ 3306) is close to the sub-Saharan average of PPP US$3363, inequality as measured by the Gini coefficient of 0.500 is still high and exerts negative impact on the country's human development attainments. To this end, the project will improve gender outcomes in the area of developing skill and entrepreneurship, and increasing opportunities for women entrepreneurs who are engaged in small, medium and micro business. All project support will endeavor to have gender balance to ensure that men and women benefit from the project support. In addition, the Project will also respond to the national strategy by strengthening its response to promote gender mainstreaming in the project activities and also to build capacity of women entrepreneurs through skill and entrepreneurship development and advisory services. A detailed assessment will be carried out during appraisal.


Key contacts

GEBRE-SELASSIE Kalayu - RDGS5


Costs

Finance source Amount
ADFUAC 7,220,000
TotalUAC 7,220,000