Document ofThe World Bank

FOR OFFICIAL USE ONLY

Report No: RES22453

PROJECT PAPER

ON A

PROPOSED RESTRUCTURING

FOR THE

SECOND PRIVATE SECTOR COMPETITIVENESS AND ECONOMIC DIVERSIFICATION PROJECT

TO THE

KINGDOM OF LESOTHO

March 14, 2016

Trade & Competitiveness Global PracticeAFCS1 Africa Region

Page 1 of 61

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

CURRENCY EQUIVALENT(Exchange Rate Effective March 14, 2016)

Currency Unit = MalotiUS$1 = M 15.45

US$1= SDR 0.72 SDR

LESOTHO GOVERNMENT FISCAL YEARApril 1 – March 31

ABBREVIATIONS AND ACRONYMS

CBL Central Bank of LesothoCIEP Creative Industries Empowerment ProgramFDI Foreign Direct InvestmentGoL Government of LesothoIDA International Development AssociationIFC International Finance CorporationIMF International Monetary FundLEAP Lesotho Enterprise Assistance ProgramLFFC Likhothola Fruit Farm CompanyLHAA Lesotho Hotel and Hospitality AssociationLNDC Lesotho National Development CorporationM MalotiM&E Monitoring & EvaluationMCC Maseru City CouncilMTEC Ministry of Tourism, Environment and CultureMTICM Ministry of Trade and Industry, Cooperatives and MarketingOBFC One-Stop Business Facilitation CenterPDO Project Development Objective PMU Project Management UnitPSCEDP-II Second Private Sector Competitiveness and Economic Diversification ProjectSACU South African Customs UnionsSME Small and Medium Enterprise

Regional Vice President: Makhtar Diop

Country Director: Guang Zhe Chen

Country Representative: Janet K. Entwistle

Practice Manager: David Bridgman

Task Team Leader: Maria Paulina Mogollon

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DATA SHEETLesotho

Second Private Sector Competitiveness and Economic Diversification Prj (P144933)AFRICA

Trade & Competitiveness.

Report No: RES22453.

Basic Information

Project ID: P144933 Lending Instrument: Investment Project Financing

Regional Vice President: Makhtar Diop Original EA Category: Partial Assessment (B)

Country Director: Guang Zhe Chen Current EA Category: Partial Assessment (B)Senior Global Practice Director: Anabel Gonzalez Original Approval Date: 31-Oct-2013

Practice Manager/Manager: David Bridgman Current Closing Date: 30-Apr-2019

Team Leader(s): Maria Paulina Mogollon.

Borrower: Ministry of Development Planning

Responsible Agency: Ministry of Trade and Industry.

Restructuring TypeForm Type: Full Restructuring Paper Decision Authority: Country Director ApprovalRestructuring Level:

Level 2

.

Financing ( as of 05-Feb-2016 )Key Dates

Project Ln/Cr/TF Status Approval Date Signing Date Effectiveness

DateOriginal Closing Date

Revised Closing Date

P144933 IDA-53090 Effective 31-Oct-2013 21-Nov-2013 09-Jan-2014 30-Apr-2019 30-Apr-2019

Disbursements (in Millions)

Project Ln/Cr/TF Status Currency Original Revised Cancelled

Disbursed

Undisbursed

% Disbursed

P144933 IDA-53090 Effective XDR 8.70 8.70 0.00 4.10 4.60 47.

Policy Waivers

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Does the project depart from the CAS/CPF in content or in other significant respects? Yes [ ] No [ X ]

Does the project require any policy waiver(s)? Yes [ ] No [ X ].

A. Summary of Proposed ChangesThe main changes to the Project are:

- Revisions to the results framework in order to (i) update the targets to reflect Lesotho’s changing economic and political circumstances; (ii) clarify the wording and descriptions of the indicators; and (iii) better capture the expected impact of project activities.

- Changes to the risk assessment for the country’s macroeconomic, political and governance risks—from Moderate to High, and from Substantial to High, respectively, to reflect the country’s deteriorating growth prospects and political situation. This increases the overall Project risk from Moderate to Substantial.

Change in Implementing Agency Yes [ ] No [ X ]

Change in Project's Development Objectives Yes [ ] No [ X ]

Change in Results Framework Yes [ X ] No [ ]

Change in Safeguard Policies Triggered Yes [ ] No [ X ]

Change of EA category Yes [ ] No [ X ]

Other Changes to Safeguards Yes [ ] No [ X ]

Change in Legal Covenants Yes [ ] No [ X ]

Change in Loan Closing Date(s) Yes [ ] No [ X ]

Cancellations Proposed Yes [ ] No [ X ]

Change to Financing Plan Yes [ ] No [ X ]

Change in Disbursement Arrangements Yes [ ] No [ X ]

Reallocation between Disbursement Categories Yes [ ] No [ X ]

Change in Disbursement Estimates Yes [ ] No [ X ]

Change to Components and Cost Yes [ ] No [ X ]

Change in Institutional Arrangements Yes [ ] No [ X ]

Change in Financial Management Yes [ ] No [ X ]

Change in Procurement Yes [ ] No [ X ]

Change in Implementation Schedule Yes [ ] No [ X ]

Other Change(s) Yes [ ] No [ X ]

Appraisal Summary Change in Economic and Financial Analysis Yes [ ] No [ X ]

Appraisal Summary Change in Technical Analysis Yes [ ] No [ X ]

Appraisal Summary Change in Social Analysis Yes [ ] No [ X ]

Appraisal Summary Change in Environmental Analysis Yes [ ] No [ X ]

Appraisal Summary Change in Risk Assessment Yes [ X ] No [ ]

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.

B. Project StatusThe Second Private Sector Competitiveness and Economic Diversification Project (PSCEDP-II) was approved by the World Bank Board of Directors on October 31, 2013 and declared effective on January 9, 2014.

A Midterm Review was conducted in February 2016 to assess the relevance and implementation progress of each component and subcomponent, review the monitoring and evaluation framework, and collaborate with the various implementing agencies to agree on the way forward. Overall, the Midterm Review mission assessed the project development objectives and components to be relevant to the Lesotho context, and the project implementation progress to be satisfactory. Given the changing economic and political circumstances in Lesotho—slowdown of growth in South Africa, imminent decline of South African Customs Unions (SACU) revenues, recent disinvestments in manufacturing, and severe drought, among others—the targets for the project development objectives have become unrealistic and progress towards them is concerning. It was agreed in the Midterm Review Aide Memoire that the Results Matrix and associated targets be updated to reflect the new context.

More specifically, the Project comprises three components, namely:- Improving the business climate- Supporting economic diversification- Project implementation support

COMPONENT 1: IMPROVING THE BUSINESS CLIMATE

Component 1 supports policy measures intended to facilitate business entry and improve access to finance. Activities under this component contribute to increases in the number of registered and operational enterprises in Lesotho (Project Development Objective indicator # 3) by improving the business environment in which firms operate and facilitating business entry. They also partially contribute to increases in jobs (PDO indicator # 2) by making it easier for firms to grow and expand their operations through better access finance and faster issuance of construction permits. Progress on the activities in this component includes:

- Under business regulation, industrial licensing and construction permit reform:

(i) On business regulation and licensing, in 2014 the Industrial licensing bill was published and its regulations gazetted. The Business Licensing and Registration Bill was drafted and comments on it were presented. To operationalize these new licensing regimes, the online business registration system that launched in December 2014 enables potential business owners to apply for business registration. The Government has agreed to pilot E-payments on it and fully automate it as an electronic portal for licenses.

(ii) On construction permit reform, various operational forms have been redesigned and are being used. The risk based approach is being tested by the Maseru City Council (MCC). The Legal Review Task Team has been established to review the various laws and regulations to be amended. Work is also underway by the Department of Environment to streamline regulatory requirements and procedures associated with conducting environmental impact assessments. With regards to interconnectivity and hosting for the construction permit system database and file-system, MCC decided to seek the services of a commercial cloud provider and to maintain an offline data store in their datacenter.

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- Under access to finance:

(i) One credit bureau has been operational since December 2014 and reported statistics for the first time for Doing Business 2016. Over the course of the last year, the Bureau collected data from 17 credit providers on 90,356 individuals and received 1,383 queries.

(ii) On collateral registry, an assessment of Lesotho’s relevant legal and institutional frameworks was completed and recommendations made on how to address them. A Technical Working Group, led by the Central Bank, is discussing the necessary policy considerations. Draft provisions for the Government's consideration have been submitted.

(iii) On leasing, in spite of a best practice law (developed during the first phase of this project) and considerable effort to create and galvanize a leasing market, capacity issues and other market failures have deterred its development. Indeed, industry players have shown little interest in engaging in finance leasing in Lesotho. An action plan with a schedule of awareness raising activities and possible incentives to encourage them has been designed.

(iv) On insolvency reform, the Master’s Office of the High Court is drafting the Cabinet Memorandum outlining the primary policy questions that need to be approved for incorporation in the revised insolvency law. In addition, the Parliamentary Counsel of the Office of the Attorney General is drafting the Insolvency Bill.

COMPONENT 2: SUPPORTING ECONOMIC DIVERSIFICATION

Component 2 supports policy measures intended to strengthen the competitiveness of new growth sectors with the aim of decreasing Lesotho’s reliance on textile exports as the main engine of growth.Activities under this component contribute to increases in the number of investment projects facilitated (PDO indicator # 1) by supporting the investment promotion efforts of the Lesotho National Development Corporation (LNDC) and helping it better manage (and eventually commercialize) the industrial estates, where most large investors settle. Efforts to strengthen and build the tourism and horticulture sectors may also result in attracting new investment projects.

Activities under Component 2 also contribute to increases in jobs (PDO indicator # 2). They do this by facilitating new investment projects (which result in additional jobs), by increasing linkages to the local economy (which result in added demand for local firms, and thus jobs), by strengthening the demand for (and the quality of) local handicrafts (which may result in jobs), by supporting tourism lodging operations to increase their quality (which may results in additional tourists, and thus additional jobs), by building up the commercial horticulture sector (which directly employs people), and by helping firms increase sales through the Lesotho Enterprise Assistance Program (which may result in additional jobs).

Activities under Component 2 may also partially contribute to increases in the number of registered and operational enterprises in Lesotho (PDO indicator # 2). By demonstrating the viability of the handicraft, tourism, and horticulture sectors, potential entrepreneurs may be encouraged to set up their own companies in these sectors.

Progress on the activities in Component 2 includes:

- Under supporting investment promotion and increasing linkages to the local economy, the LNDC action plan was confirmed, and capacity building workshops were held on investor aftercare and retention, industrial estate management, and on the investment law. For the commercialization of industrial estates, a

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stakeholder workshop endorsed the sequential implementation of recommendations to improve rent collection; review LNDC’s organizational structure; move towards public-private partnerships in some of the industrial estates, and then progress towards full commercialization.

- Under tourism, an online tourism statistics database has been launched and surveys on tourism employment and domestic tourism have been completed. Star grading is progressing slower than expected, and the star grading criteria will be revised such that it is more suitable to the Lesotho context. Handicrafts continue to attract international buyers, and to date, USD $35,000 in handicrafts have been purchased from 16 companies. A Creative Industries Empowerment Program (CIEP) was launched in February 2015 to catalyze implementation of a comprehensive market-based training program for the handicrafts sector and design an exit strategy for the Project. For the Tourism Information and Handicraft Center, bidding documents were finalized.

- Under horticulture, the Likhothola Fruit Farm Company (LFFC) is fully operational as a commercial block farm with a long-term land lease and corporate members. The pilot sites have attained GLOBAL GAP certification, while the LFFC has been certified conditional on minor improvements. Two additional commercial orchards were identified, its members organized, and the land planted. Extensive on-farm training of tree husbandry has been completed. The drought and water shortage during this growing season severely impacted the orchards: sales for the LFFC and the pilot sites were negligible, while the seedling loss rate at the new orchards was around 43%.

- Under the Lesotho Enterprise Assistance Program (LEAP), 110 applications from companies and 9 from associations have been approved. The average approved grant size was USD $1,374 per application.

COMPONENT 3: PROJECT IMPLEMENTATION SUPPORT

Component 3 supports the costs of the Project Management Unit (PMU), including the Monitoring and Evaluation system, and the management and implementation of the Environment and Social Management Plans. The PMU is fully staffed and has been instrumental in facilitating the implementation of the Project with various implementing agencies. There have been six Project Steering Committee meetings since effectiveness, and presentations are regularly made to representatives of the private sector regarding the progress of the Project..

C. Proposed Changes.

Development Objectives/ResultsProject Development Objectives

Original PDOThe development objective of the proposed project is to contribute to the development of selected non-textile sectors resulting in increased private sector investment, firm growth and job creation.

Change in Project's Development Objectives

Change in Results Framework

Explanation:

The Results Framework requires revisions in order to (i) update the targets to reflect Lesotho’s changing economic and political circumstances; (ii) clarify the wording and descriptions of the indicators; and (iii) better capture the expected impact of project activities. The proposed changes are detailed below.

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PDO-LEVEL INDICATORS:

Progress towards project development objectives was judged to be satisfactory in the last Implementation Status Report (December 2015, based on May 2015 data). Updated project data, coupled with new macroeconomic data, now suggest otherwise. Both the International Monetary Fund (IMF) and the World Bank have revised their projections of Lesotho’s growth downwards. The 2015 IMF Article IV Consultation, released in February 2016 (see IMF Country Report No. 16/33), expects growth in Lesotho to decrease from 4.5 percent per year (average for 2010-2014) to 2.5-3.0 percent per year. This is attributed to the unstable political situation, the imminent decline of SACU revenues, the recent disinvestments in manufacturing, the severe drought, and the slowdown of growth in South Africa. Since project development objectives—investments, firm-level growth, and jobs—are greatly impacted by the overall macroeconomic situation in Lesotho, the PDO targets need to be adjusted to reflect the new circumstances.

1. “Number of non-textile investment projects facilitated over the 5-year project duration.”

This would be a new PDO-level indicator which measures increased private investments in non-textile sectors. It would replace the intermediate indicator which referred to the percentage “increase in non-textile investments in the industrial estates”. The new indicator is more appropriate because it captures the lumpiness in investments and is more robust to changes in macroeconomic prospects and FDI.

The proposed baseline would be 0 and the 5-year target would be 6 non-textile investment projects facilitated. Between 1994 and 2013, the average number of such investments facilitated by the GoL over a 5-year period was 7.25. The 5-year target is assumed to be an increase over the counterfactual, i.e. the number facilitated in the absence of the Project. We assume the later to be 5 non-textile investment projects facilitated. Since effectiveness, 3 projects have been facilitated. The source of data would be LNDC.

2. “Number of jobs in selected non-textile sectors.”

This indicator would change from “increase in jobs created in selected non-textile sectors,” measured as a percentage increase over the baseline, to “number of jobs in selected non-textile sectors.” The baseline would remain the same. The 5-year target would be revised to 7,088 jobs, rather than a 40% increase over the baseline. The One-stop Business Facilitation Center would be deleted as a source of data because it does not collect information on jobs. The indicator description would clarify that jobs could also include those of people directly employed by the Project (excluding PMU staff and consultants). Since effectiveness, 848 jobs have been created, a 14% increase in jobs over the baseline.

3. “Increase in domestic enterprises registered and operational in non-textile sectors.”

This indicator would change from, “increase in domestic enterprises created/registered in non-textile sectors” to “increase in domestic enterprises registered and operational...” Since many firms need a license to operate and the project is working to streamline licensing, the latter is clearer and more relevant to project activities and objectives. The baseline would be updated to include manufacturing (non-textile) companies in the industrial estates, from 11,382 to 11,402 firms. The description would clarify that the indicator covers both companies and sole traders. The 5-year target would be adjusted from a 30% increase over the baseline to a 60% increase. Since Project effectiveness, there has been a 52% increase in the number of enterprises registered and operational over the baseline.

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Expectations regarding future growth in enterprises registered and operational are mixed. On the one hand, the Ministry of Trade and Industry through its One-Stop Business Facilitation Center is requesting all firms to re-register, or be taken off the registry altogether. This is likely to slow growth in firm registration. On the other hand, the Business Registration and Licensing Bill the Project is supporting will streamline processes and compel all enterprises to register, even if informal. Timely implementation of the bill should increase business registration significantly. Within that context, the proposed 5-year target is reasonable.

CORE INDICATORS

1. “Number of direct project beneficiaries.”

This would become an intermediate indicator since it does not measure any aspect of the PDO. The 5-year target would be increased from 75,000 beneficiaries to 120,000. The description would clarified to include as beneficiaries people directly employed by the Project (excluding PMU staff and consultants). Since effectiveness, the Project has recorded 119,809 direct beneficiaries. The vast majority of these come from the number of loan records matched at the credit bureau (112,000). Additional project beneficiaries will not be many, and will come primarily from the LEAP matching grants program, and the tourism and horticulture subcomponents. The sub-indicator, “of which female,” will remain the same.

INTERMEDIATE INDICATORS (COMPONENT 1)

1. “Number of days required to obtain a construction permit from the Maseru City Council.”

This indicator would change from, “decrease in the number of days required to obtain a construction permit from the Maseru City Council,” to “number of days required....” Measuring the absolute number of days and not the decrease in days makes the indicator cleaner. The 5-year target would be adjusted from 65 days to 85 days. This is more realistic given the May 2018 cut-off date for Doing Business 2019 data collection. The Project expects the online system for construction permits to be operational in 2016 and the number of days required to obtain a construction permit to decrease in 2017. Since Doing Business data combines firm-level surveys with the number of steps and processes officially required, by May 2018 businesses should be able to officially report a decrease.

2. “Percentage of adult population covered by the credit bureau.”

This indicator would replace the original indicator, “Credit bureau established and operational,” which was achieved during the first year of the Project. The baseline would be zero, and the 3-year and 5-year targets would be 2.5% and 5%, respectively. The data source would be the Doing Business report, the Central Bank, and the Project’s internal M&E system. The methodology would be the same as that used in Doing Business. Since Project effectiveness, 1% of the adult population is covered by the credit bureau.

INTERMEDIATE INDICATORS (COMPONENT 2)

3. “Number of registered lodging operations under the star grading system.”

This indicator would change from, “coverage of registered lodging operations under the star grading system,” measured as a percentage, to “number of…” The latter is simpler to track given the universe of lodging operations fluctuates (including Bed & Breakfast’s, guesthouses, and campsites). The 3- and 5-year targets would be 15 and 40 registered lodging operations under the star grading system, respectively. This is realistic given the recommendations of the Midterm Review: to make star grading voluntary and not compulsory, and to revise grading criteria such that it is more suitable to the Lesotho context and to

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different categories of lodging operations. Since Project effectiveness, 9 registered lodging operations have been graded.

4. “Tourism information center established and operational.”

The target for this indicator would change from “Yes” in Year 4 of the Project to “Yes” in Year 5. This is warranted given the difficulties in finding willing and qualified private partners for a Design-Build-and Operate public-private partnership, and the potential need to explore simpler models for private sector participation in the development and operation of the center.

5. “Revenue generated by commercial horticulture farms.”

This indicator would change from, “increased incomes of participating farmers,” to “revenue generated by commercial horticulture farms,” which is significantly easier to track. The unit of measure would be Maloti and the baseline (38,606 Maloti) would be the revenue derived from maize sales from the equivalent total area of the commercial horticulture farms. The 3-year, 4-year, and 5-year targets would be 300,000, 600,000, and 1,000,000 Maloti, respectively. The data source would remain the same. The description would explain the baseline, specify that the area being measured was that of the Likhothola Fruit Farm Company, and clarify that Year 1 referred to the 2014-2015 harvest season, Year 2 to the 2015-2016 season, etc. Revenues for Year 1 were 122,935 Maloti. The Year 2 harvest is currently underway and final revenue numbers are expected by late April.

6. “Percentage increase in sales of LEAP supported firms.”

This indicator would change from, “share of firms supported by LEAP that increased sales by greater than 10% after a year of support,” to a more straightforward, “percentage increase in sales of LEAP supported firms.” The 5-year target would be 10%. The description clarify that the performance of firms would be measured starting one year after they received support and that given the methodology used to calculate the percentage increase in sales, it would not be cumulative. In Year 2 of the Project, the increase in sales of LEAP supported firms was 17%. This percentage is expected to decrease given Lesotho’s deteriorating economy.

.

Appraisal SummaryAppraisal Summary Change in Risk Assessment

Explanation:

The Political and Governance risk for the Project has been increased from Substantial to High. The Government coalition is under increasing pressure internally and externally to take decisive political action. This renders the political environment unstable and volatile. Closer to the Project, Principal Secretaries in the Ministry of Trade of Industry have changed thrice in the last eight months. Given the Principal Secretaries is the public official formally in charge of the Project, frequent changes hinder continuity. This risk is mitigating by a strong relationship with the Minister, a strong PMU, and briefings by the Project and the World Bank to each new Principal Secretary.

The Macroeconomic risk for the Project has been increased from Moderate to High. According to the 2015 IMF Article IV Consultation, released in February 2016 (see IMF Country Report No. 16/33), growth in Lesotho is expected to decrease from 4.5 percent per year (average for 2010-2014) to 2.5% per year. This is attributed to the unstable political situation, the imminent decline of SACU revenues, the recent disinvestments in manufacturing, the severe drought, and the slowdown of growth in South Africa. Given

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the PDO focuses on increases in jobs, investments, and firm-level growth, Lesotho’s macroeconomic situation has a direct impact on the results of the Project. This risk is being mitigating by scaling down the Project’s PDO targets.

The overall risk for the Project increases from Moderate to Substantial, given the above mentioned political and economic issues faced by Lesotho..

Systematic Operations Risk-Rating Tool (SORT)Risk Category Rating

1. Political and Governance High

2. Macroeconomic High

3. Sector Strategies and Policies Low

4. Technical Design of Project or Program Low

5. Institutional Capacity for Implementation and Sustainability Moderate

6. Fiduciary Low

7. Environment and Social Low

8. Stakeholders Moderate

9. Other

OVERALL Substantial

Explanation

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Results and Monitoring Framework

Project Development Objective (PDO): To contribute to the development of selected non-textile sectors resulting in increased private sector investment, firm growth and job creation.

PDO Level Results Indicators*

Unit of Measure /

Change in indicator

Baseline

Cumulative Values (thru Dec.31)

FrequencyData Source/

Methodology

Responsibility for Data

Collection Description (indicator definition, etc.)

Actual Target

YR 1(2014)

YR 2(2015)

YR3(2016)

YR 4(2017)

YR5(2018)

Indicator One:*

Number of non-textile investment projects facilitated over the 5-year project duration.

Number

NEW

0 3 3 6 Twice during project

implementation

LNDC PMU M&E Specialist

This indicator measures the number of non-textile investment projects facilitated over the 5-year project duration.

Indicator Two:*

Number of jobs in selected non-textile sectors

Number

REVISED

6,058 5,816 6,906 6,967 7,088 Twice during project

implementation

LNDC, MTEC and

Surveys conducted for

the horticulture

sub-component

PMU M&E Specialist

Jobs will be defined as full-time, part time and seasonal workers. This will include people directly employed by the project (not consultants, not PMU, but everybody else), jobs created in new foreign and domestic non-textile firms attracted in the industrial estates, and jobs created under the horticulture and tourism sub-components.

Indicator Three:* Increase in domestic enterprises registered and operational in non-textile sectors

Percentage

REVISED

11,402 39% 52% 55% 60% Twice during project

implementation

OBFC MTICM, PMU M&E

Specialist, LNDC.

This is an indicator for components 1 and 2. It includes both companies and sole traders.

Core Indicator One: Number 0 5,105 119,809 119,850 120,000 Annual OBFC, CBL, LNDC, MTEC,

PMU M&E This will include people directly employed by the project (not

Number of direct project beneficiaries

REVISED Project M&E. Specialist consultants, not PMU, but everybody else) , all the enterprises that benefit from streamlined business regulations, SMEs (manager and firm employees) that are able to access loans with movable collateral, individuals that are covered under the credit bureau, artisans, hotel establishments benefiting from the tourism sub-component and the small holder farmers benefiting under commercial horticulture, and LEAP beneficiaries.

Of which female Percentage 0 19% 3% 15% 30% This indicator to be tracked once Home Affairs has provided Credit Bureau with data to disaggregate Credit Bureau records by gender.

Intermediate Result (Component One): Business Environment

Intermediate Result indicator One:

Number of days required to obtain a construction permit from the Maseru City Council

Number

REVISED

106 106 106 106 85 Twice during project implementation

Doing Business Report, MCC, Project M&E

PMU M&E Specialist

This indicator does not include acquiring a fixed line which is included in the process of receiving a construction permit in the Doing Business indicator methodology.

Intermediate Result indicator Two:

Percentage of adult population covered by the Credit Bureau

Percentage

NEW

0% 0% 1.4% 2.5% 5% Twice during project implementation

Doing Business Report, CBL, Project M&E

PMU M&E Specialist

As per Doing Business methodology.

Intermediate Result indicator Two:

Credit Bureau established and operational.

Yes/No

DELETED

No Yes Project End CBL, Project M&E

PMU M&E Specialist

Intermediate Result (Component Two): Supporting Economic Diversification

Intermediate Result indicator Three: Increase in non-textile investments in the industrial estates.

Maloti

DELETED

418.5mn 20% 35% 40% Annual LNDC PMU M&E Specialist

This indicator measures the new foreign as well as domestic investments that come into the industrial estate in the non-textile sectors.

Intermediate Result indicator Three:

Number of registered lodging operations under the star grading system.

Number

REVISED

7 12 14 15 40 Twice during project implementation

LTDC, LHAA, Project M&E

PMU M&E Specialist

This indicator measures the fact that registered lodging operations will be adhering to the Star Grading System of accommodations that will be rolled out during the project.

Intermediate Result indicator Four:

Tourism information center established and operational

Yes/No

REVISED

No No No Yes Post Yr3 of Project Implementation

MTEC, PMU PMU M&E Specialist

Intermediate Result indicator Five:

Revenue generated by commercial horticulture farms.

Maloti

NEW

38,606 122,935 300,000 600,000 1,000,000 Annual Field reporting and data collection system

PMU (Horticulture Manager) w/Farm Management Company

This indicator is measured in real terms and not nominal terms. It will be controlled for inflation. It covers specifically the area under the Likhothola Fruit Farm Company.

Baseline revenue is derived from the sale of maize from the equivalent total area. Year 1 of the harvest refers to the 2014-2015 season. Year 2 to 2015-2016. Year 3 to 2016-2017, Year 4 to 2017-2018, and Year 5 to 2018-2019.

Intermediate Result indicator Five: Increased incomes of participating farmers.

Percentage

DELETED

TBD via baseline survey after site selection

10%125% 30% Annual Field reporting

and data collection system

PMU (Horticulture Manager) w/Farm Management Company

This indicator is measured in real terms and not nominal terms. Will be controlled for inflation.

Intermediate Result indicator Six: Percentage increase in sales of LEAP supported firms

Percentage

REVISED

0% 15% 17% 10% Annual LEAP Unit PMU M&E Specialist

This indicator will track the performance of the firms starting one year after they receive support. It is not cumulative.

1 Only from the Likhothola Fruit Farmer’s Association. Trees from other plots will not have matured sufficiently to produce marketable crops.

Lesotho Second Private Sector Competitiveness and Economic Diversification Project(P144933-IDA Credit 53090-LSO)

Fourth Implementation Support Mission and Midterm Review (February 8-19, 2016)Aide Memoire

I. Introduction

1. An IDA implementation support and Midterm Review mission for the Second Private Sector Competitiveness and Economic Diversification Project (PSCEDP II) visited Lesotho from February 8-19, 2015. The mission team was led by Maria Paulina (Ina) Mogollon (Senior Private Sector Development Specialist and Task Team Leader) and comprised Peter Kusek (Senior Investment Policy Officer); Barbara Kotschwar (Senior Investment Policy Officer); Sherif Muhtaseb (Senior Operations Officer); Kobina Egyir Daniel (Senior Operations Officer); Antonia Menezes (Senior Financial Sector Specialist); Tandile Gugu Zizile Msiwa (Financial Management Specialist); Alice R. Ouedraogo (Senior Private Sector Development Specialist); Austin Kilroy (Private Sector Development); Paula Lytle (Senior Social Development Specialist); and Kisa Mfalila (Environmental Safeguards Specialist). Andreja Marusic (Senior Operations Officer), Markus Kimani (Operations Officer), Riadh Naouar (Principal Leasing Sector Specialist), Chitambala John Sikazwe (Procurement Specialist), John Wille (Lead Private Sector Development Specialist), Luz Maria Salamina (Principal Financial Specialist), and Carla M. N. Faustino Coelho (Senior Investment Officer) provided technical support remotely.

2. The mission team is thankful for the courtesies extended by the Government of Lesotho and, in particular, Honorable Joshua Setipa, Minister of Trade and Industry; Mr. Majakathata Mokoena-Thakhisi, the Principal Secretary, Ministry of Trade and Industry (MTI); Mr Tlohelang Aumane, Principal Secretary, Ministry of Development Planning (MoDP); Mrs ‘Mapalesa Rapapa, Principal Secretary, Ministry of Finance (MoF); Ms Doreen Chaoana, Principal Secretary, Ministry of Forestry, Range and Soil Conservation (MFRSC); Dr Motseki Mofammere, Principal Secretary, Ministry of Small Business Development, Cooperatives and Marketing (MSBDCM); Mrs Lethusang Hanyane, Deputy Principal Secretary of the Ministry of Agriculture and Food Security (MAFS); Ms Ntebaleng Maseela, Parliamentary Counsel, Ministry of Law and Constitutional Affairs; Mrs ‘Mantai Phaila, Town Clerk, Maseru City Council (MCC); Ms Mathabo Makenete - Deputy Governor 2; Mr Kelebone Leisanyane, Chief Executive Officer, Lesotho National Development Corporation (LNDC); Mr Mpaiphele Maqutu, Chief Executive Officer, Lesotho Tourism Development Corporation (LTDC); and Mrs M Mahlapha, Chief Executive Officer (ai), Basotho Enterprises Development Corporation (BEDCO). A complete list of persons met is provided in Annex 2. The mission team is especially grateful to Mr. Chaba Mokuku, the Project Manager and the Project Management Unit (PMU) staff for their generous support.

3. Context. The Second Private Sector Competitiveness and Economic Diversification Project (PSCEDP II) is a US$13.1 million operation which was approved by the World Bank Board on October 31, 2013 and declared effective on January 9, 2014. The Project expects to close in April 2019.

1

4. Project design. The Project Development Objective (PDO) of the PSCEDP II is to contribute to the development of selected non-textile sectors resulting in increased private sector investment, firm growth and job creation. The Project comprises three components, namely: 1) improving the business environment, 2) supporting economic diversification, and 3) project implementation support. The project components and sub-components are listed in Table 1.

Table 1: PSCEDII Components and Subcomponents

Number TitleComponent 1 Improving the Business Environment1A Business Regulation, industrial licensing and construction permit reform1B Improving access to financeComponent 2 Supporting Economic Diversification2A Supporting investment promotion and increasing linkages to the local

economy2B Supporting the Tourism Sector2C Expanding Commercial Horticulture2D Lesotho Enterprise Assistance Program (LEAP)Component 3 Project Implementation Support3A Project Management Unit ( PMU)

5. Project disbursement. IDA credit disbursements stood at 47% of IDA funds as of February 12, 2016 and 29% of GoL funds as of December 31, 2015. At the prevailing exchange rate, there is USD $6.357 million of IDA funds left in the project.2 Disbursement estimates have been updated to reflect the strong pace of project implementation (see Annex).

6. Mission objective. The objective of the fourth implementation support mission was to review the implementation progress of the Project and conduct a Midterm Review. The latter included assessing the relevance and implementation progress of each component and subcomponent, reviewing the monitoring and evaluation framework and procurement plan, and collaborating with the various implementing agencies to agree on the way forward.

7. Mission outcome. At Midterm Review, the mission assessed the project development objectives and components to be relevant to the Lesotho context, and the project implementation progress to be satisfactory. Progress towards development objectives is concerning given the changing economic and political circumstances in Lesotho: slowdown of growth in South Africa, imminent decline of SACU revenues, recent disinvestments in manufacturing, and severe drought, among others. It was agreed that the Results Matrix and associated targets be updated to reflect the new context. According to World Bank processes, this can be formally done through a Level II (minor) restructuring.

2 The devaluation of the Special Drawing Rights, the currency in which the loan is denominated, results in a USD $824 thousand difference with the original loan amount.

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II. Implementation: Progress, Issues and Recommended Actions

8. Component 1- Improving the Business Climate (IDA Allocation: US$3.16 million). The objective of this component is to support policy measures intended to facilitate business entry and greater access to finance. The two sub-components are (i) Business regulation, licensing and construction permit reform; and (ii) Improving access to finance.

9. Component 1A: Business Regulation, industrial licensing and construction permit reform (IDA Allocation: US$2.08 million). The objective of this sub-component is to reduce the time and cost for registering a business and obtaining construction permits.

10. Business Regulation and Industrial Licensing Reform: The project continues supporting the drafting and implementation of the Business Licensing and Registration Bill which aims to cover all businesses, including sole proprietors and partnerships. This will enable the benefits of the One Stop Business Facilitation Centre (OBFC) system to go beyond company registration and register sole proprietors and partnerships, and also increase formalization of businesses.

11. Progress: The Industrial licensing bill was enacted and published in September 2014 as Industrial Licensing Act Number 10 of 2014. The related regulations and schedules to implement this new law were also gazetted in October, 2014.

12. The Business Licensing and Registration Bill and the accompanying regulations are being drafted. The current draft bill simplifies the existing trade licensing regime by prescribing that trade licensing will be limited to a risk based schedule of activities that will be subject to licensing. Comments to the draft bill have been presented, a revised draft bill has been prepared and is currently under review. It has been proposed that the list of activities that will be subject to licensing (in accordance with a risk based approach) include only those activities that could represent a risk to the public (i.e. health or environmental). However, it should be taken into consideration that, even this simplified model does represent an additional layer of approvals in addition to the requirements that need to be complied with at the level of the line ministry/agency that regulates the specific activity (e.g. for activities that are health related, Ministry of Health, or for environment related activities the Ministry of Environment).

13. Under the Environment Act (2008) many businesses are subject to Environmental and Health inspections prior to registering a business or applying for a license, regardless of the potential levels of environmental or public safety risk they pose. The project continues to support the introduction of a risk-based inspection regime by introducing guidelines that support the principle of risk-based inspections to supplement the existing Environment and Health inspections and help streamline the system.

14. In order to operationalize both the new trade and industrial licensing regimes, the project supports the creation of an electronic portal for licenses, which would put on-line a

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database of all laws, regulations, rules, tariffs and steps for all types of trade and industrial licenses, and types of business activity (business codes).

15. Progress: The online business registration system launched by the Ministry of Trade and Industry in December 2014 enables potential business owners (with the exception of sole proprietors) to submit all the requirements for business registration in Lesotho online and likewise receive their certificates of incorporation. Nevertheless, lack of E-payments in this system means full on-line business registration is not yet possible.

16. Consultations are underway with Foster Moore (the New Zealand company that supported the development of the online business registration system) to acquire a module that will permit electronic payment for business registration. The Ministry of Finance (Accountant General) has been consulted and is supportive of the idea of deploying the e-receipt or e-payment module within OBFC as a pilot, after which there would be a rollout to other GoL agencies if successful. Further to discussions between OBFC and the PSCEDP II, First National Bank (FNB), a South African Bank, has been identified as one of the only banks operating in Maseru that meets the criteria required to implement e-receipts on the OBFC system. Foster Moore are currently awaiting technical documentation from FNB that will detail how the OBFC system and the FNB system will be integrated. Once this documentation is availed, Foster Moore will be able to quantify the work and commence system integration and then piloting.

17. As noted earlier, Ministry of Trade and Industry plans to introduce transactional capabilities in their intended licensing portal. The New Zealand business registration system has a comprehensive module for business licensing that would meet the requirements of OBFC were it to be implemented. OBFC favors this module as opposed to a stand-alone licensing system because it would be better integrated with its business registration system. The licensing workflow can be integrated into the business registration workflow giving the end user a comprehensive and seamless experience. This module can reportedly work both in informational mode as well as transactional mode. OBFC has made a request to the government of New Zealand to implement this module but the required funds are not available. OBFC has requested the PSCEDP II project to consider funding the implementation of this module and is in the process of presenting a cost estimate. This licensing component would also greatly benefit from electronic payment capabilities.

18. With regard to the business licensing portal content, the Business Registration and Licensing Bill currently under review is expected to introduce considerable changes to the licensing regime in Lesotho. Once the bill is finalized and effective, it will be clearer which license data should be contained in this portal. The finalization of the bill will also enable Forster Moore to estimate the level of effort required for the transactional licensing module and estimate a cost that will be used to seek the required funding.

19. The status of the draft Electronic Transactions law and the Electronic Commerce Regulations is unclear. It is expected that the enactment of these laws will provide overarching legal basis for the e-receipts transactions in Lesotho.

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20. Next Steps:

(i) Finish the draft Business Licensing and Registration Bill and regulations. (ii) Foster Moore to provide detailed technical specifications and cost estimate for

establishment of e-licensing portal at the OBFC.(iii) The EIA consultant to facilitate finishing the EIA regulations and the streamlining

of Lesotho EIA procedures. (iv) FNB should avail the required documentation in an expeditious manner to

facilitate planning, implementation and piloting of e-receipts. (v) Expedite enactment of the draft Electronic Transactions law and the draft

Electronic Commerce Regulations.

21. Construction Permit (CP) Reform: The project is supporting GoL to streamline the construction permit system3 within the MCC, by automating the document workflow, digitizing the back-office functions of MCC and digitizing the archive wherever possible in order to create an automated, predictable and transparent system, thus reducing time, cost and regulatory burden for the private sector, and at the same time reducing the transaction costs for the public sector.

22. Progress: Implementation of some of the CP reform recommendations is underway. The various operational forms have been redesigned and are currently in use. The risk based approach has been developed and is currently being tested by the Maseru City Council. Initial feedback suggests that the risk parameters may require further fine-tuning. A procedural manual and a framework for monitoring and evaluation (M&E) are expected to be finalized and validated by the City council by the end of February 2016.

23. Maseru City Council has reorganized its Department of Planning to comprise three units: (i) Construction Permits; (ii) Physical Planning; and, (iii) Lands. This reorganization will provide operational clarity and organizational alignment and will significantly improve the performance of each unit. The Department is also considering moving to a new location. This move would entail building new facilities and could take some time, which would call into question the timelines for computerization of the new construction permit process.

24. Legal review: The Task Team of Chief Legal Officers from MCC, WASCO, Fire department, Public Works, Lesotho Electricity Corporation and Roads Directorate has been established. The team will guide the work of the legal consultant who has been hired to conduct the legal review. The consultant will be initially tasked with mapping the various laws and regulations to be amended and propose a way forward.

3Of the 330 days, the MCC accounts for 3 procedures that account for 106 days and the majority of the cost, while the connection with Telecom Lesotho for a fixed line accounts for 180. The establishment of a fixed line connection is a requirement of the Doing Business indicator.

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25. Environmental impact assessment during the construction permit process: a consultant has been hired to assist the Department of Environment (DoE) in improving its overall environmental protection function by streamlining regulatory requirements and procedures associated with conducting the environmental impact assessment. The initial report is expected by the end February 2016.

26. Giving a role to private practitioners is recommended during the construction permitting process, if accredited professionals such architects, contractors and engineers are available. The Lesotho Ministry of Public Works is working on a new legislation to regulate the overall building industry (including developing professional standards and best practices) to enable private sector professionals to train and self-regulate their own members to determine who can be licensed to practice.

27. Master Plan: It was established that the zoning maps (master plan) are outdated and do not served as a reliable source of reference for public officials. Clear, transparent and publicly available zoning rules make it easier for investors to determine which activity is allowed and where, and enable public officials to avoid discretionary decision-making. A readiness study was conducted in March 2015 to assess potential roadblocks to completion of a quality master plan but it has emerged in the interim that development of a master plan is currently under discussion under a WB/EU urban and transport project. There is a need to consolidate and align the two projects.

28. The interconnectivity and hosting capacity of MCC is inadequate for the intended CP system. MCC was encouraged to seek hosting and connectivity services from either the Ministry of Communications or commercial cloud services. MCC opted to seek the services of a commercial cloud provider. MCC has to make a further decision as to whether the service provider will be based in Lesotho, South Africa or outside Africa. MCC will maintain an offline datastore in their datacenter that will retain an up-to-date copy of the CP system database and file-system; this will provide insurance in the event of a catastrophic failure of the cloud hosting service. The technical infrastructure required to operate the CP system (i.e. computers, mobile devices, scanners and network connectivity) has been identified and procurement is underway.

29. MCC has requested the PSCEDP II project to support additional training on IT management and governance (i.e. ITIL & COBIT). The project has determined that it is feasible to support this training and has included it in the list of trainings to be procured (i.e. in addition to the critical technology training that is intended to empower MCC ICT staff to sustain the CP system. Procurement of all the training will be done immediately in order for the training to be done in parallel with system implementation activities.

30. The technology vendor (Kenyan firm) to implement the system has been procured and the contract signed. The procurement of a Maseru-based IT firm to be paired with the technology vendor for project sustainability is underway and is expected to be completed by mid-March, after which the system implementation will kick off with a detailed requirements analysis and design phase.

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31. MCC has been looking to move to a modern office building. MCC advises that this move is likely to take place fairly soon. MCC would like to have the system implemented in their new office building, to avoid improving infrastructure such as Local Area Network in the old building, only to leave it behind (or need to move it) after a few months. The specific dates of this planned move need to be determined and project planning done accordingly as this poses a potential risk to the project timelines.

32. MCC intends to digitize its historical CP records. Terms of Reference for digitization of these records will be developed and used to determine the cost and consequently the feasibility of undertaking this exercise. MCC has been advised that the digitization of historical records is a nice to have but not critical to the success of an automated CP administration process.

33. Next steps:

(i) Continue with the implementation of some of the CP reform recommendations (forms, risk based approach, M&E, procedure manual).

(ii) Ensure the effective set up of the new units within the department of planning.(iii) Finalize review of the relevant laws to align them with the new CP business

processes (including legislation on role of private practitioners).(iv) Finalize EIA report – and discuss recommendations with stakeholders.(v) Finalize master plan proposal and handover to relevant authorities to seek further

funding (follow up with WBG/EU urban transport project to align projects). (vi) Finalize procurement of the hardware infrastructure as well as the Maseru based

ICT firm.(vii) Procure technology training required for the success and sustainability of the CP

automation reform.(viii) Determine when MCC will be moving offices and alter the project plan accordingly.(ix) Develop a time-bound action for CP reform project for proper sequencing of

activities.

34. The performance of this subcomponent is Satisfactory.

35. Component 1B: Improving access to finance (IDA Allocation: US$1.08 million). The objective of this sub-component is to improve access to finance in Lesotho, by correcting information asymmetry and permitting more informed decision making by financial institutions through credit information systems, by increasing access to finance through such financial instruments as leasing, and, by increasing the range of assets against which financial institutions may lend as collateral.

36. Credit Information Bureau: The Project facilitated the establishment of the Credit Information Bureau (CIB) and is now supporting both its strengthening and the Central Bank of Lesotho’s (CBL) supervision of it. The latter is being done by supporting the development of agreed reporting formats and systems for electronic submission of data from data (credit) providers to the CIB, and from the CIB to the CBL.

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37. Progress under this component has been considerable. One credit bureau (Compuscan) has been operational since December 2014 in Lesotho and reported statistics for the first time for Doing Business 2016 (data collection for DB16 ended in May 2015), when the coverage was 1%. The objective is to reach the minimum of 5% coverage that is required for getting a rating for the getting credit Doing Business indicator. As of December 2015 the Bureau collected data from 17 credit providers (4 banks, 2 MFIs, 10 retailers) on 90,356 individuals. This represents an increase in coverage of almost 600% from 13,069 individuals reported at the beginning of 2015. 1383 queries have been made against the database in January 2016 (an increase of 75% compared to the monthly average of 788 during the last quarter of 2015).

38. More recently, in June 2015 Bankworld Inc, signed a contract with CBL for a consultancy service to strengthen the supervisory capacity of the CBL on credit reporting by developing the guidelines for on site and off site supervision and the methodology for supervising the industry using an electronic platform. The deliverables agreed were: a) Training plan for CBL and other stakeholders; b) Electronic reporting system for supervision installed and operational; c) Instructions manual for on-site and off-site supervision, and an instructions manual to use the electronic reporting system; d) Awareness campaign action plan formalized, communication consultant hired, budget prepared and one year implementation covered.

39. Bankworld Inc. delivers directly to CBL and shares progress reports to the WBG team. The following documents / activities have been produced: a) Credit Information Bureau Supervision Framework was designed to be used as the basis for the training on on-site and off-site supervision for the examiners (WBG specialist emphasized the importance to coordinate the work of bank examiners to ensure that banks incorporate the use of credit reporting in their policies and that they actually query their prospective borrowers); b) Output report formats to be reported by credit providers to CBL were designed; c) In regards to the Awareness campaign, the consultant proposed an action plan for the activities and the TOR for the communications company to be hired to perform the plan and also listed a set of indicators to measure impact (feedback was provided).

40. Next Steps:

(i) Initiate the awareness campaign and report on activities executed and indicators (Bankworld Inc)

(ii) Install the electronic platform and start collecting data from both the credit bureau and the credit providers. Start generating the reports outlined in the documentation provided. (Bankworld Inc)

(iii) Produce evidence of the training to the examiners received on supervision, such as reports on on-site examinations performed on both the credit bureau and the credit providers. (Bankworld Inc. and CBL).

(iv) Produce evidence of the training performed on financial institutions and other credit providers on the use of credit reporting in their business. (Bankworld Inc)

(v) Report periodically on the indicators agreed to follow up the performance of the credit system in Lesotho (Credit Bureau and Bankworld Inc)

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41. Collateral Registry: The Project is supporting the design and deployment of a modern movable collateral registry that will permit the reliable use of movable and even intangible assets as collateral. The substance of this reform addresses issues relating to the creation, registration and enforcement of security interests over movable collateral, with priority given to security interests in the order in which they are registered. The proposed registry will include information on security interests acquired through finance leasing.

42. Progress: Following selection as advisors and service providers for development of the collateral registry in May 2015, the consultant submitted an Inception Report that provided a preliminary assessment of the relevant legal and institutional frameworks of the Kingdom of Lesotho, identified preliminary issues, made recommendations on how to address them and set out a project mobilization plan. The firm has also subsequently delivered a paper on necessary policy considerations and a draft law for consideration.

43. Since then, slow but solid progress has been made. The Technical Working Group led by the Central Bank—and comprising key officials from the Ministry of Finance and with private sector representatives from the Bankers’ Association and the Association of Microfinance Institutions—has reviewed the paper on policy considerations and made the necessary policy choices. Progress has been delayed however because of irregular engagement by the Ministry of Finance. The mission and the Head and the Director of Banking Supervision and non-Banking Supervision respectively of the Central Bank (who oversee the development of the Collateral Registry) met with the PS of the Ministry of Finance who gave assurances that the Ministry’s engagement in developing the Collateral Registry would be prioritized.

44. The mission advised that the Central Bank consider appointing or designating a person as the Registrar of the Collateral Registry. This would permit the World Bank Group and/or the PMU to facilitate attendance by such a person at some of the global workshops / peer learning events on financial sector infrastructure so that he or she can determine what practices from other jurisdictions may be applicable in Lesotho. Early designation of the Registrar would also permit such a person to be the face of the public education campaign. The mission also advised the Banking Supervision department of the Central Bank to consider a recalibration of its Prudential Regulations to encourage banks to lend on the basis of movable assets as collateral.

45. Next Steps:

(i) MoF and CBL to present the draft Secured Transactions policy to the Minister of Finance.;

(ii) The Minister of Finance to present the policy to Cabinet and seek its approval.(iii) Central Bank and MoF to confirm Central Bank as institutional location of

Collateral Registry;(iv) Minister of Finance to Secure Cabinet approval of policy paper to commence

drafting of new law or amendment of existing law.

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(v) Stakeholder consultations on foundational policy framework for Collateral Registry and on draft bill

(vi) The OPC to draft Secured Transactions Law with inputs from the Secured Transactions Technical Working Group.

(vii) Technical Working Group to develop action plan with timelines for: 1. Submission by Ministry of Finance of Policy Paper to Cabinet for

endorsement2. Submission by Ministry of Finance of draft Bill to Cabinet for sign-off3. Submission of Bill to Parliament for enactment4. Education of public on the Secured Transactions Law

48. Finance Leasing: The project is supporting the development of a leasing industry through reform of the legal framework for leasing and other mechanisms to promote access to finance for SMEs.

49. Progress: In spite of a best practice law and considerable effort to create and galvanise a leasing market, there has been little interest by industry players in engaging in finance leasing in Lesotho. This is largely attributable to a poor understanding of how leasing works by industry players. Following study tours to Sri Lanka and Mauritius by the Technical Working Group charged with developing a leasing market, a consultant has been hired to develop an action plan with a schedule of awareness raising activities and possible incentives that would encourage industry players to enter the leasing market.

50. Next Steps:

(i) Complete market survey to understand key constraints for development of leasing market

(ii) Develop action plan and schedule of possible incentives to stimulate leasing industry

(iii) Arrange consultations between key stakeholders and Ministry of Finance on possible incentives to encourage development of leasing market.

51. Insolvency Reform: The Project is providing support for the review and modernization of the insolvency regime in Lesotho. In particular, the support is focused on legislative reform of insolvency provisions applicable to companies, individuals and unincorporated businesses (such as sole proprietorships and partnerships), set out in a single unified insolvency law, to be administered by the Ministry of Justice in accordance with the initial program design.

52. Progress: Following the draft report that was submitted by the consultant in February 2015, comments were provided by stakeholders and the World Bank Group team. A revised and final report was submitted in December 2015 after an extensive delay.

53. The Master’s Office of the High Court is in the process of drafting the Cabinet Memorandum outlining the primary policy questions that need to be approved for incorporation in the revised insolvency law (the Insolvency Bill). This Cabinet

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Memorandum is expected to be submitted in the next few weeks, following consultation with the key stakeholders, including the Ministry of Finance, the Ministry of Trade and Industry, the Ministry of Law and the Ministry of Labor.

54. The Parliamentary Counsel of the Office of the Attorney General initiated the process of drafting the Insolvency Bill using the information from the February 2015 report. They now prefer to assess the draft in light of the final December 2015 report and the Cabinet Memorandum.

55. The mission had discussions with the Parliamentary Counsel, the Ministry of Trade and Industry representatives and the Master’s Office regarding the appropriate insolvency regulator for the revised Insolvency Bill. Given that it had been agreed in the original program that the Ministry of Justice would administer the Insolvency Bill, it is recommended that regulatory functions in the Insolvency Bill remain with the Master’s Office, which is an independent entity under the Ministry of Justice, and has historically dealt with insolvency matters. Nonetheless, it is clear that significant capacity building will be required in order to equip the Master’s Office with the necessary resources and know-how in order to effectively administer the new procedures anticipated in the Insolvency Bill. It is therefore recommended that the Master’s Office submit a proposal and budget to the PMU regarding the required capacity-building.

56. The following timeline for drafting has been agreed by the Parliamentary Council, the Master’s Office, the Ministry of Trade and Industry and the World Bank Group:

- Cabinet Memorandum Finalized: by February 19- Consultations of Cabinet Memorandum Provided: by March 4th- Cabinet Approval: by March 18- Policy Advice to Parliamentary Council: by March 24- First draft of Insolvency Bill: by June 3- Comments by drafting team: by June 20- Second draft of Insolvency Bill: by July 25- Comments by drafting team: by August 5- Circulation to stakeholders: by August 8- Comments by stakeholders: by August 29- Discussion workshop: September- Final draft: October

57. Next Steps:

(i) Master’s Office to draft Cabinet Memorandum for approval of insolvency reform;(ii) Parliamentary Counsel to have discussion with World Bank Group team regarding

draft provisions in law;(iii) Following approval of the Cabinet Memorandum, Parliamentary Counsel to

prepare first draft of the Insolvency Bill; and(iv) Master’s Office to submit proposal regarding needed capacity building

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58. The performance of this subcomponent is Satisfactory.

59. Component 2- Supporting Economic Diversification (IDA Allocation: US$7.45 million). The objective of this component is to support policy measures intended to strengthen the competitiveness of new growth sectors with the aim of decreasing Lesotho’s reliance on textile exports as the main engine of growth. The activities under this component will assist the Government of Lesotho to: (i) attract foreign investments into a diversified set of sectors; (ii) facilitate linkages to the local economy; (iii) increase the competitiveness of the tourism sector; (iv) facilitate the production of tree crops and develop a competitive horticulture value chain that can be a source of growth and employment creation; and (v) support SMEs by providing access to business development services.

60. Subcomponent 2A – Supporting investment promotion and increasing linkages to the local economy (IDA Allocation: US$1.78 million). This sub-component aims to provide the GoL with support towards achieving sustainable diversification of the country’s export manufacturing program as well as providing support to strengthen local SME capacity. This diversification needs to be achieved such that there is horizontal diversification combined with increased localization – where local participation in the manufacturing sector increases in terms of providing technical and managerial skills and supplying export-oriented firms.

61. Commercialization of industrial estates: A firm was hired to conduct a pre-feasibility study on the pilot commercialization of industrial estates in Lesotho. The study was completed, and a stakeholders’ workshop to validate the report and discuss the various options proposed was held. At the workshop, stakeholders agreed that the options presented for the commercialization of the industrial estates in Lesotho were not mutually exclusive, and could be followed sequentially. These were:

(i) No institutional change, but focus on improving rent collection and recovering past-due rent.

(ii) Reorganisation of the LNDC into two distinct entities, to separate property management from investment promotion

(iii) Public-private partnership(iv) Full Commercialization

62. It was agreed with the GoL to move forward on the second recommendation by hiring a consulting firm (or consortium of firms) to undertake the review and propose recommendations for greater organisational efficiencies. During the mission, a half day workshop related to international best practice and lessons learned with regards to zone management was conducted.

63. Investment promotion and linkages: The project aims to strengthen LNDC investment promotion and investor services functions, and provide technical assistance to

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implementing targeted programs that facilitate linkages between foreign investors and domestic SMEs.

64. Progress-to-date comprises the following elements: (i) Confirming the LNDC Action Plan, focused on investment law preparation,

investment promotion capacity building and study tour / exchange program;, sectoral mini-value chain analyses, linkages strategy, investment incentives;

(ii) During the mission, capacity building workshops, attended by 20 LNDC and GoL officials were held on investor aftercare and retention and on the investment law currently being drafted by the Government;

(iii) TORs for an investment incentives consultant have been advertised, with the goal of identifying specific policies, instruments and actions implemented and use these examples to distill specific lessons and action-oriented policy recommendations for the Government of Lesotho to improve the effectiveness of its current incentives policy in attracting and retaining investment in the targeted sectors;

(iv) TORs for two value chain mini-studies (footwear and automotive) have been finalized, with the objective of supporting further diversification of Lesotho’s economy;

(v) TORs for a linkages consultant have been finalized, with the aim of facilitating the missing linkages between the foreign owned firms and the local economy, with an aim to improve the capacity of local businesses and potentially build a pipeline of domestic service providers opening new markets for local businesses thereby creating new and improved jobs;

(vi) An LNDC Technical Advisor was hired for a period of a year, to focus on capacity building and strategy development in the areas of of investment promotion, linkages, and economic diversification.

65. Next Steps:

(i) Finalize the ToR for the organisational review of LNDC and procure a firm to execute it.

(ii) Assist in the organization of an LNDC study tour to the Board of Investment of Mauritius focused on investment promotion, investment aftercare and export promotion functions;

(iii) Recruit a consultant to study Lesotho’s investment incentives; (iv) Recruit a linkages consultant;(v) Recruit a consultant for conducting the automotive and footwear value chain mini-

studies;(vi) Conduct a preliminary ICT Capacity Assessment of the LNDC investor information

management systems;(vii) Provide support for other LNDC Action Plan items, as needed and requested,

including investment law preparation.

66. The performance of this subcomponent is Satisfactory.

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67. Subcomponent 2B – Supporting the tourism sector (IDA Allocation: US$1.30 million). The objective of this subcomponent is to increase the competitiveness in the tourism sector through efforts that (i) better quantify and track sector performance, (ii) improve standards, (iii) strengthen the country’s unique offerings, and (iv) support an enabling institutional framework.

68. Progress: Improving tourism statistics: In 2014, the project hired a tourism statistics specialist, and during the same year, significant progress was made in improving the measurement of the tourism sector in Lesotho through the implementation of the following initiatives:

(i) The development of an online tourism statistics database for the collection, compilation and dissemination of tourism statistics, including inbound arrivals, accommodation utilization, visits to attractions, and key visitor survey findings;

(ii) Implementation of a tourism employment survey to measure the size and characteristics of employment in the tourism sector in Lesotho;

(iii) Implementation of a domestic tourism survey to better understand the strengths, weaknesses, opportunities and threats to domestic tourism development in Lesotho; and

(iv) Updating of the tourism satellite account incorporating data from the newly implemented domestic tourism survey, employment survey, and data from the latest inbound visitor survey.

69. The progress made in these areas of tourism statistics has strengthened the Research and Development Department in the Lesotho Tourism Development Corporation. Going forward, the next step is to implement a more sophisticated range of research to provide both the LTDC and the private sector with information and intelligence to market Lesotho and its products more effectively. This research would address: (i) the relatively weak understanding of international inbound tourism, in terms of visitor and trip characteristics; and (ii) the need to engage with the private sector at a more enhanced level, to understand their challenges, the current business climate, and to provide them with indicators to help them make investment decisions. The project has hired a consultant to assist LTDC in the two areas.

70. Next steps:

(i) Tourism statistics consultant to facilitate international inbound tourism survey and development of a tourism barometer.

71. Nation-wide implementation of star grading of accommodation establishments: During PSCEDP I, a pilot program for the star grading of lodging facilities was conducted. In addition to an initial group of assessors being trained, 6 of the 9 lodging establishments assessed succeeded in achieving star classification. PSCEDP II aims to support a national roll-out leveraging insights from the pilot program. Activities focus on (i) capacity building of assessors; (ii) development and roll-out of support to lodging operators to engage them in the grading process; (iii) assessment and grading of lodging establishments; and (iv)

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continued collaboration and capacity building of the accommodation sector with MTEC and LTDC for the implementation of a reputable grading program.

72. The South Africa-based International Hotel School (IHS) was engaged in early 2015 to provide specialized hospitality training to assessors and accommodation operators. In March 2015, IHS trained 29 Assessors on two modules: Certified Hotel Department Trainer (CHDT) and Outcome-based Assessment methods. The two modules were delivered over a period of two weeks in both Lesotho and South Africa. The assessor candidates also completed the final compilations of their portfolios for practical assessments done under the Outcome–based Assessments module.

73. IHS also delivered five training modules to 200 hospitality workers from 40 establishments between March and April 2015. The modules, three days each, included “customer service excellence”, “e-marketing”, “waste management”, “customers with special needs”, and “food safety and food profits”. The 40 establishments were among 55 establishments which have been part of a handholding program that LTDC has delivered since early 2014. Each has received several visits from LTDC’s grading officer, who provides feedback on the property’s main gaps and how they can be improved. The officer reports strong progress among many of the establishments, although only five have agreed thus far to proceed with the grading.

74. Additionally, four regional workshops were conducted on Grading Sensitization in August 2015. The workshops were aimed at disseminating information on the Star Grading Program where the topics discussed included the process and benefits for participating in the program, harmonization of the Licensing and Grading requirements, the benefits for enrolment in an accommodation organized forum e.g. Lesotho Hotel and Hospitality Association (LHHA), and the opportunities for financial assistance through the Lesotho Enterprises Assistance Program (LEAP). The workshops had 75% participation from across the four regions, and resulted in several requests for handholding support.

75. Despite the aforementioned efforts, industry uptake on star grading has been disappointing (less than 10% of all accommodations establishments). In order to better understand the reason for this, LTDC Research Department undertook a survey of accommodations establishments in August 2015. The most commonly cited reason for not grading was “financial challenges” associated with required upgrades (56%), followed by “other” (18%), “don’t understand” (14%), and “too expensive” (9%).

76. For the Midterm Review, a tourism consultant was hired to rapidly assess program challenges and recommend how they may be remedied. Through meetings with private sector associations and relevant government bodies, as well as individual site visits to a range of accommodations establishments in and outside of Maseru, a number of challenges were identified. First and foremost, the minimum requirements and criteria for the grading system, which are based on SADC/RETOSA standards are seen to be rigid and not well aligned with the specific realities of Lesotho. This is somewhat relevant to the “hotel” category, but much more so with the five other accommodations categories associated with smaller-scale operations. As indicated in the survey, many accommodations fear that

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having to comply with the standards will require major capital expenditures, which are particularly difficult due to limited access to finance. Furthermore, many establishments feel that the system will force changes that are inconsistent with the desires of their specific target market--particularly leisure tourists who crave authenticity and uniqueness.

77. Some establishments also indicated a lack of confidence in the ability of the assessors, although this seems to be less of an issue after the extensive training provided to them by IHS. Other issues raised include the lack of coordination and alignment between the minimum requirements and even accommodations category definitions for licensing (done by MTEC) and grading (done by LTDC), as well as the inconvenience of the system for the country’s many multi-use establishments (for example, one offering guestrooms and camping facilities).

78. To address these challenges, the most important recommendation is to conduct a critical review of the criteria and minimum requirements for each of the six accommodations categories. The focus should be on refining the program so it is better aligned with the specific conditions of Lesotho, rather than the other countries of the region (of which none has actually taken up the SADC/RETOSA standards). Emphasis should be placed more upon elements of service quality (the customer experience) and less upon expensive structural/physical requirements. The challenge will be to find a balance such that increased flexibility does not entail a loss of control over accommodation quality. It will also be critical to align the revised minimum standards (and accommodations category definitions) for grading with those used for licensing to ensure consistency across the entire process. Follow-up training on the new standards should also be provided to the certified assessors.

79. It is also recommended that the program not be compulsory but rather voluntary (as in the case of South Africa). Having over 200 accommodations comply with standards is not seen as feasible and furthermore the costs of doing so would not likely be sustainable. Also in the name of financial sustainability, it is recommended that the grading be done once every two years as opposed to annually. This is the case in a number of other benchmarked destinations such as Botswana and Seychelles. This, however, should be accompanied by mechanisms to monitor establishment’s quality level. International best practices in this area include directly soliciting tourists’ feedback on establishments and also performing unannounced spot checks on a relatively small percentage of accommodations per year.

80. The revisions in the system should be accompanied by continued training and hand-holding for those interested in being graded. Emphasis should be on areas such as customer service, front desk, restaurant service and other areas identified by IHS. This assistance, which can be provided through LEAP, should represent a compelling incentive for new establishments to join the program. Other incentives should include increased marketing of graded accommodations and preference that government workshops only be held in these establishments.

81. Next Steps

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(i) Provide full set of recommendations of grading program assessment to LTDC and solicit feedback to determine which will be incorporated into revamped system

(ii) Contract consultant that can help facilitate review of minimum requirements and criteria for the six accommodations categories. This should include a harmonization between the licensing and grading systems.

(iii) After the review, disseminate new standards and allow establishments a month to provide comments. Then hold a workshop to validate and educate the sector on the new standards.

(iv) Provide refresher training for assessors to familiarize them with program changes.

(v) Use consultant indicated in (ii) to assist and build capacity of LTDC with hand-holding exercise of establishments interested in joining program

(vi) Contract firm to provide continued training courses for participating establishments

82. Improving Lesotho’s handicrafts sector competitiveness: A vibrant and economically productive tourism sector is the outcome of a strong tourism value chain which enables growth in visitor numbers, extended lengths of stay and increased visitor expenditures. Towards this end, PSCEDP II is specifically supporting the handicrafts sector through capacity building and the establishment of a tourism information and crafts marketplace.

83. Progress: In mid-July 2014 a consultant conducted an assessment of the sector and developed an implementation program. Program implementation began in September 2014 with intense training and coaching activities for both sector related businesses, government officials and support institutions. A key strategy was to introduce international buyers to Lesotho producers early in the process in order to generate interest in the project and initiate wholesale orders. To date the project has captured wholesale orders, showing the community that the sector has potential, and building a commitment to reinforcing every aspect of the value chain. A Creative Industries Empowerment Program (CIEP) was launched in February of 2015 to catalyze implementation of a comprehensive market-based training program for the handicrafts sector. The implementing team is being trained and mentored by the consultant. To date:

(i) The project has four active international importers marketing CIEP products to retail outlets in the US and beyond. The buyers are being serviced by three local buyer agents. One Japanese retailer is sampling CIEP products.

(ii) Buyers have purchased nearly $35,000 from 16 companies. These include samples and small initial orders.

(iii) CIEP companies are selling the new products locally as well as internationally.(iv) More important than actual sales, major US retail chains have expressed interest

in CIEP products. Their interest is a solid indicator that the product development strategy has been successful and Basotho producers can enter the international market.

(v) Trade Facilitation Office of Canada (TFO) intends to work with 3-5 CIEP companies for their textile marketing program in 2016-17.

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84. Tourism Information and Handicraft Center. The proposed center will provide information to tourists, offer displays and the sale of arts & crafts products, offer leisure, entertainment, retail facilities and will also develop facilities for capacity building and business development support for handcraft enterprises and SMEs. To design, build, operate and transfer the center, the Project commissioned a firm to conduct a feasibility study and draft the needed bidding documents. The Project has now advertised a Request for Expression of Interest (EoI) for procurement of an operator who will run the proposed Tourism Information and Handcrafts Centre on a Design, Build, Operate and Transfer (DBOT) basis. Given the complexity of the proposed PPP transaction, the mission strongly encouraged the Government to explore simpler models for private sector participation in the development and operation of the facility.

85. Next steps

(i) Consider allocating additional resources to CIEP to strengthen the crafts value chain, and design an exit strategy for the handicraft program.

(ii) Host CIEP webpage on PSCEDP II website and sensitize embassies, consulates, and chambers of commerce in Lesotho and South Africa, as well as Lesotho embassies around the globe about the existence of CIEP and the service it offers to buyers.

(iii) PSCEDP should consider providing a Start Up Package for agents to help them through the early stages of starting their agent business.

(iv) Develop and implement an appropriate model for development and operation of the proposed Tourism and Handicraft Information Centre.

(v) Hold an open competition for the design of the Centre.

86. The performance of this subcomponent is Moderately Satisfactory.

87. Subcomponent 2C – Expanding commercial horticulture (IDA Allocation: US$3.90 million). The project seeks to:

(i) Transform strategic areas in Lesotho into major producers and exporters of early variety tree crops by demonstrating that commercial deciduous fruit production is competitive and sustainable.

(ii) Improve livelihoods of rural farmers through the production, export and processing of high value tree crops.

(iii) Facilitate the shift from reliance on maize as the main source of income to a more diversified cropping structure.

(iv) Develop a competitive value chain for tree crops including: a. Sales of fresh produce in local and export markets; b. Juicing, canning and drying facilities for products of Grade 3 and lower

quality; and c. Food processing industry based on derivatives from tree crops.

88. Progress: Since the start of Second Phase of the Project, the following has been achieved:

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(i) Fully operationalized the Likhothola Fruit Farm Company (LFFC) as a commercial block farm with long-term land lease and corporate members operating the LFFC as a single corporate entity

(ii) Upgraded LFFC’s field operations to GLOBAL GAP standards(iii) Upgraded Mahobong and Qoqolosing pilot sites to GLOBAL GAP standards, and the

PMU has taken full ownership of the two sites in preparation for transforming the sites to demonstration and training facility

(iv) Identified, organized and implemented two additional commercial orchards in Mahobong and Likletlane

(v) Completed extensive on-farm tree husbandry training

89. The Mahobong rollout (Likhothola Fruit Farm Company – LFFC) The drought and water shortage had dramatic impact on fruit productivity. While the project did not incur loss of maturing trees, final sales figures are expected to be negligible. LFFC is anticipated to be GLOBAL GAP certified by late February 2016 making the orchard eligible to export to RSA and EU. All pruning, re-cabling, and netting repair activities are completed, and the installation of a temporary packhouse is also completed, but is not in use due to limited harvestable crop. The packhouse is temporarily being used as a training room. 90. Mahobong and Qoqolosing Pilot Sites: All repairs and maintenance of netting and irrigation infrastructure are completed, with all technical requirements for GLOBAL GAP certification also completed. Both sites are expected to be audited and GLOBAL GAP certified by the end of February 2016. Transfer of site ownership to the PMU has been completed, and as a result the pilot sites will now be transformed into a demonstration and training site during 2016. As with LFFC, the drought impacted crop yields, and final revenue figures are expected to be negligible. However, no tree loss was experienced.

91. New Sites: 16,639 plum, pear and apple seedlings were planted on an 11.23 hectare area in the new Mahobong commercial orchard. Similarly, 16,307 peach, plum, pear and apple seedlings were planted on an 11 hectare area in Likhetlane commercial orchard. Installation of netting poles and laying of irrigation lines are completed but installation of pumps and water access lines were not completed when the drought struck. The combination of extreme heat (in the absence of overhead netting, which could not be installed until the establishment of irrigation system was completed) and lack of water availability resulted in notable seedling loss. At the Mahobong site, seedling loss rate was 47%, while at Likhetlane damage was less severe (41.7%). 92. The seedling replacement cost at Mahobong is expected to be approximately USD $20,000, while the replacement cost at Likhetlane is anticipated to be about $16,500. Data on less drought resilient rootstock has been noted and will be taken out of the list of seedlings to be order for replanting. The irrigation system and overhead netting is expected to be completed by end of April 2016.

93. Deciduous Fruit Nursery: Deciduous fruit nursery expert was engaged at the end of 2015 to identify and training Basotho nurserymen. Three qualified nurserymen were

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identified and the first round of training was completed. In conjunction, the nursery expert in collaboration with the Ministry of Forestry conducted initial scoping of possible nursery sites in Lesotho. The pilot site will consist of a small 4,000 seedling propagation facility where training and capacity building of selected nurserymen is expected to take place following the 2015/16 harvest season. In addition, site selection of a commercial nursery with a capacity to handle 40,000 seedlings is already underway, and is expected to have land preparation activities take place during the winter of 2016.

94. Way Forward: The following activities are anticipated going forward:

(i) LFFC:a. Identify potential partner to undertake crop handling and marketing for

markets in RSA and a trial sales in EU marketsb. Continue plant husbandry training with additional emphasis on thinning,

trimming and harvesting techniquesc. Conduct training on post-harvest handling in the temporary packhouse with

the view on expanding the handling facility with potential partner(s)d. Implement the Community Development Fund to support social

development of the target areae. Explore possibility of developing on-farm commercial beekeeping/honey

production

(ii) Mahobong and Qoqolosing Pilot Sites: a. Transform pilot sites to demonstration and training siteb. Prepare training material based on documentation collected from existing

and past training activityc. Remove non-performing trees and replace with new rootstock to be piloted

for suitabilityd. Initiate on-site training activity

(iii) New Commercial Sites:a. Complete installation of irrigation system, netting, and fencingb. Reevaluate seedling losses to determine the final loss countc. Order new seedlings taking into account replacement of less drought

resistant rootstockd. Intensive training in tree husbandry practicese. Installation of office, stores and storage shed in anticipation of GLOBAL GAP

certification

(iv) Marketing and Other Support Activities:a. Identify potential partner for crop handling and marketing into markets in

RSA and trials in EU marketsb. Develop and implement investment promotion and marketing plan to attract

private sector investors in commercial orchard and packhouse investmentsc. Implement “Buy Lesotho” branding strategy for 2016/17 season

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d. Develop and implement capacity building plan for expansion of commercial horticulture

e. Finalize negotiations with GoL to repair and operationalize deep-well drill, and to establish wells at each of the project sites. In addition, establish a reservoir to ensure water reserves to meet minimal watering required for established orchards

95. Coordination with Various Initiatives: The mission met with the Ministry of Agriculture and Food Security to coordinate support activities to all of the project sites. The mission also discussed the need to explore the introduction of integrated pest management strategies to help reduce reliance on imported chemicals and to help improve the quality and marketability of crops. Discussions were also held with the Ministry of Forestry to explore collaboration for identifying and developing both the pilot and commercial deciduous fruit nursery.

96. Despite the drought and poor crop production, the performance of this subcomponent is Satisfactory 97. Next Steps:

(i) Implement the detailed action plan developed for this component.

98. Subcomponent 2D – Lesotho Enterprise Assistance Program (LEAP) (IDA Allocation: US$ 0.47 million). The LEAP matching grant scheme was designed to help strengthen business capacity of the private firms, mostly Basotho-owned MSMEs, as well as their representative organizations through provision of financial and technical assistance to buy business development services with the aim of increasing their competitiveness. The Program was designed to provide local MSMEs with know-how and services to increase their efficiency, productivity and access to new markets.

99. As of December 31, 2015, the scheme had approved 110 applications from companies (employing a total of 794 people) and 9 from associations (with 249 total members). However, at the current rate of disbursement, only a third of the LEAP funds will be utilized by the end of the 5-year project. In contrast to many of the other project components, LEAP disbursements are proceeding more slowly than expected. Out of a total budget of US$ 750,000, as at 31st December 2015, US$ 163,449 has been approved, and US$ 99,449 has actually been disbursed. The average approved grant size is only US$ 1,374 per application4.

100. This lower rate of approval and disbursement appears to be explained by three main factors: (i) an unfavorable business environment during 2014 and 2015 causing risk aversion by businesses to investing5; (ii) the relatively narrow criteria for eligible activities (which are currently limited to consulting services, travel, and marketing activities such as 4 US$ 163,449 divided by 119 approved applications.5 Activities under LEAP require a 20 percent contribution from firms, while 80 percent is provided as a grant from the Project.

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the design of websites and signboards); (iii) typical LEAP recipients are micro and small enterprises with an annual turnover of less than LSL 200,000 (around US$ 10,000) 6—hence the size of grants is constrained by this small financial size.

101. It should also be noted that only one of the 119 approved applications have been for agribusinesses. The LEAP Operations Manual mentions that US$100,000 is earmarked for the horticulture industry. But so far only one grant has been for the Nkhaketse Malere Vegetables Association, while all others have been for tourism businesses, manufacturing, and other services. One key reason for this is that there is a parallel matching grant program for horticulture in Lesotho under the World Bank-financed Smallholder Agriculture Development Project (SADP).

102. LEAP project officers themselves have been actively promoting the program to firms and encouraging applications. Project officers are subject to KPIs of three approved applications per week, and at least one disbursement. The LEAP team has also been speeding up their disbursement rate by lessening the contract period (the period specified in the grant approval by which disbursement must occur), and doing follow-up work to check and problem-solve on implementation.

103. The MTR prepared by the Government makes a series of recommendations. These are: the strengthening of diagnostics and mentoring for SMEs, especially in priority sectors; the broadening of eligible activities to include capital support; the reintegration of the USD $100,000 earmarked for horticulture to the pool of LEAP funds; continued support for PPD7; increased publicity of the program; eligibility for works under the Star Grading program; and reviewed job descriptions for LEAP staff to focus on priority sectors such as tourism and commercial horticulture8.

104. The World Bank team concurs with these recommendations, and would propose to develop them further as follows:

(i) Use of LEAP grants for product improvement, not only marketing.

105. It is notable that LEAP has hitherto been focusing predominantly on marketing activities (e.g. website design, signboards, travel to trade fairs, etc) with far fewer devoted to product improvement and price consulting. The gains to product improvement can be witnessed in the handicraft sector where a consultant has been working intensively to mentor individual artisans and has brought in product designers. This model has achieved several big ‘wins’ for handicraft producers (e.g. connecting them with buyers for J.Crew and West Elm who have placed large orders)—see Component 2B. Essentially the consultant has been acting as a ‘meta-entrepreneur’ to choreograph the strategy and operations of various producers.

6 In the PSC Project, firms with an annual turnover of LSL 200,000 to 500,000 are considered medium size; and firms with annual turnover of LSL 500,000 are considered large.7 Support to business associations, such as LHHA, Lesotho Mountain Crafts, and Berea Business Forum.8 A further recommendation that LEAP is revised to include alternative (non-grant) financing has not been developed more fully, and is thus not considered an immediate priority at this stage.

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106. In principle a similar approach could be taken for other priority sectors in Lesotho. The horticulture component of the project (Component 2C) has procured an advisor and a farm management company; but there is currently no senior tourism advisor/consultant for tourism firms. Key gaps in the sector could potentially be addressed through this mentorship in combination with LEAP grants.

107. Where product enhancements are identified by the industry expert, their implementation could then be supported by LEAP grants. This implementation may include measures such as: adjustment of production processes; training of staff in specific activities; recruitment of a sales agent to maintain relationships with buyers (paid as a consultant collectively by multiple firms); etc. These activities are consistent with the existing LEAP Operations Manual, which envisages “in-factory improvement in quality; product re-design” (without yet implementing these activities in practice).

(i) Broaden LEAP eligibility criteria to include machinery & equipment.

108. Some of the product improvements, whether in handicrafts, tourism or horticulture, will require investment in machinery and equipment, rather than consultancy services and travel. For example, handicraft producers need to update their equipment (sewing machines, looms, mixing machines) in order to cope with larger orders, to produce with greater precision, and to meet changed product specifications. Tourism establishments will require goods purchases or small physical works in order to innovate in their products on offer. Many tourism businesses also currently lack a computer and network connection, so cannot take internet bookings even if they have a website on an external server. Currently none of these investments are eligible for LEAP support.

109. The mission suggests exploring the possibility of allowing the 20% matching contribution of businesses to be equipment and machinery.

(i) Consider targeting medium size firms (rather than focusing exclusively on micro and small firms)

110. As noted above, one of the constraining factors on disbursement is that LEAP has been targeting micro and small firms almost exclusively. While the LEAP Operations Manual caps the maximum grant at LSL 350,000, and anticipates that most grants will be under LSL 100,0009, the average grant size has actually been only one-fifth of that.

111. The LEAP team has also been privileging Basotho firms over foreign (e.g. foreign) firms. This preference for Basotho firms was not anticipated by the LEAP Operations Manual, except insofar as Basotho firms tend to be MSMEs, while foreign firms tend to be larger. The LEAP team are of the opinion that foreign firms need not benefit from a matching proportion as high as 80/20.

9 Using the 2013 Operations Manual exchange rate of LSL 10 to USD 1.

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112. Going forward, the LEAP team could also consider medium size firms, including those that are not owned by Basotho. Responding to concerns about grants being superfluous for medium firms, the grants could be potentially be targeted to encourage usages that have a clear job creation impact within Lesotho—for example, to finance the establishment by the firm of linkages with local suppliers or service providers (in place of those from outside Lesotho).

113. Next steps:

(i) Implement MTR Report recommendations: strengthen diagnostics and mentoring for SMEs, especially in priority sectors; continue support for PPD; and increase LEAP marketing; among others.

(ii) Pair a tourism consultant with tourism establishments to advise and encourage them to apply to LEAP.

(iii) Explore the possibility of allowing the 20% matching contribution of businesses to be equipment and machinery.

(iv) Increase targeting of medium-sized firms, particularly ones with growth potential.(v) Revise the LEAP Manual as needed.

114. The performance of this subcomponent is Moderately Satisfactory.

Component 3 -- Project Implementation Support (IDA Allocation: US$ 2.04 million). This component supports the costs of the Project Management Unit, including the Monitoring and Evaluation system, and the management and implementation of the Environment and Social Management Plans (ESMP).

115. Progress: The PMU is fully staffed and has been instrumental in facilitating the implementation of the project with various implementing agencies.

116. There have been six Project Steering Committee (PSC) meetings since project effectiveness. The project continues to present progress reports to representatives of the private sector, to solicit their feedback regularly, and to prepare a schedule of seminars with a focus on topics of interest to the private sector. This is done via workshops and seminars organized by the project and its partners. 117. During the mission the World Bank received a request from the Ministry of Development Planning to provide technical assistance for the investment climate reform agenda in Lesotho. It was agreed that support would continue to be provided on the Doing Business indicators where work is already taking place (or due to take place) in Lesotho: starting a business, dealing with construction permits, getting credit, resolving insolvency, and trading across borders (the latter likely to be supported through an IFC Advisory Services Project). It was agreed that technical assistance would be provided by the World Bank Group outside the scope of the PSCED-II Project.

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118. The World Bank would analyze Lesotho’s progress in the Doing Business indicators and identify short-term measures that could be taken before May 2016, when data collection for Doing Business 2017 ends, as well as medium- and long-term measures. The mission team stressed that dissemination of changes and improved service to the business community were key in influencing improvements in the Doing Business indicators as data collection is partially survey-based. This means there may be time lags in improvement of Doing Business Indicators once actions are taken. It was agreed that both the priority actions and the longer-term agenda for the Government would be confirmed during an upcoming March mission.

119. In January 2016, the Project, in conjunction with the various implementing agencies, prepared a detailed Midterm Review report to guide the World Bank Group Midterm Review mission. The document reflects the views and recommendations of various stakeholders including program beneficiaries, implementing GoL Ministries and agencies and the PMU.

120. Development Partners. As part of the midterm review, the mission met with development partners such as UNDP, the EU and the US Embassy. The mission updated the development partners on the progress of the project and solicited views on partners’ priorities, the operating context, challenges and opportunities in Lesotho. 121. Project funding. Given the recent devaluation of the SDR, additional financing may be warranted. During the mission efforts were made to review planned activities and adjust them accordingly. The substance of all components, subcomponents, and major activities remains. Going forward, a more thorough review of activities and their associated costs is warranted, to prioritize those which directly contribute to the PDO, or are most likely to contribute to the PDO after project close. It was agreed that this would be addressed during the next supervision mission, and appropriate measures taken as needed.

122. Monitoring & Evaluation. During the mission the Project Results Framework was reviewed in light of December 2015 data.10 Changes were made to reflect Lesotho’s changing economic and political circumstances,11 to clarify the wording and descriptions of the indicators themselves, and to better capture the expected impact of project activities. Annex 2 shows the revised Results Framework.

123. Next steps:

10 Since updated data was not available when the last Implementation Status Report was completed (mid-December 2015), progress towards project development objectives was judged to be satisfactory.11 The February 2016 IMF Article IV projects Lesotho’s growth to decrease from 4.5 percent per year (average for 2010-2014) to 2.5% per year, largely due to the slowdown of growth in South Africa, the imminent decline of SACU revenues, the recent disinvestments in manufacturing, and the severe drought in Lesotho.

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(i) For the indicator related to female beneficiaries, request the Credit Bureau (Compuscan) to begin disaggregating loan records by gender. This will enable accurate measurement of the number of female beneficiaries.

124. Procurement: The mission reviewed the progress on the procurement plan update of 17 November 2015. All goods procurements had either been completed or were under way. Under works, the construction of the tourism center had been deferred. Non consulting services awaited completion of the associated consultant assignments. Under consultancy assignments only the technical assistance for review and drafting of insolvency laws and regulations was pending completion with all other assignments either ongoing or completed. The PMU was reminded to ensure that consultants submit their deliverables within the agreed time periods and to the agreed standards in order that dependent activities can commence.

125. A post procurement review of four contracts of valued at US$777,352.56 was conducted. Recommendations included reminding the PMU that all Direct Contracts are subject to the World Bank’s prior review even for procurements done under Shopping procedures. In addition payments are to be made within 28 days of receipt of invoices and any deviations must be documented.

126. Next steps:

(i) PMU to ensure that consultants submit their deliverables within the agreed time periods and to the agreed standards.

(ii) PPR recommendations on Direct Contracts and payments to be implemented

127. The rating for Procurement is Moderately Satisfactory whilst the implementing agency risk rating is Substantial.

128. Financial Management: The project presented progress on financial management and the mission noted that the arrangements are still adequate. On reviewing the expenditures, the mission noted that Component 1, 2 and 3 have spent 26%, 39% and 68% respectively to date. With two years into implementation of the five year project, it would be expected that the components have burnt 40% of the allocation. For Component 1, the slow burn rate is related to the nature of the activities (policy review, drafting of legislations and awareness programs) that tend to take a long time to complete. The burn rate for Component 2 is assessed to be adequate. The mission discussed the concerns on the high burn rate for Component 3 and noted that: (i) the budget allocations for various components and subcomponents in the Project Appraisal Document were likely not realistic; and (ii) some of the expenses currently under component 3 would be more appropriate under other components. 129. The mission agreed that (i) an exercise would be undertaken to correctly allocate the expenses; and (ii) budgets would be revisited to report on the revised figures. Following the exercise and sound justification, the mission would decide on the need for reallocation of funds amongst the components.

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130. Next steps:

(i) PMU to prepare the revised budgets by component.

131. The Financial Management ISR rating will be maintained on Moderately Satisfactory and the risk as Moderate.

132. Safeguards. Environmental and social safeguards were assessed during the Midterm Review, as per the Environment and Social Management Framework agreed upon during Project Preparation.

133. Social Safeguards. The mission was informed of the participatory process by which land contributions occurred for the demonstration orchard and expects to receive supporting documentation detailing the community meetings and the overall process. Shareholders’ contribution remains in families and cannot be sold or otherwise alienated. During the site visit to the orchard, the mission was informed that of the original nine shareholders, four have designated other family members as representatives (two of which are women). According to one of the representatives met at the site, designation of a representative occurs within families and does not require ratification by other shareholders.

134. The process of the establishment of the demonstration orchard was described as an incremental one in which the initial community meetings were held, there was a pilot, the enterprise was established as an association, and then finally established as a company. The Land Act of 2010 was a key factor as it allows for 99 year leases for land for agricultural purposes.

135. During the site visit, information on appropriate personal protective equipment (PPE) was clearly posted in graphical form. More detailed information was posted accompanying in Sesotho and English.

136. Gender and Social Impact. Of the five shareholders currently present on the orchard, three are women, and as noted above two of the four representatives are women. Nine of the 15 farm employees are women. In discussions at the site, two of the women noted the importance of the training they are receiving and how this training (e.g., pruning) was a subject of interest by other community members who are not shareholders. The women also noted overcoming skepticism expressed to them as to whether or not such fruit was truly grown in Lesotho.

137. The mission also visited a craft center which had received training support on product development. The center displays and sells finished crafts, primarily of wool and mohair; it employs local women, many with disabilities. During the site visit, a range of value-added mohair processing could be seen: carding, spinning, weaving, dyeing.

138. Next steps:

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(i) The mission agreed with the PMU that the documentation on the process by which community members contributed land to the demonstration orchard would be sent to the team.

139. Environmental Safeguards: The World Bank Safeguard policies and the Lesotho Environment Act of 2008 have been adopted as the standards for implementing environmental aspects of the Private Sector Competitiveness and Economic Diversification Project. The safeguards team visited the pilot fruit farms and the farm area which is under commercial deciduous fruit production located in the Mohobong village, in Leribe. The farm areas which are under commercial deciduous production include: (i) the Likhothola Fruit Farm ~ 10.7 ha which currently is in the process of being GLOBAL GAP certified, (ii) the Mahobong II ~ 11.23 ha, and (iii) the Likhetlane Fruit Farm ~ 11 ha, both of which are newly established farming areas (Total hectares = 32.93). The mission also received a status report from the GLOBAL GAP consultant about the progress made in implementing, monitoring and reporting of the mitigation measures described in the Environmental and Social Management Frameworks for the horticulture and tourism information center components. 140. Overall, the implementation of the PSCEDP II is in compliance with the World Bank Safeguard policies and with the Lesotho’s regulatory framework for environmental management. The commercial fruit orchards are currently operating, managed and certified following the GLOBAL GAP principles and standards and the fruit orchards are certified to allow for international export of Grade I fruit which could subsequently sell at a premium price. By adhering to the GLOGAL GAP principles and standards, the project is subjected to a rigorous screening and monitoring process for environmental and natural resources management risks which ensures simultaneous compliance with World Bank safeguard policies, national environmental laws and regulations, and sustainable environmental and natural resources management practices at the farm level. Therefore, the overall environmental performance of the project is satisfactory with a strong potential for generating positive environmental impacts in a long term.

141. Component 1 – Improving the Business Climate: Currently, under the Lesotho Environmental Act (2008) most of the new Small and Medium Enterprises (SMEs) are subjected to environmental and health assessments prior to registering the business or issuance of the construction or industrial licenses regardless of the potential environmental or public health risks that the business would pose onto the environment. This practice imposes high compliance costs and regulatory burden for SMEs and imposes a high transaction cost for the Ministry of Tourism, Environment and Culture (MTEC) whose capacity to carry out the assessment for all SMEs is inadequate. The Project aims to support streamlining the EIA licensing process by introducing a risk-based screening process that will categorize businesses according to the level of environmental risks that they will likely pose onto the environment and appropriate safeguard instruments will be prepared according to the level of risk identified.

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142. Progress: An EIA consultant has been procured to carry out a scoping study and make recommendations that will introduce new and simplified procedures for obtaining EIA licenses at the Department of Environment. The consultant has produced a diagnostic report that will be submitted to the Bank for review.

143. Component 2B: Supporting the tourism sector-- tourism information center. The Mission was informed that the site location for the construction of the Tourism Information Center has been identified. However, construction of the facility has not commenced yet. A standalone Environmental and Social Management Framework (ESMF) was prepared and disclosed during preparation of the project describing the environmental and social mitigation measures applicable during the design, construction and operational phases of the facilities. The mission recommends that the PMU should ensure that the construction related mitigation measures are included in the tender documents to be used for potential bidders.

144. Component 2C. Commercial Horticulture: Environmental, Health and Safety (EHS) Performance. 145. Resource Efficiency : The mission observed that the fruit farms operated as a fully irrigated farm throughout the year with rainfall as supplemental source of water. The farms have deployed drip technology to optimize water efficiency in the irrigation system and extracts water from a river located within the vicinity of the fruit farms while a reservoir serves as a water supply for the pilot farms. The mission was informed that the water extraction needs from the river for the 32.93 ha of orchard is consistent with water availability and the river’s ecological flow.

146. Solid waste : Currently solid waste from the fruit farms follow GLOBAL GAP Safety Standard requirements and are managed according to a water and pollution protocol implemented by Agri-IQ.

147. Waste water : Wastewater effluent from pack house and office are discharged to seepage lines, and pit latrines are available for field workers including hand wash basins. The mission observed that there are no significant discharges of wastewater from the project sites.

148. Air emissions : No significant air emissions are expected from the project. The project is connected to the public electricity grid and will relies on it for its operations at the pack house and storage cooling facilities.

149. Pesticide use and management : The fruit farms rely on small number of chemical products to control fruit pests, disease and weeds. Orchards are monitored and control decisions are based on field infestation, economical level of control and on prescriptions by a qualified expert following the GLOBAL GAP procedures and standards. The farms do not use pesticides that fall in the WHO pesticides hard classification system class I (a) or I (b).

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150. Hazardous material management and safety : Agro-chemical storage facilities are available on farm and are consistent with WBG Environmental Health and Safety Guidelines and GLOBAL GAP requirements. The mission observed that the storage facilities are protected against theft with the use of locks and clear warning signs have been placed inside the facilities to guide on safety use and handling of the chemicals. The mission was informed that adequate training has been provided to both workers handling pesticides and those who are working within the proximity of the agro-chemicals. The facilities are equipped for dealing with spillages and the appropriate personal protective equipment (PPE) is available when chemicals are used.

151. Next steps.

(i) The mission recommends the GLOBAL GAP self-assessment be submitted to the World Bank regularly, and that the requisite local capacity for compliance with GLOBAL GAP standards be strengthened through a capacity building program for local trainers and auditors.

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Annex 1: Matrix of Recommended Actions

No. Agreed Action Responsibility Due Date

Subcomponent 1A: Business regulation, industrial licensing & construction permitsBusiness Regulation and Industrial Licensing1. Finish the draft Business Licensing and

Registration Bill and regulations.PMU/ OBFC June 2016

2. Complete initial report on existing legal and regulatory framework and institutional arrangements for EIA, existing procedures, and mandate of certified professionals, benchmarked with international practices and prepare recommendations for improvement.

PMU March 30, 2016

3. OBFC should obtain an indicative cost estimate for implementing the New Zealand licensing module

OBFC March 15, 2016

4. Expedite the development of the e-receipts capability at OBFC

OBFC and PMU March 30, 2016

Construction Permits5 Complete legal review for the

construction permit reform and finalise recommendations with legal committee officers from all concerned Departments.

PMU and MCC May 30, 2016

6 Complete the implementation of the CP reforms recommendations with regards to: (1) risk based approach, (2) design and redesign of various operational forms, (3) procedure manual, and M&E framework.

MCC June 30, 2016

7 Ensure the effective set up of the new units within the department of planning

MCC ongoing

8 Finalize EIA report – and discuss recommendations with stakeholders

MCC and PMU May 30, 2016

9. Finalize Master Plan proposal. Follow up with WBG/EU urban transport project to align projects.

PMU April 30, 2016

10. Finalize procurement of the hardware infrastructure as well as the Maseru based ICT firm.

MCC, MoC, WB April 30, 2016

11. Procure technology training required PMU June 30, 201631

for the success and sustainability of the CP automation reform.

12. Determine when MCC will be moving offices and plan accordingly.

PMU February 28, 2016

13. Develop a time-bound action plan for the CP reform project

MCC and PMU February 28, 2016

Subcomponent 1B: Improving access to financeCredit Information Bureau14. Initiate the awareness campaign and

report on activities executed and indicators (Bankworld Inc)

PMU and CBL April 2016

15 Install the electronic platform and start collecting data from both the credit bureau and the credit providers. Start generating the reports outlined in the documentation provided.

Bankworld Inc April 2016

16 Produce evidence of the training to the examiners received on supervision

CBL and Bankworld Inc

June 2016

17 Produce evidence of the training performed on financial institutions and other credit providers on the use of credit reporting in their business.

Bankworld Inc Aug 2016

18 Report periodically on the indicators agreed to follow up the performance of the credit system in Lesotho

Credit Bureau and Bankworld Inc

Quarterly 2016

Collateral Registry19. MoF to review foundational policy

choices for Collateral RegistryMoF, CBL March 2016

20. Central Bank and MoF to confirm Central Bank as institutional location of Collateral Registry;

MoF, CBL March 2016

21. Technical Working Group to develop action plan with timelines for:a. Submission by Ministry of Finance

of Policy Paper to Cabinet for endorsement

b. Submission by Ministry of Finance of draft Bill to Cabinet for sign-off

c. Submission of Bill to Parliament for enactment

d. Education of public on the Secured Transactions Law

Technical Working Group

March 2016

22. Secure Cabinet approval of policy paper to commence drafting of new law or amendment of existing law

MoF, CBL March 2016

23. Stakeholder consultations on CBL and PMU May, 2016

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foundational policy framework for Collateral Registry and on draft bill

24. Secure Cabinet approval of draft Secured Transactions Law

MoF, CBL, PMU June, 2016

Finance Leasing25. Complete market survey to understand

key constraints for development of leasing market

Technical Working Group, PMU

May 2016

26. Develop action plan and schedule of possible incentives to stimulate leasing industry

TWG, MoF July 2016

27. Arrange consultations between key stakeholders and Ministry of Finance on possible incentives to encourage development of leasing market.

TWG, MoF, Stakeholders, PMU

August 2016

Insolvency Reform28 Master’s Office to draft Cabinet

Memorandum for approval of insolvency reform and circulate to Ministries of Trade, Labor, Finance and Law

Master’s Office of the High Court

Drafted by February 25 and comments received by March 7, 2016

29. Master’s Office to submit proposal regarding capacity building

PMU and WB March 24, 2016

30. Master’s Office to provide policy advice to Parliamentary Counsel of the Attorney General’s Office regarding drafting the law and associated secondary regulations

Master’s Office of the High Court

March 24, 2016

31. Parliamentary Counsel to complete first draft of Insolvency Bill

Parliamentary Counsel of AGO

June 3, 2016

32. Comments from drafting team on first draft of Insolvency Bill and regulations

MTI, Master’s Office, WB, PMU

June 20, 2016

33. Revised Draft Insolvency Bill and regulations

Parliamentary Counsel of AGO

July 25, 2016

34. Comments from drafting team on second draft of Insolvency Bill and regulations

MTI, Master’s Office, WB, Consultant

August 5, 2016

35. Circulation of draft Insolvency Bill and regulations to all stakeholders

Master’s Office August 8, 2016

36. Stakeholder Workshop to discuss Insolvency Bill and regulations

Master’s Office, MTI, WB, Consultant

September 12, 2016

37. Final draft Insolvency Bill Master’s Office, Parliamentary Counsel of AGO

October 10, 2016

Subcomponent 2A: Supporting investment promotion and increasing linkages38. Finalize the ToR for in-depth WB and PMU February 29,

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organisational review of LNDC Industrial Estates division and advertise EoI.

2016

39. Undertake Mauritius study tour LNDC and PMU July 31, 201640. Recruit investment incentives

consultantsLNDC April 30 , 2016

41. Recruit investment linkages consultant LNDC April 30,201642. Recruit consultant for the automotive

and footwear mini value chainsLNDC April 30, 2016

43. Conduct a preliminary ICT Capacity Assessment of the LNDC investor information management systems

WBG October 31, 2016

Subcomponent 2B: Supporting the tourism sectorStatistics44 Tourism statistics consultant to

facilitate international inbound tourism survey and development of a tourism barometer.

MTEC and PMU June 2016

Star grading45. Provide full set of recommendations of

grading program assessment to LTDC and solicit feedback to determine which will be incorporated into revamped system

PMU and LTDC March 10, 2016

46. Contract consultant that can help facilitate review of minimum requirements and criteria for the six accommodations categories. This should include a harmonization between the licensing and grading systems.

PMU April 15, 2016

47. After the review, disseminate new standards and allow establishments a month to provide comments. Then hold a workshop to validate and educate the sector on the new standards.

PMU and LTDC April-May, 2016

48. Provide refresher training for assessors to familiarize them with program changes.

PMU and LTDC June, 2016

49. Use consultant indicated in (ii) to assist and build capacity of LTDC with hand-holding exercise of establishments interested in joining program

PMU and LTDC July, 2016

50. Contract firm to provide continued training courses for participating

PMU and LTDC July, 2016

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establishmentsHandicrafts and Tourism Information Center51 Consider allocating additional

resources to CIEP to strengthen the crafts value chain, and design an exit strategy for the handicraft program.

PMU and WB April 2016

52 Promote the Creative Industries Empowerment Program (CIEP)

BEDCO, PMU, MTEC ongoing

53 Consider providing a Start Up Package for agents to help them through the early stages of starting their agent business.

PMU and WB May 2016

54 Develop and implement an appropriate model for development and operation of the Tourism and Handicraft Information Centre.

MTEC March 2016

55 Hold an open competition for the design of the Centre

MTEC and PMU August 2016

Subcomponent 2C: Expanding commercial horticulture56. Implement the detailed action plan

developed for this component.PMU February -

September , 2016Subcomponent 2D: Lesotho Enterprise Assistance Project57 Implement MTR Report

recommendations: strengthen diagnostics and mentoring for SMEs, especially in priority sectors; continue support for PPD; and increase LEAP marketing; among others.

PMU ongoing

58 Pair a tourism consultant with tourism establishments to advise and encourage them to apply to LEAP

PMU and MTEC May 2016

59 Explore the possibility of allowing the 20% matching contribution of businesses to be equipment and machinery

PMU and World Bank

March 2016

60 Increase targeting of medium-sized firm, particularly those with growth potential.

PMU ongoing

61 Revise the LEAP Manual as needed PMU April 2016Component 3: Project Implementation SupportMonitoring & Evaluation62 Request Compuscan to begin

disaggregating records by genderCompuscan, PMU ongoing

Procurement

63 PMU to ensure that consultants submit PMU Immediate

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their deliverables within the agreed time periods and to the agreed standards

64 PPR recommendations on Direct Contracts and payments to be implemented

PMU Immediate

Financial Management65 PMU to prepare the revised budgets by

componentPMU 7 March, 2016

Social Safeguards66 Provide documentation to World Bank

on community meetings and the process by which demonstration orchard was established using shareholders’ land contributions

PMU March 31, 2016

Environmental Safeguards67 Submit the GLOBAL GAP self-

assessment report to the WB and train the requisite local capacity for compliance with GLOBAL GAP standards

PMU As needed by GLOBAL GAP

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Annex 2. Results and Monitoring Framework

Project Development Objective (PDO): To contribute to the development of selected non-textile sectors resulting in increased private sector investment, firm growth and job creation.

PDO Level Results Indicators*

Unit of Measure Baseline

Cumulative Values (thru Dec.31)

Frequency

Data Source/

Methodology

Responsibility for Data Collection

Description (indicator definition, etc.)

Actual Target

YR 1(2014)

YR 2(2015)

YR3(2016)

YR 4(2017

)

YR5(2018)

Indicator One:*

Number of non-textile investment projects facilitated over the 5-year project duration.

Number 0 3 3 6 Twice during project

implementation

LNDC PMU M&E Specialist

This indicator measures the number of non-textile investment projects facilitated over the 5-year project duration.

Indicator Two:*

Number of jobs in selected non-textile sectors

Number 6,058 5,816 6,906 6,967 7,088 Twice during project

implementation

LNDC, MTEC and

Surveys conducted

for the horticulture

sub-component

PMU M&E Specialist

Jobs will be defined as full-time, part time and seasonal workers. This will include people directly employed by the project (not consultants, not PMU, but everybody else), jobs created in new foreign and domestic non-textile firms attracted in the industrial estates, and jobs created under the horticulture and tourism sub-components.

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Indicator Three:* Increase in domestic enterprises registered and operational in non-textile sectors

Percentage

11,402 39% 52% 55% 60% Twice during project

implementation

OBFC MTICM, PMU M&E

Specialist, LNDC.

This is an indicator for components 1 and 2. It includes both companies and sole traders.

Core Indicator One:

Number of direct project beneficiaries

Number 0 5,105 119,809

119,850 120,000 Annual OBFC, CBL, LNDC, MTEC, Project M&E.

PMU M&E Specialist

This will include people directly employed by the project (not consultants, not PMU, but everybody else) , all the enterprises that benefit from streamlined business regulations, SMEs (manager and firm employees) that are able to access loans with movable collateral, individuals that are covered under the credit bureau, artisans, hotel establishments benefiting from the tourism sub-component and the small holder farmers benefiting under commercial horticulture, and LEAP beneficiaries.

Of which female Percentage

0 19% 3% 15% 30% This indicator to be tracked once Home Affairs has provided Credit Bureau with data to disaggregate Credit Bureau records by gender.

Intermediate Result (Component One): Business Environment

Intermediate Result indicator One:

Number 106 106 106 106 85 Twice during

Doing Business

PMU M&E This indicator does not include acquiring a fixed

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Number of days required to obtain a construction permit from the Maseru City Council

project implementation

Report, MCC, Project M&E

Specialist line which is included in the process of receiving a construction permit in the Doing Business indicator methodology.

Intermediate Result indicator Two:

Percentage of adult population covered by the Credit Bureau

Percentage

0% 0% 1.4% 2.5% 5% Twice during project implementation

Doing Business Report, CBL, Project M&E

PMU M&E Specialist

As per Doing Business methodology.

Intermediate Result (Component Two): Supporting Economic Diversification

Intermediate Result indicator Three:

Number of registered lodging operations under the star grading system.

Number 7 12 14 15 40 Twice during project implementation

LTDC, LHAA, Project M&E

PMU M&E Specialist

This indicator measures the fact that registered lodging operations will be adhering to the Star Grading System of accommodations that will be rolled out during the project.

Intermediate Result indicator Four:

Tourism information center established and operational

Yes/No No No No Yes Post Yr3 of Project Implementation

MTEC, PMU PMU M&E Specialist

Intermediate Result indicator Five:

Maloti 38,606 122,935

300,000 600,000

1,000,000

Annual Field reporting and data

PMU (Horticulture Manager)

This indicator is measured in real terms and not nominal terms. It will be controlled for

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Revenue generated by commercial horticulture farms.

collection system

w/Farm Management Company

inflation. It covers specifically the area under the Likhothola Fruit Farm Company.

Baseline revenue is derived from the sale of maize from the equivalent total area. Year 1 of the harvest refers to the 2014-2015 season. Year 2 to 2015-2016. Year 3 to 2016-2017, Year 4 to 2017-2018, and Year 5 to 2018-2019.

Intermediate Result indicator Six:

Percentage increase in sales of LEAP supported firms

Percentage

0% 15% 17% 10% Annual LEAP Unit PMU M&E Specialist

This indicator will track the performance of the firms starting one year after they receive support. It is not cumulative.

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Annex 3: List of Individuals Consulted during the Midterm Review Mission

Second Private Sector Competitiveness and Economic Diversification ProjectWorld Bank Mission

Participant Title Organization

1 Honourable J Setipa Honourable Minister Ministry of Trade and Industry

2Mr M Mokoena-Thakhisi Principal Secretary Ministry of Trade and Industry

3 Mr T Aumane Principal Secretary Ministry of Development Planning

4 Mrs M Rapapa Principal Secretary Ministry of Finance

5Dr M Mofammere Principal Secretary

Ministry of Small Business Development, Cooperatives and Marketing

6 Ms D Chaoana Principal SecretaryMinistry of Forestry, Range and Soil Conservation

7 Mrs L Hanyane Deputy Principal SecretaryMinistry of Agriculture and Food Security

8Mr M Maqutu Chief Executive Officer

Lesotho Tourism Development Corporation

9 Mr K Leisanyane Chief Executive OfficerLesotho National Development Corporation

10 Mrs M Lekoetje Commissioner of Cooperatives

Ministry of Small Business Development, Cooperatives and Marketing

11 Mrs M Mahlapha Chief Executive Officer (ai)Basotho Enterprise Development Corporation

12 Mrs M Phaila Town Clerk Maseru City Council

13 Dr L Molahlehi Director of CropsMinistry of Agriculture and food Security

14 Ms T Moorosi Principal Crop Production OfficerMinistry of Agriculture and food Security

15 Mrs M Mojela Director of Industry Ministry of Trade and Industry

16 Mrs M Motebang Director of Trade Ministry of Trade and Industry

17 Ms L Lebone Chief Legal Officer Ministry of Trade and Industry

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18 Ms M Lehohla Director of OBFC (ai) Ministry of Trade and Industry

19 Mr P Phomane Private Secretary - Hon. Minister Ministry of Trade and Industry

20 Ms F MotoaDeputy Registrar of Companies - OBFC Ministry of Trade and Industry

21 Mr M MonahengDeputy Registrar of Companies - OBFC Ministry of Trade and Industry

22 Mr M Rabolinyane Director of Standards Ministry of Trade and Industry

23 Ms T Tsekoa Chief Trade Officer Ministry of Trade and Industry

24 Mr N Lesenya Assistant Economic Planner Ministry of Trade and Industry

25 Ms M Masupha Chief Industry Development Officer Ministry of Trade and Industry

26 Mr S Maleke Licensing Manager Ministry of Trade and Industry

27 Mr R Motopi IT Manager Ministry of Trade and Industry

28 Mrs T ‘Mokela Deputy Principal Secretary Ministry of Development Planning

29 Mr R Motai Senior Economic Planner Ministry of Development Planning

30 Mrs P Mashoai Chief Economic Planner Ministry of Development Planning

31 Mr M Shale Senior Economic Planner Ministry of Development Planning

32 Mr C Mokone Senior Economic Planner Ministry of Development Planning

33 Ms M Ranyali Economic Planner Ministry of Development Planning

34 Mr F FolojengSenior Private Sector Development Officer Ministry of Finance

35 Ms M G Makenete Deputy Governor Central Bank of Lesotho

36 Mr M Mphaka Director of Supervision Central Bank of Lesotho

37 Mr B NoosiHead of Non-Bank Financial Institution Division Central Bank of Lesotho

38 Mr D Masupha Examiner /Analysts Central Bank of Lesotho

39 Mr N Moshoeshoe Examiner / Analysts Central Bank of Lesotho

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40 Dr R Rats’ele Director of RangeMinistry of Forestry, Range Soil Conservation

41 Mr M Mosola Assistant Economic PlannerMinistry of Forestry, Range Soil Conservation

42 Mrs M Selinyane Director of Tourism (ai)Ministry of Tourism, Environment and Culture

43 Mrs M Rametse Principal Licensing OfficerMinistry of Tourism, Environment and Culture

44 Ms M MorojeleLesotho Tourism Development Corporation

45 Mrs M Noosi Quality Assurance OfficerLesotho Tourism Development Corporation

46 Mrs M Bizabani FDI ManagerLesotho National Development Corporation

47 Mr R Lewaneka Projects OfficerLesotho National Development Corporation

48 Mr T Putsoa Property ManagerLesotho National Development Corporation

49 Mrs K Meko-Molapo Projects OfficerLesotho National Development Corporation

50 Ms M Makamane Projects OfficerLesotho National Development Corporation

51 Mr P SematlaneForeign Investment Promotion Officer

Lesotho National Development Corporation

52 Mrs M Latela Investment Services OfficerLesotho National Development Corporation

53 Mr M Khuele Investment Services OfficerLesotho National Development Corporation

54 Mr F Acero Investment Pran EconomistLesotho National Development Corporation

55 Mr K Phate Planning OfficerLesotho National Development Corporation

56 Mr S J Ts’ukulu IR ManagerLesotho National Development Corporation

57 Mr M Bennett Technical Advisor Ministry of Trade and Industry

58 T Mofelehetsi Procurement Manager PSC Project

59 M Nathane LEAP Manager PSC Project

60 T Mokhutšoane Finance Manager PSC Project

61 Ms A Menezes Senior PUT Sector Expert World Bank

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62 Mrs V Matiea Master of the High Court Law Law and Constitutional Affairs

63 Mrs M Vilakazi Deputy Master of the High Court Law Law and Constitutional Affairs

64 Mrs M Tau-Thabane Attorney Mofolo Tau-Thabane

65 Mrs N SekokotoanaSenior Assistant Parliamentary Counsel Law Law and Constitutional Affairs

66Ms L Hlasoa Deputy Principal Secretary

Ministry of Small Business Development, Cooperatives and Marketing

67 Mr L Makhate Director of MarketingMinistry of Small Business Development, Cooperatives and Marketing

68 Mr S Monaheng Chief Commercial OfficerMinistry of Small Business Development, Cooperatives and Marketing

69 Ms M Mohapeloa Senior Economic PlannerMinistry of Small Business Development, Cooperatives and Marketing

70 Mrs P LekauSenior Planner Development Control

Maseru City Council

71Mrs N Makara-Khatleli

Senior Planner Development ControlMaseru City Council

72 Mr M Setsábi IT Officer Maseru City Council

73 Mr D Kobayashi Political & Economic Officer US Embassy

74 Mr M Mofuoa Economic Specialist US Embassy

75 Mr J Torni European Union

76 Mr J Dos Santos Managing Director Vodacom Lesotho

77 Mr T NtaopaneExecutive HeadCorporate Affairs Vodacom Lesotho

78 Mr M BrownVodacom Foundation & Corporate Communications Manager Vodacom Lesotho

79 Mr S Phafane Immediate Past PresidentLesotho Chamber of Commerce and Industry

80 Mr B Molelle Youth PresidentLesotho Chamber of Commerce and Industry

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Annex 4: Project Disbursement Estimates (updated)

Quarter(FY is July 1st –

June 30th)Original (XDR) Actual (XDR) Revised (XDR)

Q3-FY-2014 0 411,589Q4-FY-2014 464,886 388,625Q1-FY-2015 249,046 409,200Q2-FY-2015 249,046 270,190Q3-FY-2015 249,046 429,676Q4-FY-2015 249,046 296,220Q1-FY-2016 456,584 642,705Q2-FY-2016 456,584 663,558Q3-FY-2016 456,584 588,430Q4-FY-2016 456,584 500,000Q1-FY-2017 456,584 500,000Q2-FY-2017 456,584 500,000Q3-FY-2017 456,584 500,000Q4-FY-2017 456,584 500,000Q1-FY-2018 547,901 400,000Q2-FY-2018 547,901 400,000Q3-FY-2018 547,901 400,000Q4-FY-2018 547,901 400,000Q1-FY-2019 348,664 400,000Q2-FY-2019 348,664 99,807Q3-FY-2019 348,664Q4-FY-2019 348,664

TOTAL 8,700,000 4,100,193 4,599,807

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