Public Disclosure Authorized AFRICA Lesotho Finance, Competitiveness and Innovation Global Practice IBRD/IDA Investment Project Financing FY 2014 Seq No: 10 ARCHIVED on 08-May-2018 ISR30476 Implementing Agencies: Ministry of Development Planning, Ministry of Trade and Industry Public Disclosure Authorized Key Dates Key Project Dates Bank Approval Date:31-Oct-2013 Planned Mid Term Review Date:29-Feb-2016 Original Closing Date:30-Apr-2019 Project Development Objectives Effectiveness Date:09-Jan-2014 Actual Mid-Term Review Date:08-Feb-2016 Revised Closing Date:30-Jun-2022 Public Disclosure Authorized Project Development Objective (from Project Appraisal Document) The 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. Has the Project Development Objective been changed since Board Approval of the Project Objective? Yes Board Approved Revised Project Development Objective (If project is formally restructured)phrpdodel To improve the business environment for firms, strengthen select government institutions, and further diversify the economy. Components Public Disclosure Authorized Name Improving the Business Environment:(Cost $5.13 M) Supporting Economic Diversification:(Cost $5.69 M) Project Implementation:(Cost $2.58 M) Overall Ratings Name Previous Rating Current Rating Progress towards achievement of PDO Satisfactory Satisfactory Overall Implementation Progress (IP) Satisfactory Satisfactory Overall Risk Rating Substantial Substantial 5/8/2018 Page 1 of 8
Implementation Status and Key Decisions COMPONENT 1: IMPROVING THE BUSINESS ENVIRONMENT The objective Component 1 is to reduce the time and cost associated with doing business, and increase access to finance. The four sub-components are (i) business registration and licensing; (ii) construction permit reform; (iii) access to finance; and (iv) trade facilitation and logistics. 1. Great progress on this component on utilizing ICT and e-government solutions and systems by beneficiary agencies and less progress on the regulatory framework. The first e-payment was launched at the OBFC in cooperation with Nedbank, the first hosting of e-government system in private cloud was launched by the One Stop Business Facilitation Center (OBFC) which improved overall speed and safety of systems and G2B services; 2. The first fully online e-submission of documents was launched by the Maseru City Council on the Online Construction Permit System; 3. The electronic Credit Bureau systems covers around 8% of the adult population in less than a year, which is above the SSA average of 7,1 % according to Doing Business 18 report; 4. 9 new ICT procurements are in progress, including the new project beneficiaries the Lesotho Revenue Authority (LRA), and the Office of the Parliamentary Council under the Ministry of Law; 5. Challenges - outstanding laws and regulations on Starting a Business, Getting Credit and Insolvency/Closing a Business; and the real functioning of the Financial Leasing market is still in progress; 6. Next Steps: continue upgrading ICT systems, while pushing for enactment of the outstanding business and financial laws and regulations; COMPONENT 2: SUPPORTING ECONOMIC DIVERSIFICATION Component 2 supports efforts to strengthen the competitiveness of new growth sectors and further diversify the economy. Activities under this component contribute to jobs in the horticulture and handicrafts sectors. They do this by supporting investment promotion and facilitating linkages to the local economy; strengthening the demand for and the quality of local handicrafts; supporting the construction and management of a Tourism and Handicraft Information Center; developing the fresh fruit value chain and leveraging the private sector to scale-up production; and helping firms access business development services, technology, and equipment. Progress on the activities in this component includes: Subcomponent (2A) Supporting investment promotion and increasing linkages to the local economy The LNDC internal reorganization is on, strategic review is on, ICT upgrade is in progress; The government has decided to reorganize existing internal departments to respond to the 3 main functions of the broad LNDC mandate: to create Investment Promotion Unit, SEZ Unit and Development Finance Unit. (Subcomponent 2B) Tourism and Handicrafts Already 22 new establishments are graded, and Tripadviser and other global booking sites are using the new grading for Lesotho lodging establishments; In parallel the AfDB started a program under the bank PMU on tourism policy and regulation, including LTDC restructuring and both programs will be complementarily; Sensitization workshops for grading system continue to be undertaken in different parts of the country. Awareness campaign program has also been prepared to further broaden publicity of the star grading system. Implementation of the program is going to start in April, 2018. On the Tourism Information and Handicraft Center, the design of the center is in its final stage, Environment and Social Impact Assessment was submitted to the World Bank. On handicrafts, the Second Phase of CIEP is underway, on hiring a firm to (i) support the strategy of companies/associations with commercial acumen and growth potential, and (ii) provide assistance to associations with skills yet less business acumen. The evaluation process between firms is currently being finalized and expected to be completed by end-april 2018. A local consultant was hired to train artisans on basic financial management and accounting. (Subcomponent 2C) Commercial Horticulture: The pilot farms have proven that fruit production is feasible and potentially profitable. Production has now been scaled up and the current total area under cultivation is 41.5 hectares (ha), with three pilot farms. Given continued high demand and favorable prices from domestic retailers, it is expected fruit will be sold locally before sizeable exports are realized. The goal of the Government is to reach 200 ha by FY2021/22 and 350 ha by FY2024/25, with further potential to attract additional foreign direct investment. The Additional Financing includes significant support to scale-up activities and commence new ones. The latter include, among others, (i) upgrading the current irrigation system; (ii) developing and implementing a marketing and distribution strategy, a capacity building program for international quality and standards, and an investment promotion program; (iii) establishing a research and training center; (iv) and supporting financial institutions to increase their familiarity with the fresh fruit sector. Lesotho PostBank and other commercial banks are interested in commercial horticulture finance with a good understanding of the potential and opportunities to diversify portfolio and risks. PostBank plans to extend its branch network to serve rural areas and to invest in capacity building in 5/8/2018 Page 2 of 8
addition to establishing an agricultural finance department. The project is supporting this initiative and is providing consulting services to share international best practice. The market assessment for this task is completed and the next stage is to complete the Business Plan. Subcomponent 2 D, LEAP: The scheme has approved 211 applications over the life of the project comprising 182 from companies and 29 from associations. Between February 2017 and February 2018, 59 applications were approved. 42 entities during the same period received funding while grants for an additional 29 entities were committed but not yet disbursed. As of February 2018, annual disbursements stood at 1 329 790.05 Maloti (over US$ 113 000.00), putting the scheme ahead of 2016 disbursements of 745 235.21 Maloti (over US$ 63 000). This is notable given the challenging political situation and slowdown during the political transition. Average grant size increased from 19,611 maloti in 2016 to 31 661 Maloti in 2017 for disbursed grants. The average grant size has relatively increased for disbursed beneficiaries. New LEAP application forms and streamlined processes have been launched and this has helped expedite the approval process. COMPONENT 3: PROJECT IMPLEMENTATION SUPPORT The Project Management Unit (PMU) is fully staffed and has been instrumental in facilitating the implementation of the Project, in conjunction with various beneficiary agencies. PMU capacity will be strengthened to accommodate the implementation of the AfDB Economic Diversification Support Project. There have been eight 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. As the PMU takes on new responsibilities of coordinating three (3) initiatives, the PMU has hired a Deputy Project Manager to enhance management efficiency. Risks Systematic Operations Risk-rating Tool Risk Category Rating at Approval Previous Rating Current Rating Political and Governance -- High High Macroeconomic -- High High Sector Strategies and Policies -- Low Low Technical Design of Project or Program -- Low Low Institutional Capacity for Implementation and Sustainability -- Moderate Moderate Fiduciary -- Low Low Environment and Social -- Moderate Moderate Stakeholders -- Moderate Moderate Other -- -- -- Overall -- Substantial Substantial Results Project Development Objective Indicators Implemented reforms supporting private sector development (Number, Custom) 5/8/2018 Page 3 of 8
Value 0.00 2.00 2.00 5.00 Date 31-Dec-2013 31-Dec-2016 05-Apr-2018 31-Dec-2021 Client satisfaction with selected government-to-business services (Percentage, Custom) Value 0.00 0.00 0.00 0.00 Date 05-Apr-2017 18-Oct-2017 05-Apr-2018 30-Jun-2022 Jobs in the horticulture and handicraft sectors (Number, Custom) Value 1,160.00 1,160.00 1,160.00 1,315.00 Date 31-Dec-2016 18-Oct-2017 05-Apr-2018 30-Jun-2022 Direct project beneficiaries (Number, Custom) Value 0.00 110,189.00 137,000.00 220,000.00 Date 04-Sep-2013 31-Dec-2016 05-Apr-2018 30-Jun-2022 Female beneficiaries (Percentage, Custom Supplement) 5/8/2018 Page 4 of 8
PHINDIRITBL Value 0.00 24.00 24.00 22.00 Overall Comments Monitoring & Evaluation: In the new Results Framework, there are three PDO indicators and one Core Indicator. The first of these tracks implemented reforms supporting private sector development, as measured by the Doing Business Index. Although the indicator is currently on track, delays on the Component 1 legislative agenda may be cause for concern. The baseline and targets for the second PDO indicator measuring client satisfaction with select government to business services have not yet been established, given delays in the procurement of a consultant. Hiring is now underway and the baseline is expected by October 2018. The Core Indicator on direct project beneficiaries saw an uptick of over 20,000 beneficiaries during the reporting period, largely due to an increase in coverage from the credit information bureau which is over 137 000. Notably, Intermediate Results Indicator Two: Adult population covered by credit bureau has also improved from 7.1% in 2017 to 7.5 in 2018. For Core Indicator Two: Jobs in the Horticulture and Handicrafts sectors have not changed although have already surpassed 2022 projections. This indicator is no longer expected to grow faster due to staff rationalization program implemented at the horticulture farms that are supported by the project. For Intermediate Results Indicator One: Number of days required to obtain a construction permit from Maseru City Council is recorded at 95 according to Doing Business 2018. For Intermediate Results Indicator Four: Registered lodging operations under the star grading system, the baseline was re-set to zero in order to measure only those lodging operations graded with the new grading criteria launched in March 2017 and currently there are 22 graded lodging operation, which is 7 more from the 7th Implementation Support Mission in September 2017. Collection of Horticultures revenues is still in progress and the final figures will be provided in April,2018. Intermediate Results Indicators Days required to obtain a construction permit from the Maseru City Council (Days, Custom) Value 106.00 65.00 95.00 30.00 Date 04-Sep-2013 18-Oct-2017 05-Apr-2018 31-Dec-2021 5/8/2018 Page 5 of 8
PHINDIRITBL PHINDIRITBL PHINDIRITBL PHINDIRITBL Adult population covered by the Credit Bureau (Percentage, Custom) Value 0.00 7.10 7.50 13.00 Date 04-Sep-2013 18-Oct-2017 05-Apr-2018 31-Dec-2021 Agencies connected to the Trade Automation System (Number, Custom) Value 0.00 0.00 0.00 4.00 Date 31-Dec-2013 18-Oct-2017 05-Apr-2018 30-Jun-2022 Registered lodging operations under the star grading system (Number, Custom) Value 0.00 15.00 22.00 40.00 Date 04-Sep-2013 18-Oct-2017 05-Apr-2018 30-Jun-2022 Tourism information center established and operational (Yes/No, Custom) Value N N N Y Date 04-Sep-2013 18-Oct-2017 05-Apr-2018 30-Jun-2022 5/8/2018 Page 6 of 8
PHINDIRITBL PHINDIRITBL Revenue generated by commercial horticulture farms (maloti) (Number, Custom) Value 38,606.00 432,000.00 432,000.00 1,948,748.00 Date 30-Apr-2014 18-Oct-2017 05-Apr-2018 31-Dec-2021 Amount of funds disbursed to businesses through LEAP (Number, Custom) Value 56,422.00 750,536.00 1,329,790.50 663,242.00 Date 31-Dec-2013 31-Dec-2016 05-Apr-2018 30-Jun-2022 Overall Comments On Construction Permit - the days increased from 65 to 95 as per Doing Business 2018 and updated DB methodology. The Maseru City Council (MCC) and the PMU have to actively involve the architects and the construction professionals who are also DB contributors on training how to operate faster the new electronic Construction Permit system; On LEAP: as of February 2018, LEAP disbursements stood at 1 329 790.05 Maloti (over US$ 113 000.00), putting the scheme ahead of 2016 disbursements of 745 235.21 Maloti (over US$ 63 000). This is notable given the challenging political situation and slowdown during the political transition. Average grant size increased from 19,611 maloti in 2016 to 31 661 Maloti in 2017 for disbursed grants. The average grant size has relatively increased for disbursed beneficiaries. New LEAP application forms and streamlined processes have been launched and this has helped expedite the approval process. Data on Financial Performance Disbursements (by loan) Project Loan/Credit/TF Status Currency Original Revised Cancelled Disbursed Undisbursed Disbursed P144933 IDA-53090 Effective USD 13.10 13.10 0.00 10.37 2.03 84% P144933 IDA-59610 Effective USD 13.40 13.40 0.00 0.50 14.06 3.4% Key Dates (by loan) Project Loan/Credit/TF Status Approval Date Signing Date Effectiveness Date Orig. Closing Date Rev. Closing Date P144933 IDA-53090 Effective 31-Oct-2013 21-Nov-2013 09-Jan-2014 30-Apr-2019 30-Apr-2019 5/8/2018 Page 7 of 8
P144933 IDA-59610 Effective 24-Mar-2017 22-May-2017 25-Jul-2017 30-Jun-2022 30-Jun-2022 Cumulative Disbursements Restructuring History Level Approved on 14-Mar-2016 Related Project(s) P160964-Second Private Sector Competitiveness & Economic Diversification - AF 5/8/2018 Page 8 of 8