## _cr12102 ## Source details **Canonical URL:** [_cr12102](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr12102.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr12102.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr12102.pdf.json) --- ### Preface and Overview - NSDP implementation period: fiscal year 2012/13 to 2016/17. - NSDP succeeds the Poverty Reduction Strategy Paper (PRSP) and the Interim National Development Framework (INDF) and serves as an implementation strategy for National Vision 2020 for the next five years. - Preparation: Ministry of Finance and Development Planning with Technical Working Groups (TWGs), nine Cluster Groups, district consultation meetings; Growth and Development Strategic Framework based on consolidated inputs. - Organization: eight chapters covering background, context, growth strategy, macroeconomic framework, strategic framework, cross-cutting issues, and implementation. ### Executive Summary — Strategic Goals (2012/13 to 2016/17) - Vision 2020 quote preserved: “By the year 2020 Lesotho shall be a stable democracy, a united and prosperous nation at peace with itself and its neighbours. It shall have a healthy and well-developed human resource base. Its economy will be strong, its environment well managed and its technology well established.” - NSDP strategic goals: - (I) Pursue high, shared and employment creating economic growth. - (II) Develop key infrastructure. - (III) Enhance the skills base, technology adoption and foundation for innovation. - (IV) Improve health, combat HIV and AIDS and reduce vulnerability. - (V) Reverse environmental degradation and adapt to climate change. - (VI) Promote peace, democratic governance and build effective institutions. - Core employment and growth targets: - Private sector jobs target: 50,000 sustainable jobs by end of Plan period (approximately 10,000 jobs each year). - Formal employment additional jobs expected under Plan Projection: 50,000 (formal employment rises from 213,000 to 263,910 by 2016/17 in Plan Projection). - Long-term GDP growth target: 5% per annum (economy doubles every 16 years at 5% growth). - Macroeconomic headline in Executive Summary: - Lesotho economy expected to grow by about 5 per cent a year on average over the Plan period (executive summary statement). - Formal employment additional 47,000 jobs at an annual average rate of 3.0% (Executive Summary). ### Macroeconomic Framework and Fiscal Sustainability — Key objectives and metrics - Plan Projection (2010/11 – 2016/17) headline outcomes: - Real GDP (Mm, 2010 prices): 15,572 (2010/11) → 22,770 (2016/17). - Average annual real GDP growth rate under Plan Projection: 6.5%. - Formal Employment (000): 213.0 → 263.9 (2016/17). - Investment (Mm): 5,207 → 11,491 (2016/17). - Fiscal Balance (Mm): -1,585 (2011/12) → 658 (2016/17) (Plan Projection series). - Import cover (months): 3.4 (2010/11) → 3.5 (2016/17) under Plan Projection. - Fiscal framework (Plan Summary, selected figures, current prices): - Total Revenue: 9,190 (2011/12); 13,337 (2012/13); 12,424 (2013/14); 12,339 (2014/15); 13,510 (2015/16); 14,844 (2016/17). - Tax Revenue: 3,984 (2011/12); 4,554 (2012/13); 4,749 (2013/14); 5,048 (2014/15); 5,740 (2015/16); 6,599 (2016/17). - SACU receipts (of non-tax revenue): 2,753 (2011/12); 5,966 (2012/13); 5,456 (2013/14); 5,431 (2014/15); 5,703 (2015/16); 5,988 (2016/17). - Capital (acquisition of non-financial assets): -2,727 (2011/12); -3,910 (2012/13); -3,321 (2013/14); -2,607 (2014/15); -2,624 (2015/16); -3,029 (2016/17). - Fiscal Balance (Plan Summary): 1,727 (2011/12); 380 (2012/13); -186 (2013/14); 142 (2014/15); 557 (2015/16); 658 (2016/17). - Fiscal and monetary policy objectives (selected): - Improve resource allocation and cost efficiency to support growth and increase revenue. - Promote fiscal consolidation, adhere to debt sustainability, eliminate arrears and maintain hard budget ceilings. - Improve tax/revenue administration and broaden tax net. - Contain wage bill and increase public sector efficiency. - Maintain Loti: Rand convertibility and/or build adequate international reserves. - External and reserve indicators: - Net International Reserves (US$ 776 million as at February 2012 target noted). - Reserve cover norms: 3 – 6 months of imports; import cover 6.3 months in 2008/09 and 3.8 months in 2010/11. ### Growth Strategy and Scenarios — Low, Moderate and Plan - Three scenarios modelled: Low Growth, Moderate Growth (with Growth Accelerators), and Plan Scenario (Growth Generators + Accelerators). Low Growth Scenario — key assumptions and outcomes - Assumptions: - SACU revenues recover from recent low levels; major public capital projects completed; public expenditure grows 2% in real terms; total factor productivity increases 0.5% per annum in some sectors. - Outcomes (2010/11 – 2016/17, selected series): - Real GDP (Mm): 15,399; 15,960; 16,519; 16,363; 16,450; 16,787; 17,197. - Real GDP (% annual change): 3.6%; 3.5%; -0.9%; 0.5%; 2.0%; 2.4%. - Formal Employment (000): 211.7; 213.3; 221.1; 216.0; 215.5; 219.2; 224.5. - Fiscal Balance (Mm): -1,634; -1,935; -99; -848; -1,155; -1,658; -1,865. - Import cover (months): 3.4; 2.5; 2.9; 2.8; 2.1; 1.4; 0.6. - Risks: import cover falls to 0.6 months by 2016/17, threatening convertibility and CMA membership. Moderate Growth Scenario — Growth Accelerators (mining and LHWP II) and outcomes - Principal accelerators: - Mining investment around M 5.8 billion (mostly 2012/13–2015/16); diamond exports rise M 1.7 billion (2010/11) → M 9.0 billion (2016/17). - LHWP Phase II investment in 2010 prices ~ M 3.2 billion up to 2016/17 (and M 3.9 billion subsequently); construction adds over M 500 million to GDP in 2016/17; ~11,000 jobs annually during main construction period (2015/16–2019/20). - Moderate Growth Forecast (selected series): - Real GDP (Mm): 15,572; 16,534; 17,771; 18,006; 19,169; 21,132; 21,890. - Real GDP (% annual change): 6.2%; 7.5%; 1.3%; 6.5%; 10.2%; 3.6%. - Formal Employment (000): 213.0; 215.6; 230.6; 233.7; 231.7; 243.0; 252.2. - Fiscal Balance (Mm): -1,585; -1,727; 380; -201; 104; 487; 564. - Import cover (months): 3.4; 2.5; 3.0; 3.3; 3.2; 3.4; 3.7. - Distributional note: mining is capital intensive; direct mining employment gains limited (additional mining jobs ~2,700 by 2016/17). Plan Scenario — Growth Generators (agriculture, manufacturing, tourism, investment climate reforms) - Rationale: diversify beyond accelerators to achieve broader, sustained employment and productivity gains. - Key quantified generator impacts by FY 2016/17 (additional effects relative to Low Growth): - Agriculture: GDP +40 (0.2%); Employment +2,434 (1.0%); Tax Revenues +24 (0.4%). - Manufacturing: GDP +392 (1.8%); Employment +8,392 (3.3%); Exports +1,251 (7.5%); Tax Revenues +144 (2.3%). - Tourism: GDP +54 (0.2%); Employment +760 (0.3%); Exports +122 (0.7%); Tax Revenues +23 (0.4%). - Investment Climate Reform: GDP +372 (1.7%); GNDI +391 (1.2%); Exports +429 (2.6%). - Consolidated Plan Scenario FY 2016/17 (consolidating Accelerators + Generators): - GDP: 22,770 (37.9% vs FY 2010/11). - GNDI: 33,590 (16.1%). - Employment: 263,910 (17.5%). - Exports: 18,621 (83.3%). - Tax Revenues: 6,599 (46.9%). - Household Income: 53,300 (14.9%). - Plan Projection differences vs Moderate scenario: - Plan average annual real GDP growth: 6.5% (vs 5.8% moderate). - Formal employment annual average growth: 3.6% (Plan) vs 2.9% (Moderate). - Preconditions and caveats: - Reforms must resolve binding constraints, improve planning/sequencing of infrastructure, and be implemented broadly. - Delays in investment climate reforms could undermine productivity and investment gains. - Mineral-led revenue is cyclical; fiscal outcomes may deteriorate after 2016/17 if expenditure continues rising while mineral revenue slows. ### Infrastructure — Minimum Infrastructure Platform and priorities - Transport: - Road network: 7,437 km (16% paved, 51% gravel, 33% earth). - Strategic actions: maintain national corridors, develop one-stop border posts, dry port, improve access roads to production sites, explore Lesotho presence at RSA ports. - Water and Sanitation: - Access: around 77% households have access to improved water sources; 25% have improved sanitation. - Metolong Dam: will make 75,000 m3 of treated water per day available by 2014. - Strategic actions: expand distribution, sanitation mains, pre-treatment and wastewater recycling, water harvesting infrastructure. - Energy: - Muela hydropower: 72 MW; imports about 67 MW (40 MW Mozambique, 27 MW South Africa). - Household electricity access: estimated 20%. - Established potential: about 6,000 MW wind power; 4,000 MW pumped storage; 80 MW conventional hydropower. - Strategic actions: expand renewable generation, extend transmission/distribution, rural electrification models, energy conservation. - ICT: - Participation in East and Southern African Optic Submarine Cable System; DSL constrained by fixed line infrastructure and limited bandwidth. - Strategic actions: broadband connectivity, wireless solutions, ICT literacy, e-Government, cyber security. - Shelter and Property: - Real estate ~9% of GDP; rapid urbanization causing informal settlements. - Strategic actions: national land-use plan, urban densification, housing finance instruments, production of local building materials. - Public Asset Management: - Actions: public asset management policy, comprehensive asset register, maintenance plans, climate-proofing of infrastructure. ### Human Development — Education, Skills, Technology, Health, Social Protection - Education and skills priorities: - Literacy rate: 85%. - Net primary enrolment above 80%; primary completion rate 87.5% (2010); secondary enrolment just above 30%. - Strategic actions: manpower needs assessment, national human resource development plan, expand/transform TVET, establish Lesotho Skills Agency, reform tertiary institutions, improve maths and science teaching, reduce brain drain via diaspora engagement. - Technology and Innovation: - Weak R&D base; strategic actions include establishing Science and Technology Council, centres for innovation, technology diffusion mechanisms, IP database, and research funding strategies. - Health and HIV/AIDS (selected numeric findings): - Crude Death Rate: 12.8 (1996) → 26.5 per 1000 (2006). - Life expectancy at birth: 51.0 (1976); 59.0 (1996); 41.2 (2006). - Maternal Mortality Rate: estimated 939 per 100,000 live births (2006 Census); LDHS 2009 MMR estimate 1,155 per 100,000 live births. - Infant Mortality Rate: 94.0 per 1000 live births (2006 Census); Under-five mortality rate: 116/1000. - Vaccination (12–23 months): 61.7% received all basic vaccinations in 2009. - Nutrition (LDHS 2009): 39.2% stunted; 14.8% severely stunted; 3.8% wasted; 13.2% underweight; micronutrient deficiency among children 6–59 months: 47% (2009). - Health workforce ratios: doctors 0.5 per 10,000; nurses and midwives 6.2 per 10,000. - HIV and AIDS indicators: - National prevalence: 23.0% (LDHS 2009). - Female 15–49 HIV positive: 26.7%; Male 15–59 HIV positive: 18.0%. - Annual incidence: 21,000 new adult infections and 1,300 in children (Executive Summary/5.4). - Strategic actions: intensify prevention, increase ART coverage and adherence, consolidate mitigation, improve institutional coordination. - Social protection: - Old-age pension introduced in 2005 to citizens aged 70+; coverage ~75,000 (Executive Summary/5.4). - 2006 Census: 221,000 orphans (28.5% of children 0–17). - Strategic actions: comprehensive social protection policy, central registry, MIS, livelihood programmes, disaster risk management measures. ### Productive Sectors — Agriculture, Manufacturing, Tourism, Mining, MSMEs, Financial Services, Trade - Agriculture: - Contribution to GDP declined from 24.5% (1982/83) to 13.1% (2010/11) in one section; elsewhere cited around 8% currently. - Irrigable land: around 25,000 ha but limited usage; more than 70% of grains imported. - Strategic actions: commercialisation, irrigation/water harvesting, improved breeding, inputs, agri-processing, land use reforms, climate-proofing. - Manufacturing and textiles: - Employment in manufacturing: 39,762 (2005); 45,262 (2008); ~43,000 (2010). - Textiles/clothing ~45% of total exports. - Constraints: inadequate industrial infrastructure, limited backward linkage; cost of factory shells ~ M 350 million per 10,000 jobs. - Strategic actions: maintain textile hub, factory shells, serviced industrial sites, industrial clusters, improve trade facilitation. - Tourism: - Accommodation establishments: 44 → 144; beds 2,466 → 4,791. - Tourist arrivals rose 12% between 2000 and 2009; bed occupancy 17.9% (2009). - Strategic actions: product circuits, SDAs, brand development, cultural heritage conservation, skills and quality improvements. - Mining: - Diamond mining share of GDP: 0.2% (2000) → 7.3% (2009/10). - Projected mining investment ~ M 5.8 billion; projected diamond exports M 1.7 billion (2010/11) → M 9.0 billion (2016/17) (Moderate scenario). - Strategic actions: consolidated mining policy, legal review, infrastructure access, downstream promotion, mineral resource mapping. - MSMEs: - Estimated MSMEs: 100,000; MSME employment > 300,000 (including subsistence agriculture). - Strategic actions: entrepreneurship training, business development services, MSME infrastructure, technology hubs, market linkages, improved access to finance. - Financial sector and services: - Financial sector assets ≈ 84.1% of GDP (2010); sector contributed ≈ 6% of GDP in 2010. - Loans to deposit ratio (31 March 2011): 35.4%; private sector credit/GDP: 28.4%. - FinScope 2011 initial finding: 62% of population unbanked. - Strategic actions: operationalize credit guarantee scheme, leasing law, credit bureau, modernise post-bank, develop money and capital markets, deposit protection, strengthen regulatory framework, increase financial literacy. - Trade: - External orientation via SACU, SADC, AGOA (US), EPA (EU). - Strategic actions: diversify export markets, trade facilitation, trade finance, Bureau of Standards, investment and trade promotion, consumer protection. ### Governance, Institutions and Cross-cutting Issues - Governance and public administration: - Public expenditure averaged 52% of GDP over the last decade; rapid expenditure growth unsustainable. - PFM reforms: Public Financial Management and Accountability Act 2011; IFMIS introduced; MTEF approach adopted. - Strategic actions: strengthen oversight bodies, institutional capacity for planning and PFM, regulatory impact assessment institutionalised, aid policy finalised, improve procurement and statistics. - Rule of law, justice and security: - Challenges: delays in case resolution, limited legal aid capacity, weak enforcement, out-dated laws. - Strategic actions: operationalise Commercial Court, small claims procedures, strengthen legal aid, modernise laws, improve police and community policing, rehabilitation programs. - Decentralisation: - Second local authority elections held in 2011; Community Councils reduced to 65; 11 Urban Councils created. - Strategic actions: deepen decentralisation, build local planning/budgeting capacity, fiscal decentralisation framework. - Cross-cutting social themes: - Gender: Gender Inequality Index (HDR 2010): 0.685 and rank 102; LDHS 2009: 35% female-headed households. - Children and youth: 221,000 orphans (2006 Census); youth unemployment an issue; strategic actions include youth livelihoods, apprenticeship and education expansion. - Disability: 70,000 people with disability (2006 Census, 3.7%); strategic actions include inclusive education, accessibility standards and vocational training. - Elderly: 147,000 aged 60+ (2006 Census, 7.8%); old age pension and community services objectives. ### Implementation Strategy, Preconditions, Risks and Monitoring - Preconditions for success: - Expected investments must occur; Government must maintain stability, implement reforms, improve allocative efficiency and absorptive capacity, and provide effective leadership. - Main risks: - Sluggish global economic recovery; international security concerns; regional revenue sharing volatility (SACU); food and oil price variability; climate change impacts; administrative/management capacity constraints; weakness of domestic private sector. - External policy risk: scheduled tightening of US textile access under AGOA (double-transformation enforcement in 2012 and termination by 2015) identified as major external threat. - Implementation excellence measures: - Local ownership by stakeholders; mobilise resources; develop robust monitoring and evaluation systems. - Integration of NSDP into MTEF and annual budgets; Sector Wide Approaches (SWAPs); annual Public Expenditure Reviews; District economic strategies; National Planning Advisory Board for independent M&E. - Financing strategy highlights: - Mobilise domestic resources and remittances, promote FDI and diaspora investment, mobilise ODA and concessional external debt while maintaining macro stability, negotiate bilateral frameworks (e.g., Millennium Challenge Account). *Source: _cr12102 (IMF country report content unit and Executive Summary).* ### Preface ### _cr12102 - Preface ### Overview - This National Strategic Development Plan (NSDP) will be implemented from the fiscal year 2012/13 to 2016/17. - The NSDP succeeds the Poverty Reduction Strategy Paper (PRSP) and the Interim National Development Framework (INDF). - The NSDP will also serve as an implementation strategy for the National Vision 2020 for the next five years. ### Preparation and stakeholder engagement - The Ministry of Finance and Development Planning prepared the NSDP with the assistance of Technical Working Groups (TWGs), composed of technical staff mainly from line Ministries and with participation by resident UN offices and other cooperating partners. - Contributions from the private sector, civil society, academia and other stakeholders were solicited mainly through nine Cluster Groups configured around the NSDP key strategic areas. - The Clusters reviewed the work done by the TWGs. - The NSDP secretariat consolidated the inputs of the Clusters and other stakeholders to produce an advanced draft of the NSDP, which was considered by Cabinet. - Thereafter, district consultation meetings were held, with wide representation of stakeholders. - The Growth and Development Strategic Framework is based on all of these inputs. ### Organization and chapter summaries - The NSDP is organized into eight chapters. - Chapter 1 covers the background, providing a brief development review based on National vision 2020 targets and the Millennium Development Goals (MDGs) and the Plan objectives. - Chapter 2 provides the context within which the plan was developed, mainly highlighting key population dynamics, natural setting, economic performance, international outlook and major challenges and opportunities facing Lesotho. - Chapter 3 defines the growth strategy, including the growth diagnostics, growth strategy, sources of growth and economic growth scenarios. - Chapter 4 presents the macroeconomic framework and compares simulations of the three growth scenarios and key economic projections up to 2020, which is the last year of implementation for National Vision 2020. - Chapter 5 shifts to the strategic framework which outlines the main sector or thematic area objectives and strategic actions under the six NSDP strategic goals. - Chapter 6 brings out key cross-cutting issues. - Chapter 7 sets out the implementation strategy. ### Table of Contents (selected entries and structure) - List of Acronyms .................................................................................................. i - Executive Summary ............................................................................................. i - 1. Introduction ................................................................................................. 1 - 1.1 Background ................................................................................................ 1 - 1.2 Progress Review ......................................................................................... 3 - 1.3 Plan Objectives .......................................................................................... 8 - 2. Context, Challenges and Opportunities....................................................... 11 - 2.1 Context .................................................................................................... 11 - 2.1.1 Population ...................................................................................... 11 - 2.1.2 Geography ...................................................................................... 13 - 2.1.3 The Economy .................................................................................. 13 - 2.1.4 International Economic Outlook ..................................................... 20 - 2.2 Challenges ................................................................................................ 22 - 2.2.1 Poverty, Unemployment and Inequality ......................................... 22 - 2.2.2 Economic Resilience ....................................................................... 26 - 2.2.3 Vulnerability to natural disasters and climate change .................... 26 - 2.2.4 Health, HIV and AIDS ...................................................................... 27 - 2.2.5 Productivity and Skills ..................................................................... 28 - 2.2.6 Urbanisation ................................................................................... 28 - 2.2.7 Infrastructure ................................................................................. 30 - 2.3 Opportunities ........................................................................................... 31 - 2.3.1 Labour Force .................................................................................. 31 - 2.3.2 Location .......................................................................................... 32 - 2.3.3 Trade Preferences .......................................................................... 33 - 2.3.4 Clean Energy and Green Technologies ............................................ 34 - 3. The Growth Strategy .................................................................................. 36 - 3.1 Growth Diagnostics .................................................................................. 36 - 3.2 Growth Strategy ....................................................................................... 37 - 3.3 Growth Scenarios ..................................................................................... 42 - 3.3.1 Low Growth Scenario ..................................................................... 43 - 3.3.2 Moderate Growth Scenario and Growth Accelerators .................... 45 - 3.3.3 Plan Scenario and Growth Generators ........................................... 48 - 4. Macroeconomic Framework ....................................................................... 55 - 4.1 Overview .................................................................................................. 55 - 4.1.1 Recent Economic Performance ....................................................... 55 - 4.1.2 Recent Fiscal Trends ....................................................................... 56 - 4.2 Macroeconomic Policy ............................................................................. 59 - 4.2.1 Fiscal Policy.................................................................................... 60 - 4.2.2 Monetary Policy and External Sustainability ................................... 61 - 4.3 Economic Projection for the Plan Period .................................................. 64 - 4.4 Fiscal Framework, 2011/12 – 2016/17 ..................................................... 67 - 4.5 Economic Projection beyond the Plan period .......................................... 71 - 4.6 Managing downside risks ......................................................................... 72 - 5. Strategic Framework .................................................................................. 75 - 5.1 Create High, Shared, and Employment Generating Growth ..................... 75 - 5.1.1 Investment Climate ........................................................................ 75 - 5.1.2 Financial Services ........................................................................... 81 - 5.1.3 Trade .............................................................................................. 86 - 5.1.4 Agriculture and the Rural Economy ................................................ 89 - 5.1.5 Manufacturing ................................................................................ 97 - 5.1.6 Tourism ........................................................................................ 101 - 5.1.7 Mining .......................................................................................... 105 - 5.1.8 Micro, Small and Medium Enterprises (MSMEs) ........................... 107 - 5.2 Develop Key Infrastructure .................................................................... 109 - 5.2.1 Transport ...................................................................................... 110 - 5.2.2 Water and Sanitation ................................................................... 113 - 5.2.3 Energy .......................................................................................... 115 - 5.2.4 Information and Communications Technology (ICT) ..................... 117 - 5.2.5 Shelter and Property Development .............................................. 120 - 5.2.6 Sports Infrastructure .................................................................... 123 - 5.2.7 Public Asset Development and Management ............................... 124 - 5.3 Enhance Skills Base, Technology adoption and Foundation for Innovation .............................................................................................. 125 - 5.3.1 Skills ............................................................................................. 125 - 5.3.2 Technology and Innovation .......................................................... 131 - 5.4 Improve Health, Combat HIV and AIDS and Reduce Vulnerability .......... 133 - 5.4.1 Health ........................................................................................... 133 - 5.4.2 HIV and AIDS ................................................................................ 139 - 5.4.3 Social Protection........................................................................... 142 - 5.5 Reverse Environmental Degradation and Adapt to Climate Change ....... 144 - 5.6 Promote Peace, Democratic Governance and Effective Institutions ...... 149 - 5.6.1 Stability and Democracy ............................................................... 149 - 5.6.2 Human Rights ............................................................................... 151 - 5.6.3 Law Enforcement and Administration of Justice ........................... 152 - 5.6.4 Policy, Planning and Public Financial Management ...................... 155 - 5.6.5 Public Administration and Service Delivery .................................. 158 - 5.6.6 Decentralisation ........................................................................... 159 - 5.6.7 Regional Integration, International Relations and Cooperation .... 160 - 5.6.8 Media ........................................................................................... 163 - 6. Cross-cutting issues .................................................................................. 164 - 6.1 Gender ................................................................................................... 164 - 6.2 Children and Youth ................................................................................ 166 - 6.3 Disability ................................................................................................ 168 - 6.4 Elderly .................................................................................................... 170 - 7. Implementation Strategy .......................................................................... 171 ### List of Acronyms (selection noted in the Preface) - AGOA - Africa Growth and Opportunity Act - AIDS - Acquired Immune Deficiency Syndrome - ALAFA - Apparel Lesotho Alliance to Fight AIDS - ART - Anti-Retroviral Therapy - ARV - Anti-Retroviral - AU - African Union - CBL - Central Bank of Lesotho - CBP entries, sector and institutional acronyms and many others are listed in the Preface’s full "List of Acronyms" section. *Preface, _cr12102 - Preface* ### Executive Summary ### Executive Summary ### Strategic Goals (2012/13 to 2016/17) - Plan serves as implementation strategy for the National Vision 2020. - Vision quote preserved: “By the year 2020 Lesotho shall be a stable democracy, a united and prosperous nation at peace with itself and its neighbours. It shall have a healthy and well-developed human resource base. Its economy will be strong, its environment well managed and its technology well established.” - NSDP strategic goals: - (I) Pursue high, shared and employment creating economic growth. - (II) Develop key infrastructure. - (III) Enhance the skills base, technology adoption and foundation for innovation. - (IV) Improve health, combat HIV and AIDS and reduce vulnerability. - (V) Reverse environmental degradation and adapt to climate change. - (VI) Promote peace, democratic governance and build effective institutions. ### Macroeconomic Framework and Fiscal Sustainability - Lesotho economy expected to grow by about 5 per cent a year on average over the Plan period. - Plan expected to change structure of the economy and transition to a more sustainable growth path, with growth rate remaining higher through to 2020/21. - Formal employment expected to create an additional 47,000 jobs, at an annual average rate of 3.0%. - Fiscal outcomes: Government able to expand current expenses in real terms, finance several years of exceptional capital allocations, achieve small fiscal surpluses and satisfy critical debt sustainability indicators if fiscal/monetary objectives met. - Fiscal and monetary objectives: - (i) Improve resource allocation and cost efficiency to support growth and increase revenue. - (ii) Promote fiscal consolidation by reducing deficits and adhering to debt sustainability targets (lower deficits/GDP and debt/GDP). - (iii) Ensure fiscal discipline, adherence to hard budget ceilings and elimination of arrears. - (iv) Improve tax/revenue administration, broaden the tax net, explore non-tax revenues and enhance capacity for mobilisation of finance for development. - (v) Increase absorptive capacity of Ministries to spend budget allocations efficiently. - (vi) Sustain the real value of capital expenditure and maintain a stable ratio of capital to total spending. - (viii) Contain the wage bill and increase public sector efficiency. - (ix) Maintain the Loti: Rand convertibility and/or build adequate international reserves. ### I: Pursue High, Shared and Employment Creating Economic Growth - Core targets: - Attain 50,000 private sector jobs. - Long-term GDP growth target of 5% per annum, which will double the size of the economy every 16 years. - Key strategies: - Mobilise domestic and foreign savings and improve the investment climate. - Promote economic diversification. - Improve labour force quality and competitiveness. - Facilitate technology transfer and research partnerships. - Build minimum infrastructure platform linking production centres and markets. - Promote global integration and trade. - Develop the private sector. - Sources and dynamics of growth: - Major growth accelerators: expansion of diamond mining and major water projects (Metolong Dam and Lesotho Highlands Water Project Phase II). - Mining investment of more than M 5 billion expected to increase diamond exports, GDP and tax revenue; construction-phase growth impacts not sustained long-term and mining is highly capital intensive. - Four sustainable growth generators identified: Agriculture, Manufacturing, Tourism and deeper investment climate reforms. - Follower sectors to be stimulated: transport, telecoms, construction and business services. - Investment climate: - Lesotho ranked 143 out of 183 countries in Doing Business competitiveness. - Priority reform areas: starting a business, registering property, dealing with construction permits and getting credit. - Other reform areas: getting electricity, enforcing contracts, protecting investors, paying taxes, trading across borders and closing a business. - Improve work and residence permit processes and apply Regulatory Impact Assessment (RIA) to new laws and regulations. - Improve land policy/regulatory framework, industrial dispute capacity, and fight crime and corruption. - Financial services: - Financial sector relatively small and underdeveloped; banking sector highly liquid but credit extension relatively low. - Priorities: facilitate access to credit, expand financial services, develop money and capital markets, innovate financial products, enhance financial stability and public financial literacy, and bridge sector skills gaps. - Global integration and trade objectives: - Enhance productive capacity and increase exports. - Diversify export markets and negotiate better market access. - Improve investment and trade promotion. - Develop minimum infrastructure platform for trade. - Enhance consumer protection, increase trade in services and strengthen institutional support and coordination. - MSMEs: - Develop MSMEs by improving access to finance, entrepreneurship and business management capacity, MSME infrastructure, and integration between small and large industries. - Agriculture and rural economy: - Three-pronged strategy: commercialisation/diversification and integrated value chains; build effective agricultural support institutions; improve risk management and reduce stock theft. - Sector strategies include: improve access to finance; promote high value crops and livestock products; improve breeding, seed production and farm machinery access; develop water harvesting and irrigation; promote agro-industry and agri-business; transform agricultural institutions; enhance farmer capacity and extension services; promote household food security; manage market risk; protect animal and plant health; climate change proof the sector. - Emphasise development of basic infrastructure, rural-urban market linkages and preservation of traditional systems. - Manufacturing: - Strategies: reinvigorate Lesotho as a textile hub; expand industrial infrastructure; develop non-textile industrial hubs; increase forward and backward integration between foreign and local firms. - Tourism: - Five-year focus: develop tourism products and circuits; increase visibility and marketability; improve quality and standards; protect and promote tourism and cultural heritage; improve institutional support. - Mining: - Private sector investments in excess of M 5 billion expected to boost GDP and tax revenue. - Government actions: develop consolidated mining policy and review legal frameworks; facilitate electricity grid access and improve roads to mining areas; enhance investment promotion and indigenous participation; promote downstream industries; generate comprehensive mineral resource information. ### II: Develop Key Infrastructure - Minimum infrastructure platform components: - Water: - Focus on water harvesting capacity and distribution to industry, households, institutions and region. - Consider creation of water reserves for national water security. - Low sanitation access; need innovative financing; develop pre-treatment and water recycling facilities for industry. - Transport: - Develop integrated transport systems; prioritise national roads and access roads to production sites. - Establish dry port, access roads to border posts and modern one-stop border facilities. - Engage with RSA to improve handling of transit cargo in RSA ports. - Develop rural and urban roads, other transport modes, and explore efficient public transport financing. - Energy: - Revamp electricity distribution network to improve safety, reliability and expand connections including mines currently off-grid. - Mobilise investment to tap established potential of more than 1000 MW from hydropower, pump storage, wind and solar. - Promote energy conservation and safe use of bio-fuels; develop medium–long term national energy security strategy. - Information and Communication Technology: - Build on decade of high growth driven by mobile technology. - Facilitate access to high-speed broadband and basic ICT services nationwide; widen ICT literacy; implement e-Government strategy; migrate from analogue to digital. - Promote e-services, develop niche ICT sub-industries via FDI and R&D; enhance cyber security surveillance capacity. - Shelter and Property Development: - Strengthen land administration and physical planning; provide basic infrastructure; improve quality and safety standards and enforcement; encourage local production of construction inputs; promote densification; regularise housing and commercial rental markets; develop housing finance and land markets; identify appropriate housing solutions for low income households and industrial workers. - Growth poles and Industrial hubs: - Develop urban growth poles linked to rural economy and tourism circuits; guided by growth pole and industrial hub development strategy. - Sports: - Develop sports infrastructure through phased multi-year programme and private sector participation; build institutional capacity and international competitiveness in areas of high potential; promote cultural and sports tourism. ### III: Enhance Skills Base, Technology Adoption and Foundation for Innovation - Education and skills priorities: - Improve relevance and applicability of skills. - Expand and upgrade TVET institutions to support growth sectors. - Transform tertiary institutions to become world class in selected fields. - Improve science and maths performance and enrolment through better teaching quality and infrastructure. - Enhance foundation for skills development across early childhood to high school with appropriate curriculum and best teaching practices. - Strengthen national library system and distance learning infrastructure. - Mainstream special education at all levels. - Transform institutions for business and entrepreneurship development and improve public sector training coverage and quality. - Review institutional framework for coordination, cost–efficiency and effectiveness. - Technology and innovation: - Create ecosystem for technology diffusion and adoption and build foundation for innovation in selected science and business-related disciplines. - Develop capacity to source and funnel technology, acquire production licenses and provide industrial engineering support, especially to MSMEs. - Develop strategies to attract and develop core skills and infrastructure with private sector involvement and regional/international research collaboration. ### IV: Improve Health, Combat HIV and AIDS and Reduce Vulnerability - Health sector strategic objectives: - Improve coverage, management and quality of health facilities and services. - Improve planning, health information and public financial management systems. - Improve prevention and education programmes including ICT solutions. - Improve procurement and dispensing systems for pharmaceuticals and essential supplies. - Promote blood donation and improve health laboratory system. - Establish institutions for high-end skills development and improve capacity and quality of existing institutions. - Strengthen public-private partnerships and promote research, including traditional medicine. - HIV and AIDS: - Lesotho has one of the highest prevalence rates for HIV and AIDS, though stabilising. - Strategies: (i) Step up HIV and AIDS prevention; (ii) Increase Anti-retroviral Treatment (ART) coverage and education to increase adherence; (iii) Improve efficiency and sustainability of mitigation measures; (iv) Enhance institutional efficiency, effectiveness and coordination. - Social vulnerability: - Focus on consolidating social protection programmes and improving efficiency/coverage. - Provide support to vulnerable able-bodied persons to adopt sustainable livelihoods and review/implement strategy for social security scheme development. - Promote work safety and ease job search. - Strengthen capacity for disaster risk management. ### V: Reverse Environmental Degradation and Adapt to Climate Change - Environmental objectives: - Reverse land degradation and protect water sources through integrated land and water resource management. - Improve national resilience to climate change. - Promote biodiversity conservation. - Increase clean energy production capacity, promote environment-friendly production and explore carbon trading opportunities. - Improve land use and physical planning, increase densification and ring-fence towns to avoid encroachment on agricultural land and fragile ecosystems. - Improve delivery of environmental services, including waste and sanitation and environmental health promotion. - Improve coordination, enforcement of laws, information and data for environmental planning and increase public knowledge and protection of the environment. ### VI: Promote Peace, Democratic Governance and Build Effective Institutions - Governance priorities: - Consolidate democracy and past achievements by improving public sector effectiveness and efficiency in service delivery. - Improve public financial management, deepen decentralisation and maintain rule of law and judicial independence. - Institutionalise wide participation in policy-making and planning; create mechanisms to improve plan implementation. - Strengthen public accountability and transparency and create space for a well-functioning media. - Position Lesotho to tap opportunities and influence policy-making in regional and international blocs. - Emphasise need for effective, efficient and adaptable institutions. ### Cross-Cutting Issues - Promote gender equality and protect interests of children, youth, people with disabilities and the elderly. - Address challenges of generating disaggregated data for analysis, monitoring and evaluation. - Improve coordination and mainstreaming of cross-cutting themes into policies, programmes and budgets. - Implement interventions through relevant Ministries integrated in sector chapters. ### Implementation Strategy and Risks - Preconditions for success: - Expected investments must take place. - Government must maintain stability, implement key reforms, improve allocative efficiency and absorptive capacity, and provide effective leadership and management. - Main risks to implementation: - Sluggish global economic recovery. - International security concerns. - Regional revenue sharing arrangements. - Food and oil price variability. - Climate change impacts. - Administrative and management capacity constraints. - Weakness of the domestic private sector. - Implementation excellence measures: - Ensure local ownership by all stakeholders. - Effectively mobilise resources. - Develop timely and robust monitoring and evaluation systems. *Source: Executive Summary, _cr12102 - Executive Summary* ### 1. Introduction ### _cr12102 - 1. Introduction ### Background - After 45 years of independence Lesotho remains a Least Developed Country (LDC) with per capita income of approximately $1000. - Historical economic pattern: served as a labour reservoir for South African mines and industries, resulting in low economic growth, poor agricultural productivity, low wages, limited industrial skills, poor physical infrastructure, and high cross-border logistics costs. - Dependence on South Africa and external assistance for employment, incomes, and high-level institutions for scientific education and research has been historically significant, though the situation has been steadily improving, especially in the post-apartheid era. - Strategic imperative: radically transform the economy, intellectual and skills profiles by leveraging location to produce goods and services for Southern African, African continental, and global markets. - Preconditions for transformation: political and social stability, a favourable investment climate, a labour force with necessary technical skills, and institutions capable of global competitiveness and rapid response to changing circumstances. - Vision 2020 (launched 2003) articulated objective: - “By the year 2020 Lesotho shall be a stable democracy, a united and prosperous nation at peace with itself and its neighbours. It shall have a healthy and well-developed human resource base. Its economy will be strong, its environment well managed and its technology well established.” - Social indicators: considerable progress towards universal primary education, literacy, water and sanitation, gender equality, and various health indicators; however, the spread of HIV and AIDS has caused deterioration in several indicators and some Millennium Development Goals are unlikely to be attained by 2015. - Strategic posture: Lesotho must develop strong leadership and national consensus to convert the constraints of being a small, land-locked country into opportunities by moving rapidly to exploit transient opportunities. ### Progress Review - Vision 2020 is the core policy document the Plan implements; Lesotho is also signatory to international agreements including the Millennium Development Goals (MDGs). - African Peer Review Mechanism (2010) conclusion: considerable progress in governance; peace and political stability; gender equality; addressing social vulnerability; expansion of manufacturing and mining; increased trade/exports; infrastructure development; alternative dispute resolution; high literacy rates and human resource development; and increased coverage of health services. - Key remaining challenges: public service delivery and accountability, conflict resolution, environmental degradation, HIV and AIDS, technological progress, and achieving high, sustained, and shared economic growth for poverty reduction. - Selected Vision 2020 achievements and indicators: - The 2010 target of US$ 600 for Gross National Income (GNI) per capita has been exceeded and Lesotho is now classified as a lower-middle income country, though poverty and unemployment remain high. - Real GDP growth rates averaged 3.8% per annum from 2000/01 to 2010/11, above the 2010 target of 3.5% but below the 5% required for sustainable poverty reduction. - Gini coefficient improved from 0.57 in 1994/95 to 0.53 in 2002/03; no recent data confirm current level but believed to be moving in desired direction. - Unemployment rate of 24% (Labour Force Survey 2008) — described as significantly below the target of 29.5% for 2010. - Adult literacy on target at 85%. - Access to improved water sources: 77% of households; improved sanitation facilities: 25% of households. - Human Development Index (HDI) of 0.43 in 2010 is substantially below the target of 0.58. Per capita income and expected years of schooling are improving. Life expectancy is described as close to the target of 0.40 for 2010 but recovery to a 0.60 target by 2016 appears unlikely. - Savings and investment shortfalls (2009/10): savings ratio 21% (target 35%); investment 16% (target 39%). - Progress towards MDGs (selected entries from MDG update, September 2011; values shown as Progress / 2000 (earliest) / 2009 (latest) / 2015 (target)): - Goal 1 (Combat HIV and AIDS): 15–49 HIV Prevalence — Slow progress — 23.8 / 23.6 / 17.0. - Life expectancy at birth — Off track — 48.9 / 46.3 (2008) / 63. - Goal 2 (Eradicate extreme poverty and hunger): Portion below poverty line — Off track — 56.6 (2003) / 29 (target). - Unemployment rate — Slow progress — 28.7 (2003) / 29.4 (2009) / 15 (target). - Goal 3 (Universal primary education): Net enrolment rate — Slow progress — 82.0 / 80.9 / 100 (target). - Goal 4 (Promote gender equality): Primary education (girls/100 boys) — On track — 121 / 97 (2008) / 100 (target). - Goal 5 (Reduce child mortality): Under–five mortality rate — Off track — 111 / 119 / 37 (target). - Goal 6 (Improve maternal health): Maternal mortality rate (per 100,000 live births) — Off track — 419 / 970 / 70 (target). - Goal 7 (Environmental sustainability): Proportion of protected areas & sustainable use areas — Off track — 6.9 / n/a / 12.6 (target). - Goal 8 (Global partnership): Foreign financing % of GDP — On track — n/a / n/a / n/a. - MDG note: HIV prevalence rate has stabilised at around 23%, representing considerable progress though the 2015 target is unlikely without effective prevention measures; HIV and AIDS have caused deterioration in child and maternal mortality and life expectancy. ### Plan Objectives - Purpose: identify key levers to place Lesotho on a sustainable development path and operationalise Vision 2020 via the National Strategic Development Plan. - Strategic goals for the Plan period: I. Pursue high, shared and employment creating economic growth II. Develop key infrastructure (Minimum Infrastructure Platform) III. Enhance the skills base, technology adoption and foundation for innovation IV. Improve health, combat HIV and AIDS and reduce vulnerability V. Reverse environmental degradation and adapt to climate change VI. Promote peace, democratic governance and build effective institutions - Emphasis: sustained and broad-based economic growth as the most effective route for poverty reduction; growth must translate into sustained employment opportunities. - Employment target: Government intends to encourage the private sector to add 50,000 sustainable jobs to the economy by the end of the Plan period, approximately 10,000 jobs each year. - Unemployment targets tied to job creation: interim unemployment target of 18% for 2016/17 and reduction to 15% by 2020. - Growth target and rationale: - Minimum long-term economic growth needed to achieve Plan objectives and sustain poverty reduction: 5%. - At 5% growth, the economy will double approximately every 16 years. - Policy approach: no single “growth bullet”; Plan provides a framework and strategy as foundation for long-term growth and development, including substantial increase in investment and creating an environment conducive to private sector-led growth through wide-ranging reforms. *Source: _cr12102 - 1. Introduction* ### 2.1 Context ### 2.1 Context ### 2.1.1 Population - Lesotho population: 1.88 million (Census 2006). - Annual increase since Independence (1966): 1.7% from population of 970,000 at Independence in 1966. - Over 60% of the population live in the four districts comprising the western corridor. - By ecological zone: - Lowlands: 56.7% of Basotho. - Foothills: 12.8%. - Mountains and Senqu River Valley: 30.5%. - Urban population: around 25%. - National average population density: 61 per square kilometre. - Mokhotlong: 24 per square kilometre. - Berea: 112 per square kilometre. - Population density expressed in terms of arable land: 658 people per square kilometre. - Thaba-Tseka: 485 per square kilometre. - Maseru: 902 per square kilometre. - Demographic transition: - Population remained virtually the same from 1996 to 2006. - Projected annual growth up to 2020: 0.13% each year. - Forecast total in 2020 (derived from the 2006 Census): 1,972,791 (note in source: considered more accurate than UN HDR estimate of 2.1 million in 2010 and growth rate 0.8% from 2010-2015). - Fertility and mortality trends: - Total fertility rate: 5.4 children per woman in 1976; 3.5 children per woman in 2006. - Latest estimate from 2009: total fertility rate reduced to 3.3 children per woman. - Projected total fertility rate by 2025: 2.8 children per woman. - Crude Death Rate: 12.8 per 1000 people in 1996; 26.5 per 1000 people in 2006. - Life expectancy at birth: - 1976: 51.0 years. - 1996: 59.0 years. - 2006: 41.2 years. - Elderly population (60 and above): 7.8% of the population. - Implication: demographic profile yields a large labour force (see Section 2.3.1). ### 2.1.2 Geography - Total area: 30,355 square kilometres; mostly mountainous. - Over 80% of land above 1,800 metres altitude. - Arable cultivation: only 9% of total area. - Arable area decline: from 3,134 km2 in 1996 to 2,833 km2 in 2006 (nearly 10% fall), mostly due to soil erosion. - Natural resource endowments limited; abundant water and natural beauty; concentrations of diamonds. - Mining sector expected to attract substantial investment over the Plan period. - Renewable energy potential: wind power and hydropower generation in the mountains. - Vulnerabilities: - Extreme weather: floods, drought, early and late frosts. - Limited growing season due to frost even in normal years. - Heavy rainfall contributes to rapid soil erosion and deteriorating range and arable land. - Climate change likely to increase frequency and severity of adverse events. ### 2.1.3 The Economy - Regional integration and external linkages: - Member of Southern African Customs Union (SACU), Common Monetary Area (CMA), and Southern African Development Community (SADC). - South Africa supplies about 80% of imported goods and many services; buys approximately one-quarter of Lesotho’s exports. - Main national resource: abundant, literate, and regionally competitive labour force. - Growth indicators: - Gross Domestic Product (GDP) real annual average growth: 4.0% between 1982/83 and 2010/11. - Gross National Income (GNI) real annual growth: 0.9% per annum from 1982/83 to 2010/11. - Gross National Disposable Income (GNDI) growth: 1.2% per annum over same period. - Average annual population growth between 1982 and 2006: 1.1%. - Implication: no real gain in national disposable income on a per capita basis. - Income generation shift: - Share of GDP as proportion of total income rose from 30% to 64%. - Sectoral performance (1982/83–2010/11): - Primary sector increased by 1.8%. - Secondary sector increased by 7.8% (majority manufacturing). - Tertiary sector increased by 3.8%. - Agriculture: - Contribution to GDP declined from 24.5% in 1982/83 to 13.1% by 2010/11 (despite increase in mining). - Agricultural growth averaged 0.4% per annum over the period. - Over half of households have some agricultural land and livestock. - Most crop output not marketed; grain and cereals mostly for home consumption. - Two-thirds of all labour do not receive wages (self-employed or family labour). - Manufacturing: - Increased more than six-fold; textiles main growth driver over thirty years. - Manufacturing has been main engine of job creation. - Exports to the United States decreased in recent years; partially offset by increases in exports to South Africa. - Tertiary sub-sectors: - Public administration growth: 3.6%. - Posts and Telecommunications growth: 11.5%. - Financial Intermediation growth: 10.9%. - Hotels and restaurants: 1.7%. - Consumption trends: - Decline in remittances led private consumption to grow only in line with population growth since 1982/83. - Up to 2002/03 per capita consumption declined; increases observed over the past decade. - Higher SACU revenues enabled rapid expansion of public consumption from low base in 1982/83. - Investment and savings: - Investment drivers over thirty years: major infrastructure projects, foreign direct investment, public sector projects. - Investment rose to around 25% of GNDI with Lesotho Highlands Water Project (LHWP) in 1990s; subsequently fell back to around 15%. - Savings declined from M 2,521.1 million in 1982/83 to M 1,105.1 million in 2010/11 (in constant 2004 prices). - Savings ratio fell to 13% of GDP and 8% of GNDI in 2010/11. - Historical pattern: up to mid-1990s substantial surplus of savings over investment; gap narrowed thereafter and both declined. - With reduction in LHWP investment, savings exceeded investment; in recent years investment has picked up and now exceeds savings, which continued to decline. - Result: accumulation of financial assets by Central Bank of Lesotho and commercial banks, much held overseas. - Identified constraint: too few bankable projects proposed by creditworthy private investors. - Vision 2020 targets vs 2010 outcomes: - Savings ratio in 2010/11: 8.4% (Vision target for 2010: 35%). - Investment ratio in 2010/11: 18.9% (Vision target for 2010: 39%). - Policy challenge stated: - Encourage higher savings and increase supply of high quality investment opportunities so those savings are invested domestically. ### 2.1.4 International Economic Outlook - Lesotho as a small open economy: prospects highly interlinked with global and regional output, growth, and prices. - IMF global forecasts (source dates April 2011 and June 17, 2011 references in source): - World economy growth expected: about 4.3% in 2011 and 4.5% in 2012. - Advanced economies forecast growth: 2.2% in 2011 and 2.6% in 2012. - Emerging and developing economies expected growth: 6.5% over the next two years. - Sub-Saharan Africa: 5.5% in 2011 and 6.0% in 2012. - South Africa outlook: - South Africa lost more than a million jobs between 2008 and 2010 (8.0% of total jobs). - Output gap for South Africa: approximately 3% of GDP (not expected to close until 2013 at the earliest). - Causes: depressed private consumption due to high unemployment, high household indebtedness, fragile consumer confidence; private investment decline about 2% of GDP since 2008 partly offset by increased public investment; capital inflows pushing up exchange rate undermining Rand competitiveness. - South African GDP growth forecast: 3.5% in 2011, 4.1% in 2012, and 4.4% in 2013. - Fiscal: budget deficit rose to 6.7% of GDP during crisis; expected to revert to 3.5% by FY 2013/14. - Inflation in South Africa: declined to 4.3% in 2010; expected to stay below 6% over next three years. - Commodity prices: - World commodity prices expected to remain high due to demand from developing countries and supply uncertainty. - High minerals prices driving investments including diamond mining in Lesotho. - High prices of food and fuel (imports) expected to have adverse effects. - Trade and terms of trade impact: - Net impact of commodity price movements expected to significantly negatively affect trade accounts and terms of trade. - IMF predicts trade balance will deteriorate by more than 3% of GDP in 2011. - Urban poor will be worst affected due to reliance on transport and lack of access to subsistence farming. ### 2.2 Challenges — 2.2.1 Poverty, Unemployment and Inequality (intro) - Human Development Index (HDI) summary: - 2010 HDI rank: 141 out of 169 countries. - 2010 HDI value: 0.427. - Historical HDI values: - 1980: 0.397. - 1990: 0.451. - 1995: 0.452. - Subsequent decline noted in source text (text cuts off). *Source: _cr12102 - 2.1 Context* ### 0.423 in 2000 and fell further to 0.404 in 2005 before recovering to 0.423 in ### _cr12102 - 0.423 in 2000 and fell further to 0.404 in 2005 before recovering to 0.423 in ### Poverty and living standards - Per capita income: around $1,000. - National poverty line (2002/03 Household Income Survey): - Average national poverty head count: 54% - Rural: 58% - Urban: 40% - World Bank international $1 a day poverty line: - Average national head count: 37% - Rural: 41% - Urban: 25% - Multi-dimensional poverty risk: - 27.5% of the population at risk - 21.4% of households (117,309 out of 548,032) - Household characteristics associated with higher poverty: - Larger households with many children - Headed by older and less educated people - Remittances: Households receiving remittance income from abroad have amongst the highest incomes and best outcomes in the rural economy. - Food production: The poorest households grow less of their own food than higher-income households. - Social protection: Government old-age pension introduced in 2005 for all citizens aged 70 and above has had a significant impact on poverty. ### Access to basic services - Water and sanitation (LDHS 2009): - 76.7% of the population have access to improved water sources (includes 7.6% who rely on protected wells or springs) - 72.2% are less than 30 minutes from water - Sanitation: - 25.1% have improved, non-shared facilities - 38.8% have non-improved, shared facilities - 36.0% have no facilities - Energy and cooking: - 16.1% of the population (17.0% of households) have electricity - Cooking fuels: - 49.4% use wood - 20.5% use LPG - 6.1% use electricity ### Orphanhood and social protection - 2006 Census: 221,000 single or double orphans (representing 28.5% of all children aged 0-17 years), equally split between males and females. - Cause: Mostly attributed to HIV and AIDS related mortality. - Education support: Approximately 180,000 orphans now attending primary and secondary school due to social grants and bursaries. ### Labour market and unemployment - 2008 Labour Force Survey: - Working-age population: 1,237,000 - Employed: 608,000 - Unemployed: 192,000 - Unemployment rate: 24% - Formal wage employment: about 230,000 - Informal employment: 71.7% of the employed engaged informally (principally family labour in subsistence agriculture or informal employees in formal enterprises) - Underemployment: High level indicating ample flexibility in the labour market. - Employment trends: - Employment growth has lagged behind GDP growth. - Growth has come from capital-intensive activities (Lesotho Highlands Water Project Phase I and diamond mining) that create few permanent jobs. - Declining opportunities for well-paid work on South African mines. - Likely worsening of unemployment due to the global economic crisis after 2008. ### Inequality - Gini coefficient: - 0.57 in 1994/95 - 0.53 in 2002/03 - Headcount poverty reduction: from 66.6% to 56.6% (period implied by surveys) - Income distribution: - Richest 20% secure 60% of income - Poorest 20% receive 2.8% of income - Spatial inequality: - Rural-urban divide explains only 4% of overall inequality; 96% attributable to intra-urban and intra-rural inequality. - Elasticity: With a Gini coefficient of approximately 0.5, Lesotho can only expect to reduce the poverty head count by 1% in response to each 1% increase in the growth rate. ### Gender equality - Gender Inequality Index (HDR 2010, using 2008 data): - Index score: 0.685 - Rank: 102 - LDHS 2009: 35% of households are female-headed. - Legal reforms: Legal Capacity of Married Persons Act 2006 repealed many discriminatory provisions in the formal legal system and is expected to improve women's access to credit, land improvements, investment, entrepreneurship, and guardianship of children once fully implemented. - Policy challenge: Continue implementation of the gender policy framework to reduce women's social subordination and empower their contribution to development and poverty reduction. ### Economic resilience and external vulnerabilities - SACU revenue pool provides 50 – 60% of Government revenue; it declined during the global economic and financial crises, necessitating expenditure reductions. - World FDI has decreased due to global uncertainty. - Private sector reduced output and employment in response to decreased demand for exports. - Exchange rate exposure: - Currency link between the Loti and the Rand provides a fixed exchange rate with the main trading partner and greater stability against other currencies. - Producers selling to international markets (notably textile firms selling to the American market) face potentially volatile movements in the exchange rate, impacting profitability and production. - Policy challenge: Encourage greater diversity in markets and products to reduce exposure to external risk. ### Vulnerability to natural disasters and climate change - Early 2011: Heaviest rains in decades caused loss of agricultural output and infrastructure damage (power grids destroyed, roads swept away, bridges collapsed). - Recent years: Droughts, hailstorms and other natural disasters caused periods of loss of output. - Rural vulnerability: Rural communities depending on subsistence agriculture are the most vulnerable. - Agriculture: 8% of GDP but essential source of income for many Basotho. - Policy implication: Making provision for such vulnerabilities is an essential aspect of the NSDP. ### Health, HIV and AIDS - Maternal health: - Census data suggests Maternal Mortality Rate (MMR) is about 939 per 100,000 live births. - Maternal mortality accounts for 1.1% of all deaths. - LDHS 2009: 92% of pregnant women made at least one visit to a professional ante-natal care provider; 70.4% made 4+ visits. - 58.7% gave birth in a health facility (proportion rises with wealth but declines with number of previous births). - LDHS 2009 MMR estimate: 1,155 per 100,000 live births (acknowledged wide confidence intervals). - Child health: - Infant Mortality Rate (IMR): 94.0 per 1000 live births (2006 Census) - Males: 102.5 - Females: 83.9 - Child Mortality Rate: 23.7 - Males: 26.5 - Females: 21.1 - LDHS 2009 vaccination coverage: - 61.7% of children aged 12-23 months have received all basic vaccinations - Coverage for individual vaccines ranges from 74.9% to 95.7% - Nutrition (LDHS 2009): - 39.2% of children are stunted - 14.8% are severely stunted - 3.8% are wasted - 13.2% are underweight - HIV and AIDS (LDHS 2009): - Female population aged 15-49 HIV positive: 26.7% - Male population aged 15-59 HIV positive: 18.0% - National rate: 23.0% - Lesotho has the third-highest HIV prevalence rate in the world. - Prevalence: percentage of HIV-positive women greater than infected men in almost all age groups except men 40 years and older; prevalence considerably higher among young women than among young men. ### Productivity, skills and education - Productivity gap: Investments in education and skills development are not reflected in improved productivity across the entire economy. - Skills mismatch: Supplied skills often not those demanded by the economy; many recent graduates struggle to find productive local work, contributing to brain drain and youth unemployment. - Reform needs: - Increase productivity and reduce wastage in manufacturing. - Reform TVET and tertiary institutions to produce an adequate supply of relevant and competitive skills. - Education and training system reforms to address quality, access and relevance. - Other constraints: Low level of entrepreneurship, inadequate range of relevant business skills, and inappropriate choices of technology. ### Urbanisation dynamics and risks - Demographic projection: Bureau of Statistics predicts urban population will grow by 20% over the next 10 years, while rural population will remain approximately constant. - Urbanisation expected to accelerate beyond 2020 with employment growth concentrated in urban areas. - Benefits: Greater proximity to employment and services; infrastructure provision more cost effective in urban areas. - Risks: - Urban poverty could become a threat. - Urban poor without access to subsistence farming or rural networks are particularly vulnerable. - Risk of urban sprawl and encroachment on fertile agricultural land. - New arrivals on urban periphery face less access to infrastructure and higher transportation costs leading to economic exclusion. - Policy response: Implement efficient planning policies and institutions to ensure benefits of urbanisation are utilised and risks mitigated. ### Infrastructure gaps and priorities - Overall: National infrastructure relatively poor compared to regional peers; major improvements required in transport, power, water and sanitation, and border and customs services. - Transport: - Importance: trade facilitation, reduce costs and time to markets. - Recent heavy rains negatively impacted the national road network. - Need to improve quality and safety of roads linking major towns and border posts, including roads between Lesotho and major towns in RSA. - Water and sanitation: - Lesotho has relative water abundance, but collection and distribution for industrial and household consumption is limited. - Industrial effluent treatment and disposal capacity needs augmentation. - Energy: - Power distribution network is old and requires rehabilitation and maintenance to prevent power cuts and minimize environmental hazards. - Identified potential: 6,000 MW of wind power; 4,000 MW of pumped storage hydropower; 80 MW of conventional hydropower. - Policy action: Mobilise investment and negotiate with potential investors to optimise returns for Basotho to ensure consistent, reliable and affordable power supply and export potential. - Customs and trade facilitation weaknesses: - Poor quality of roads between border posts and nearest towns on both sides - Poor customs infrastructure including double customs clearing points on the Lesotho and RSA side - Limited automation and roll out of customs clearing technology - Limited storage capacity - Dilapidated rail link and poor container handling facilities - Long lead times for cargo processing in RSA ports *Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr12102.pdf* ### 2.3 Opportunities ### 2.3 Opportunities ### 2.3.1 Labour Force - Lesotho’s comparative advantage is its people: an abundant and literate labour force that, if properly employed, can be the motor for development. - The labour force is now approximately 60% of the total population. - Demographic shifts present a “demographic bonus” / “window of opportunity” with the population aged less than 15 declining from 41.5% of the total in 1986 to 38.6% in 1996 and further to 34.1% in 2006, with a corresponding fall in the dependency ratio. - East Asian experience is cited: the demographic bonus is estimated to have accounted for about one-third of the region’s economic growth from 1965 to 1990. - Key constraints and requirements: - Address current skills shortages; education system and skills development strategy must be more responsive to emerging economic demands. - Economic gains require job creation, increased productivity, savings and investment. - Competitiveness must not be eroded by excessive domestic price increases. - Wage growth in private and public sectors must remain in line with gains in labour productivity. - Government intends to manage the trade-off between welfare of those employed and the welfare of the labour force as a whole by building on constructive labour relations. ### 2.3.2 Location - Lesotho is centrally located within South Africa, offering opportunities to integrate into South Africa’s main economic centres. - Competitive advantages versus South African provinces: - Better labour cost competitiveness than Mpumalanga for supplying the Gauteng market. - Better road access than the Eastern Cape. - Access to South Africa’s infrastructure facilitates Lesotho’s access to world markets more easily than many other African countries. - Structural change in national income sources: - In the 1980s two-thirds of national income (GNI) was generated by remittances from South Africa and one-third by productive activity within Lesotho’s borders. - By 2010, GDP generates over 70% of national income and it is expected to increase further over the Plan period. - Migration patterns: - Traditional migration to South African mines and kitchens will be gradually replaced by migration within Lesotho’s borders as domestic employment opportunities increase. ### 2.3.3 Trade Preferences - Lesotho derives a high proportion of national output from trade in manufactured products; export-led growth in labour-intensive manufacturing offers substantial job-creation opportunities. - AGOA and US market: - Over the last ten years Lesotho has taken full advantage of the US Africa Growth and Opportunity Act (AGOA) and is the largest African textile exporter to the US market. - Diversification strategy: - Lesotho will seek to leverage other trade preferences to diversify export markets and reduce vulnerability to specific shocks. - Greatest potential for diversification and growth comes from South Africa and other regional markets through membership of SACU and SADC. - Lesotho has negotiated an Economic Partnership Agreement (EPA) with the European Union that offers trade preferences. - Lesotho will explore South-South trade and strengthen bilateral relations with countries such as China. - Investment requirement: - To take advantage of export opportunities, Lesotho must attract and sustain foreign investment, especially from new sources such as South Africa. ### 2.3.4 Clean Energy and Green Technologies - Lesotho has a small carbon footprint and the opportunity to pursue greener, sustainable development. - Electricity supply: - Almost all demand is satisfied by hydropower; Lesotho’s electricity supply is described as “amongst the greenest in the world.” - Increasing energy demand requires investment in expanding hydroelectric supply. - Other renewables: - Water and wind have potential to supply rural areas not connected to the grid. - Environmental and economic co-benefits: - Lesotho will promote public and private investments that reduce carbon emissions and pollution, prevent loss of biodiversity and ecosystems, and invest in green technology to reverse deforestation and soil erosion. - Green technologies can enable more efficient domestic heating and cooking. - Natural capital: - Development will maintain, enhance and, where necessary, rebuild natural capital as a critical economic asset and source of public benefits, especially for poor people whose livelihoods and security depend strongly on nature. *Source: _cr12102 - 2.3 Opportunities* ### 3.3 Growth Scenarios ### _cr12102 - 3.3 Growth Scenarios ### Context and starting position - Lesotho was adversely affected by regional and international developments since the global economic shock in 2008, including reductions in US demand for textiles and in global demand for diamonds. - Reductions in the size of the SACU Customs Pool and the requirement to repay excess payments reduced revenue-sharing receipts. - Substantial fiscal deficits in 2009/10 and 2010/11 were largely financed by drawing down Government balances with the Central Bank of Lesotho (CBL), causing a dramatic drop in aggregate Net Foreign Assets and reducing import cover to less than 3 months in 2011/12. - Three potential growth scenarios are explored: Low Growth, Moderate Growth (with Growth Accelerators), and the Plan Scenario (with Growth Generators). ### Low Growth Scenario — assumptions and outcomes - Key assumptions: - SACU revenues recover from recent low levels. - Major committed public capital projects (e.g., Metolong Dam construction supported by the Millennium Challenge Corporation) are completed. - After ongoing fiscal adjustment, public expenditure resumes a long-term trend rate of 2% growth in real terms. - Total factor productivity increases by 0.5% per annum in some sectors reflecting recent investment climate reforms (e.g., Land Act 2010, tax administration, starting a business, getting credit). - Outcomes: - Slow growth in real GDP: an annual average of 1.9% from 2010/11 to 2016/17. - Formal employment growth: 1.0% a year; average less than 220,000 formal sector jobs throughout the Plan period. - Persistent fiscal deficits averaging M 1,300 million each year from 2010/11 to 2016/17. - Import cover falls from 3.4 months in 2010/11 to 0.6 months by 2016/17, threatening convertibility of the Loti and CMA membership. - Government would be forced to undertake severe sustained adjustment measures if this path continued. - Key indicators for the Low Growth Forecast, 2010/11 – 2016/17: - Real GDP (Mm): 15,399; 15,960; 16,519; 16,363; 16,450; 16,787; 17,197 - Real GDP (% annual change): 3.6%; 3.5%; -0.9%; 0.5%; 2.0%; 2.4% - Real GNI (Mm): 20,781; 21,263; 21,873; 21,809; 21,868; 22,138; 22,780 - Real GNI (% annual change): 2.3%; 2.9%; -0.3%; 0.3%; 1.2%; 2.9% - GDP (Mm, current prices): 15,399; 16,557; 18,257; 18,851; 19,653; 20,902; 22,343 - GNI (Mm, current prices): 20,834; 22,128; 24,071; 25,019; 26,050; 27,488; 29,526 - Formal Employment (000): 211.7; 213.3; 221.1; 216.0; 215.5; 219.2; 224.5 - Investment (Mm): 4,994; 5,752; 6,758; 6,846; 6,754; 7,111; 7,685 - Fiscal Balance (Mm): -1,634; -1,935; -99; -848; -1,155; -1,658; -1,865 - Import cover (months): 3.4; 2.5; 2.9; 2.8; 2.1; 1.4; 0.6 ### Moderate Growth Scenario and Growth Accelerators - Scenario incorporates plausible investment plans by major agents, including substantial mining expansions and commencement preparations for Lesotho Highlands Water Project (LHWP) Phase II. - 3.3.2.1 Mining: - Diamond mining share of GDP rose from 0.2% in 2000 to 7.0% in 2010. - Expected investment outlay around M 5.8 billion, mostly between 2012/13 and 2015/16. - Diamond exports expected to increase from M 1.7 billion in 2010/11 to an estimated M 9.0 billion in 2016/17. - GDP will increase by M 4.2 billion in real terms; tax revenues up by M 1.7 billion (current prices) after investment-related tax deductions. - 3.3.2.2 Water Projects: - LHWP Phase II investment in 2010 prices around M 3.2 billion up to 2016/17 and a further M 3.9 billion subsequently. - Construction activities should add over M 500 million to GDP in 2016/17. - Approximately 11,000 jobs will be created annually during the main construction period from 2015/16 to 2019/20; about half in construction and half in indirect activities. - Majority of these jobs will be temporary during the investment phase. - 3.3.2.3 Moderate Growth Forecast — summary outcomes: - Mining GDP contribution trebles from M 1.2 billion in 2010/11 to M 4.3 billion by 2016/17 (constant 2010/11 prices); mining share of GDP rises from 7% to 20%. - Assumes M 7.0 billion investment in LHWP Phase II (transfer tunnel-related investment only). - Forecasted GDP growth from M 15,572 million in 2010/11 to M 21,890 million in 2016/17, equal to an annual growth rate of 5.8% (constant prices). - GNI and GNDI grow more slowly than GDP: GNI 4.2% per annum and GNDI 4.6% per annum respectively. - Exports growth 16.4% a year; employment grows by 39,000 (2.9% a year) to around 252,000. - Mining expected to generate only 2,700 additional mining jobs in 2016/17 (capital-intensive); LHWP II construction expected to create approximately 11,000 jobs during peak years. - Fiscal position improves after 2010/11 and 2011/12 deficits, with small surpluses averaging around M 300 million per annum over the Plan period, but fiscal outcome deteriorates after 2016/17 as expenditure keeps increasing while mineral-led revenue slows. - Balance of payments improves, allowing Central Bank to rebuild net foreign assets; import cover stays above three months throughout the Plan period. - Key indicators for the Moderate Growth Scenario, 2010/11 – 2016/17: - Real GDP (Mm): 15,572; 16,534; 17,771; 18,006; 19,169; 21,132; 21,890 - Real GDP (% annual change): 6.2%; 7.5%; 1.3%; 6.5%; 10.2%; 3.6% - Real GNI (Mm): 20,925; 21,717; 22,907; 23,227; 24,152; 25,813; 26,843 - Real GNI (% annual change): 3.8%; 5.5%; 1.4%; 4.0%; 6.9%; 4.0% - GDP (Mm, current prices): 15,572; 17,175; 19,800; 21,071; 23,390; 27,117; 29,375 - GNI (Mm, current prices): 20,982; 22,628; 25,377; 26,990; 29,215; 32,740; 35,577 - Formal Employment (000): 213.0; 215.6; 230.6; 233.7; 231.7; 243.0; 252.2 - Investment (Mm): 5,207; 5,950; 8,237; 10,126; 8,979; 9,712; 10,926 - Fiscal Balance (Mm): -1,585; -1,727; 380; -201; 104; 487; 564 - Import cover (months): 3.4; 2.5; 3.0; 3.3; 3.2; 3.4; 3.7 ### Plan Scenario and Growth Generators — strategy and expected impacts - Rationale: - Moderate growth still leaves Lesotho overly dependent on two accelerators and does not fully meet sustained employment objectives. - The Plan identifies four potential growth generators to improve the enabling environment and drive broader-based, sustainable growth: agriculture, manufacturing, tourism, and deeper investment climate reforms. - Implementation timing: - Plan assumes 2012/13 budget allocations as base; reforms begin in 2012/13 but impacts effectively start from 2013/14 and build over the next three financial years. - Differences between Plan scenario and Moderate scenario are modest over this short period but expected to grow post-2016/17. - Expectations and required conditions: - Reforms must resolve long-standing binding constraints, improve planning and sequencing of infrastructure interventions, and be implemented broadly. - Investment climate reforms are mutually reinforcing with gains from manufacturing and agriculture; multiplier effects will be more significant after 2016/17. - Delay in investment climate reforms could undermine broader productivity and investment gains. - 3.3.3.1 Investment Climate: - World Bank estimate: a good environment for doing business can add 1.4% to annual GDP growth. - Government package assumed to raise annual productivity by 1% a year. - Between 2013/14 and 2016/17, these reforms are expected to increase real GDP by approximately 1.7%. - Productivity gains may not directly increase employment but facilitate competitiveness and additional investment that creates jobs across sectors. - 3.3.3.2 Agriculture: - Target: increase contribution of agriculture to GDP by raising productivity. - A switch of 10,000 households from maize to higher value products and increased livestock output/productivity would increase real agricultural GDP by M 70 million; net impact on total GDP around 0.2% by 2016/17. - Employment impact: about 2,400 jobs (increase in total employment of 1%). - 3.3.3.3 Manufacturing: - Reforms include serviced industrial sites, factory shells, improved trade facilitation, provision of trade finance, and greening opportunities; promote a textiles hub and industrial clusters. - Expected impacts by 2016/17: - Exports increase by M 1.25 billion. - GDP increases by M 392 million (+1.8%). - Employment increases by 8,400 (+3.3%). - Average household income increases by M 398 per year. - Required investment approximately M 865 million, mostly from foreign investors. - 3.3.3.4 Tourism: - Target: increase demand by 50%, bringing tourists to approximately 500,000 in 2016/17. - Impact by 2016/17: - GDP up by 0.2% (M 54 million in real terms). - Employment up by approximately 25%, or 800 jobs (many in rural areas). - Priority issues: marketing, product development, customer service quality, regulatory environment, institutional support. ### Quantified impacts (Table 3.3 summary) - Baseline Lesotho FY 2010/11: - GDP (Mm constant prices): 15,572 - GNDI (Mm constant prices): 25,113 - Employment: 213,009 - Exports (Mm current prices): 6,743 - Tax Revenues (Mm current prices): 3,416 - Household Income (M current prices): 45,976 - Low Growth Scenario FY 2016/17: - GDP: 17,197 - GNDI: 28,920 - Employment: 224,538 - Exports: 10,161 - Tax Revenues: 4,491 - Household Income: 46,400 - Growth Accelerator 1 — Diamond Mining (impact by FY 2016/17 compared with low growth projection): - GDP (Mm constant prices): 4,167 (24.2%) - GNDI (Mm constant prices): 3,507 (12.1%) - Employment: 16,539 (7.4%) - Exports (Mm current prices): 6,638 (65.3%) - Tax Revenues (Mm current prices): 1,686 (37.5%) - Household Income (M current prices): 1,572 (3.4%) - Growth Accelerator 2 — LHWP II Construction: - GDP: 527 (3.1%) - GNDI: 478 (1.7%) - Employment: 11,078 (4.9%) - Exports: 44 (0.4%) - Tax Revenues: 207 (4.6%) - Household Income: 1,006 (2.2%) - Moderate Growth Scenario FY 2016/17: - GDP: 21,890 (27.3% vs low growth) - GNDI: 32,895 (14.1%) - Employment: 252,168 (12.3%) - Exports: 16,775 (65.1%) - Tax Revenues: 6,388 (42.2%) - Household Income: 52,931 (14.1%) - Growth Generator impacts (additional effects by FY 2016/17): - Agriculture: GDP +40 (0.2%); GNDI -54 (-0.2%); Employment +2,434 (1.0%); Exports -11 (-0.1%); Tax Revenues +24 (0.4%); Household Income -159 (-0.3%) - Manufacturing: GDP +392 (1.8%); GNDI +289 (0.9%); Employment +8,392 (3.3%); Exports +1,251 (7.5%); Tax Revenues +144 (2.3%); Household Income +398 (0.8%) - Tourism: GDP +54 (0.2%); GNDI +52 (0.2%); Employment +760 (0.3%); Exports +122 (0.7%); Tax Revenues +23 (0.4%); Household Income +88 (0.2%) - Investment Climate Reform: GDP +372 (1.7%); GNDI +391 (1.2%); Employment +156 (0.1%); Exports +429 (2.6%); Tax Revenues +17 (0.3%); Household Income +71 (0.1%) - Plan Scenario FY 2016/17 (consolidating Growth Accelerators and Generators): - GDP: 22,770 (37.9% vs FY 2010/11) - GNDI: 33,590 (16.1%) - Employment: 263,910 (17.5%) - Exports: 18,621 (83.3%) - Tax Revenues: 6,599 (46.9%) - Household Income: 53,300 (14.9%) *Source: _cr12102 - 3.3 Growth Scenarios* ### 4. Macroeconomic Framework ### 4. Macroeconomic Framework ### 4.1 Overview — Recent Economic Performance - GDP (current prices) nearly doubled between 2000/01 and 2010/11: +195%. - GNI and GNDI growth over the same period: +130%. - Domestic product is equal to 80% of national income and 65% of disposable income (2010/11). - Population growth over the decade: 4%. - GNI per capita (current prices) increased from M 4,684 in 2000/01 to M 10,393 in 2010/11: +122%. - Real annual average GDP growth over the decade: 3.8%; GDP annual rate exceeded 3% in all six years since 2005/06. - GDP growth rates: slowed to 3.6% in 2009/10; reached 5.7% in 2010/11 (exceptional crops performance). - Real annual average GNI growth over the decade: 0.7% (much more volatile than GDP). - Investment (current prices) doubled since 2000/01; recent drivers: public sector investment (Metolong Dam, Millennium Challenge Account, major roads). - Savings declined over the decade; 2010/11 savings and investment rates: 13% and 19% of GDP respectively. - Real private consumption growth over the decade: 29%; Government consumption: 39%; implies increased household welfare given 4% population growth. ### 4.1.2 Recent Fiscal Trends — Key Findings - Lesotho’s public expenditure (average over last decade): 52% of GDP (over 60% in some years). - Total revenue grew by 249%: from M 2,451 million in 2000/01 to M 8,559 million in 2010/11. - Domestic revenue (excluding grants and SACU) grew by 300%. - Introduction of VAT at 14% in 2003 and creation of Lesotho Revenue Authority improved collections; tax revenue grew faster than GDP. - Company income tax rate cut from 35% to 25% in 2008 did not adversely affect collections; may have improved compliance. - Grants increased from M 138 million in 2000/01 to M 1,200 million in 2010/11 (includes exceptional general budget support and MCC drawdowns). - SACU revenues: M 1,129 million in 2000/01 (46% of total government revenue). Rapid increase to M 3,945 million in 2006/07 (60% of total revenue). Fell by 47% in 2010/11 to M 2,628 million (31% of total revenue). - Total expenditure increased by 284% over the period despite 2010/11 cuts. - Compensation of employees up 222% (partly due to contributory public service pension in 2008/09). - Use of Goods and Services up 178% (despite a 26% cut in 2010/11). - Transfers to households and SOEs up 535% (national old-age pension in 2004/05 and increased student bursaries). - Acquisition of non-financial assets averaged M 320 million annually between 2000/01 and 2006/07; rose rapidly thereafter and increased by 11% in 2010/11 to M 1,923 million. - Fiscal balances: - Deficits around 3% of GDP in 2001/02 and 2002/03. - Surpluses averaging 7% of GDP from 2003/04 to 2008/09. - 2009/10 deficit: 6.4% of GDP (expenditure up 22% vs revenue up 3%). - 2010/11 deficit: 6.6% of GDP (after SACU revenue fall). - Lessons and policy implications: - Rapid growth in public expenditure appears unsustainable; apply fiscal rules to align spending with long-term sustainable revenues. - Fiscal adjustments via expenditure cuts and adherence to hard budget ceilings are necessary. - Reduce dependence on SACU by increasing domestic revenues through structural reforms to boost productivity and competitiveness. - Build and maintain adequate reserves for fiscal prudence and support of monetary policy. - Build fiscal resilience and adopt measures to manage downside risk (see Section 4.6). ### 4.2 Macroeconomic Policy — Objectives - Provide an attractive environment for foreign and domestic investment. - Encourage domestic savings and foreign capital inflows. - Ensure sustainable levels of fiscal deficit and public debt. - Ensure low and stable inflation rates (Reserve Bank of South Africa target: 3-6%). - Maintain sound external balances. - Set tax and expenditure policies to beneficially affect distribution of incomes and wealth. #### 4.2.1 Fiscal Policy — Strategy and Principles - Current conditions require fiscal discipline; little immediate headroom for fiscal expansion. - Expenditure strategy based on the medium-term expenditure framework up to 2014/15; strategic goals pursued through cost efficiencies and better allocation of existing resources. - From 2015/16 onwards: Goods and Services expense allowed to grow at approximately 2% a year in real terms while maintaining debt sustainability and external balances. - Heavy reliance on SACU transfers (usually over 50% of total revenue under current SACU Agreement). - Domestic revenue policy objectives for tax system: - Horizontal equity. - Vertical equity. - Economic efficiency with tax neutrality. - Administrative simplicity and low compliance costs. - Symmetry (taxable gains and deductible losses). - Inclusiveness (rules apply to all income sources). - Expenditure policy objective: provide public goods and services that improve national welfare while avoiding crowding out private-sector-led growth; growth in public expenditure should be kept below forecast economic growth to reduce Government size relative to economy. #### 4.2.2 Monetary Policy and External Sustainability - Lesotho is a member of the Common Monetary Area (CMA) with Namibia, South Africa and Swaziland; the Loti is pegged at par with the South African Rand. - Lesotho maintains current CMA arrangements over the Plan period to support cross-border trade and a liberal open economy. - Reserve Bank of South Africa manages monetary policy for the CMA; Lesotho does not pursue independent monetary policy. - Benefits of CMA arrangements: - Unrestricted movement of capital between CMA members. - Domestic inflation anchored to regional inflation; supports export competitiveness. - Freer movement of goods and services across borders without currency regime transaction costs. - Current strong Rand presents an obstacle to export-led growth, but exporters benefit from South Africa’s policy commitment to maintain a competitive exchange rate. - Inflation drivers: primarily price developments in South Africa (about 80% of Lesotho’s imports for final consumption). - NIR target and indicators: - Monetary Policy Committee sets targets for NIR (US$ 776 million as at February 2012). - Reserves indicator: 3 – 6 months of imports cover. - Import cover: 6.3 months in 2008/09; 3.8 months in 2010/11. - External debt portfolio: - Approximately M 4,955 million in 2010/11 (less than one-third of GDP). - About 90% concessional project financing (mainly multilateral); domestic debt less than 10% of GDP. - 2010 debt sustainability analysis: non-concessional borrowing for Metolong Dam might temporarily increase key ratios but debt service ratios would remain well below critical thresholds due to highly concessional existing debt. - IMF engagement: - Three-year Extended Credit Facility (ECF) with IMF in June 2010 to support significant economic growth, fiscal consolidation, and increased exports. - Objective: improve current account balance, strengthen NIR and import cover. - IMF financing subject to attaining specific targets; performance monitored through six-monthly reviews. - Third ECF Review (completed February 2012) consistent with Plan Projection. ### 4.3 Economic Projection for the Plan Period — Main Outcomes - Plan Projection assumptions: - Base structure from low growth scenario. - Inclusion of mining and water investments from moderate growth scenario. - Impact of reforms described in Section 3.3. - Real GDP (2010 prices) projection: - 2010/11: M 15,572 - 2016/17: M 22,770 - Average annual growth rate: 6.5% (up from 5.8% in moderate scenario). - Growth pattern and year-by-year notes: - 2012/13 figures identical to moderate scenario (reflect slowdown after mining and construction expansion). - Reform measures impact: - 2013/14 growth forecast: 1.9% (Plan) vs 1.3% (moderate). - 2014/15 growth forecast: 7.4% (Plan) vs 6.5% (moderate). - 2015/16 and 2016/17 growth forecasts: 11.6% and 5.0% (Plan) vs 10.2% and 3.6% (moderate). - GNI and GNDI growth in Plan Projection: - Real GNI annual average: 4.7% (up from 4.2%). - Real GNDI annual average: 5.0% (up from 4.6%). - Employment projection: - Formal employment rises at an annual average of 3.6% from 213,000 in 2010/11 to around 264,000 in 2016/17. - Confirms Plan objective to create 50,000 sustainable private sector jobs. - Low growth scenario employment: 225,000. - Moderate growth scenario employment: 252,000. - Plan reforms add a further 12,000 jobs above moderate scenario. - Investment (gross fixed capital formation) higher by approximately M 450 million annually from 2014/15 onwards in Plan Projection. - Balance of payments: current account deficit increase offset by higher foreign direct investment inflows on financing account. - Fiscal outcome: improvement by approximately M 50 million per annum from 2013/14 onwards. - Net Foreign Assets and import cover: similar to moderate scenario; import cover consistently above three months. #### 4.3 — Table of Key Indicators for the Plan Projection, 2010/11 – 2016/17 (selected values) - Real GDP (Mm): 15,572; 16,534; 17,771; 18,101; 19,436; 21,688; 22,770 - Real GDP (% annual change): 6.2% 7.5% 1.9% 7.4% 11.6% 5.0% - Real GNI (Mm.): 20,925; 21,717; 22,907; 23,323; 24,393; 26,297; 27,611 - Real GNI (% annual change): 3.8% 5.5% 1.8% 4.6% 7.8% 5.0% - GDP (Mm, current prices): 15,572; 17,175; 19,800; 21,100; 23,537; 27,620; 30,339 - GNI (Mm, current prices): 20,982; 22,628; 25,377; 27,007; 29,329; 33,152; 36,390 - Formal Employment (000): 213.0; 215.6; 230.6; 234.0; 234.6; 250.2; 263.9 - Investment (Mm.): 5,207; 5,950; 8,237; 10,250; 9,451; 10,189; 11,491 - Fiscal Balance (Mm): -1,585; -1,727; 380; -186; 142; 557; 658 - Import cover (months): 3.4; 2.5; 3.0; 3.2; 3.1; 3.3; 3.5 #### 4.3 — Comparative Growth Forecasts (high-level) - Lesotho FY 2010/11 baseline values: - Real GDP (Mm, constant prices): 15,572 - GNDI (Mm, current prices): 25,113 - Employment: 213,009 - Exports: 6,743 - Tax Revenue: 3,416 - Average Household Income (M): 46,000 - Lesotho FY 2016/17 totals: - Low Growth Forecast: - GDP 17,197 (1.9%) - GNDI 28,920 (2.5%) - Employment 224,538 (1.0%) - Exports 10,161 (7.4%) - Tax Revenue 4,491 (4.9%) - Average Household Income 46,400 (1.6%) - Baseline Forecast: - GDP 21,890 (5.8%) - GNDI 32,895 (4.6%) - Employment 252,168 (2.9%) - Exports 16,775 (16.4%) - Tax Revenue 6,388 (11.0%) - Average Household Income 52,900 (2.4%) - Plan Projection: - GDP 22,770 (6.5%) - GNDI 33,590 (5.0%) - Employment 263,910 (3.6%) - Exports 18,621 (18.4%) - Tax Revenue 6,599 (11.6%) - Average Household Income 53,300 (2.5%) - Overall conclusion: Plan Projection yields better outcomes than the moderate scenario but depends on coordinated government reforms improving the business environment and positive private-sector responses; external developments (especially in South Africa) will affect competitiveness, investment and market access. *Source: _cr12102 - 4. Macroeconomic Framework* ### 4.4 Fiscal Framework, 2011/12 – 2016/17 ### 4.4 Fiscal Framework, 2011/12 – 2016/17 ### Forecast resource envelope and revenue projections - Total revenue (current prices) growth: - Expected annual average rate: 10.1%. - Major part of growth occurs in 2012/13 as SACU receipts are expected to bounce back from the exceptionally low level in 2010/11. - From 2013/14 onwards, Projections anticipate an average annual increase of just 3.1% in current prices. - SACU and Customs Pool: - Customs Pool likely to decline as a result of lower average tariffs and free trade agreements between SACU and its trading partners. - Uncertainties about long-term SACU revenues imply Government should be cautious in setting the aggregate expenditure ceiling. - Any windfall receipts (e.g., higher than anticipated Customs revenue) should be used to rebuild reserves and pay off accrued liabilities to increase fiscal resilience. ### Tax revenue and policy constraints - Tax revenue forecast: - Expected to increase by an annual average of 10.6%. - Most growth occurs in 2015/16 and 2016/17 due to assumptions about diamond production value and allowing capital expenditure against tax liabilities (which will reduce collections in early years of higher production). - Policy constraints: - For Lesotho, there is limited scope to modify tax rates; higher taxes could adversely impact the investment climate and damage Plan growth objectives. ### Plan Summary Fiscal Framework (Mm) — key fiscal account figures (as provided) - Total Revenue: - 2011/12: 9,190 - 2012/13: 13,337 - 2013/14: 12,424 - 2014/15: 12,339 - 2015/16: 13,510 - 2016/17: 14,844 - Tax Revenue: - 2011/12: 3,984 - 2012/13: 4,554 - 2013/14: 4,749 - 2014/15: 5,048 - 2015/16: 5,740 - 2016/17: 6,599 - Grants: - 2011/12: 1,558 - 2012/13: 1,846 - 2013/14: 1,186 - 2014/15: 684 - 2015/16: 698 - 2016/17: 712 - Non-Tax Revenue: - 2011/12: 3,649 - 2012/13: 6,937 - 2013/14: 6,489 - 2014/15: 6,607 - 2015/16: 7,072 - 2016/17: 7,533 - Of which, SACU: - 2011/12: 2,753 - 2012/13: 5,966 - 2013/14: 5,456 - 2014/15: 5,431 - 2015/16: 5,703 - 2016/17: 5,988 - Expense: - 2011/12: -8,190 - 2012/13: -9,047 - 2013/14: -9,289 - 2014/15: -9,590 - 2015/16: -10,329 - 2016/17: -11,157 - Goods & Services: - 2011/12: -5,605 - 2012/13: -6,429 - 2013/14: -6,589 - 2014/15: -6,806 - 2015/16: -7,282 - 2016/17: -7,797 - Property: - 2011/12: -134 - 2012/13: -169 - 2013/14: -242 - 2014/15: -259 - 2015/16: -282 - 2016/17: -316 - Transfers: - 2011/12: -2,450 - 2012/13: -2,449 - 2013/14: -2,458 - 2014/15: -2,525 - 2015/16: -2,765 - 2016/17: -3,044 - Capital Account (Non-Financial Assets / acquisition of non-financial assets): - 2011/12: -2,727 - 2012/13: -3,910 - 2013/14: -3,321 - 2014/15: -2,607 - 2015/16: -2,624 - 2016/17: -3,029 - Fiscal Balance: - 2011/12: 1,727 - 2012/13: 380 - 2013/14: -186 - 2014/15: 142 - 2015/16: 557 - 2016/17: 658 ### Expenditure strategy and public finances - Expenditure framework: - Government’s expenditure strategy for the Plan period is based on the current medium-term expenditure framework up to 2014/15. - Significant fiscal adjustment in 2010/11 responded to the decline in SACU revenues; strict ceilings were imposed on Goods & Services (including compensation of employees) and Transfers. - Recovery in SACU revenues allowed some additional fiscal discretion in 2012/13 but within a hard budget ceiling. - Projected growth in spending: - From 2015/16 onwards, expense on Goods and Services is projected to grow at approximately 2% a year in real terms. - Transfers increase by 3-4% per annum. - Public sector wage bill: - Need to keep the public sector wage bill under control; raising productivity across civil service is necessary to implement Plan interventions. - Additional fiscal space expected from efficiency savings via public financial management reforms. - Capital budget dynamics: - Capital budget exceptionally large recently due to Metolong Dam financed by the Millennium Challenge Account. - Aggregate allocation for acquisition of non-financial assets declines from M 3,910 million in 2012/13 to M 3,321 million in 2013/14 and to M 2,607 million in 2014/15. - Ceiling increases slightly in 2015/16 and by about M 400 million to M 3.0 billion in 2016/17 as Metolong project completes and drops out of capital budget. - Completion of ongoing projects will release resources for Plan activities. ### Fiscal balance, debt sustainability and macro outcomes - Matching resource envelope and expenditure ceilings: - Fiscal balance will record a relatively small surplus over the Plan period (averaging about M 300 million per annum). - Confirms that Lesotho will satisfy all critical debt sustainability indicators. - Growth and public spending in current prices: - Economy expected to grow at 12.1% per annum. - Public expenditure forecast to grow by 5.4% a year. - Size of Government relative to private sector will reduce in line with fiscal strategy. - Conditions for achieving outcomes: - Strict aggregate expenditure control and improved quality of expenditure through allocative targeting and operational efficiency are required. ### Fiscal and monetary policy objectives (to realize target growth rates and macro stability) - Improving resource allocation and cost efficiency to support growth, resulting in increased revenue and additional fiscal space. - Promoting fiscal consolidation by reducing fiscal deficits and adhering to debt sustainability (lower deficits/GDP and debt/GDP) and rebuilding fiscal reserves. - Ensuring fiscal discipline, including adherence to hard budget ceilings and elimination of arrears. - Improve tax/revenue administration and mobilisation of finance for development by broadening the tax net and exploring ways of raising non-tax revenues. - Increasing absorptive capacity of Ministries to spend budget allocations. - Containing the wage bill and increasing public sector efficiency. - Maintaining the Loti/Rand convertibility and/or building international reserves. - Sustain the real value of capital expenditure and maintain a stable ratio of capital to total spending. ### Economic projection beyond the Plan period (summary) - Reform benefits mainly achieved after 2016/17 up to 2020/21 and beyond; productivity improvements assumed slower after 2016/17. - Sectoral and activity assumptions: - Agricultural production growth rate will slow (prime opportunities to switch to commercial agriculture likely exploited by 2016/17). - Tourism growth slows to 5% per annum (industry base larger than in 2012/13). - Investment for LHWP Phase II virtually complete by 2020/21, with negative impact on construction; employment in construction expected to fall by 1,600 between 2019/20 and 2020/21 if no new investments are secured. - GDP projections: - GDP projected to increase from M 22,770 million in 2016/17 to M 25,720 million in 2020/21 under the Plan scenario. - Moderate growth scenario: GDP projected to grow from M 21,890 to M 23,637 million by 2020/21. - Reforms during the Plan period will raise the annual average growth rate from 1.9% to 3.1%. - Formal employment projected to grow by an additional 47,000 jobs (at an annual average rate of 3.0%). ### Managing downside risks - Historical precedent and institutional responses: - Government has used improved revenue collection (e.g., creation of the Lesotho Revenue Authority), expenditure control and rationalisation, public sector reform, financial sector reform, privatisation, and maintenance of external reserves at about 6 months of imports cover. - Anticipated shocks and preparedness: - Shocks may include drought, floods, global recession, or higher regional food prices. - Fiscal strategy designed to be robust to absorb likely economic impacts and prepare responses to improve resilience. - Intentions include improving climate change resilience, rebuilding reserves eroded by recent deficits, and closely monitoring debt sustainability indicators for early warning signs. - Specific risks: - Lesotho’s share of SACU revenues may fall due to a smaller pool from lower effective tariff rates, change in trade arrangements (e.g., introduction of the SADC customs union), or renegotiation of the revenue-sharing formula; such a shock would force Government to reduce its share of expenditure in the economy. - Natural disaster experience: - Analysis of 2010/11 floods indicates initial losses can be substantial, but evidence suggests output can recover within 1 to 2 years and fiscal costs can be accommodated by temporary reallocation within the fiscal envelope. - Establishment of a Disaster Management Fund will further strengthen domestic resilience. - External threats to industry: - Scheduled tightening of access to the US textile market under AGOA (proposed enforcement of double-transformation in 2012 and termination of all benefits by 2015) poses a major external threat that could cause substantial contraction of the industry and employment losses. - Government will be proactive in trade negotiations to protect industrial competitive advantages and encourage firms to raise productivity and diversify products and markets. *Source: 4.4 Fiscal Framework, 2011/12 – 2016/17 (extracted from the provided chapter content).* ### 1. Lack of over- ### _cr12102 - 1. Lack of over- ### Business Regulation - Create one single overarching investment policy that gives both domestic and foreign investors clarity about obligations and opportunities. - Institutionalisation of Regulatory Impact Assessment (RIA) - Develop and disseminate Regulatory Impact Assessment (RIA) policy to ensure that it is mandatory to carryout RIA prior to policy and law making. - Starting a business (It takes many days and procedures, and it is costly) - Implement OBFC strategy: review the legal standing and structure of the OBFC to improve efficiency; automate business registration procedure and develop related legal framework; develop a new Business Registry Act and facilitate use of a single identification for businesses; improve inter-agency cooperation; and strengthen management of OBFC. - Join the Corporate Registries Forum which provides market information and economic profiles. - Rollout OBFC to the districts, starting with industrial centres. - Regularise Environmental Impact Assessment: - Review Environment Act and guidelines to ease application and test applicability for different sectors. - Introduce accreditation of EIA consultants- certification board and regulate fees. - Health Certificate: - Change health inspection from pre- to post-inspection (although, once the policy on risk has been determined, high-risk businesses would be excluded). - Review Public Health Act accordingly. - Dealing with construction permits (It takes many days and procedures and it is costly) - Set time limits and service levels (e.g. enforce 30 day time limit to get a permit from MCC). - Develop guidelines for applicants and automate the application process for construction permits. - Explore options for establishing one-stop centre for relevant agencies (MCC, LSPP, WASCO and LEC) to enhance coordination and efficiency and network information registries in MCC, LTDC and MTICM and others. - Getting electricity (it takes too long to get connected) - Improve responsiveness of LEC to business requests for electricity connections. - Set time limits for external connection works and meter installation and explore options for improving the efficiency for equipment and materials procurement. - Set time limits and service standards for inspections and remove the security deposit fee. - Registering property (It takes many days and costly procedures) - Fully implement the 2010 Land Act. - Computerize the Registry of Deeds to allow automated searches of titles. - Standardise transfer deeds documents and eliminate mandatory requirement for an attorney. - Administer the set time limits (one month as per 2010 Land Act) for issuance of tittles. - Enforcing contracts (It takes many days and procedures, and it is costly to enforce contracts) - Fully implement the Commercial Court operations. - Introduce the small claims procedure in the Magistrate Courts and integrate the Court Annexed Mediation programme in the High Court, Commercial Court and Magistrate Court. - Set time limit for execution of judgments. - Automate case management system (computerization) in the courts. - Capacity building for specialised skills of court personnel. - Restructure civil courts organizational structure. - Development and implementation of courts’ strategic plan and performance evaluation system. - Protecting Investors - Implement new Companies Act. - Paying taxes (It takes many payments and hours per year to pay taxes) - Institutionalise operation of the tax policy committee and make the membership more inclusive. - Reduce compliance costs by establishing a small businesses tax regime. - Streamline business processes with respect to: frontline advice and assistance; registration; taxpayer returns processing; audit; collection of revenue; debt management; clearance of goods; refunds; and taxpayer records management. - Trading across borders (It takes many days and procedures and costly to import/export) - Harmonize applicable laws and regulations (e.g. between SPS, OBFC and Customs); simplify administrative and commercial formalities, procedures and documents. - Standardize and integrate information and requirements (make information on border requirement easily available and accessible). - Create a National Trade Facilitation Working Group to coordinate different agencies. - Review legislation such as the SACU Customs and Excise Act to facilitate automation of customs processes etc. and the VAT agreement with RSA to enhance the existing border arrangement. - Continue refurbishment of border posts, allow for use of technology and separation of trade traffic from other traffic. - Create one stop border and develop programmes with South Africa to improve the complete border experience (including for business and tourism). - Create a web based trade portal that allows provision of information on importers and exporters. - Enable online application of import and export permits and automated procedures. - Automate clearance of goods (e.g. use of scanners or sensors to confirm legitimate goods). - Closing a business (It takes many days and costly procedures) - Incorporate procedures for insolvency (currently under the 1967 Insolvency Act) in the new Companies Act and improve insolvency and debt enforcement procedures. - Capacitate Commercial Court Judges and legal practitioners on new insolvency procedures. - Establish a framework that allows out-of-court negotiations for the restructuring of outstanding debts. ### Access to land - Modernization of land policy and administration - Development of related regulations and improvement of other complementary legislations to Land Act, such as Land Survey Act (1980), Valuation and Rating Act (1980), Town and Country Planning Act (1980), Local Administration (1997), etc. before the expiry of the Millennium Challenge Account in June 2013. - Systematic land regularization and registration - Fast-track Land Regularization and Registration programme (e.g. issue of leases to informal or unplanned urban sites owners to enable them to ‘transact’ and invest on land as an economic asset). - Strengthen public outreach and training. ### Corruption and Crime - Reduce corruption and crime - Strengthen capacity of Financial Investigation Unit(FIU). - Implement recommendations of DCEO review study. - Enhance legal frameworks to fight corruption. ### Labour Force and Relations - (No specific actions listed in the provided content.) *Source: _cr12102 - 1. Lack of over-* ### 14. Industrial and ### 14. Industrial and labour relations ### Labour relations: institutional capacity and permits - Enhance capacity of institutions to enforce provisions of the labour laws and to prevent and resolve labour disputes (DDPR, Ombudsman and the Labour Court, Labour department) - Make legal provision for integrated work/ residence permits to be issued at the OBFC - Train more arbitrators in Ministry of Labour and Employment ### Reforms approach - Reforms will be continually monitored and involve a series of improvements implemented and enhanced over time, learning from domestic experience and from successes and failures elsewhere, and terminating policies that are not working. ### Financial services — sector structure, challenges and indicators Findings and indicators - Sector composition: four commercial banks, seven insurance companies, two asset management companies (responsible for six collective investment schemes including two money market funds), money lenders and credit-only institutions, and financial cooperatives. - Financial sector contribution to GDP in 2010: about 6% - Financial sector assets accounted for 84.1% of Lesotho’s GDP. - Commercial banks account for about 51.3% of the assets of the financial sector. - Three of the commercial banks are foreign owned; their assets account for 90.3 per cent of the total assets of the banking sector in Lesotho. - Insurance sector assets account for 29.5% of assets of the financial sector. - Loans to deposit ratio of the banking system as at 31 March 2011: 35.4% - Private sector credit as a percentage of GDP: 28.4% - FinScope survey 2011 initial finding: estimated 62% of the population is unbanked. - Number of bank branches: 40; only two banks have countrywide outreach with 29 branches. - Average branches per bank: 10 branches per bank. - Banks generate 26 per cent of income from fees and 35 per cent from interest (fee share cited as "26 per cent of income of the banks is generated from fees as opposed to 35 per cent from interest"). - Average bed occupancy rate in tourism (contextual): 17.9% in 2009 (note: tourism stat appears elsewhere in document). Main challenges - Out-dated regulatory laws; non-existence of legislation regulating non-bank financial institutions; conflicting legislation (e.g. FIA and Cooperatives Act, Deferred Pay Act, Societies Act). - No safety-nets to protect depositors and policyholders. - Financial intermediation relatively low; banking sector highly liquid but small portion of deposits on-lent. - Underdeveloped money and capital markets: money market comprises Treasury bills and the interbank market; no secondary market; limited market instruments and product differentiation. - High fees charged by banks; wide spread between deposit and lending rates; capital freely mobile within the CMA encouraging cross-border banking use. Operational priorities and key actions - Operationalize the established credit guarantee scheme (risk shared between banks, GoL and Borrower). - Accelerate development of leasing policy and related law. - Implement measures to improve functioning of courts and ability to enforce contracts. Strategic objectives and actions - Improve financial stability and soundness: - Improve regulatory and supervisory framework to deal with risk, including adoption of macro-prudential approach. - Harmonise regulatory frameworks with the SADC region. - Increase regulation coverage and eliminate overlaps between regulatory institutions. - Enhance consumer protection (enact/improve deposit protection law and sections of the Cooperatives Societies Act dealing with cooperative banks). - Facilitate application of Basel Accords and adoption of best international practices. - Review and improve legal frameworks: pensions and insurance legislation; bankruptcy laws; credit reference and data protection laws; leasing law; legislation for money and capital markets development. - Improve access to financial services: - Improve market information dissemination to enhance competition and reduce cost of financial services. - Operationalise the credit guarantee schemes. - Develop policy and incentives to encourage development of low cost service channels. - Implement measures to ensure effective administration of new land laws and leasing laws so potential borrowers can provide land as collateral. - Enhance capacity and coverage for risk management services. - Operationalise the national identity system and credit bureau to address information asymmetry. - Strengthen legal framework and operations of the commercial court to improve contract enforcement. - Strengthen capacity and skills of micro-finance institutions. - Modernise the post-bank, including introduction of mobile banking. - Promote linkages between financial institutions, business development services institutions and MSMEs. - Increase alternatives for mobilising financial resources: - Undertake periodic research to develop appropriate financial instruments and institutions. - Facilitate development of secondary and capital markets. - Explore establishment of diaspora bonds/investment vehicles to finance development. - Promote savings culture: - Promote establishment of savings instruments with low operating costs and competitive and stable returns. - Promote long term contractual savings for retirement. - Improve efficiency of the financial sector: - Improve payment and settlement systems by establishing an automated clearing house with necessary infrastructure. - Align national payment and settlement system to regional systems. - Facilitate linkage of micro-finance institutions to the clearing house. - Bridge skills gaps and increase financial literacy: - Improve skills development capacity of local institutions. - Improve linkages between financial sector institutions and institutions of higher learning. - Undertake education and information campaigns on savings and finance at community level. ### Trade — strategy, constraints and actions Key constraints and objectives - Lesotho has a very small domestic market and must pursue outward-oriented strategy using regional and international markets: SACU, SADC, the US through AGOA, the EU through EPA and EFTA. - Main growth sectors: manufacturing, mining, agriculture and tourism. - Need to remove binding supply-side constraints, secure/maintain favourable trading arrangements, and strengthen trade in services (tourism, mining, agriculture, education, professional business services including call centres). - Requisite infrastructure and related services required: freight, clearing services, certification, trade finance. - Negotiation for removal/reduction of tariff and non-tariff barriers critical. - Creation of SQUAM infrastructure and reduction of time and costs in import/export permits remain critical. - Institutional strengthening of private sector organisations and trade promotion necessary. Strategic objectives and actions - Enhance productive capacity and exports: - Implement expansion and diversification programmes in manufacturing, mining, agriculture, tourism and other services. - Promote cooperatives and associations and improve coordination and management capacity. - Develop commodity/industry specific production and export strategies. - Develop trade financing mechanisms and promote safe payment settlement systems. - Develop minimum infrastructure platform to facilitate internal and external trade. - Diversify and improve market access: - Negotiate/seek further market access agreements with more favourable conditions. - Adapt SADC standards through harmonisation of standards. - Improve processing of import and export permits for RSA and other markets, especially fresh produce. - Develop national standards framework and establish a Bureau of Standards. - Strengthen investment and trade promotion: - Review/develop and implement trade promotion strategy. - Review, improve and implement investment promotion strategy, including use of e-solutions. - Promote consumer protection: - Review and develop appropriate legislative framework for consumer protection. - Establish institutional framework for consumer protection, complaints and education, including Small Claims court. - Strengthen trade institutions capacity and efficiency: - Develop consolidated trade policy and a quality and standards policy and related laws. - Develop sustainable capacity building programmes for trade policy analysis and trade negotiations. - Restructure/improve capacity of business development support institutions and improve coordination. - Establish industrial clusters to facilitate technology adoption for industrialisation and improve quality of services. - Strengthen private sector associations to participate in policy development and advisory services. - Put information on trademarks and Intellectual Property Rights in the public domain. ### Agriculture and rural economy — trends, constraints and objectives Key facts and indicators - Agriculture contribution to GDP: declined from around 20% thirty years ago to around 8% now. - Crops and livestock sector contributions to GDP: crops 2.3% and livestock 4.1%. - Main crops land shares: maize about 60%, sorghum 20% and wheat 10% of agricultural land. - Irrigable land: around 25,000 ha, but only a small percentage used for irrigated crop production. - More than 70% of grains are imported. - Farming faces constraints: limited access to finance, inputs, technology, extension services, marketing information; poor market organisation; high soil infertility; large unused/fallow land; high livestock theft. - Impact of HIV and AIDS: loss of adult manpower affecting production. - Land tenure system does not create incentives to reduce inefficiency or underutilisation; conversion of agricultural land to human settlements. - Crop production largely rain-fed and susceptible to extreme weather variability. Strategic objectives and actions Promote sustainable commercialisation and diversification in agriculture - Improve access to finance: - Support services to prepare bankable projects and facilitate access to the Partial Credit Guarantee Scheme and matching grants facility supported by IFAD and other facilities. - Strengthen capacity of agricultural finance institutions (cooperatives and credit unions). - Improve quality livestock breeding capacity: - Develop a cadre of certified livestock breeders; use livestock improvement centres. - Promote artificial insemination services in viable areas. - Improve access to farm machinery and quality inputs: - Explore development of viable agricultural inputs distribution and marketing systems. - Promote contract farming/out-grower schemes with integrated input and output markets. - Evaluate the programme of procurement and on-lending of tractor and irrigation equipment to eligible farmers and implement recommendations. - Develop capacity for commercial seed production, export and promote investment in related infrastructure. - Establish an appropriate national seed bank. - Develop water harvesting infrastructure and increase irrigation capacity: - Identify land and declare as selected agricultural land (SAA) for irrigation development. - Develop dams and/or channels from large dams to make water accessible for irrigation in a cost-effective manner. - Promote small gravity-fed irrigation schemes and viable irrigation scheme models. - Finalise irrigation policy, including strategies to increase efficient use of irrigable land. - Increase production of high value crops and livestock products: - Identify niche markets; undertake commodity systems analysis and develop production, marketing and/or export strategies and plans. - Strengthen production and marketing support units to promote appropriate agricultural technologies and private sector investment. - Promote block farming for commercial grain production, horticulture and other high-value crops. - Strengthen marketing information infrastructure and link to regional and international networks. - Strengthen capacity to undertake marketing research and effective dissemination. - Increase value-addition and market integration through agri-industry and agri-business development: - Undertake quantitative value chain analysis and promote investment across value chains. - Increase capacity of Lesotho Produce Marketing Services (LPMS) for technical marketing operations support and small agro-processing industrial design and support. - Divest or outsource management of remaining commercial public agricultural enterprises. - Develop programmes targeted at small-medium scale agro-processing, distribution and marketing at community level. - Develop public marketing infrastructure and management arrangements, including access roads, market centres and slaughter houses. - Promote agri-business development to facilitate marketing of agricultural produce. Strengthen capacity of farmers and institutions - Enhance agricultural institutions and capacity through training and transformation of extension services: - Review land tenure system from agricultural perspective and introduce measures to increase productive use and reduce deterioration of agricultural and rangelands. - Review and transform the extension system; outsource extension and training services in some areas on a pilot basis. - Develop specialised curricula for farmers and extension staff; rehabilitate Farmers Training Centres and improve/outsource management. - Strengthen capacity of agricultural groups in production and agri-business development. - Improve capacity and relevance of agricultural research and training: - Improve agricultural research capacity (infrastructure, equipment). - Develop integrated land and water management policy and framework. - Review the agricultural research system and education system for better coordination and alignment with sector priorities. - Strengthen linkages between Lesotho Agricultural College and Faculty of Agriculture and the sector. - Strengthen young farmers’ programmes; review curriculum and explore 3-6 months intensive programmes for lead and young farmers. - Enhance capacity and systems for policy analysis and planning: - Develop efficient systems for data generation and enhance capacity for monitoring and evaluation. - Review agricultural land use plans; update and develop sub-sector policies and corresponding legislation (e.g. irrigation policy, livestock policy and phyto-sanitary frameworks). - Undertake regular public expenditure reviews and establish inter-ministerial coordination mechanisms. Reduce vulnerability and manage risk - Improve household food security: - Promote conservation farming, community gardens, training for food preservation/storage/processing/preparation, animal exchange programmes, and orchard development. - Reduce stock theft and increase recovery: - Identify strategies to complement livestock registration and marking (microchip). - Intensify cross-border collaboration. - Strengthen capacity of police services/stock theft unit, including access to helicopter services and links with community policing. - Maintain animal and plant health: - Rehabilitate dipping facilities and improve levy collection. - Introduce and train para-veterinary staff. - Strengthen border inspection of imported animals and plants; ensure banned species do not enter/leave the country. - Climate change proof the agricultural sector: - Develop and implement “climate screening guidelines” for agriculture. - Improve agro-meteorology capacity and communication with farming community. - Ensure agricultural research addresses climate change, including increased water capture and storage for irrigation, introduction of improved drought resistant seed varieties, improved dual purpose chicken and livestock with tolerance to climate extremes, and climate-adapted cropping patterns. - Reduce market risks: - Explore use of futures markets by the private sector to manage price volatility. - Identify options for agricultural insurance products. - Evaluate options to establish food reserves for food security and price management. - Promote integrated and sustainable development in rural areas: - Develop basic infrastructure to increase access to services and markets and strengthen rural-urban linkages. - Promote integrated planning linking agriculture with tourism, mining and small-scale manufacturing. - Develop appropriate PPPs and regulatory frameworks to increase private initiatives where public goods/essential services are not accessible. - Enhance incentives and ICT-based solutions to ensure placement and access to qualified personnel in rural areas. - Review human settlement policy to reduce isolation and cost of service provision while protecting cultural and other rights. - Promote preservation of culture and beneficial traditional systems. ### Manufacturing — employment, constraints and strategic measures Key facts and indicators - Employment in manufacturing: 39,762 in 2005; 45,262 in 2008; fluctuating around 43,000 in 2010. - Textiles and Clothing contribute about 45% of total exports. - Net contribution (value-added) of clothing sector to GDP is small due to CMT (major inputs imported). - LNDC rents: M10/m2 per month; implicit annual subsidy equivalent of M1,400 per worker (textiles subsector) and M6,000 per worker (in other manufacturing). - Cost of providing factory shells and associated transport and infrastructure: approximately M 350 million for every 10,000 jobs to be created. Constraints - Inadequate industrial infrastructure, long lead times and high export costs, erosion of preferences, insufficient backward integration, limited product and market diversification. - 2010 Land Act restricts foreigners from owning land outright; local partnership requirement reduced from 51% to 20%; LNDC performs partner role and builds factory shells funded by Government; shortfall of space for investors; private firms cannot invest in factory shells because of land and subsidy issues. Strategic objectives and actions - Maintain the textiles hub by sustaining and increasing exports: - Identify niche markets; develop linkage programmes to improve backward and forward linkages in textiles. - Promote investment in production of garment inputs. - Upgrade textiles curriculum at Skills Development Centres; integrate textile skills in Lerotholi Polytechnic and similar institutions. - Expand industrial infrastructure: - Short-term: fast-track ongoing building of factory shells and related industrial infrastructure. - Long-term: prepare industrial infrastructure development strategy, including legal changes to allow FDI to invest directly in factory shells with 100% land ownership within industrial zones. - Expedite provision of utilities to industrial sites (electricity, water, ICT, waste disposal and management facilities, including roads). - Upgrade key infrastructure for trade facilitation: dry port/refurbishment of Maseru Container Terminal, one-stop border posts, upgrading national roads and access roads to production sites. - Engage in bilateral talks with RSA to explore options for speeding up shipments in Durban and other ports. - Streamline import and export procedures and upgrade customs processing and clearance facilities to enable high speed cross-border transit. - Develop industrial clusters to diversify products and develop integrated supply chains: - Identify priority industries (furniture, leather, electronics, food processing) and develop industrial integration strategies. - Promote investment into new high-tech/high-value products and agro-processing. - Develop incentives framework to encourage R&D. - Increase local participation in manufacturing: - Provide information on manufacturing opportunities and markets. - Establish industrial engineering and technology support services. - Explore and pilot programmes to facilitate linkages between MSMEs and large industry. ### Tourism — potential, constraints and strategic actions Key facts and indicators - Accommodation establishments rose from 44 to 144; number of beds increased from 2,466 to 4,791. - Tourist arrivals increased by only 12% between 2000 and 2009; annual growth rate 1.4%. - Average bed occupancy rate: 17.9% in 2009. Constraints - Infrastructure challenges: accommodation facilities and attractions not linked; no basic infrastructure on identified tourism investment sites. - Limited protection of cultural heritage assets and disparate packaging efforts. - Low private sector participation to date. Strategic objectives and actions - Develop tourism products and circuits: - Identify and develop tourism-related infrastructure to create circular routes linking attractions and facilities. - Identify sites for tourism investment and declare as special development areas (SDAs). - Undertake research and create platform for tourism innovations and investment promotion aligning with a developed brand. - Develop strategies for increased participation of local communities in the tourism value-chain. - Develop comprehensive plans for amenities and invite private sector participation. - Protect, conserve and manage cultural heritage resources: - Develop strategy for culture protection, conservation and effective use as livelihoods. - Identify, document and protect heritage sites and ecotourism destinations; facilitate repatriation of objects of national significance. - Develop soft and hard infrastructure for conservation and management of heritage assets, including museums and archives. - Promote documentation through art, writing, film and support arts and crafts industry development. - Develop a programme for palaeontology and archaeology. - Improve quality and standard of service: - Implement accommodation star grading system. - Design curriculum and delivery modalities for sectoral skills development (tour guides, product development, marketing). - Promote a culture of hospitality; facilitate quality service at border posts; devise strategies for a more vibrant food and dining industry and recreational activities. - Improve marketability and visibility: - Develop a unique brand to differentiate Lesotho. - Establish tourist information centres/services at strategic locations. - Develop and pursue an aggressive marketing strategy; forge linkages with tour operators in RSA and the Region. - Improve institutional framework and regulations: - Explore easing visa application/processing where necessary. - Develop system for data collection to improve reliability and timeliness. - Update licensing procedures to shorten licence application processes. - Review institutional framework and skills mix in key institutions to strengthen capacity. - Strengthen capacity for event tourism promotion and management. - Review legal frameworks to accommodate required developments, including regulations to give effect to the National Heritage Resource Act 2011. ### Mining — growth, impacts and policy needs Key facts and indicators - Diamond mining share of GDP: 0.2% in 2000 to 7.3% in 2009/10. - Projected employment increase from mining companies over Plan period: approximately 1,500 additional jobs (double existing numbers). - Total additional employment when including indirect demand: around 5,300. - Average household income expected to be approximately M 970 higher by 2016/17 (in line with employment increases). Challenges and priorities - Industry is capital intensive; limited direct employment growth from investment. - Government role: avoid unnecessary regulatory problems and increase skills base; remove impediments to importation of unavailable skills. - Need for consolidated mining policy and review of legal frameworks, including mining tax code and alignment with land use planning. - Improve authorisation systems for exploration and extraction; ensure technical, social and environmental considerations; augment mineral resource intelligence. Strategic objectives and actions - Provide information on natural resources wealth: - Complete geological mapping. - Develop database and website. - Improve policy framework: - Prepare consolidated policy including alluvial mining and adopt best practices for charges and taxation, labour, safety and security, domestic access and environmental sustainability. - Review legal frameworks accordingly. - Promote value addition and marketing: - Facilitate development of intermediaries for local and international marketing, especially sandstone. - Promote investment in downstream industries (cutting, polishing, jewellery manufacturing for diamonds; higher value products for clay, sandstone). - Improve mining companies' access to infrastructure: - Explore options for improving access to clean and cost effective energy. - Build and rehabilitate national roads in areas with major mineral sites. - Explore use of carbon trading financing facilities for the sector. - Develop skills base: - Facilitate development of skills with current or projected shortages. - Enhance investment promotion and local participation/ownership: - Develop mining investment promotion strategy. - Facilitate establishment of vehicles for domestic private participation. ### Micro, Small and Medium Enterprises (MSMEs) — scope, constraints and interventions Key facts and indicators - Estimated number of MSMEs operating in Lesotho: 100,000. - Employment in MSMEs: over 300,000 people, including subsistence agriculture. Constraints - Inadequacies in technical, management and entrepreneurial skills; competitiveness; access to infrastructure; poor regulatory framework; limited access to finance, markets and information. - Results: stunting and low survival rates, poor quality of services and products. Strategic objectives and actions - Improve entrepreneurship capacity: - Improve entrepreneurship training, business counselling, mentorship and incubation programmes, and accredit business development service providers. - Integrate entrepreneurship curriculum at secondary level in all schools and enhance teachers’ skills. - Strengthen entrepreneurship capacity of youth groups, cooperatives and private sector associations. - Improve competitiveness and productivity: - Facilitate establishment of industrial clusters and development of supply and marketing intermediaries to improve logistical support and increase local value-addition. - Develop systems and services for quality management including certification of products and business processes; strengthen Government institutional capacity to provide advisory services. - Establish enterprise and industrial development units to support MSMEs in industrial design and development. - Undertake enterprise audits and provide enterprise-specific technical and business management training. - Develop MSME-related infrastructure and improve access to technology: - Reform regulatory environment to make it easier to formalise MSMEs. - Provide MSME property solutions including improvement (with necessary utilities and storage facilities) of market centres in all districts. - Establish technology hubs and industrial parks to facilitate value chain linkages and improve market access. - Create an information centre with web-based information dissemination. - Develop policy to promote research and development by industry. - Review intellectual property rights (IPRs) legislation to protect innovations/IPRs. *Italicized source: _cr12102 - 14. Industrial and* ### 5.2 Develop Key Infrastructure ### 5.2 Develop Key Infrastructure ### Overview - Prospects for economic growth are maximised by a comprehensive network of high-quality infrastructure across Transport, Water and Sanitation, Energy, Information, Communications and Technology (ICT), Housing and Sports. - New investments will be prioritized to high-growth, high-potential areas based on greatest contribution to growth objectives and allocated on a multi-year basis to ensure assets are maintained. - Project selection and design will focus on value-for-money, equity, environmental protection, economic diversification and security. - Integrated planning and adequate recurrent resources are required to operate and maintain assets and to maximise opportunities for integration of physical infrastructure (ICT, Water and/or energy). ### Transport Key statistics and current infrastructure - Road network: 7,437 km, 16% paved, 51% gravel, 33% earth and other forms of roads - Moshoeshoe I International Airport near Maseru and 12 operational airstrips throughout the country - Railway: a 2.5 km railway line from Maseru industrial area to the Maseru Bridge border - Footpaths network including 221 footbridges providing river crossings - About 25% of the population live in the mountains; lowlands are relatively well served Public providers - Lesotho Freight and Bus Services Corporation provides a very small percentage of public road passenger services where private sector is unprofitable - Approximately 44 ferryboats at river crossings owned and operated by MOPWT Strategic objectives and actions - Improve access to main towns and key border posts - Maintain and improve major national corridors that link main towns and key border posts - Improve border crossing by creating high speed transit/one-stop border posts to link Lesotho to RSA and the rest of the world - Develop a dry port (cargo handling facility and the railway station) - Explore possibility of establishing a Lesotho hub/commercial presence at one of the RSA ports - Improve and develop integrated rural and urban transportation systems - Develop and maintain access roads in rural and urban areas - Promote efficient labour intensive construction projects - Develop policy and relevant legislation (e.g. standards) for water transport - Promote private participation in water transport - Explore different financing strategies to accelerate road infrastructure development and options for increasing revenue - Undertake futures analysis to prevent congestion especially in major towns and reduce pollution and inform town planning - Develop plans for integrated/inter-modal transport system, including well developed bus stations and/or inter-changes - Explore options for improving public transport system - Improve transport safety and reduce road accidents - Assess quality and safety level of existing infrastructure and upgrade infrastructure and standards - Install quality road safety furniture (e.g. roads signs) - Improve and enforce speed and drink and driving regulations - Improve air transport competition, efficiency and coverage - Attract other airline operators and explore possibility of creating a regional hub - Upgrade Moshoeshoe I international Airport in line with planned developments - Rehabilitate selected strategic airstrips - Revitalize air cargo facility project through cooperation with RSA and other members ### Water and Sanitation Key statistics and context - Lesotho lies in uppermost parts of Senqu, Mohokare/Caledon and Makhaleng river systems - Completion of LHWP Phase IA (mid-1990s) and Phase IB (early 2000s) generated royalties and enabled hydroelectric generation at Muela - Around 77% of households have access to improved water sources - Only 25% have access to improved sanitation - Severe water access problems are experienced in the lowlands where about two thirds of the population live - Metolong Dam and Water Supply Programme (MDWSP) will make available 75,000 m3 of treated water per day by 2014, enabling Maseru to meet domestic and industrial requirements for at least the next 40 years Strategic objectives and actions - Expand water and sanitation distribution services to industries, commercial centres, households and other institutions - Develop water infrastructure for communities that have no access to water, including installation of communal taps and protection of the wells - Develop financing instruments to fast-track connectivity of water and sanitation infrastructure to industry, commercial centres and households in rural and urban areas - Enforce standards for construction of Ventilated Improved Pit latrines (VIP) and treatment of industrial waste and other effluent - Build main lines for sanitation infrastructure for connection by industries, commercial centres, households and other institutions - Facilitate and/or develop pre-treatment and wastewater recycling infrastructure for industries and domestic sources - Review institutional framework to improve coordination and accountability (Rural Water Supply, WASCO, Ministry of Natural Resources and other agencies) - Expand water harvesting infrastructure - Build water harvesting infrastructure including LHWP and lowlands bulk water supply projects - Facilitate development of household and community level water harvesting infrastructure for irrigation, fisheries and others ### Energy Key statistics and context - Muela hydropower station generation: 72 Megawatts (MW) - Imports about 67 MW: 40 MW from Mozambique and 27 MW from South Africa - Household access to electricity estimated at 20%, concentrated in lowlands and Senqu river valley - 77% of Basotho use biomass as the main source of energy - Established potential: about 6,000 MW of wind power, 4,000MW of pumped storage, plus 80 MW of conventional hydropower Strategic objectives and actions - Increase clean energy production capacity to attain self-sufficiency and export - Evaluate renewable power generation options and negotiate financing arrangements to expand national generation capacity - Explore opportunities and negotiate regional power pool linkages - Develop small-scale electricity generation models viable for communities where grid connection is not cost-effective - Expand electricity access to industry, commercial centres, households and other institutions - Maintain existing power generation infrastructure - Extend transmission and distribution networks and increase connectivity rates through community initiatives and by reviewing tariff policy and terms for connections - Evaluate rural electrification programme for technical and cost efficiency and implement recommendations - Increase energy conservation, security and distribution efficiency of alternative sources - Raise awareness and promote use of energy efficient technology - Develop and disseminate guidelines for specific industries and types of firms to increase energy conservation/efficiency - Promote appropriate technology for bio-fuel use - Promote forest/tree planting and regeneration of other important bio-fuel species - Undertake research to assess market and distribution efficiency of other sources of energy - Develop and implement medium – long-term energy security strategy, including alignment with land and mining rehabilitation policy - Promote research in solar and other potential niche energy markets ### Information and Communications Technology (ICT) Key facts and issues - ICT increases competitiveness by reducing transaction costs and improving access to information, markets and services (e.g. e-commerce) - Lesotho has signed up to the East and Southern African Optic Submarine Cable System project to provide access to broadband infrastructure - Access to DSL broadband constrained by limited fixed line infrastructure and limited bandwidth - Broadband expansion likely to involve wireless technologies such as WLAN and WiMAX - Internet bandwidth currently sourced from RSA - There are six internet service providers in Lesotho Strategic objectives and actions - Improve ICT infrastructure and access - Facilitate connectivity to the East and Southern African Optic Submarine Cable System - Identify options for reconstitution of national backbone ICT infrastructure - Promote investment in advanced communications networks to make voice and data distribution services accessible across the country - Facilitate infrastructure sharing among network operators to optimise scarce resources - Identify and implement measures to enhance competition in the ICT sector to increase customer choice, quality and competitive pricing - Facilitate use of ICT and widen ICT literacy - Develop ICT roll out strategy and plan for schools and informal education programmes - Create community education and information programmes - Improve coverage and quality of postal services with integration of ICT services - Promote integrated private service provision (e.g. internet shops) especially in remote areas - Undertake market research to identify new solutions in banking, health, public service delivery and promote their adoption - Promote innovation and develop niche ICT sub-sectors - Undertake industrial competitive analysis, regulatory review and develop a national ICT industry development strategy and plan - Develop research and development agenda and strategy to promote research in the ICT sector (align with Skills and Innovation section) - Facilitate smooth migration from analogue to digital - Install appropriate technology - Develop and implement public education programmes - Improve cyber security - Develop cyber security strategy and programme for surveillance - Enhance e-Government services - Consolidate/update e-Government strategy, including alignment at central and local level - Undertake institutional review and improvement to facilitate accelerated and efficient implementation of the e-Government strategy - Develop implementation plan and multi-year budget ### Shelter and Property Development Key statistics and context - Owner occupied dwellings dominate the housing sector - Real estate accounts for about 9% of GDP, though annual growth is just above 1% - Rapid urbanization and inadequate capacity to meet urban housing needs have led to informal settlements and unsafe habitats - Vulnerable groups include those in slums/squatter settlements, elderly, OVCs and the poor Strategic objectives and actions - Improve and develop well-planned and serviced human settlements - Identify appropriate and cost-effective ways of re-planning and accelerating integrated infrastructure roll-out to human settlements - Develop a national land-use plan and implementation strategy - Promote urban densification by reducing average plot sizes and constructing more multi-story residential buildings - Improve access and quality of housing - Facilitate acquisition of land parcels for housing developments and develop a well functioning land/housing market - Facilitate access to housing finance (e.g. establish low income housing fund, encourage financial institutions to design instruments for different segments of the market and develop a housing resource mobilisation strategy) - Establish effective monitoring and control measures to improve standards - Evaluate and empower public housing development agencies (such as Lesotho Housing and Land Development Corporation (LHLDC)) and explore ways of increasing private participation in housing development - Regularise housing rental market - Promote and expand production of local building materials - Conduct research and encourage development of domestic materials and promote their use - Train and capacitate local producers in entrepreneurial, managerial and competitiveness skills to improve quality of products - Align property development initiatives with physical and economic plans - Develop growth poles development strategy and medium to long-term budget and financing strategy - Review and/or develop town and area physical plans and implementation strategies ### Sports Infrastructure Objectives and actions - Increase sports participation and its contribution to economic growth - Develop and implement sports and recreation development strategy and plan - Develop sports and recreation infrastructure maintenance, development and management policy and plan - Identify new opportunities for private sector investment - Identify national priority sports activities and effective means for talent search and development to focus resources for international competitiveness - Rationalise and enhance capacity of sports institutions to promote, manage programmes and organise local and international events ### Public Asset Development and Management Context and objectives - A significant proportion of the capital budget goes into infrastructure development; Government must establish effective systems for developing, upgrading, maintaining and operating assets cost-effectively - Improve and enforce quality standards in infrastructure development and ensure climate change proofing - Improve planning and coordination in acquisition of assets and enhance access and reduce time and costs to acquire services through one stop centres and public administration clusters at central, district and local levels - Framework needed to guide changing use of facilities, property disposals where property is in surplus, and maintenance of assets - Coordinated planning and management of public infrastructure development will support implementation of the Public Financial Management and Accountability Act 2011 (PFMAA), with respect to accrual accounting provisions Strategic objectives and actions - Improve public asset management - Develop public sector asset management policy/strategy - Develop a comprehensive asset register, use and maintenance plans for all levels of government - Develop public infrastructure development plan *Source: _cr12102 - 5.2 Develop Key Infrastructure* ### 5.3 Enhance Skills Base, Technology adoption and ### 5.3 Enhance Skills Base, Technology adoption and Foundation for Innovation ### Skills (5.3.1) — current situation and challenges - Labour is abundant and literacy rates are high at 85%. - High unemployment, relatively low productivity and limited technical skills for performing skilled blue collar jobs in leading sectors. - High end skills are limited partly due to brain-drain and there is a mismatch between the available skills and labour market requirements. - The base for skills development is improving but not at the rate required to sustain high and shared economic growth sectors. - Introduction of free and compulsory primary education has improved enrolment (net enrolment is above 80%) and the completion rate is high at 87.5% (2010). - Quality of education in many primary schools is poor, mainly because of the relatively low level of qualified teachers (48% in 2008). - Secondary level enrolment is improving over time, though still low, at just above 30%. - Enrolment remains low partly because few families are able to finance tuition costs and bursaries are limited relative to demand. - Low enrolment at secondary and high school levels limits manpower flexibility to acquire industry-specific skills and to move between sectors. - About 40% of the education budget finances higher education (budgets of public higher education institutions, student tuition fees and subsistence expenses), suggesting a systemic regressive bias as the majority of university entrants come from middle- and high-income households. - Tertiary institutions need transformation to provide world class competencies and entrepreneurial skills; attention required for technical and vocational training institutions to produce learned-to-do individuals. - Priority skills development areas: manufacturing and related engineering, agriculture and agro-industry, tourism, mining and entrepreneurship, business development and management (cross-cutting), and education and health skills shortages. - A manpower development strategy and plan is required based on a comprehensive needs assessment, including tapping potential for trade in services. - The Plan will build on current efforts to ensure universal literacy and numeracy by strengthening foundations: Early Childhood Care and Development (ECCD); basic education quality and access to secondary and high school; teaching capacity and infrastructure for science and mathematics at all levels; transformation of skills development institutions; increase high end professional skills (Professors, Doctor/PhD). ### Skills — strategic objectives and actions - Improve relevance and applicability of skills - Undertake medium to long-term manpower needs assessment and prepare a national human resource development plan - Revise the programmes offered in different institutions and align curricula with national development needs and sector/industry specific needs - Develop strategies to increase and institutionalise industry-led work experience schemes such as apprenticeships, attachments, and mentoring - Develop bursary policy that supports priority skills development needs and is equitable - Expand and upgrade TVET institutions to support growth sectors - Improve skills of trainees in vocational schools by making the curriculum more relevant and deploying qualified trainers - Create/transform some of the existing facilities into vocational secondary/high schools - Make more effective use of the textiles and manufacturing skills centre - Establish Lesotho Skills Agency that will have responsibility for coordinating and managing the TVET system - Develop TVET financing strategy that also promotes private sector or employers and financial sector participation - Rationalise and reform technical training institutions and skills training centres - Reform the regulatory framework through development of the TVET qualification structure, supported by new assessment and accreditation policies and procedures - Promote private sector participation in the provision of TVET - Design short-term, community level agricultural and other vocational training programmes targeted at adults, herders, initiation schools leavers and others - Transform institutions of higher education to become world class in selected subjects - Identify areas of specialisation or priority areas in which Lesotho has the potential to become world class and reform academic programmes and institutions accordingly - Develop a transformation plan to improve governance and management and increase the available pool of talent for teaching and research at higher learning institutions - Modernise and improve facilities and equipment for learning and research - Review curriculum and increase capacity for distance learning - Institutionalise appropriate quality assurance systems, including accreditation of programmes by the Council of Higher Education - Promote enrolment and improve infrastructure and quality of curriculum and teaching of maths and science at all levels - Improve teacher training programmes in mathematics and science - Establish incentive schemes for mathematics, science for teachers and to increase student enrolment - Upgrade laboratories and availability of Maths and Science teaching materials in schools - Improve the foundation for skills development through access, quality of education and infrastructure, including ICT literacy - Develop ECCD policy and establish a multi-sectoral approach for ECCD to improve children’s development (e.g. coordinating nutrition, immunisation, socialisation and education support) - Fast-track construction and/or rehabilitation of schools/classrooms and extend coverage of reception classes - Strengthen curriculum and quality of teaching at primary, secondary and high school levels to improve competencies of learners and reduce wastage (drop out and repetition), especially in rural Lesotho - Develop, expand and/or improve e-learning programmes (radio and TV programmes) - Identify and implement measures to increase secondary and high school enrolment - Mainstream special education at all levels and/or introduce programmes so that people with special needs can enrol and excel - Develop effective monitoring mechanisms to ensure that vulnerable groups (such as children with disabilities, herd boys and young female domestic workers) can exercise their right to free and compulsory primary education - Extend the coverage and/or provision of text books to secondary and high school levels - Improve access to educational material, knowledge and information - Strengthen the library system through automation, networking and better access to up-to-date materials - Promote the establishment of ICT services centres (internet cafes) in all localities to facilitate access to information, e-books and materials and networking - Promote the culture of reading and writing, especially at the early age - Transform institutions for business and entrepreneurship development and training of public sector employees - Review and rationalise entrepreneurship and business development programmes offered by different agencies to improve effectiveness and efficiency - Reform LIPAM to offer necessary and quality programmes for the public sector - Promote collaboration in the region - Reduce Brain Drain - Develop sector specific retention strategies and mechanisms to use skills in the diaspora - Promote partnerships between locals, Basotho in the diaspora and other international players to limit total out-migration - Identify opportunities and negotiate favourable agreements on trade in services in potential export markets ### Technology and Innovation (5.3.2) — current situation and rationale - Technical change and economic growth depend more on efficient diffusion of innovations than on being first to develop radical innovations. - Research and innovation are lynch pins for progressing to a knowledge based economy; medium term R&D focus should be on industrial and adaptive research. - Lesotho has a limited foundation for research and development, with very few institutions involved in scientific research. - Negotiating licences to conduct research on appropriate and environment-friendly technology can be complicated and expensive. - The proposal of Least Developed Country forum to establish and host a technology license bank that would maintain a database of available technologies, with details of suppliers, and a clearing house for buyers and sellers would increase opportunities for Lesotho to import appropriate technology. - Lesotho needs to make the transition to an information-oriented society and build a culture of innovation. - Cost-effective mechanisms involving the private sector need exploration to promote scientific research, development of innovations and operation of productivity centres. - Positioning to tap international innovation funds and promoting knowledge sharing and collaborative research are critical. - Case example: Quality Chemicals (India) - Cipla venture (Uganda) producing ARV and malaria drugs as South-South technology transfer to improve local production capacity; such cases could be emulated in other sectors. - For environment and climate change, scientific capacity must be improved to assess climate change vulnerabilities and adaptation, and to generate and communicate useful information for adaptation planning and action. - Innovation in non-scientific areas should also be pursued. ### Technology and Innovation — strategic objectives and actions - Enhance technology transfer, diffusion and use - Develop a local intellectual property rights (IPRs) information database, that would include international IPRs that are in the public domain and develop robust dissemination mechanisms - Strengthen the Appropriate Technology Services (ATS) of the Ministry of Communications, Science and Technology for development of appropriate technology and training of artisans - Establish a unit(s) that is responsible for technology research and dissemination in non/-scientific areas - Develop capacity for industrial engineering design and enterprise development support - Establish Science, Technology and innovation centres - Develop innovation culture and capacity for scientific research - Establish Science and Technology Council - Develop a national research and development agenda and implementation strategy covering priority sectors such as water, energy, manufacturing, ICT, indigenous plants and traditional knowledge - Improve infrastructure and facilities for science and technology in tertiary institutions and forge networks with other research institutions - Develop a resource mobilisation strategy for establishment of research and innovation fund and prepare the related legal framework - Reform relevant curricula to inculcate a culture of innovation, including non-scientific disciplines - Undertake institutional review for social and economic research and enhance coordination, efficiency and effectiveness of relevant institutions *Source: _cr12102 - 5.3 Enhance Skills Base, Technology adoption and (IMF PDF chapter content provided)* ### 5.4 Improve Health, Combat HIV and AIDS and Reduce ### 5.4 Improve Health, Combat HIV and AIDS and Reduce Vulnerability ### Health: key findings - Crude Death Rate (CDR) increased from 12.8 in 1996 to 26.5 deaths per 1000 people in 2006 (2006 Census). - Life expectancy at birth: 51.0 years in 1976; 59.0 in 1996; fell to 41.2 in 2006. (Females: 60.2 to 42.9; Males: 58.6 to 39.7.) - HIV prevalence main factor in high adult mortality: 232 per 1000 adults aged 15-49 years. - Maternal mortality rate: estimated 939 per 100,000 live births (2006 Census) and increased to 1.115 (LDHS 2009). - Antenatal care and facility births (LDHS 2009): 92% of pregnant women made at least one visit to a professional ante-natal care provider; 70.4% made 4+ visits; 58.7% gave birth in a health facility. - Infant Mortality Rate: 74 per 1000 live births in 1996; 94 in 2006 (102.5 for males, 83.9 for females). - Child Mortality Rate: 23.7 (26.5 for males, 21.1 for females). - Under-five mortality rate: 116/1000. Main causes under five: prematurity; birth asphyxia; pneumonia; neonatal sepsis; diarrhoea. - Vaccination coverage (children 12-23 months): 61.7% received all basic vaccinations in 2009 (down from 67.8% in 2004). Coverage for individual vaccines ranges from 74.9% to 95.7%. - Malnutrition (circa 2009): overall stagnated at around 40%; 39.2% stunted; 3.8% wasted; 13.2% underweight. Micronutrient deficiency among children 6 to 59 months: 47% in 2009. - Non-communicable diseases (hypertension, obesity, alcohol and drug abuse related illnesses) are increasing. - Health workforce ratios: doctors at 0.5 per 10,000; nurses and midwives at 6.2 per 10,000. WHO AFRO Region averages: doctors 2.4 per 10,000; nurses and midwives 10.9 per 10,000. - General access: generally good access to health facilities; opening of a new national referral hospital (with three filter clinics) in Maseru expected to improve access. ### Health: strategic objectives and actions - Reduce infant and child morbidity and mortality rates - Eliminate mother-to-child transmission of HIV by scaling up Prevention of Mother-to-Child Transmission (PMTCT) services - Scale-up cost-effective health interventions (such as immunization, essential new-born care, case management of pneumonia and diarrhoea) with proven high impact on child survival - Introduce community-based case management system for common childhood illnesses - Reduce Malnutrition (stunting, Wasting and Underweight) - Strengthen implementation of minimum health package with special emphasis on the first 1000 days - Strengthen implementation and management of Acute malnutrition programme - Improve community health and nutrition programmes, growth monitoring and promotion, nutrition education, infant and young child feeding practises - Develop and implement a national nutrition policy and its implementation strategy - Develop and enforce implementation of national food fortification legislation - Integrate nutrition monitoring in Health Management Information Systems (HMIS) - Enhance capacity of the national nutrition coordinating body - Reduce maternal mortality rate - Deploy skilled health/birth attendants at all health centres - Improve access to emergency obstetric care services - Provide maternal health education to communities and develop specific programmes for males - Reintroduce ante-natal shelters - Scale-up reproductive health education and services, including promotion of greater use of contraception. Establish comprehensive outreach health services - Increase awareness and improve facilities for cervical cancer testing - Scale-up essential nutrition package for pregnant and lactating mothers - Improve skills through capacity building and provide appropriate incentives to retain skilled health professionals - Develop a transformation and capacity building programme for local health training institutions - Improve linkages with external institutions on human resource development through bilateral agreements - Review and implement retention strategy - Explore viable options for establishing a medical school - Reinvigorate the Village Health Worker system through training and a revamp of supervision mechanisms - Develop a strategy for continuous medical education and an implementation action plan - Improve procurement and dispensing systems for pharmaceuticals and essential supplies - Implement pooled procurement and payment systems for drugs and medical supplies - Expand integrated electronic Drug Supply Management system - Attain full coverage and access to health services - Develop infrastructure in under-served areas - Implement the essential health package, including health infrastructure, human resources, medicines and health supplies plus appropriate technologies, transport and communication systems - Improve performance of and expand the integrated delivery system for prevention, treatment, care and support of communicable and non-communicable diseases, including mental health - Strengthen emergency health services - Explore options for the introduction of a sustainable social health insurance scheme - Strengthen management and accountability of health facilities and systems - Develop performance and accountability systems for management of all health facilities and services - Upgrade the health management information system and produce national health accounts - Improve public finance management systems and build technical capacity to operate them - Undertake an outcome-based public expenditure review for health - Prepare a Health Sector Development and Investment Programme, following a sector wide approach with common planning, financing, accounting and M&E procedures - Strengthen partnerships with the private sector, NGOs, churches and development partners - Use lessons learned from the PPP with Tsepong to assess further opportunities for collaboration to improve health infrastructure - Improve quality and access to laboratory services - Establish a national health laboratory system - Enhance public education on blood transfusion - Promote research and documentation of traditional medicine - Develop a policy for the partnership between traditional and conventional medicine in the context of Basotho culture - Promote documentation of available traditional medicines to inform future studies on efficacy and safety ### HIV and AIDS: key findings - HIV prevalence appears to be stabilising at a high prevalence of 23% with an annual incidence of 21,000 new infections in adults and 1,300 in children. - Gender differences: women prevalence 26.7%; men prevalence 18%. - Age-group prevalence highlights: lowest 3.5% among young people aged 15-19 years; women aged 35-39 years at 42.3%; men aged 30-39 years at 40%. - Main drivers of high HIV prevalence: unprotected sex in high risk sexual acts (multiple and concurrent partners, transactional sex), cultural practices perpetuating gender inequality and gender based violence, alcohol and drug abuse, limited access to condoms consistently, early sexual debut, increasing intergenerational sex, mother-to-child transmission, low/full circumcision in males, and high exposure among migrating populations and child-bearing age groups. ### HIV and AIDS: strategic objectives and actions - Reduce new infections through intensification of HIV prevention and integration with treatment - Intensify comprehensive condom programming (logistic management, condom promotion, distribution and procurement) and attain 100% roll-out - Promote circumcision of males and effectively communicate associated risk profiles - Intensify communication to influence behaviour change on key HIV and AIDS drivers and promote adherence to treatments - Promote ‘know your status’, HIV testing and maintain counselling capacity, focusing on community levels - Implement measures to enhance safety of the blood transfusion system - Explore options for incentivising people, especially the youth to stay HIV negative - Undertake research to improve the targeting of structural, behavioural and biomedical interventions to provide understanding of knowledge, attitudes and practices - Increase coverage and quality of treatment, care and support services and facilities - Increase coverage of ART treatment by finding innovative ways to encourage uptake and adherence to appropriate regimes, especially for women in the reproductive age group - Integrate nutrition support in treatment, care and support programmes - Increase coverage of Pre-ART treatment and encourage uptake and adherence to the appropriate regime - Strengthen capacity to implement home-based care in line with the existing guidelines - Facilitate co-management of TB/HIV which should include the integration of the TB/HIV services in the Health Services - Improve efficiency and sustainability of mitigation programmes - Consolidate support and empowering mechanisms for OVCs and other vulnerable groups - Promote workplace programmes and strengthen inspection to improve enforcement of HIV and AIDS policies and laws - Promote self-sustaining and livelihoods networks at community levels - Improve institutional effectiveness and coordination - Undertake a sector-wide HIV and AIDS institutional review to improve attainment of results, coordination, management, cost efficiency and promote integration of services - Strengthen capacity to mainstream HIV and AIDS in plans, policies and programmes - Improve capacity and modalities for mobilisation of funds for HIV and AIDS interventions - Undertake regular National AIDS Spending Assessments and implement recommendations to improve the efficiency and effectiveness of spending - Enhance capacity of organisations supporting people living with HIV and involve them in policy development and decision-making - Upgrade the HIV and AIDS M&E system by consolidating linkages with other data collection and M&E systems (e.g. Health Management Information System and Lesotho Output Monitoring System for HIV and AIDS) and roll out the integrated system at national, district and community levels ### Social protection: key findings - High vulnerability driven by high rates of poverty, HIV and AIDS and unemployment. - Major government programmes include the old age pension to approximately 75,000 people over 70 years, the school feeding programme, bursaries for orphans and vulnerable children, food and cash for work, food aid, social assistance for people with disability and OVCs. - 2006 Census: 221,000 orphans; about 70,000 people living with disabilities. - Primary goal: prevent and reduce economic and social vulnerabilities of the most disadvantaged and socially excluded segments. ### Social protection: strategic objectives and actions - Consolidate and improve efficiency of social protection systems and enhance coverage of selected interventions - Develop a comprehensive social protection policy and review the legal framework - Strengthen organizational capacity for social protection programmes design, resource mobilization and service delivery to the poor and marginalized populations - Establish social protection coordination body and undertake institutional review to reform and strengthen inter-agency coordination - Establish central registry system and improve Management Information Systems (MIS) for individual interventions and facilitate consolidation of social grant schemes/safety nets while enhancing coordination and efficiency - Undertake impact assessments and evaluations of existing programmes - Increase capacity of able bodied persons to deal with vulnerability - Promote food and cash for work programmes - Identify and implement sustainable livelihood strategies and programmes for vulnerable able-bodied persons to graduate from receiving social grants and reduce vulnerability - Explore options for export of manpower - Explore options to establish a comprehensive contributory social security scheme - Improve work safety and ease job search - Develop guidelines and standards to promote decent and safe work in different sectors - Establish registries for job seekers and vacancies in all the districts - Increase capacity for disaster risk management at household, community and national level - Consider options for establishing a Disaster Risk Management and Climate change Fund - Explore the viability and/or alternatives to building infrastructure for strategic commodity reserves and implement viable options - Educate the public to strengthen capacity to manage disasters and establish more effective early warning systems, design of appropriate responses and effective communication with target groups - Enhance capacity to increase national water and energy security ### Environment and climate change: key findings - Climate change models indicate Lesotho will experience higher temperatures and more erratic rainfall patterns in future; current dependence on rain-fed agriculture increases vulnerability. - Existing environmental measures (tree planting, donga reclamation, protection of wet lands, biodiversity conservation programmes) are inadequate to reverse environmental degradation. - Main causes of environmental degradation: ploughing on steep slopes/marginal lands (54% of croplands exposed to sheet erosion), over-grazing (estimated 50% over-stocking of livestock), unregulated encroachment of human settlements onto prime agricultural lands. - Inadequate physical planning leads to inappropriate land use, urban sprawl, building in disaster-prone areas; inadequate infrastructure and systems to prevent pollution from solid and hazardous waste; poor industrial practices cause inefficient use of energy and water and preventable pollution. - Lesotho is a minor emitter of greenhouse gases; low carbon development could yield energy security, improved competitiveness through lower energy costs and potential access to international climate finance. - Delivery of environmental and climate policies weak due to institutional fragmentation, duplication, insufficient cross-sectoral coordination, weak implementation and enforcement. ### Environment and climate change: strategic objectives and actions - Reduce land degradation and protect water sources - Evaluate and, as appropriate, scale-up programmes to address sustainable land and water management and the rehabilitation and protection of rangelands, wetlands, forests and agricultural lands - Develop integrated land and water resource management programmes - Increase biodiversity conservation and promote sustainable use - Identify areas to be put under protection and develop innovative models for communities and/or private establishments to manage the areas - Support entrepreneurs in developing viable and bankable eco-projects - Promote preservation of flora and fauna through education and improving the capacity of the existing Botanical Garden(s) - Enact the Biodiversity Bill - Strengthen range management institutions and range carrying capacity - Promote and strengthen capacity of Range Management Area (RMAs) associations and other groups - Explore other range management models - Facilitate reseeding of range lands - Develop incentives and strategies for de-stocking including resuscitation of auction sales yards and explore the feasibility of introducing a grazing levy - Improve national resilience to climate change - Undertake or review vulnerability assessments and review sector plans and programmes to improve mainstreaming - Consolidate the national climate change strategy and agenda - Upgrade standards for infrastructure development to climate-proof investments - Develop mechanisms to improve access to climate change technology and use - Promote and increase the greening of the economy - Promote cost-effective and clean energy generation - Promote foreign and domestic investment in the production and use of environment friendly technology - Promote research and private participation in “green” technology - Explore options for carbon trading and tapping different international funds - Improve land use, administration and management - Develop national, town and local level land use plans - Facilitate the development of a transparent and efficient land market - Provide training to enhance national and local capacity to prepare sustainable plans for human settlements - Promote ring-fencing of towns and densification in designated urban areas to reduce encroachment on agricultural land, fragile ecologies and costs for provision of basic infrastructure - Improve the delivery of environmental services - Improve regulation of EIA services to make them more accessible, affordable and efficient, thereby minimising any adverse effects on the investment climate - Develop a strategy for waste and sanitation services with a sustainable financing model - Develop an appropriate model for landfills and facilitate their construction and operation - Develop models for waste recycling and support communities and/or private sector for their adoption - Improve environmental health education programmes and coverage - Improve environment and climate change governance - Harmonise policies and legal frameworks and undertake an institutional review and implement the recommended reforms to improve coordination, efficiency, policy implementation and service delivery - Build relevant skills, including undertaking policy analysis and physical plan development and in operating geographic information systems - Establish environment and climate change registry and build capacity to compile statistics (such as “green” accounts), undertake vulnerability assessments and utilise them for medium to long-term forecasting, policy and planning - Enhance capacity of institutions to share information domestically and internationally - Enhance public education on environment and climate change and create incentives for communities to be more aggressive on the issues *Source: _cr12102 - 5.4 Improve Health, Combat HIV and AIDS and Reduce (IMF PDF).* ### 5.6 Promote Peace, Democratic Governance and ### 5.6 Promote Peace, Democratic Governance and Effective Institutions ### 5.6.1 Stability and Democracy - Findings - Lesotho is a relatively stable country with a young multi-party democratic system. - It is ranked above the average of Sub-Saharan African (SSA) countries in political stability. - National and local democratic elections are held periodically and have been declared free and fair. - Main threats to political stability: conflicts between political parties, intra-party clashes, poverty and high unemployment, especially among the youth. - Several institutions are responsible for oversight but their capacity is limited. - The Directorate of Corruption and Economic Offences (DCEO) needs to be strengthened to address public perceptions of corruption in the public sector. - Civic education, strengthening social dialogue and tri-partism, and celebration and preservation of culture improve cohesion and stability. - Strategic objectives and actions - Improve capacity of oversight bodies to promote accountability and deal effectively with corruption - Build capacity of oversight bodies to perform their functions - Review legal frameworks to align mandates and procedures with institutional responsibilities and to attain the expected effectiveness - Improve capacity for conflict resolution and promote social cohesion - Develop a comprehensive capacity development programme and robust peace architecture (institutions and systems) to resolve conflicts - Promote participation of all sections of society, including disadvantaged groups such as youth, women and people with disabilities, in decision-making processes - Introduce programmes for conflict resolution from primary school level - Introduce leadership training programmes for different sections of society - Establish effective social dialogue mechanisms - Promote cultural events and other mechanisms for cultural preservation as a way of promoting social cohesion - Enhance the capacity of private sector and non-state actors organisations to participate effectively in policy development and promote tri-partism - Develop a policy for non-state actors engagement with the Government and institutionalise mechanisms for consultation and dialogue - Enhance capacity of trade unions to participate in policy development and negotiations - Promote and support professional associations to act as think tanks and engage in policy development - Develop and implement a robust civic education programme - Promote effective corporate social responsibility programmes - Provide capacity development support to private sector and civil society organisations ### 5.6.2 Human Rights - Findings - Human rights are enshrined in the Constitution and Lesotho has a good record for observing them. - Lesotho is a state party to the majority of the international human rights conventions, but has limited human capacity for domestication of international treaties and conventions and their implementation. - Cultural traditions and practices in some cases perpetuate discrimination, especially against women. - Strategic objective and actions - Enhance the protection and fulfilment of human rights - Facilitate operation of the National Human Rights Commission to promote, protect and monitor human rights - Develop a Human Rights Action Plan to coordinate the efforts of institutions and civil society in the furtherance of human rights - Align policy and legislation with Government’s commitments to human rights as expressed in international and regional treaties - Institutionalise mechanisms to address the issues/concerns of minority and vulnerable groups - Introduce formal street law programmes targeted at high school students and communities to equip them with essential legal information, including procedures and rights, which could reduce incidences of crime - Undertake public awareness campaigns on human rights with a particular focus on the needs of vulnerable groups (women, children, people with disabilities, people living with HIV and AIDS and elderly) ### 5.6.3 Law Enforcement and Administration of Justice - Findings - Rule of law, equitable access and efficient administration of justice are prerequisites for social and economic development. - Progress: reduction in backlog of court cases and introduction of alternative dispute resolution mechanisms. - Challenges: - Cases still take long to be concluded due to weak systems, limited transparency and poor record handling. - Rehabilitation centres are over-crowded. - Vulnerable groups have inadequate access to the justice system due to low capacity of legal aid unit and limited skills to deal with disabled and juvenile cases. - Police fail to respond promptly to crimes; arrests and convictions are relatively few. - Several laws are out-dated leading to poor application; even reviewed laws take long to amend due to limited capacity for drafting bills. - Substantial social and economic costs: prolonged cases, failed witness summons, prisoners held on remand for long periods, rehabilitation centres unable to perform their rehabilitation function. - Lesotho has a high regulatory burden per competitiveness indices, constraining investment. - Full operation of the commercial court and training of legal professionals in handling commercial cases need to be expedited. - Crime rate is not high by regional standards but some crimes are increasing (e.g. cash heists, burglary, organised theft of vehicles and livestock); perpetrators are rarely prosecuted. - Causes include limited technical capacity, corruption, limited accountability of enforcement agencies and cross-border nature of some criminal activity. - Strategic objective and actions - Enhance the justice system to be more equitable, effective and efficient and significantly reduce crime - Develop and implement effective measures to combat major and organised crimes, including stock theft and improve coordination with RSA to reduce cross-border crime - Facilitate the smooth operation of the commercial court and training of judicial personnel - Facilitate the establishment of small claims court - Improve case management by developing policy, establishing transparent systems for movement and tracking of dockets, training justice personnel and establishing complaints mechanisms to deal with cases that have not been handled satisfactorily - Roll out the local courts infrastructure (Tsefa-li-Mali Model) - Strengthen the legal aid system by reviewing the current legal frameworks with the objective of improving protection for vulnerable groups, building capacity of staff and assessing options for decentralising legal aid services so that indigent Basotho have access to justice - Promote and build capacity for alternative dispute resolution mechanisms, thereby reducing the backlog of cases in higher courts - Improve rehabilitation programmes of offenders through provision of basic educational and high quality vocational skills and a phased programme for rehabilitation and/or development of correctional services infrastructure - Develop an effective system for monitoring ex-offenders and promote alternative rehabilitation programmes - Enhance the juvenile case management system and the capacity of probation unit services - Institute measures to improve coordination between all stakeholders in the justice sector - Develop and implement effective measures for the protection of natural resources and enforcement of laws that provide for the protection of heritage - Identity options to accelerate training of police and National Security forces to deal effectively with crime and national security threats - Improve concept or model of community policing - Modernise and harmonise laws ### 5.6.4 Policy, Planning and Public Financial Management - Findings - Lesotho has a comprehensive set of planning documents: Vision 2020, medium-term plans, sector policy papers, plans and programmes, project memoranda and some district plans. - Inconsistencies exist between planning frameworks; trade-offs between policies are not explicitly analysed. - Action plans are not linked to realistic assessment of available implementation capacity and the resource envelope; implementation status is not easy to assess. - Limited capacity for regular policy updates based on rigorous analysis. - Engagement of the private sector and civil society in policy development needs strengthening through capacitating associations/organisations, policy research institutions and institutionalising mechanisms for engagement. - On statistics: users require timely publication of relevant and accurate statistics; a national strategy for development of statistics has been prepared. Implementation will improve efficiency of data collection, functioning of quality assurance procedures, accuracy, credibility and timeliness of publications, and monitoring and evaluation of programmes. - Public Financial Management (PFM) reforms implemented; core responsibilities and procedures defined in the Public Financial Management and Accountability Act 2011. - MTEF approach introduced to improve fiscal discipline, targeting of resource allocations, operational cost efficiency and to promote greater certainty over resource flows in the medium-term; objectives not yet fully realized due to capacity constraints. - IFMIS implemented to improve accountability, minimize fraud and improve efficiency for settlement of payments; improved transparency and discipline but functionality constrained by capacity gaps due to loss of trained personnel to other institutions. - Revised procurement system introduced in 2007 expected to generate efficiency gains; 2009 assessment using the Public Expenditure and Financial Accountability methodology demonstrated further reforms and implementation improvements are necessary. - Aid coordination mechanisms exist but duplication of effort remains and some programmes do not address national development priorities. - Poor reporting of donor activity as some programmes are implemented outside Government’s budgeting, accounting and monitoring systems. - An aid policy is under preparation to contribute to improved aid management. - Strategic objectives and actions - Strengthen statistics, policy development, planning and public expenditure and financial management - Develop and implement the PFM reform agenda based on local and international policy and institutional assessment - Facilitate the implementation of the National Strategy for the Development of Statistics - Undertake institutional review and capacity development to improve Government procurement management and oversight - Improve policy analysis and planning capacity at central and local level including project cycle management - Institutionalise regulatory impact assessment - Develop medium – long-term sector wide investment programmes with periodic reviews - Develop Public Private Partnership policy, guidelines and related legal frameworks - Improve aid mobilisation, effectiveness, management and coordination - Finalise aid policy and the appropriate institutional framework to operationalise aid and development effectiveness principles and agenda (Busan agenda) - Identify and implement measures to improve resource mobilisation and build absorptive capacity especially for donor funds ### 5.6.5 Public Administration and Service Delivery - Findings - General perception that public service delivery is poor; private sector complains of high regulatory burden with excessive compliance costs. - Various reforms initiated but implementation generally weak. - Despite a relatively large public sector, poor culture of service due to inadequate legal framework, weak administration and management, weak technical capacity and accountability and inefficient business processes. - Potential need to outsource some services; private sector must demonstrate capability before contracting out. - Key objective: improve overall efficiency of Government, administration of public services, and effective oversight. - Strategic objective and actions - Improve public service delivery and strengthen the integrity of the public administration - Develop comprehensive public sector improvement and reform programme, including right-sizing strategy and improvement of legal frameworks, internal controls, accountability, business processes and performance management systems and technical capacity development - Establish and monitor achievement of appropriate service delivery standards - Identify service delivery functions that can be outsourced, review and implement divestiture programme - Develop/consolidate and implement retention strategy - Create and build capacity to conduct policy analysis and research - Upgrade LIPAM infrastructure and training capacity to deliver key training programmes for all government ministries ### 5.6.6 Decentralisation - Findings - Lesotho has a two-tier Government system. - The first local authority elections for 128 Community Councils and the Maseru Municipal Council were held. *IMF country report content unit: 5.6 Promote Peace, Democratic Governance and Effective Institutions* ### 2005. The second local authority elections were held in 2011 and the ### _cr12102 - 2005. The second local authority elections were held in 2011 and the ### Decentralisation and local government - Historical/structural facts: - The second local authority elections were held in 2011. - Community Councils were reduced to 65 and 11 Urban Councils created. - Representatives of the Community and Urban Councils constitute the 10 District Councils. - Significant progress in transfer of responsibility from national to local institutions, but the process is still on-going. - Devolution included transfer of technical staff from national agencies to councils; councils remain accountable to the Ministry of Local Government and Chieftainship. - De-concentration occurred with several functions moved from national agencies to the office of the District Administrator (DA). - The DA is the representative of central Government at the district level and is accountable to the Minister for Local Government. - Technical staff are administratively responsible to the DA and on professional matters to their line ministries. - Issues to be addressed: - Improvement of local capacity for planning, budget management and project cycle management. - Underemployment of staff due to limited resources for operational expenses. - Poor service delivery due to limited capacity of DA office and local councils. - Need for consensus among stakeholders on policy direction and vision for decentralisation, including functions to be delegated to district councils from DA and Ministries and fiscal decentralisation. - Strategic objective and actions — Deepen decentralisation: - Enhance systems and capacity of local authorities for planning, budgeting, monitoring and evaluation of projects and accountability. - Build consensus on policy direction and vision for decentralisation. - Determine functions to be delegated to district councils from District Administrator and ministries at central level and transfer them in tandem with capacity building. - Develop decentralisation plans for all ministries. - Develop fiscal decentralisation framework. ### Regional Integration, International Relations and Cooperation - Context and opportunities: - Regional agreements such as SACU, SADC and AU offer opportunities for cooperation and trade. - Lesotho must domesticate regional and international policies and programmes into national policies, plans and legislation. - Lesotho must participate effectively in negotiations (e.g., WTO, UN system) and use channels to EU, USA and the Commonwealth. - Approximately, 120,000 Basotho live in South Africa; less than 50,000 are mineworkers while many others are skilled workers. - Remittances make a major contribution to GNI; skills of Basotho in RSA could be deployed for Lesotho’s economic development. - Traditional sources of employment in RSA, such as mining, are declining; a bilateral agreement on updated manpower policies and industrial integration is desirable. - Cultural ties with the larger Sotho community offer opportunities in art, writing, films and tourism (including religious tourism). - Opportunities for regional cooperation over natural resources and products, notably water and energy. - Lesotho maintains diplomatic relations worldwide; the need for embassies should be reviewed and rationalised while meeting strategic objectives. - Strategic objectives and actions: - Increase effectiveness and stakeholder participation in regional and international policy making: - Institutionalise mechanisms (such as inclusive national networks) to increase stakeholder participation in developing Lesotho’s policy positions in regional and international negotiations. - Provide public education and ease access to international treaties and other instruments through the creation of an electronic depository and facilitate domestication. - Develop and implement capacity building programmes for trade policy analysis and negotiations, investment and trade promotion and diplomacy in local institutions. - Increase cost-effectiveness and efficiency in dealing with international affairs and cooperation: - Review the architecture of foreign missions, institutional capacity and coordination and rationalise and/or improve as required. - Strengthen bi-lateral cooperation including Joint Bilateral Commission of Cooperation (JBCC) programmes, particularly in respect of infrastructure development, cargo handling at the ports, industrial and tourism development, skills development, transformation of local institutions, movement of persons and cross-border crime. - Improve mechanisms to ease international travel by Lesotho citizens and tourists. - Strengthen prevention and effective handling of human trafficking. ### Media - Sector profile and challenges: - The media industry comprises 65 newspapers, periodicals and magazines, 2 state run radio stations and 8 private stations (3 owned by churches). - Radio remains the dominant platform for public debate. - State television, South African Broadcasting Corporation and other international channels are available through satellite. - Key challenges: delays in adopting and implementing the media policy; absence of institutional infrastructure and legal framework to address professionalism, ethics, conduct, and improvement of media content and coverage. - Strategic objective and actions — Enhance media capacity: - Facilitate the adoption of the media policy. - Review related laws and regulations in line with the media policy. - Establish recommended institutional structures by the media policy, including ombudsman and Media Council. - Review and update the media studies curriculum of local training institutions. - Establish clear procedures for media interaction with Government ministries and policy makers to improve access to accurate information. ### Cross-cutting issues — overview - Government will promote gender equality and protect interests of children and youth, people with disabilities and the elderly. - General challenges: generation of disaggregated data and development of effective mechanisms for improved coordination and mainstreaming into policies, programmes and budgets. ### Gender - Demographics and progress: - The population of 1.89 million is evenly distributed between females and males. - Lesotho ranks better on the Gender Inequality Index than on the Human Development Index. - Females participate in education more than males. - Introduction of quotas increased the number and proportion of females in Parliament, Cabinet and local councils. - Remaining challenges: - Maintain levels of political participation; facilitate women’s contribution to economic activities; improve maternal health; empower females in reproductive health. - Implement the Legal Capacity of Married Persons Act 2006 and the gender policy framework. - Strategic objective and actions — Promote Gender equality and empowerment of women: - Strengthen institutional, policy and legislative frameworks to ensure effective mainstreaming of gender into national development programmes. - Create awareness and advocate for male involvement in gender and sexual and reproductive health programmes. - Enhance economic empowerment of Basotho men through targeted vocational (artisan) and entrepreneurship training and business counselling to be delivered at community level and combat stock theft and/or increased recovery. - Enhance training on sexual and reproductive health targeted at men and women. Implement programmes for reduction of child and maternal mortality as indicated in the health chapter. - Enhance political empowerment of women through implementation of policies that will strengthen female participation in politics, including leadership training. - Identify and implement measures to reduce cost of living for industrial work force, including housing solutions with the participation of the private sector. - Increase dissemination of legal frameworks that promote gender equality and develop guidelines to facilitate implementation. - Support non-formal education and skills development programmes for herd-boys and domestic workers. - Improve the capacity of supporting agencies (CGPU/police, social welfare, health and the justice system) to respond adequately to gender-based violence. ### Children and Youth - Key issues and vulnerabilities: - Orphan-hood due to high mortality, limited access to health services, poor nutrition, trafficking in persons, children living on the street, herd boys, early pregnancy, forced marriages, substance and drug abuse, child abuse, child-headed households, child carers, property dispossessions and children out of school. - High youth unemployment caused by limited technical skills, early school leaving, limited work experience, and skills mismatch. - Census 2006 showed there were 221,000 orphans (not including other categories of vulnerable children), up from estimate of 180,000 orphans for 2004 (UNAIDS 2004). - Approximately 180,000 orphans aged 5 – 19 years are attending primary and secondary school. - Strategic objectives and actions: - Promote children development and protection of rights: - Step up education and immunisation of children. - Provide quality free universal primary education and nutrition. - Improve capacity of service providers (CGPU/police, social welfare, health and the justice system) to respond to violence, abuse and exploitation of children, including child labour; develop prevention measures at community level. - Scale-up and improve efficiency of support programmes for orphans and vulnerable children. - Promote youth participation and development: - Strengthen capacity of the Youth Council. - Improve employment opportunities by delivering demand-driven community level youth livelihood training programmes at local youth training centres and incorporate entrepreneurship training. - Identify strategies to increase secondary and high school enrolment. - Improve services for job information and search. - Promote apprenticeship programmes to increase employability. - Improve access to finance through grants and risk guarantees for high potential projects. - Develop programmes to increase computer literacy and competency. - Develop young farmers’ training programmes at FTCs and establish mechanisms for financial support for graduates. - Increase quality of and access to distance learning by making e-services available at local level. - Create educational radio and TV programmes in pedagogic and life skills (ICT, HIV and AIDS, Environment) in collaboration with regional countries and promote community voluntary education programmes. - Develop a programme for sports facility roll out and identify a limited number of sports to develop professional players of international standards. - Promote youth friendly/driven sexual and reproductive health programmes such as adolescent health corners following a review and rationalisation of current Government and non-government interventions. - Promote the culture of reading and writing. ### Disability - Prevalence and types: - Census 2006: about 70,000 people (3.7% of the population) had some form of disability requiring a service. - Most prevalent type: blindness (19.3% of all disabled persons), with prevalence slightly higher among females than among males. - Other common disabilities: amputation of foot/leg, deafness, lameness/paralyzed limb, mental illness and mental retardation. - Strategic objective and actions — Prevent disability and facilitate PWDs to lead healthy and productive lives: - Promote preventive health measures to reduce disability through improved quality health services. - Increase the number of trained facilitators for education of children with specific needs (Braille, sign language, skills for profoundly disabled children). - Facilitate access to formal education through targeted measures for PWDs. - Utilise domestic, regional and international experience to develop teaching aids and materials for persons with disabilities. - Conduct public education campaigns to de-stigmatise disability at all levels. - Encourage recruitment of PWD to positions they can perform successfully within the public and private sector. - Promote programmes to reduce preventable disabilities, especially road and workplace accidents. - Promote programmes for rehabilitating, integrating and mainstreaming PWDs into society. - Improve capacity and sustainability of vocational training for PWDs, and provide business support. - Develop and enforce standards to facilitate accessibility of public buildings, transport services and social services by PWDs. - Take steps to improve access for PWDs to appropriate health, legal and other social services. - Review disability grant policy to improve targeting and access to basic needs by beneficiaries. - Develop strategies for effective inclusion and efficient participation of PWDs in planning, policy development and related legal reforms. ### Elderly - Demographics and provisions: - Census 2006 recorded approximately 147,000 residents (7.8% of the total) aged 60 years and over. - Those aged 60 - 69 years accounted for 49% of the elderly (72,000); those aged 70 – 79 represented 37% (54,000); those over 80 years were 14% (21,000). - Government provides an old age pension to all citizens over the age of 70 years as well as to survivors and eligible dependents of the African Pioneer Corps who receive a monthly pension. - Occupational pension schemes exist, largest for public servants; limited population benefits from private pension schemes. - Strategic actions: - Provide key services at community level: health, psycho-social support and provision of grants, extension services for economic empowerment and protection of rights of the elderly, especially those playing a parental role towards children. - Expand the Old Age Pension scheme in line with the performance of the economy. ### Implementation Strategy - Purpose and risks: - The Plan aims to transform the economy through expected investments and Government implementation of key reforms to improve allocative and absorptive capacity. - Main external risks: uncertain global economic recovery and climate change impacts. - Government will address low administrative capacity and weakness of the domestic private sector. - Emphasis on local ownership, effective mobilisation of resources, and timely robust monitoring and evaluation systems. - Key drivers and reforms: - Plan and Budget Integration: - Facilitate NSDP integration into MTEF and annual budget process. - Guide resource allocation priorities by contribution to growth and employment and/or crowding in private investment. - Development of implementation plans by all ministries and encourage stakeholder implementation agendas. - Adopt Sector Wide Approaches (SWAPs) to define medium-term investment needs and rolling NSDP Part II: Public Investment and Development Programme annually. - Undertake annual Public Expenditure Reviews (PERs) for selected sub-sectors and districts. - Develop district economic strategies and flagship projects. - Monitoring and Evaluation: - Prepare Monitoring and Evaluation Framework with targets for each strategic area. - Establish the National Planning Advisory Board for independent and high level monitoring and evaluation. - Create an institutionalised platform for non-state actor participation in policy dialogue and monitoring. - Promote results oriented leadership and management system. - Private Sector Participation: - Use private sector platforms (private sector foundation/Business Council, Business Chambers, agri-business associations) for high level dialogue and greater private sector participation. - Identify new investment opportunities that translate into bankable projects. - Offer entrepreneurship training and support services. - Financing Strategy: - Mobilise resources primarily through vehicles directing domestic resources and remittances towards investment in high potential areas, promote FDI and diaspora investment, especially in RSA. - Develop strategies to mobilise additional Official Development Assistance (ODA) and use available space to contract concessional external debt while maintaining macroeconomic stability. - Mobilise general and sector budget support by meeting agreed obligations/targets. - Facilitate alignment of Country Assistance Strategies/Frameworks with the NSDP. - Negotiate Bilateral Framework agreements such as Millennium Challenge Account II and financing of Joint Bilateral Commission for Cooperation. - Promote further south-south cooperation. - Support implementation of aid policy and mutual accountability framework between Government and development partners, public sector improvement and reform programmes, including smart PPPs and outsourcing of services to the private sector and capable NGOs. *Source: _cr12102 - 2005. The second local authority elections were held in 2011 and the (PDF).* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr12102.pdf_