AFRICAN DEVELOPMENT FUND

KINGDOM OF LESOTHO

AGRICULTURAL SECTOR ADJUSTMENT PROGRAMME

PROJECT COMPLETION REPORT

AGRICULTURE AND RURAL DEVELOPMENT DEPARTMENT

NORTH, EAST AND SOUTH (ONAR) June 2006

TABLE OF CONTENTS Page No.

EXECUTIVE SUMMARY..............................................................................................................................X 1. INTRODUCTION.......................................................................................................................................... 1 2. PROJECT OBJECTIVES AND FORMULATION................................................................................... 2

2.1 PROJECT OBJECTIVES .............................................................................................................................. 2 2.2 PROJECT FORMULATION.......................................................................................................................... 2 2.3 PROJECT APPRAISAL, NEGOTIATIONS AND APPROVAL........................................................................... 3 2.4 PROJECT DESCRIPTION ............................................................................................................................ 3

3. PROJECT EXECUTION.............................................................................................................................. 4 3.1 EFFECTIVENESS AND START-UP .............................................................................................................. 4 3.2 MODIFICATIONS ...................................................................................................................................... 4 3.3 IMPLEMENTATION SCHEDULE ................................................................................................................. 5 3.4 REPORTING .............................................................................................................................................. 6 3.5 PROCUREMENT ........................................................................................................................................ 6 3.6 SOURCES OF FINANCE AND DISBURSEMENT ........................................................................................... 7

4. PROJECT PERFORMANCE AND RESULTS ......................................................................................... 8 4.1 OVERALL ASSESSMENT........................................................................................................................... 8 4.2 OPERATING RESULTS .............................................................................................................................. 9 4.3 MANAGEMENT AND ORGANIZATIONAL PERFORMANCE....................................................................... 11 4.4 PERFORMANCE OF CONSULTANTS, SUPPLIERS AND CONTRACTORS .................................................... 12 4.5 FULFILLMENT OF CONDITIONS AND COVENANTS ................................................................................. 12 4.6 ECONOMIC PERFORMANCE.................................................................................................................... 13

5. SOCIAL AND ENVIRONMENTAL IMPACTS ..................................................................................... 14 5.1 SOCIAL IMPACT ..................................................................................................................................... 14 5.2 ENVIRONMENTAL IMPACT..................................................................................................................... 14

6. PROJECT SUSTAINABLITY ................................................................................................................... 14 7. PERFORMANCE OF THE BANK AND THE BORROWER .............................................................. 15

7.1 PERFORMANCE OF THE BANK................................................................................................................ 15 7.2 PERFORMANCE OF THE BORROWER ...................................................................................................... 15

8. OVERALL PERFORMANCE AND RATING ........................................................................................ 16 9. CONCLUSION, LESSONS LEARNED AND RECOMMENDATIONS ............................................. 17

9.1 CONCLUSION ......................................................................................................................................... 17 9.2 LESSONS LEARNED................................................................................................................................ 17 9.3 RECOMMENDATIONS ............................................................................................................................. 19

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LIST OF TABLES

Page N°. Table 3.1: Implementation Schedule for the Policy Based Loan: Appraisal vs.Actual 5 Table 3.2: Implementation Schedule for ADF/TAF Grant Supported Activities: Appraisal vs. Actual 5 Table 3.3: Summary of Items in Project Procurement List 7 Table 3.4: Project Financing 7 Table 3.5: Final Revised Project Cost Estimates by Categories of Disbursement 7 Table 3.6: Disbursement of the ADF Loan by Categories of Expenditure 8 Table 3.7: Disbursement of the ADF/TAF Grant by Categories of Expenditure 8

LIST OF ANNEXES

N°. of Pages

Annex: 1 Map of Lesotho 1

Annex: 2 Sources of Information 2

Annex: 3 Detailed Loan Disbursement 7

Annex: 4 Status of Project Achievements 1

Annex: 5 Implementation Performances Rating 1

Annex: 6 Bank Performance Rating 1

Annex: 7 Project Outcome Rating 1

Annex: 8 Policy Reform Performance Evaluation Matrix 12

Annex: 9 Economic Overview 4

Annex: 10 Recommendations and Follow-up Matrix 3

The report was prepared by Mr. JUSTUS J. KABYEMERA, Senior Agricultural Economist and a Consultant (Agricultural Economic Policy Expert).

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LIST OF ABBREVIATIONS AND ACRONYMS ADF : African Development Fund ADB : African Development Bank APCBP : Agricultural Policy and Capacity Building Project ASAP : Agricultural Sector Adjustment Programme ASDP : Agricultural Sector Development Programme ASIP : Agricultural Sector Investment Programme BEDCO : Basotho Enterprise Development Corporation BOP : Balance of Payment CD : Completion Date EIRR : Economic Internal Rate of Return FAO : Food and Agriculture Organization FC : Foreign Currency GDP : Gross Domestic Product GIS : Geographical Information System GOL : Government of Lesotho ICB : International Competitive Bidding ICR : Implementation Completion Report LOGS : List of Goods and Services LC : Local Currency LCCI : Lesotho Chamber of Commerce and Industry LCB : Local Competitive Bidding LIC : Limited International Competition LNWMGA : Lesotho National Wool and Mohair Growers Association LPMS : Livestock Products Marketing Services MOA : Ministry of Agriculture MITM : Ministry of Trade and Marketing MTICM : Ministry of Trade, Industry, Cooperatives and Marketing MoAFS : Ministry of Agriculture and Food Security M&E : Monitoring and Evaluation NCB : National Competitive bidding NGOs : Non-Governmental Organizations NS : National Shopping NUL : National University of Lesotho PBL : Policy Based Loan PCR : Project Completion Report PU : Privatization Unit SMEs : Small and Medium Enterprises TAF : Technical Assistance Fund TOU : Technical Operations Unit UA : Units of Accounts WB : World Bank

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BASIC PROJECT DATA SHEET

1 Loan/Grant Numbers: 2100150000505 - 2100150000179 2 Borrower: Government of Lesotho 3 Guarantor Government of Lesotho 4 Beneficiary Private Sector and Farmers in Lesotho 5 Executing Agency Ministry of Agriculture and Food Security (MoAFS)

A. LOAN:

APPRAISAL ESTIMATE ACTUAL Amount in UA Million: 3.50 1.78

1 Interest Rate: 1% (from 11th to 20th year)

& 3% (thereafter)

2 Payment Period: 40 years 3 Grace Period: 10 years 4 Loan Negotiation Date: October 1998 5 Loan Approval Date: November 1998 3 March 1999 6 Loan Signature Date: December 1998 24 May 1999 7 Date of Entry into Force: February 1999 7 August 2000 8 Release of 1st tranche March 1999 7 August 2000 9 Release of 2nd tranche June 2000 Cancelled on 27 Jan 2003 10 Closing Date for Loan August 2001 31 July 2003

B. GRANT:

APPRAISAL ESTIMATE ACTUAL Amount in UA Million: 1.33 0.57

C. PROJECT DATA:

Appraisal Cost Estimates Actual Cost Project Cost and Financing FC LC Total FC LC Total

1 Total Cost (UA million) 4.83 0.43 5.26 1.88 0.50 2.38 2 Financing Plan (UA million) ADF (UA million) 3.50 3.50 1.78 0 1.78 TAF (UA million) 1.33 1.33 0.10 0.47 0.57 GOL (UA million) - 0.43 0.43 - 0.03 0.03

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3. Effective Date of First Disbursement: ADF/Loan: 1 July 2000 ADF/TAF Grant: 30 March 2001 4. Effective Date of Last Disbursement: ADF/Loan: Cancelled in Jan 2003 ADF/TAF Grant: 30 March 2003 5. Commencement of Project Implementation Activities: March 2000 6. Date of Completion of Project Implementation Activities: 31 July 2003 D. PERFORMANCE INDICATORS: 1 Cost Under run

ADF/LoanADF/TAF Grant

Total ADFGOL

Grand Total

UA 1,718,297 (49%) UA 752,966 (57%) UA 2,471,263 (51%) UA 374,425 (93%) UA 2,845,688 (54%)

2 Time Overrun - Slippage of Effectiveness ADF Loan

ADF/TAF Grant17 months 25 months

- Slippage of Completion Date ADF Loan ADF/TAF Grant

Cancelled 28 months

- Slippage of Last Disbursement ADF Loan ADF/TAF Grant

Cancelled 23 months

Number of extensions of last disbursement Date One 3 Project Implementation Status Not Completed 4 List of verifiable indicators and levels of achievement

(expressed as % on planned levels): See Annex 4 and Project LOGFRAME

Source: Project Documents and Reports 5. Institutional Performance: Unsatisfactory 6. Contractor Performance: Satisfactory 7. Consultant performance: Partially satisfactory Appraisal PCR 8. EIRR (%) IRR has not been calculated at appraisal and PCR due to lack of data E. BANK MISSIONS:

Mission Type Date No of Persons Composition Person Days (CD) Identification n/a n/a n/a n/a Preparation n/a n/a n/a n/a Appraisal July 1998 2 Senior Agricultural Economist &

Principal Economist

Launching March 2000 1 Senior Agricultural Economist 5 Supervision Nov/Dec 2001 1 Division Manager, ONAR.2 5 Supervision August 2001 1 Senior Agricultural Economist 11 Supervision Dec 2002 1 Principal Agronomist 6 PCR May 2006 2 Senior Agricultural Economist &

Consultant Economist 32

CD: Calendar Days

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F. DISBURSEMENT:

Appraisal Estimate Actual Percentage

Disbursed Loan and Grant Loan Grant Loan Grant Loan Grant

Total Disbursed (UA’ million) 3.50 1.325 1.782 0.572 51% 43% Amount Cancelled (UA’ million) 1.718 0.758 49% 57% Balance (UA’ million) 1.718 0.758 49% 57% Yearly Disbursement (UA’ million) n/a 0.53 n/a 0.11 n/a 22% Yearly Disbursement of ADF Loan and Government Contribution in UA:

Year Amount Disbursed Cancellation Yearly GOL

From ADF Loan Amount Contributions

1999 0 0

2000 1,781,703.28 0

2001 0 0

2002 0 0

2003 0 1,718,296.72

2004 0 0

Total 1,781,703.28 1,718,296.72 0

Yearly Disbursement of ADF/TAF Grant and Government Contribution in UA:

Year Amount Disbursed Cancellation Yearly GOM From ADF/TAF Grant Amount Contributions

1999 0

2000 0

2001 190,216.17

2002 75,195.88

2003 294,754.43 714,636.71

2004 0 43,078.17

Total 572,283.56 757,715.48 27,969.61

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G. CONTRACTORS / SUPPLIERS:

Name Contract Amount Date of Last Disbursement

Disbursed Amount

Un-disbursed Amount

BASOTHO ENTERPRISE DEVELOPMENT CORPORATION

Entrepreneurial Skills Training

Maloti 5,339,820.00

18 August 2003

Maloti 4,771,580.00

Maloti 568,240.00

SQUARE ONE COMNET

Procurement of Computers and Printers

Maloti 175,133.00

20 July 2001 Maloti 175,133.00

Maloti 00.0

CDS ELECTRONICS

Procurement of photocopier and fax machine

Maloti 87,400.00

26 February 2002

Maloti 87,400.00

Maloti 00.0

Source: Ledger of Contract Per Loan

Note: Date Contract Signed, Date of Contract completion, and Contract Duration (Months) were not available for some contractors because of the long period between the end of project and the PCR preparation; also most of the project files were left in Abidjan.

H. CONSULTANT:

Name Contract Amount Date of Last Disbursement

Disbursed Amount

Un-disbursed Amount

Mr.OLUWASENGUN AIYENUGBA

Diagnostic Studies USD 30,740.56

25 March, 2002

USD 30,740.00

USD 0.56

Mr. JAMES MATALE Privatization Study (phase 1)

USD 66,462.00

20 August, 2003

USD 48,761.00

USD 17,701.00

Mr. JAMES MATALE Privatization Study (phase 2)

USD 44,400.00

19 Sept., 2003 USD 40,670.00

USD 3,730.00

Source: Ledger of Contract Per Loan

Note: Date Contract Signed, Date of Contract completion, and Contract Duration (Months) were not available for some contractors because of the long period between the end of project and the PCR preparation; also most of the project files were left in Abidjan.

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PROJECT MATRIX

Objectively Verifiable Indicators NARRATIVE SUMMARY At Appraisal On Completion

MEANS OF VERIFICATIONS

ASSUMPTIONS AND RISKS

SECTOR GOAL: Poverty reduction, enhanced food security and employment generation.

1.1 Increased smallholder farmer incomes, by August 2001. 1.2 Increased food supply and distribution.

These two indicators are not verifiable and it is difficult to assess and prove beyond reasonable doubt the impact on poverty reduction as a result of ASAP.

1.1 Reports and Statistics of the Central Statistics Office and MOA. 1.2 Impact sample surveys (on the programme). 1.3 Sample surveys of participating entrepreneurs.

Assumptions: (Goal to Super-goal) I. Adequate institutional capacity for project implementation. 2. Land tenure system reformed. Risk: 1. Unsatisfactory institutional capacity for project implementation 2. Land tenure system was not reformed.

PROJECT OBJECTIVE: Diversify agricultural production, accelerate productivity and enhance incomes by creating a conducive environment for private sector investment in agriculture,

1.1 Area production and yield of high value crops increased by end of programme: 1.2 Volume of agricultural exports increased by end of programme; 1.3 Food security improved by end of programme;

These are not verifiable indicators, however, some entrepreneurial skill were developed and used for diversified production and income generation. FAO Food Balance Sheet data showed drop in the availability of food per person in Lesotho, especially in animal products, during the period 1998-2003. The only positive sign is that the grain imports were decreased during the project period, but these results cannot be attributed to uncompleted project.

1.1 Programme files and records; 1.2 Statistics of MOA; 1.3 FAO and GOL statistics and publications,

Assumptions: 1. Continued GOL commitment: toward agriculture reforms. 2. Limited or no drought occurs. 3. Labor market has the capacity to and absorbs the retrenched labor that has been trained. Risk: 1. The GOL reverses its current commitment/support to the agriculture reforms process 2. Protracted and recurrent drought situation 3. Labor market saturated

OUTPUTS: 1. Agricultural private sector entrepreneurial skills strengthened and their capacity built,

1.1 Identification of retrenches of agricultural parastatals. 1.2 Development of entrepreneurial skills training programme for retrenches.

1.1 Only 4 state owned enterprises were liquidated and one was leased. 1.2 BEDCO implemented several training programmes, but no impact assessment was done.

1.1 MOA’s files and records and farmer groups sample surveys. 1.2 LCCI files and records.

Assumptions: I. Conducive environment for private sector participation in the programme. Risk:

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1.3 An estimated 3,300 retrenchees receiving entrepreneurial skills training by August 2001. 1.4 A sizable number of SMEs emerging by August 2001. 1.5 More diversified Agricultural sector by August 2001. 1.6 Increased private sector involvement in agriculture by August 2001.

1.3 Only 649 were trained 1.4 The project did not contribute to the SMEs 1.5 Lesotho agricultural sector is more diversified. 1.6 there is one farm was leased to private sector

1.3 Ministry of Labour files and records.

Limited number of employees were trained but the government did not keep tracking the post employees by the privatized state owned enterprises.

2. Privatization of agricultural parastatals increased, .

2.1 A drop in the number of state owned agricultural enterprises by August 2001. 2.2 A drop in GOL subsidies to agricultural parastatals by August 2001.

2.1 the number dropped by 4 liquidated enterprises 2.2 The government still provide subsidies to agricultural parastatals

2.1 PU’s files and records. 2.2 Ministry of Finance files and records. 2.3 Check some company records.

Assumptions: 1. Conducive environment for private sector participation in the programme. Risk: Some parts of the program have suitable environment for private sector participation, such as the leased and liquidated state owned enterprises. But, others did not provide this environment such as the un-privatized state owned enterprises and the distribution of tree seedling for free.

3. Agricultural marketing policies and prices further liberalized,

3.1 Import and export restrictions on agricultural items eliminated by August 2001. 3.2 Standard market-based requirements for granting of import/export licenses are put in place by August 2001. 3.3 Agricultural market prices are reflective of actual market conditions by August 2001.

3.1 Lesotho exports only wool and mohair as agricultural commodities. 3.2 South Africa is the major market for Lesotho’s exports and imports. 3.3 GOL still involve in setting some market prices in the agricultural sector, however, there are several steps are considered to increase the agricultural

3.1 MOA files and records and GOL gazette. 3.2 MOA files and records and GOL gazette, 3.3 Periodic price surveys of MOA and MITM. 3.4 Periodic price

Assumptions: 1. Stable macro-economic conditions. 2. Continuing GOL commitment to liberalization. Risk: 1. 2. GOL is still committed to liberalization

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markets liberalizations surveys in Lesotho’s markets.

Allocations in UA Million Actual in UA Million F.E. L.C.* Total F.E. L.C. Total

Activities ADF/TAF 1. Studies 2. Training 3. Privatization Expert 4. Equipment Contingencies Total ADF/TAF ADF/Loan Tranches 1 and 2 GOL Contribution For Grant For Loan Total GOL

40,000 900,000 188,000 50,000 147,250 1,325,250

3,500,000

0 33,280 33,710

0 8,373

75,363 355,000 430,363

40,000 933,280 231,710 50,000 155,623 1,400,613

3,855,000

75,363

355,000 430,363

24,469 13,489 66,641

0 0

104,600

1,781,703

0 444,678

0 23,006

0 467,684

0

27,970 0

27,970

24,469 458,168

66,641 23,006

0 572,284

1,781,703

27,970

0 27,970

* Local Currency details in the allocations are the Government Contribution.

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EXECUTIVE SUMMARY 1. Project Sector Goal and Objectives: The sector goal at appraisal was to contribute to poverty alleviation, enhanced food security and employment creation. The project specific objectives were to diversify agricultural production, increase productivity and enhance rural incomes by creating a conducive environment for private sector investment in agriculture. 2. Implementation: The Agricultural Sector Adjustment Programme (ASAP) was a sub-component of a larger project – the Agricultural Policy and Capacity Building Project (APCBP), comprising of the Balance of payment (BOP) and the Privatization and Divestiture components. ASAP was initially planned for 3 years from October 1998 to August 2001. However, because of delays in fulfilling the loan conditions by the Government of Lesotho (GOL) as well as delays in the recruitment of Consultants for the privatization study, the project disbursement was extended once, from February 2002 to December 2003. The BOP was to be financed through an ADF loan totaling UA 3.50 while privatization and divestiture through a Technical Assistance Fund (TAF) grant totaling UA 1.33 million. The Overall Government contribution was budgeted at UA 0.43 million. 3. Physical Achievements: The entire loan component of the project could not be implemented due to intricacies in the utilization of the funds within the scope of the loan agreement at appraisal. As such there were virtually no physical achievements recorded under this component. As with the grant component, which was focused on privatization and market liberalization, the performance was far better, having undertaken most of the envisaged activities. Under this component, various studies on privatization and liberalization were conducted as well as the training package, whereby 649 retrenchees out of the envisaged 800 were trained and counseled on job search and entrepreneurial skill development. Despite the partial accomplishment with regard to privatization and market liberalization, the project succeeded to fulfill the minimum requirements of starting liberalization and privatization programmes in the country. 4. Impact on Development: Despite the unrealistic policy reform benchmarks and their associated indicators and the vagueness of the Measurable Performance Indicators (MPIs) in the appraisal Log Frame (Matrix), to realistically gauge the overall impact on development, the project can be credited for having introduced the policy reform concept in Lesotho economy. The full impact on development will be realized upon completion of the policy reforms, which are still on-going. 5. Loan and Grant Utilization. Total loan disbursement at project closure in December 2003 was UA 1.78 million for the loan and UA 0.57 million for the grant. This represents 51% of the ADF loan of UA 3.50 million and 43% of UA 1.33 million for the grant. However, the disbursed amount of UA 1.78 million was not utilized to-date. 6. Counterpart Funding. At appraisal, the Government was expected to contribute UA 0.43 million or 8% of total project costs. However, the Government’s financial commitment to the project during the implementation period (1999 to 2003) was UA 0.03 million (6% of the Government contribution, i.e. UA 0.43 million). 7. Sustainability and Viability: It was observed that issues of project sustainability were not adequately articulated at appraisal. However, being a policy reform programme, the sustainability of activities initiated under the project would largely depend on future

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Government policies and focus. If there are no radical changes opposed to the reform process, it is expected that both the privatization and market liberalization will be advanced and sustained to its logical end. The contrary would undermine all the basic frameworks and curtail further policy reforms to that effect. 8. Lessons Learned: The lessons that could be learned from the implementation of the ASAP pertain to; (i) Government ownership of development interventions and aligning them to the socio-economic environment in the country; (ii) Participation of relevant stakeholders in project identification and other phases of project implementation; (iii) Institution of timely review of projects so as to remedy projects of constraints impinging negatively on the project and for appropriate corrective measures; (iv) Setting of attainable realistic targets and quantifiable indicators for future assessment of project progress and impact; (v) Provision of timely and appropriate support to the project implementation team by project oversight bodies is fundamental for the successful implementation of projects; (vi) Complicated conditions imposed on Government prior to disbursement of loans or grant can have a negative implication on the timeliness of project start-up; and (vii) Effective donor coordination and communication in project management. 9. Conclusion and Recommendations: The overall rating for project performance has been assessed as unsatisfactory. This is in consideration of the non-attainment of most of the benchmarks set at appraisal, the low level of disbursement of project funds and the poor performance of both the Borrower and the Bank. The poor rating notwithstanding, the marginal achievements attained are fundamental perceived as potential frameworks for future policy reforms in the country. The recommendations given were drawn from the lessons learned from the implementation of the ASAP and are mainly focused on improving aspects of project management in future interventions between the Bank and the GOL. The recommendations to the Bank include: (i) Undertaking an evaluation of the ASAP and the overall APCBP so as to identify policy gaps and future interventions for Bank support; (ii) Rescheduling/Reimbursement of the unutilized funds, which are currently stowed in the Government Reserve Fund for other development interventions as may be proposed by the GOL; (iii) Abidance to the Project Cycle and the fielding of better composed supervision missions with adequate professional expertise and mix to competently monitor field activities in future; (iv) The need for comprehensive baseline studies to establish realistic and measurable benchmarks and indicators for which progress and impact can be effectively evaluated; (v) The need for capacity building on the Bank’s rules and regulations for procurement of goods and service, with a view to improving project implementation; (vi) Loan/Grant conditions should be realistic and streamlined to facilitate for the timely implementation of projects; and Effective donor coordination and communication in project management. It is recommended that the GOL should: (i) Endeavor to advance and finalize the policy reforms initiated under the ASAP by continuous monitoring of development in both the national and international policy environment; and (ii) Undertake the final Audit of the project accounts so as to facilitate the reconciliation of the project funds and maintain best practices in project management.

1. INTRODUCTION 1.1 The macroeconomic importance of Lesotho’s agricultural sector is evidenced by the fact that 50% of the population derives its livelihood from crop and livestock production and 60% of the labour force is employed in the sector. Moreover, agriculture accounts for 16% of exports and 75% of the country’s basic food needs. However, only 25% of the agricultural population produces enough on their land to meet their food requirements. Since 2000 the area harvested has been decreasing on linear basis. Due to declining soil productivity, total factor productivity has been declining at a rate of 1.2-1.5% annually. On a linear basis, agricultural yields have been declining at the rate of 1% annually. Nevertheless, the crop sector has become the dominant sub-sector, accounting for 60% of agricultural GDP over the five year period from 2000 – 2004. Agriculture’s share in GDP fell from 20 % in 1993 to about 17% in 2004. 1.2 Agriculture in Lesotho is predominantly smallholder-based. Two distinct cropping seasons are observed. The summer season is the principal one during which about 75% of the arable land is cropped. Only about 10,000 – 20,000 ha are cropped during winter. During summer, maize and sorghum are the principal crops grown, while in winter, pulses and a variety of vegetables are grown. Soil erosion and the formation of gullies have caused over 80% of the decline in arable land. Presently, arable land in Lesotho constitutes 9% of the total land area, down from 13% in the mid-1960s. Increasing herd size combined with a rigid land tenure system has caused serious loss of soil fertility. 1.3 The Lesotho environment is very fragile, characterized by steep slopes and frail soil formations. It is estimated that 0.25 per cent of the total arable land or about 39.6 million tons of soil, is lost through soil erosion each year, with the most visible signs being deep gullies in the lowlands and exposed rock in the mountains. The direct consequence of soil erosion is a decline in agricultural production, thus exacerbating the problems of food shortage and poverty. 1.4 The farming system involves strong interaction between crops, livestock and off-farm activities. The main source of cash is off-farm employment. Cattle are kept mainly for ploughing, milk, breeding for replacement of oxen and cows, fuel, savings and emergency sale. Sheep and goats are kept for wool, mohair, meat and cash sale, whereas field crops are grown primarily for household food security. 1.5 Policy reforms of the agriculture sector in Lesotho started in 1995. These include initiating steps to cease the announcing of producer prices of maize and wheat, removing the ban on importation of flour, discontinuing the issuance of import permits for grains and the divestiture of various public sector agro-industries. The policy reforms pertaining to the deregulation of the markets of maize and sorghum were completed in 1996, and the wheat market was deregulated in November 1997. Considerable progress was made in deregulating the grain market. However, various other agricultural items still remained under one form of government control or the other. Bread, fruits and vegetables, sugar, livestock and livestock products are still under some import/export restrictions. Much less headway was being made in the divestiture of agricultural parastatals.

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1.6 In realization of the need to enhance its capacity to undertake the pending agricultural reforms the Government of Lesotho (GOL) decided to implement an Agricultural Sector Development Progamme (ASDP). This was intended to be a long-term agricultural development programme spanning over a period of 10 years, which would have involved the implementation of a sector-wide strategy, a programme of policy reform, a reoriention of Ministry of Agriculture (MOA); all these to result in a set of investments to boost agricultural development. As an initial phase towards the implementation of the ASDP and after consultation with the ADB and other development partners, the GOL decided to implement the Agricultural Sector Adjustment Programme (ASAP) within the framework of the Agricultural Policy and Capacity Building Programme (APCBP) to address the Privatization and Divestiture component of the Project. 1.7 This report presents a review of the performance of the implementation of various components of the ASAP, including its impacts on the Lesotho farming community, various stakeholders, including the private sector and the economy as a whole. The report also summarizes the lessons learnt in project implementation that would be instrumental in the future interventions of a similar or related nature. Background documents for the development of this PCR included the Project Appraisal Report, the Borrower’s draft PCR, socio-economic studies, audit reports, project files, stakeholder meetings, Bank’s supervision mission reports and quarterly progress reports (see Annex 2 for sources of information). 2. PROJECT OBJECTIVES AND FORMULATION 2.1 Project Objectives The programme’s sector goal was to alleviate poverty, enhance household food security and employment creation. Its objectives were to diversify agricultural production, accelerate productivity, and enhance incomes by creating a conducive environment for private sector investment in agriculture. 2.2 Project Formulation 2.2.1 During the 7th Round Table Conference for Lesotho held in Geneva in January 1995, it was agreed that sectoral consultations be held covering health, population, agriculture, environment and tourism. This led to the commencement of consultations on the Agricultural Sector Investment Programme (ASIP). The main objective of the ASIP consultations was to promote dialogue and foster consensus between the GOL and its development partners on policies, priorities and programmes in the sector and to raise the resources required for their implementation. In view of the high level of organizational reforms required, GOL realized that it lacked the requisite capacity to implement a full-fledged ASIP. The fallback position was therefore to implement an ASDP. In implementing the ASDP, GOL decided during the pre-appraisal phase that took place in October 1997, to implement the first phase of the ASDP, focusing mainly on agricultural policy formulation and capacity building. 2.2.2 As a follow-up of ADB’s participation in the ASDP pre-appraisal phase and subsequent consultations with Donors and GOL, an ADB mission participated in the ASDP Donor appraisal meeting from 6 – 7 April 1998, which reviewed the agricultural policy and capacity building activities under the first phase of the ASDP. Subsequently, the World Bank (WB) in collaboration with other Donors appraised the APCBP and arrangements to fund the various components of the programme. Within that framework the GOL requested the ADB

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to provide a Policy based Loan (PBL) for Balance of Payment (BOP) support for importation of agricultural inputs, implements and equipment by the private sector, as well as funds for private sector development and privatization of agricultural parastatals. 2.3 Project Appraisal, Negotiations and Approval 2.3.1 In response to a request from the GOL, an ADF mission visited Lesotho in July 1998 to appraise the ASAP. During appraisal, the GOL requested the consideration for a TAF Grant. This request was firmed up and concluded through various consultations in late 1998 and early 1999. The PBL loan and TAF grant were approved by the Bank Board on 3rd March 1999 and the Loan/Grant Agreement was signed on 24th May 1999 and became effective in August 2000 2.3.2 There were considerable delays in the start-up of the project, mainly due to delays in the fulfillment of the loan/grant conditions by the borrower. It took 17 months before the loan/grant was declared effective, with conditions being met at different dates before and after the project came into force in August 2000. 2.4 Project Description 2.4.1 The activities of the project as defined at appraisal were to be implemented under two financing components i.e. the loan and grant component. 2.4.2 The Loan Component: The loan was to be used to provide Balance of Payment (BOP) support for use by the private sector for importation of eligible agricultural inputs, equipment and implements for accelerated private investment in the sector. The loan was to be released in two tranches over an implementation period of two and half years. Agricultural requisites imported would ultimately be used by smallholder farmers in accelerating investment, improving agricultural productivity, effecting agricultural diversification, enhancing rural incomes and reducing poverty. It was envisaged that farmers would purchase at market prices the agricultural requisites imported and use them in their agricultural operations. ASAP was also to facilitate farmers’ access to high quality seed and improved implements for diversifying agricultural production and accelerating productivity through the adoption of improved technology. 2.4.3 The Grant Component: The grant was to support capacity building and parastatal divestiture activities under the following sub-components: i) Studies and Technical Assistance 2.4.3.1 Planned activities under this sub-component were a total of 30 man months of technical assistance Privatization Expert and 4 man months of consultancies to conduct privatization studies. The objective of the studies included analyzing the potential impact of privatization of paratatals on agriculture and other sectors and making recommendations for mitigating the severity of the impact. They were also intended to estimate the number of agricultural parastatal staff that would have been retrenched due to privatization, the number of retrenched staff that would have been trained and determine the impact of the training on the trainees.

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ii) Training 2.4.3.2 The objective of the training programme was to strengthen the capacity of the retrenched personnel of privatized parastatals so as to enable them to invest in small and medium scale businesses on their own or seek alternative employment at the end of their training. It was estimated that a total of 3,300 personnel were to be retrenched from agricultural parastatals. iii) Equipment 2.4.3.3 The office of the Privatization was to be provided with one desk-top and one portable computer and associated software and hardware, one printer, one fax machine and one photocopier. 3. PROJECT EXECUTION 3.1 Effectiveness and Start-up Although the loan was signed on 24 May 1999 it did not enter into force until 07 February 2000 (fulfillment of loan conditions for first tranche). Due to the delayed fulfillment of the loan conditions by the GOL, the loan did not become effective until 07 August 2000 (release of first tranche). The project experienced further subsequent delays due to poor communication and procedural wrangling between the Bank and GOL, particularly on the modalities for utilization of funds under the loan component. In the ensuing circumstances the funds were virtually unutilized until the cancellation of the loan in 27 January 2003. The disbursed funds (1st tranche) are to-date deposited in the Lesotho Reserve Fund. 3.2 Modifications 3.2.1 Privatization: At appraisal, the privatization of public agricultural enterprises meant direct sale, divestiture or liquidation. However, with local investment not being forthcoming the GOL decided to change the privatization approach and incorporated a wider definition of privatization i.e. direct sale, liquidation, restructuring, and lease with option to buy. This slowed the privatization process as there were no legal instruments to support the process and especially the added privatization frameworks. 3.2.2 Training: Originally training was planned to commence in 2001, but because of the delay of recruitment of the consultant for the diagnostic/privatization studies the training programme was delayed until April 2002. The design of the training programme was based on the recommendations of the study.

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3.3 Implementation Schedule According to the appraisal report, the project was to be implemented over a span of 30 months. Project approval was planned for November 1998 for both loan and grant, but it was effectively approved in March 1999. On the other hand, the effectiveness/release of first tranche of the project was planned to be February/March 1999. However, the loan became effective and first tranche was released on 7 August 2000, whereas the grant was declared effective/release of first disbursement on 30 March 2001. The resultant slippage was 17 months for the loan and 25 months for the grant. Owing to the delayed project start-up, the deadline for final disbursement was extended once from August 2001 to December 2003. The target dates for project implementation as per the appraisal report and the actual dates are presented in Table 3.1.

Table 3.1 Implementation Schedule for the Policy Based Loan: Appraisal vs. Actual

Description Planned at

Appraisal Actual Date of Implementation

1. Negotiations October 1998 2. Board Presentation and Approval November 1998 3 March 1999 3. Loan Signature December 1998 24 May 1999 4. Loan Effectiveness/ Fulfillment of 1st Tranche February 1999 7 August 2000 5. Release of 1st Tranche March 1999 7 August 2000 6. Mid-term review December 1999 Not Undertaken 7. Release of 2nd tranche June 2000 Cancelled in Jan 2003 8. Closing date for loan August 2001 31 July 2003 9. Project Completion Report n/a May-June 2006

Table 3.2 Implementation Schedule for ADF/TAF Grant Supported Activities:

Appraisal vs. Actual

Description Planned at Appraisal

Actual Date of Implementation

1. Grant Negotiations October 1998 2. Board Presentation and Approval November 1998 3 March 1999 3. Grant Signature December 1998 24 May 1999 4. Grant Effectiveness February 1999 30 March 2001 5. Recruitment of Privatization Expert April 1999 February or March 2002 6. Mid-term review December 1999 Not Undertaken 7. Timing of Privatization Studies April-July 1999 March 2002 – September 2003 8. Timing of skills Training Programme Aug 1999-Apr 2000 2001 - 2003 9. Last Disbursement n/a 31 July 2003 10. Closing date for Grant August 2001 31 December 2003 11. Project Completion Report (PCR) n/a May-June 2006

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3.4 Reporting 3.4.1 According to the Government’s PCR and other documents, a total of 9 progress reports, an interim report and 2 audit reports were prepared during the implementation period of the project. Unfortunately, none of the progress reports could be found either in GOL archives or at the Bank for verification. It was also observed that two Audit Reports were prepared by the Government, with one covering the year ended 31 March 2001 and the other 31 March 2002. No Bank Audit was undertaken throughout the life of the project. 3.4.2 With the exception of the queries pertaining to the non-utilization of the funds under the loan component of the project, all Audit Reports produced a clean record of accounts, with no financial irregularities. The few issues that were brought to note by the Auditors reflected on the non-adherence to the Bank’s rules and procedures on the procurement of Goods and Services. Both Audit Reports adequately covered all the necessary areas and were considered to be of acceptable quality/standard. 3.4.3 It was noted that since the closure of the project in December 2003, the final Audit for the ASAP Accounts has not been undertaken to-date. Likewise, there has not been any official communication from the Bank to request the Government to undertake and present the final audited accounts of the project. 3.4.4 Mid Term Review: The Mid-Term Review, which was planned to have taken place in December 2002 at appraisal, was not conducted, until the closure/cancellation of the project. 3.4.5 The Borrower prepared and submitted a Draft PCR, which was not yet finalized by the time of the Bank PCR Mission. The GOL Draft PCR highlighted the non-implementation of the loan component of the ASAP, the non-documentation of discussions during supervision missions and the lack of follow-up on the recommendations made thereof. It recommended that future policy reform programmes should provide for public awareness and information prior to programme implementation. 3.5 Procurement 3.5.1 Under the ADF/Loan: As the expenditure procedures for the loan component of the project proved to be unworkable, no procurement whatsoever was effected until the closure of the project. 3.5.2 Under the ADF/TAF Grant: During the project implementation, 6 tenders were prepared, approved and launched. Out of the 6, three were launched under National Shopping (NS) and the remaining 3 under Limited International Competition (LIC) through Short Listing (SL). The short-lists were only provided by the Bank as those submitted by the GOL were rejected on grounds that the submitted candidates were locally based. A table below gives a summary of the items that were procured and the procurement mode recommended in the appraisal report. The list of contractors and suppliers is also given in the Basic Project Data Sheet.

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Table 3.3 Summary of Items in Project Procurement List

Item Description Mode of Procurement 1. Entrepreneurial Skills Training Single Source Procurement 2. Procurement of Computers and Printers National Shopping 3. Procurement of photocopier and fax machine National Shopping 4. Diagnostic Studies LIC/Short List 5. Privatization Study (phase one) LIC/Short List 6. Privatization Study (phase two) LIC/Short List 3.6 Sources of Finance and Disbursement 3.6.1 Sources of Finance: Table 3.4 shows that the total project cost, including contingencies at the time of appraisal, was UA 4.83 million (Grant UA 1.33 million and Loan UA 3.5 million) and the government contribution was UA 0.43 million.

Table 3.4 Project Financing

Source Appraisal (UA’ million) Actual (UA’ million) Percentage ADF Loan ADF/TAF Grant Total ADF Total GOL

3.50 1.33 4.83 0.43

1.78 0.57 2.35 0.03

51% 43% 49% 6%

Grand Total 5.26 2.38 45%

Table: 3.5 Final Project Cost Estimates by Categories of Disbursement

Categories of Expenditure Appraisal (UA)

in 1998 A. ADF Loan 1st tranche 2nd tranche Sub-Total (Loan) Cancelled Amount (from Loan) Disbursed Amount (from Loan) B. ADF/TAF Grant 1. Studies 2. Training 3. Privatization Expert 4. Equipment Sub-Total (Grant) Cancelled Amount (from Grant) Utilized Amount (from Grant) Total Loan & Grant Amount Cancelled Amount Utilized Amount (from Loan & Grant) - (Including Contingencies)

UA 1.78 million UA 1.72 million UA 3.50 million UA 1.72 million UA 1.78 million UA 0.05 million UA 1.01 million UA 0.21 million UA 0.06 million UA 1.33 million UA 0.76 million UA 0.57 million UA 4.83 million UA 2.48 million UA 2.35 million*

* Does not include GOL expenditure (UA 0.03 million) Source: Project Files and Borrower’s PCR

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3.6.2 Disbursement: According to Tables 3 and 4, the actual amount disbursed from the ADF loan stood at UA 1.78 million or 51%, leaving a loan balance of UA 1.72 million; and the actual amount disbursed from the ADF/TAF Grant stood at UA 0.57 million or 43%, leaving a balance of UA 0.76 million which has already been cancelled through two Bank notifications (UA 0.71 million on 27 January, 2003 and UA 0.043 million on 8 October 2004).

Table 3.6 Disbursement of the ADF/TAF Grant by Categories of Expenditure

Services Goods

Year Diagnostic Studies

Privatization studies Training Total Computers

& Printers

Total Disbursement

1999 0.00 0.00 2000 0.00 0.00 2001 10,111.73 163,248.46 173,360.19 16,855.98 190,216.17 2002 14,357.69 42,988.70 16,788.33 74,134.72 6,150.00 80,284.72 2003 23,652.65 278,130.02 301,782.67 301,782.67 Total 24,469.42 66,641.35 458,166.81 549,277.58 23,005.98 572,283.56

Table 3.7 Yearly Disbursement Schedule of the ADF Loan

Disbursement

Year Amount in UA Tranche*

1999 0 2000 1,781,703.28 First 2001 0 2002 0 2003 0 Total 1,781,703.28 * The Second Tranche was cancelled

4. PROJECT PERFORMANCE AND RESULTS 4.1 Overall Assessment According to the World Bank’s Implementation Completion Report (ICR) of the APCBP, the Privatization and Divestiture Component of which ASAP was part, was rated as unsatisfactory, mainly because the privatization, deregulation and liquidation processes did not progress as envisaged at appraisal. The ASAP was confronted with considerable bottlenecks right from its onset, which resulted in the non-attainment of most of the envisaged objectives/targets. Among the principal setbacks to the project included (i) the delayed start-up of the project, due to the delayed

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fulfillment of the loan/grant conditions by the GOL. Therefore, the project, which was scheduled to be completed within two and half years (30 months), was actually completed in more than four and half years (55 months) i.e. one and half years longer than the planned time; (ii) Delayed approval of the fulfillment of 1st tranche by the Bank (the letter was misplaced at the Bank for 6 months); (iii) Delays and difficulties in recruiting the Consultants to carry out various project activities; (iv) the non-resolution of problems under the loan component, which resulted in the non-utilization of funds and subsequent cancellation of that component; (v) the change in government approach to the policy reform process, especially with regard to privatization of public agricultural enterprises. (vi) the inadequate policy reform benchmarks and their associated indicators resulted to a very low achievement and performance of the policy reform programme. In view of the above, the expected outputs and outcomes were to a large extent not met as was envisaged at appraisal. Therefore, the overall assessment of the project is unsatisfactory. However, the project succeeded to: i) introduce the concept of policy reform, which is a very sensitive and critical political issue in Lesotho; ii) liquidated unprofitable government owned enterprises and leased one of them to private sector; and (iii) started the liberalization of markets and prices (just commenced with many issues still pending). 4.2 Operating Results 4.2.1 Some of the targets set for component activities at appraisal did not have adequate benchmarks against which they could be effectively monitored and evaluated. The achievements under this project are summarized in Annex 4. The operational performance of the project by component was as follows: 4.2.2 ADF/Loan: The general impression among government officials was that the implementation of the Loan Component of the Project i.e. Balance of Payment support was poor and non-effective. The non-performance of the BOP component is largely attributed to the poor design of the component and the non committal stance to make the necessary adjustments to the modalities stipulated in the original loan agreement, even after they were proven to be untenable. The main problem with the project design is the fact that it did not take into account the location of Lesotho, which is entirely surrounded by the Republic of South Africa (RSA) and where almost all imports are from RSA where currency is one to one with the local Maloti (the Lesotho Maloti and South African Rand are used interchangeably). This is notwithstanding several recommendations and proposals by the Government to ADB to explore other more amenable options for the utilization of funds. The six ADB supervision missions that were undertaken during the course of the project could not resolve the impasse and therefore that part of the project remained in an unredeemable stalemate. 4.2.3 Notwithstanding the delay in the disbursement of the 1st tranche for the loan component, the disbursed UA 1.781 million remained in a Special Account in the Bank in Lesotho without being utilized effectively for the earmarked activities. Upon realization that the criteria for utilizing this money were not realistic and did not conform to the foreign exchange regulations in Lesotho and the ensuing stalemate, the second tranche was eventually cancelled. The Government of Lesotho somehow managed to partially undertake some of the planned liberalization activities envisaged under the project with own funds. However, the bulk of the planned privatization activities have yet to take effect.

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4.2.4 ADF/TAF Grant: The grant component on privatization and market liberalization on the other hand was assessed to have performed much better, undertaking most of the envisaged activities. The study on the privatization and/or liquidation of 16 enterprises recommended for restructuring was conducted and proposals sent to the Cabinet for approval. However, the report also identified constraints that were not properly researched upon during appraisal. Some of the main issues that emerged were the low financial capacity of the local private sector to purchase the enterprises, legal instruments for land acquisition and ownership were not in place and training centres were not adequately attractive to the private sector. 4.2.5 Due to these constraints, the Government had to make some adjustments to the original plan by suspending outright sale of the enterprises and opting for liquidation and lease. To-date, of the 16 enterprises earmarked for privatization at appraisal, only one (1) has been leased, four (4) liquidated and one (1) partially liquidated. By the end of the project in 2003, the Government had met all the requirements for the downsizing of the Technical Operations Unit (TOU) as stipulated in the Appraisal Report. According to the Privatization Unit, a proposal for the privatization of Molimo Nthuse Pony Trekking Centre had been sent to the Cabinet for approval. By end of May 2006, approval by Cabinet was not yet granted. 4.2.5.1 Technical Assistance - Privatization Expert: Two phases of privatization studies were implemented during the project implementation. The activities carried out included field visits to the sixteen enterprises proposed for privatization for data and collection of information. The privatization and liquidation schemes that were recommended by the Expert were approved by Government and published in the Government Gazette in June 2002. The Terms of Reference and the framework for the liquidation of public enterprises recommended for restructuring were prepared; and local property consultants were engaged for valuation of the assets of the sixteen enterprises earmarked for privatization. 4.2.5.2 Studies: The Diagnostic studies expert was recruited and produced an Inception report, on the Impact of deregulated grain market, which was submitted to GOL and ADB. The Diagnostic Study included an analysis of 13 commodities that are under GOL control, with a view to understanding the impact of liberalization/deregulation on producers, consumers and trade in general. The results of these studies were discussed with stakeholders in workshops conducted in all ten districts with recommendations discussed in a National Workshop in March 2003. A report containing recommendations for deregulation with the necessary policy measures was compiled by the Ministry of Trade and Industry; Cooperatives and Marketing (MTICM); and presented to Cabinet for approval prior to implementation. 4.2.5.3 Training: The Basotho Enterprise Development Corporation (BEDCO) was sub-contracted to train employees of agricultural enterprises that had been earmarked for privatization. A total of 649 employees were counseled on financial management and job search; and on entrepreneurial skills development. The total number of trained personnel was well below the planned 800 at appraisal, as some employees had already been retired before the onset of the training exercise. It was noted that no arrangements were envisaged under the project to follow-up on the trained personnel to assess the impact and effectiveness of the imparted training after being retrenched from Government enterprises. 4.2.5.4 Equipment: The only equipment purchased under the project were computers and accessories, photocopier and fax machine. Procurement of this equipment was carried out in accordance to the Bank’s Guidelines for the Procurement of Goods and Services. All Contracts were awarded through competitive bidding as indicated in Table 3.3.

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4.3 Management and Organizational Performance 4.3.1 Project Management: The project was under the oversight of three Ministries, namely the Ministry of Agriculture (MOA), the Ministry of Industries, Trade and Marketing (MITM) and the Ministry of Finance (MF); with no substantive Project Implementation Unit (PIU). The overall implementation of activities and plans under the APCBP (Privatization and Divestiture Component), of which ASAP was part, were supervised by the Change Management Team (CMT) and overseen by the Project Steering Committee comprising members from the aforementioned Ministries. However, the implementation of the ASAP was directed by the Department of Planning and Policy Analysis of the MOA, which was also the main link with the Bank. On the other hand, the liberalization sub-component of the ASAP was being coordinated by the MITM, whereas the training component was under the Coordinating Committee comprising of representatives from MITM, BEDCO, MOA and the Privatization Unit. This project management set-up was an impediment to the timely implementation of project activities, especially since no proper guidelines were given to facilitate interaction and exchange between the sub-coordination units of the project. 4.3.2 Project Communication/Coordination: The communication between the Borrower and Bank was not to the desired level. This was generally the case with the project as a whole, but particularly with the loan component. On the one hand, the GOL staff and Project Management Team were not fully versed with the expenditure procedural arrangements, while the Bank was not forthcoming in making timely decisions and advice on the way forward. A general impression among a number of Government officials was that the project was hastily prepared and approved without serious thought on the preparedness, feasibility and its economic ramifications and repercussions on the populace of Lesotho. 4.3.3 Donor Coordination: As indicated earlier, the ASAP was an integral part of the larger APCBP, The APCBP was jointly funded by various donor agencies, including the WB, DFID, IFAD, GTZ and ADB, with each supporting a particular component of the Project. The level of coordination among the participating donors can be rated as inadequate, especially since there was no established institutionalized mechanism to ensure regular communication and exchange between the various donors on the progress of their respective components. In this regard the ADB was the most affected especially since it lacked national presence (in terms of country office representation). Consequently, the ADB did not participate in the two review missions for the APCBP in December 2002 and December 2003. Neither is the contribution of ADB reflected or acknowledged in the reports of the two review missions. On the other hand the Reports of the Bank Supervision Missions are not reflective of any consultations with other collaborating donor agencies on the progress and performance of the ASAP. 4.3.4 Generally, the principles of stakeholder participation and involvement were not adequately adhered to, especially during the initial stages of project preparation and appraisal. For example, while the loan component was to facilitate private entrepreneurs in accessing foreign exchange for the purchase of agricultural inputs, no consultative meetings/discussions were conducted with them to seek their views and modalities for operationalization. The complexities in the utilization of the loan funds surfaced only at implementation phase with the resultant deadlock and poor performance.

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4.3.5 Delays: The project experienced protracted delays in fulfilling the conditions of 1st tranche and in recruiting the consultants for the diagnostic/ privatization studies. It took over 17 months from the date of loan approval to fulfill the conditions of 1st tranche. In the course of project implementation, there were frequent delays in disbursements to various project activities, for which the Government had to cover from own funds and be reimbursed at a later date. Delays were also experienced in the implementation of the policy reform component (especially those related to privatization), mainly due to frequent changes in the government priorities. 4.3.6 Management of Project Finances: According to the two Audit Reports on the project accounts, there were no major financial management issues. However, the Project Management Team was not versed with the basic financial and procurement procedures of the Bank, as no formal training was given to them on those aspects prior to project inception. As such, most transactions and financial procedures were undertaken on a trial basis with considerable incidences of error. This too contributed to the delay in some of the project transactions as it took time to correct the errors. 4.3.7 Training: Training programmes were implemented effectively despite delays, with reduced number of trainees. Follow-up on the trainees was not envisaged at appraisal. 4.4 Performance of Consultants, Suppliers and Contractors There were no major issues regarding the performance of consultants, suppliers and contractors. The only issue, which was of concern to GOL, was with the Consultant’s Report on the Diagnostic Study, which was deemed to be well below the expected standard and did not abide to the given Terms of Reference. Although the Report was accepted as presented, the Government decided to commission a follow-up study of a similar nature to make a comprehensive analysis of the aspects that were not adequately covered by the Consultant. 4.5 Fulfillment of Conditions and Covenants 4.5.1 Conditions Precedent to First Disbursement: The conditions precedent to the first disbursement were stipulated in Article V/III of the Loan/grant Agreement entered into by the Government of Lesotho and the African Development Fund on 24th April 1999. Actions taken for fulfillment of Loan conditions were as follows:

(i) Section 5.01 (1) MOA opened a special account in the Central Bank of Lesotho with the A/C No. 100008-USD-5001-36

(ii) Section 5.10 (2) MOA established and provided the Fund with a list of MOA’s

inter-agency steering committee members, comprising of Agriculture, Finance and Industry, Trade and Marketing.

(iii) Section 5.10 (3) MOA provided the fund with an organogram describing the

composition and responsibilities of the Project Implementation Team.

(iv) Section 5.10 (4) MOA assigned the programme’s agricultural development oversight responsibility to MOA’s Management Committee.

(v) Section 5.10 (5) MOA prepared plans to foster agricultural diversification.

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(vi) Section 5.10 (6) MOA submitted a comprehensive written statement and an

action plan on the Government’s financial relationship with Co-op Lesotho. With regard to the grant, the following conditions were fulfilled:

(i) Section 3.02 (1) MOA prepared and submitted to the Fund a list of agricultural commodities and a schedule for their liberalization.

(ii) Section 3.04 (2) MOA submitted to the Fund a skills training programme

together with implementation schedule for training of retrenched personnel. Other conditions that were met include:

(i) Section 3.03 (1) MOA submitted to the Fund regular quarterly progress report giving details of the implementation of the entrepreneurial skills training programme and utilization of the funds for training and for support of parastatal divestiture.

(ii) Section 3.03 (2) MOA submitted for the Fund’s approval at the beginning of

each financial year, an annual work plan and budget, indicating the activities, including the proposed training programme for the year.

4.5.2 It took the GOL seven (7) months to fulfill all the conditions, thus inflicting undue delay on the project start-up and disbursement of the first tranche by the Bank was delayed by 17 months. Confirmation of fulfillment of the conditions was conveyed to the Bank in February 2000, but it took the Bank another six (6) months to effect the disbursement of the first tranche (making a total of 14 months to first disbursement). 4.6 Economic Performance 4.6.1 As the project was more of a policy nature, both its financial and economic viability were not assessed/calculated at appraisal. Attempts to retrospectively undertake the Financial and Economic Analyses were curtailed by the unavailability of data on many requisite parameters. The Policy Analysis Matrix in Annex 8, however, gives an overview of the performance of the project in a qualitative perspective and Annex 9 gives a qualitative review of the policy reform programme (liberalization and privatization activities). 4.6.2 In the absence of data to estimate the financial and economic IRR, another methodology to assess the effect of the project was employed on the economy of Lesotho, through the analysis of the food supply and distribution for Lesotho and comparing it with Africa, South of Sahara and Africa as a whole. The Table in Annex 9 shows, that the Lesotho population consumes higher per capita Calories of vegetal products than the South Sahara Countries, but less Calories of animal products in general. On the other hand, Lesotho imports the bulk of its food requirements with a negative implication in local production and markets. This is particularly so for sugar, vegetables, oils, pulses, fruits, meat and cereals. This situation calls for more production and marketing oriented initiatives so as to enhance the productivity at the rural level and commodity competitiveness. The overall impact of the ASAP in this regard is however, perceived to be negligible especially since most of the activities were inconclusive.

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5. SOCIAL AND ENVIRONMENTAL IMPACTS 5.1 Social Impact 5.1.1 There was no social impact anticipated at appraisal. However, it could be deduced that through the implementation of the training component for the retrenched parastatal staff, some entrepreneurial skills were developed and used for diversified production and income generation. 5.1.2 Poverty Reduction: The overall objectives and activities of ASAP were complementary with the GOL’s programme for poverty reduction and represented an effective and practical means of tackling the problem of poverty in the country. However, in the circumstances that the activities under the loan component were not implemented, it is difficult to assess the impact on poverty reduction as a result of ASAP. 5.1.3 Gender Relations: The programme in general and the training programme for retrenched parastatal personnel in particular, were directed to the welfare of both men and women. It is probable however, that there were benefits which accrued to women in terms of improved family welfare and livelihood, especially for women and children. Unfortunately, this could not be proven empirically, as there has not been any follow-up or evaluation of training programme by GOL or any other agency to-date. 5.2 Environmental Impact

The programme was classified as category II according to the Bank’s Guidelines at appraisal. This was mainly on the loan component under which the importation of eligible agricultural inputs (including fertilizers), equipment and implements was envisaged. Since the loan component was virtually not implemented, no environmental impacts were recorded. In retrospect, however, the PCR noted that some environmental aspects, which could have had significant impact on the outcome of the project, were not considered at appraisal. Since it was envisaged that there would have been imports of fertilizers and pesticides under the loan component, it would have been prudent to include a training package (within the larger training sub-component) for environmental, agricultural and customs officers to ensure imported commodities conform to given standards. Besides, it was necessary to plan and budget for environmental audits for the 16 agricultural parastatal enterprises earmarked for privatization so as verify liability issues. 6. PROJECT SUSTAINABLITY Issues of project sustainability were not well articulated at appraisal. Therefore, the assertions under this subject are based on the discussions with Government officials and other stakeholders of the ASAP. Despite the achievements of the project from the grant component being below projections at appraisal, there is considerable probability that the Government will maintain the momentum generated through the project in terms of privatization, liberalization and liquidation of government parastatals/enterprises. Being a policy reform focused programme, sustainability of most of the activities initiated under the project would depend on future GOL policies on the same. If there are no changes in focus or retracting by GOL, the elements related to market liberalization and privatization of government parastatals are expected to continue to develop in a sustainable manner. Besides, the project produced considerable intermediate outcomes, including diagnostic studies and other documentation, the recommendations of which would provide a robust framework for future Government decision on the appropriate course of action towards a sustainable policy reform programme in the country.

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7. PERFORMANCE OF THE BANK AND THE BORROWER 7.1 Performance of the Bank 7.1.1 Project Appraisal: The project design adopted by the Bank, particularly for the loan component was unworkable in the socio-economic circumstances and environment of Lesotho. The Appraisal report did not provide adequate information on the modalities for satisfying/meeting conditions for accessing the funds. The project’s Logical Framework Matrix lacked objectively verifiable and measurable indicators for which to assess and evaluate project performance. 7.1.2 Bank Missions: The Bank fielded 8 Missions including 1 project appraisal, 1 launching and 6 supervision missions. Apart from the low average supervision performance of 1.2 per annum as against 1.5 in the Guidelines, the composition of the supervisory missions was inadequate, mainly one-person missions with no adequate skills mix. The Supervision missions failed to provide the necessary support to the project and to resolve various issues that hindered the implementation of the loan component. 7.1.3 Implementation Performance: The project had no Mid-Term Review as was envisaged at appraisal. The project was planned for three years from 1999 to 2002 but it was extended to December 2003. Although the Loan/Grant Agreement was signed in May 1999, the first tranche of disbursement was effected in August 2000, thus delaying the commencement of project implementation by almost 15 months. While this could have also been caused by the delay in fulfillment of the loan/grant conditions by GOL, it is noted that even subsequent withdrawal application on a number of occasions took very long to effect. The average time for processing of the withdrawal applications was approximately 3 months, although there are some which took over 6 months to effect. Besides, the procedure for the identification and recruitment of Consultants for activities under the project took a long time to finalize as approvals from the Bank were not forthcoming. In view of the above, the Bank performance is rated unsatisfactory. 7.2 Performance of the Borrower 7.2.1 Fulfillment of Loan/Grant Conditions: The conditions precedent to the first disbursement for the loan and grant components were fulfilled piecemeal over a long span, thus inhibiting the first disbursement of the project funds by the Bank. 7.2.2 Project Implementation: The project experienced implementation delays partly due to delays in the fulfillment of loan conditions, but mainly as a result of lack of understanding by professional and the Project Management Team of the implementation modalities stipulated in the Appraisal Report. This affected the performance of the Ministry of Agriculture in undertaking its mandate vested upon it, in its capacity as the Executing Agency of the project. Besides the delays in project implementation, there were minimal recorded achievements under the grant component in terms of privatization, deregulation and liquidation of government parastatals. On the other hand, although it was clear that the project was struggling to undertake a wide range of activities in the premise of weak management support, the Inter-Ministerial Steering Committee did not intervene in time to steer the project through.

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7.2.3 Government’s Contribution: Counterpart funding throughout the life of the project was irregular and to the agreed amount at appraisal. Until the end of the project, the contribution by the GOL was a total of UA 0.03 million, which is equivalent to 6% of the total UA 0.43 million budgeted during appraisal. The Borrower’s performance is therefore judged unsatisfactory. 7.2.4 Technical Assistance: The technical assistance was well utilized in training personnel who were to be retrenched from government enterprises earmarked for privatization and/or liquidation. The employees were offered counseling on financial management and job searching as well as entrepreneurial skills. A total of 649 employees were trained against the envisaged 800 at appraisal. Due to delays in project implementation some personnel who were in the original list of trainees had been retired (mandatory), before the onset of the training programme. It was noted that, to-date there has not been any follow-up on the trained personnel to assess the impact and effectiveness of the imparted training after being retrenched from government enterprises. Despite the lack of follow-up on the trained staff, this was the only activity, which was fully accomplished according to plan at appraisal. This sub-component can therefore be safely rated as satisfactory. 8. OVERALL PERFORMANCE AND RATING

8.1 The overall performance and rating for project is unsatisfactory. The overall assessment of various project indicators and parameters is 1.1 as indicated in the Project Outcome Ratings Table in Annex 7. The low rating is as a result of the poor performance of the project in terms of attainment of most benchmarks and indicators at appraisal and the poor management of the project by both the Borrower and the Bank. A thorough review of the set performance indicators in the project policy reform programme revealed that only about 49 per cent was achieved. This rating is a weighted average of 73 per cent achievement for the liberalization activities and 38 per cent achievement for the privatization activities. On the other hand, the level of disbursement of project funds was only 51% of the total budget for the loan and 43% of the budget for the grant, whereby the entire disbursed loan amount was unutilized. This is a clear confirmation of the non-implementation of most of the envisaged project activities. The poor performance rating given to the Borrower and the Bank is depictive of the management flaws that constrained project implementation. The Borrower had the responsibility to ensure the timely fulfillment of the loan/grant conditions and abide by them; oversee the implementation of various components of the project, assist the project management team in managing project funds and report periodically on the progress of the project. All these obligations were not satisfactorily undertaken. The low rating given to the Bank resulted from its ineptness in design of the project and ineffectiveness in supervision of the project, but mostly its inability to facilitate timely corrective measures to address the various issues that hindered project implementation.

8.2 Notwithstanding the poor performance rating of the project, it is notable that the partial achievements of some of the project activities, especially those pertaining to privatization and market liberalization will be fundamental cornerstones in future Government policy reforms to that effect. This will, however, depend on the commitment and resolve of the Government to consistently pursue its policy reform agenda to ensure fruition to its logical end.

17

9. CONCLUSION, LESSONS LEARNED AND RECOMMENDATIONS 9.1 Conclusion 9.1.1 The implementation of the grant component of the project could be considered as partially met. However, the loan component was problematic and virtually not implemented to the end. This resulted from delays in project start-up, unclear design of project pertaining to utilization of funds under the loan component, inconsistent provision of counterpart funding, and change in Government approach to policy reforms envisaged in the appraisal report. The overall performance of the project is therefore rated as unsatisfactory. 9.1.2 In spite of the problems cited above, there was marginal achievement made in respect of privatization and liquidation of public enterprises as indicated in Para 4.2. However, there is much more that needs to be done to complete the liberalization reforms, which were initiated under the ASAP. The Government, although taking a cautious stance to the reforms, is seemingly committed to carrying through the reforms to the logical end. In general terms, it could be concluded that, despite minimal achievements in terms of physical implementation, the major benefit of the project was the introduction of the policy reform concept as a tool for improving the multi-sectoral economic development performance in the country. 9.1.3 The Government had by the time of preparation of the PCR continued to pursue the reform process after the closure of the project and there are positive signals that it will continue to pursue the reforms in future. 9.2 Lessons Learned The following lessons can be drawn from the ASAP:

1) Government Ownership of Development Interventions: Any development intervention that is not directly related to the country’s development strategic framework and pegged to the human, institutional and financial capacity is bound to fail. Irrespective of its attractiveness at face value, it is imperative that it is adequately analyzed for applicability and relevance before making any commitment to it. Essentially, the Government should always take the lead and ownership by ensuring the adaptability and indigenization of development interventions to the prevailing socio-economic conditions in Lesotho, instead of taking them wholesomely. This project has semblances of an intervention that was manipulated and imposed upon the Government without serious articulation of the capacity of GOL and overall implication to the economy.

2) Participation of Relevant Stakeholders in Project Identification: The

involvement of relevant stakeholders in a given development intervention from the outset is of fundamental importance for the attainment of project objectives, especially if the project is of a multi-sectoral nature as the ASAP. The scope, extent and responsibilities of each of the stakeholders should be clearly stipulated in the project document and consented upon by all parties. Apparently, some important stakeholders of loan component were not adequately consulted during the identification phase or appraisal of the project. The numerous technical difficulties that ensued in the course of implementation are a testimony of that irregularity.

18

3) Engagement and Timely Review of Projects: The primary safety net to remedy a project from implementation bottlenecks is project review (Medium Term Review), which is usually provided for in the project document. The timing of the project review is critical as a remedial measure to counteract and rectify any ensuing difficulties during project implementation. It is unfortunate that this procedure was not adhered to under the ASAP and although there were regular supervision missions during the course of implementation, their recommendations were not critically followed through neither by the Bank nor the responsible Government authorities.

4) Setting of Attainable Realistic Targets and Indicators: It is important that

performance targets and indicators are realistically achievable in a given timeframe. The setting of over-optimistic and ambitious indicators as were those under the ASAP could render the project unfeasible and distractive. The outcome/output indicators set under ASAP should have been set with considerable caution, especially considering the fact that the project was policy reform oriented with intricate political and social sensitivities.

5) Provision of Timely and Appropriate Support: The adherence of laid down

Bank regulations, procedures and guidelines by project management staff, is of paramount importance for the successful implementation of a given project. Besides, project overseeing bodies like the project steering committees have a central role to play in guiding the process of project implementation. It is apparent that the overall institutional framework for the ASAP was skewed and the project staff and oversight bodies were not adequately informed about their roles and scope of operation. Changes in the project institutional framework midway during project implementation must have impacted negatively on the implementation of the project as well as communication with the Bank.

6) Setting of Amenable Loan/Grant Conditions: Among the causal factors for the

delayed start-up of the project was the late fulfillment of set loan conditions precedent to the release of the first tranche. Some of the conditions especially those that required the GOL to prepare plans or programmes for agricultural diversification and action plans required considerable time to undertake and fulfill to the level satisfactory to the Bank. This was exacerbated by the low capacity in Government in terms of qualified personnel. It is apparent that such conditions will always take the Governments time to fulfill, thus impinge on the time for the implementation of a given project.

7) Effective Donor Coordination and Communication in Project Management:

Although the ASAP was an integral part of the APCBP, it was implemented as if it was a stand-alone project. Its input/output did not feed directly into the input/output of the larger APCBP and the other collaborating donors were seemingly indifferent of the input from the Bank. The isolation of the ADB is depicted by its non participation in the missions for the review of the project and the non reflection of the contribution of ASAP in those reports. This does not reflect well on the bank’s principle of creating linkages and synergy with other development partners in implementing projects with similar objectives. Neither does it provide an environment that is conducive for co-financing arrangements with other partners.

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9.3 Recommendations

To the Bank

1) The Evaluation of ASAP: The Bank in collaboration with the Government needs to take stock of what has been achieved by the project through a comprehensive evaluation of the ASAP and the broader Agricultural Policy and Capacity Building Project (APCBP). This would facilitate the process of identification of policy gaps and future interventions for support by the Bank.

2) Reimbursement of Unused Funds: The Bank in collaboration with the

Government needs to seek for alternative means of investing the funds that were allocated for the BOP support (loan component), which are currently in the Government Reserve Fund and for which the Government is continuing to pay its commitment fees on a regular basis. In case alternative investment interventions are deemed impossible, then the Bank should liaise with the Government at the earliest to seek for reimbursement of the Funds to the Bank in accordance to the agreed procedure in the Loan Agreement. The Loan was cancelled since early 2004, but the money has yet to be sent back to the ADB coffers.

3) Abidance to the Project Cycle and Professional Supervision Missions: A more

interactive approach and trust between the collaborating parties need to be cultivated in future interventions, with a view of creating a dynamic and interactive image to project implementation. At the same time, the Bank should respect and abide to the agreed project cycle and processes that ensure timely resolution of problems that affect project implementation. Besides, supervision missions should be composed of professional expertise and mix required for the given project to competently monitor field activities as well as address issues arising from administrative and financial matters. In future, the bank should refrain from single or one-person Missions as was the case during the ASAP. Bank Senior Management should address itself to the recommendation given by Supervision Missions and provide timely and appropriate resolution for the smooth implementation of projects and sustenance of the Bank’s credibility.

4) Baseline Studies: Baseline studies should be comprehensively undertaken in

order to establish realistic and objectively verifiable benchmarks/indicators against which subsequent changes in the specified indicators could be measures and evaluated.

5) Capacity Building for Bank Project Implementation: In order for project staff

to take informed decisions as they implement projects and also to enhance the communication between the Bank and field staff, a mandatory inception training should (especially on the Bank’s rules and regulations on procurement and disbursement) as a norm be imparted to project staff, most appropriately prior to the commencement of project implementation.

20

6) Amenable Loan Conditions: The Bank should in the spirit of facilitating the

process of project implementation endeavour to streamline the conditions precedent to the release of the first tranche for both loans and grants to member countries. The conditions should be adequately amenable and realistic, with a view to striking a reasonable balance between the objective of the loan, the number of conditions set and the timeliness of their fulfillment.

7) Effective Donor Coordination and Communication in Project Management:

The Bank should live to its principle of linking up with other donors for creation of the necessary synergy in project implementation. As such it should strive to maintain the necessary consultative process and information sharing with other partners. This is particularly recommended for co-financed projects like APCBP. This kind of collaborative approach could avert the implementation bottlenecks that dogged the ASAP.

To the Borrower

1) Finalization of Policy Reforms: The Government should be encouraged to

finalize the various pending approvals on privatization and marketing reforms with the Cabinet at the earliest convenient time possible, without jeopardizing the interests of the country. This could be progressively undertaken through the formation of a specific unit, which would continuously monitor development in both the national and international policy environment and adjust accordingly and in a timely manner.

2) Final Audit Report: The Government should as a matter of urgency undertake

to embark on the preparation of the Final Audit Report. The final Audit Report would facilitate the reconciliation of the project funds and signify the effective conclusion of the project.

ANNEX 1 Page 1 of 1

Map of Lesotho

ANNEX 2 Page 1 of 2

Sources of Information

1. ADB – Supervision Mission Reports (Various)

2. BEDCO - Reallocation and Adjustment of Budget – July to December 2002

3. BEDCO – Progress Report – July to December 2001

4. Government of Lesotho (GOL) – Lesotho Utilities Sector Reform Project – Annual Report 1/4/2002 – 31/03/03

5. GOL – Final Report of the Lesotho Privatization and Private Sector Development Project – 2000/2001

6. GOL – Sublease Agreement for Mejametelana Vegetable Farm between the GOL and Mookoli Fresh Farm Produce (PYT) Ltd – 01/12/03

7. GOL – Lesotho Government Gazette – Extraordinary, 8/2/2002

8. GOL, Policy on Coop Lesotho and Commodity Aid, 26 January 2000. Memorandum

9. Divestiture of Small Agricultural Enterprises: Request for Intervention, 7 April 2004

10. GOL, National Agricultural Policy

11. GOL – Project Progress Reports (Various)

12. GOL, Audit Reports

13. GOL, Lesotho Agricultural Sector Adjustment Programme (ASAP) - Interim Report on the Utilization of the First Tranche of the Loan

14. GOL, Agricultural Policy and Capacity Building Project Enhancement of Rural Marketing in Lesotho Progress Report for the Period 1 July to 9 August, 2002

15. GOL, Lesotho Agricultural Policy and Capacity Building Project (APCBP) Review Mission, January 25 to February 3, 1999, Aide-Memoir

16. GOL, Minutes of the Meeting of the Negotiation Team on the Privatization of Agriculture Enterprises, 31st March 2004,

17. GOL, Aide Memoire, Privatisation of the Wool Sheds and the Two Sheep Stud Farms, Meeting With the Lesotho National Wool and Mohair Growers Association (LNWMGA), 16 April 2002

18. GOL, Lesotho Agricultural Policy and Capacity Building Project (APCBP), Review Mission December 16 - 20, 2003, Draft Aide-Memoire

19. Kingdom of Lesotho – Poverty Reduction Strategy Paper, 2004/2005 – 2006/2007

20. Lease, With Options to Buy, Of Enterprises to the Lesotho National Wool and Mohair Growers Association, Privatisation Project, Memorandum on, 29 May 2002

21. Liquidation Of Enterprises, APCBP, Ministry Of Agriculture, Cooperatives And Land Reclamation Privatisation Project, Memorandum, 24 May 2002.

22. Ministry of Agriculture, Co-operatives and Land Reclamation, Privatisation Project Memorandum, Bidder Evaluation Criteria, Date: 17 June 2002

23. Ministry of Agriculture, Minutes of the 25th Meeting of the Private Sector Advisory Committee Held On 11 December 2002 at Lesotho Sun Hotel, 30 January 2003

ANNEX 2 Page 2 of 2

24. Ministry of Agriculture, Restructuring of Veterinary Services – Clinics, Ministry Of Agriculture, Co-Operatives and Land Reclamation, Privatisation Project, Memorandum, 8 May 2002

25. Minutes of the Meeting between the Negotiation Team And The National L W 00l And Mohair Growers Association On The Privatization of Agriculture Enterprises, February 2004.

26. Ministry of Agriculture, The Liberalization of Agricultural Commodity Production and marketing Report, department of Marketing, Department of planning and policy Analysis, Ministry of Agriculture and food Security and Ministry of Trade and industry, Cooperatives and Marketing, 12 July 2003

27. World Bank, Implementation Completion Report, Agricultural Policy and Capacity Building Project (APCBP), 14 May 2004

ANNEX 3 Page 1 of 7

Lesotho ASAP PROJECT COMPLETION REPORT

DETAILED ADF/GRANT DISBURSEMENT

Ledger of Contract Per Loan Source of Finance: African Development Fund

Country: Lesotho Loan Number: 2100155000179

Project Title: AGRICULTURAL ADJUSMENT LOAN Amount Signed: 1,330,000.00 UAC Net Amount:* 572,284.52 UAC Date signed: 24.05.1999

* From summary loan ledger report

Total disbursement: 573,643.27 UAC Printing: 30.05.2006

Contract code: 5000005161 Amount Allocated: 30,740.56 Description: 01/Diagnostic Study Total RG: 0.00

Supplier name: Mr. Gabriel O. Alyenugba / Akinola Akintunde & Co. Total Disbursement: 30,740.00 Category Services Undisbursed Amt: 0.56

Uncommitted Amt: 0.56

Date Disbursed Ldv ref. & Currency Application num

Amount in currency

Total disbursed Undisbursed Amt.

26.03.2001 F/LSO/2001/0557 USD DP NO2 2,400.00 2,400.00 28,340.56 08.05.2001 F/LSO/2001/0860 USD DP No01 6,750.00 9,150.00 21,590.56 30.05.2001 F/LSO/2001/1020 USD DP No4 1,200.00 10,350.00 20,390.56 30.05.2001 F/LSO/2001/1021 USD DP No5 2,250.00 12,600.00 18,140.56 11.01.2002 1/LS/2002/03900 USD DP No 11 1,500.00 14,100.00 16,640.56 11.01.2002 1/LS/2002/03900 USD DP No 12 13,500.00 27,600.00 3,140.56 25.03.2002 1/LS/2002/05009 USD DP No 13 2,500.00 30,100.00 640.56 25.03.2002 1/LS/2002/05010 USD DP No 14 640.00 30,740.00 0.56

ANNEX 3 Page 2 of 7

Lesotho ASAP PROJECT COMPLETION REPORT

DETAILED ADF/GRANT DISBURSEMENT

Ledger of Contract Per Loan Source of Finance: African Development Fund

Country: Lesotho Loan Number: 2100155000179

Project Title: AGRICULTURAL ADJUSMENT LOAN Amount Signed: 1,330,000.00 UAC Net Amount:* 572,284.52 UAC Date signed: 24.05.1999

* From summary loan ledger report

Total disbursement: 573,643.27 UAC Printing: 30.05.2006

Contract code: 5000005162 Amount Allocated: 5,339,820.00 Description: Training fee Total RG: 0.00

Supplier name: Basotho Enterprises Development/ Dummy Business Partner Total Disbursement: 4,771,580.00 Category Services Undisbursed Amt: 568,240.00

Uncommitted Amt: 568,240.00

Date Disbursed Ldv ref. & Currency Application num Amount in currency

Total disbursed

Undisbursed Amt.

16.08.2001 F/LSO/2001/1471 LSL DP No6 1,601,946 1,601,946.00 3,737,874.00 30.05.2003 1/LS/2003/10689 LSL DP No 25 860,328 2,462,274.00 2,877,546.00 18.08.2003 1/LS/2003/11665 LSL DP No 26 2,074,379 4,536,653.00 803,167.00 10.09.2002 1/LS/2002/07393 LSL DP No 20 234,927 4,771,580.00 568,240.00

ANNEX 3 Page 3 of 7

Lesotho ASAP PROJECT COMPLETION REPORT

DETAILED ADF/GRANT DISBURSEMENT

Ledger of Contract Per Loan Source of Finance: African Development Fund

Country: Lesotho Loan Number: 2100155000179

Project Title: AGRICULTURAL ADJUSMENT LOAN Amount Signed: 1,330,000.00 UAC Net Amount:* 572,284.52 UAC Date signed: 24.05.1999

* From summary loan ledger report

Total disbursement: 573,643.27 UAC Printing: 30.05.2006

Contract code: 5000005163 Amount Allocated: 175,133.00 Description: Computers & Printers Total RG: 0.00

Supplier name: SQUARE ONE COMNET Total Disbursement: 175,133.00 Category Goods Undisbursed Amt: 0.00

Uncommitted Amt: 0.00

Date Disbursed Ldv ref. & Currency Application num

Amount in currency

Total disbursed

Undisbursed Amt.

20.07.2001 F/LSO/2001/1345 LSL DP No7 175,133 175,133 0.00

ANNEX 3 Page 4 of 7

Lesotho ASAP PROJECT COMPLETION REPORT

DETAILED ADF/GRANT DISBURSEMENT

Ledger of Contract Per Loan Source of Finance: African Development Fund

Country: Lesotho Loan Number: 2100155000179

Project Title: AGRICULTURAL ADJUSMENT LOAN Amount Signed: 1,330,000.00 UAC Net Amount:* 572,284.52 UAC Date signed: 24.05.1999

* From summary loan ledger report

Total disbursement: 573,643.27 UAC Printing: 30.05.2006

Contract code: 5000013574 Amount Allocated: 66,462.00 Description: AG/PRO/118 OF 03/08/2001 / Privatization Study I Total RG: 0.00

Supplier name: James Matale Total Disbursement: 48,761.00 Category Services Undisbursed Amt: 17,701.00

Uncommitted Amt: 17,701.00

Date Disbursed Ldv ref. & Currency Application num

Amount in currency

Total disbursed Undisbursed Amt.

08.04.2002 1/LS/2002/05282 USD DP No 16 3,161.00 3,161.00 63,301.00 15.04.2002 1/LS/2002/05373 USD DP No 17 17,100.00 20,261.00 46,201.00 10.09.2002 1/LS/2002/07392 USD DP No 19 17,100.00 37,361.00 29,101.00 20.08.2003 1/LS/2003/11695 USD DP No 27 11,400.00 48,761.00 17,701.00

ANNEX 3 Page 5 of 7

Lesotho ASAP PROJECT COMPLETION REPORT

DETAILED ADF/GRANT DISBURSEMENT

Ledger of Contract Per Loan Source of Finance: African Development Fund

Country: Lesotho Loan Number: 2100155000179

Project Title: AGRICULTURAL ADJUSMENT LOAN Amount Signed: 1,330,000.00 UAC Net Amount:* 572,284.52 UAC Date signed: 24.05.1999

* From summary loan ledger report

Total disbursement: 573,643.27 UAC Printing: 30.05.2006

Contract code: 5000014214 Amount Allocated: 87,400.00 Description: EA & CDs Electronic contract 28.12.01/Computers & Printers Total RG: 0.00

Supplier name: CDs Electronics Total Disbursement: 87,400.00 Category Goods Undisbursed Amt: 0.00

Uncommitted Amt: 0.00

Date Disbursed Ldv ref. & Currency Application num Amount in currency

Total disbursed

Undisbursed Amt.

26.02.2002 1/LS/2002/04585 LSL DP No 15 87,400.00 87,400.00 0.00

ANNEX 3 Page 6 of 7

Lesotho ASAP PROJECT COMPLETION REPORT

DETAILED ADF/GRANT DISBURSEMENT

Ledger of Contract Per Loan Source of Finance: African Development Fund

Country: Lesotho Loan Number: 2100155000179

Project Title: AGRICULTURAL ADJUSMENT LOAN Amount Signed: 1,330,000.00 UAC Net Amount:* 572,284.52 UAC Date signed: 24.05.1999

* From summary loan ledger report

Total disbursement: 573,643.27 UAC Printing: 30.05.2006

Contract code: 5000014944 Amount Allocated: 44,400.00 Description: Service Contract MOACLR & JM / Priv Stud II Total RG: 0.00

Supplier name: James Matale Total Disbursement: 40,670.00 Category Services Undisbursed Amt: 3,730.00

Uncommitted Amt: 3,730.00

Date Disbursed Ldv ref. & Currency Application num Amount in currency

Total disbursed

Undisbursed Amt.

13.09.2002 1/LS/2002/07422 USD DP No 18 2,760.00 2,760.00 41,640.00 11.11.2002 1/LS/2002/08212 USD DP No 21 13,300.00 16,060.00 28,340.00 08.11.2002 1/LS/2002/08184 USD DP No 22 2,760.00 18,820.00 25,580.00 19.09.2003 1/LS/2003/12041 USD DP No 23 7,600.00 26,420.00 17,980.00 30.05.2003 1/LS/2002/0 USD DP No 24 14,250.00 40,670.00 3,730.00

ANNEX 3 Page 7 of 7

Lesotho ASAP PROJECT COMPLETION REPORT

DETAILED ADF/GRANT DISBURSEMENT

Ledger of Contract Per Loan** Source of Finance: African Development Fund

Country: Lesotho Loan Number: 2100155000179

Project Title: AGRICULTURAL ADJUSMENT LOAN Amount Signed: 1,330,000.00 UAC Net Amount:* 572,284.52 UAC Date signed: 24.05.1999

* From summary loan ledger report

Total disbursement: 573,643.27 UAC Printing: 30.05.2006

Contract code: Amount Allocated: 17,667.49 Description: Training fee Total RG: 0.00

Supplier name: Dummy Business Partner Total Disbursement: 17,667.49 Category Services Undisbursed Amt: 0.00

Uncommitted Amt: 0.00

Value Disbursed Ldv ref. & Currency Application num Amount in currency

Total disbursed

Undisbursed Amt.

31.08.2001 F/LSO/2001/1542 USD DP No 8&10 2,828.91 2,828.91 14,838.58 31.08.2001 F/LSO/2001/1540 USD DP No9 14,250.00 17,078.91 588.58 31.08.2001 F/LSO/2001/1542 USD DP No 8&10 588.58 17,667.49 0.00

** Source: Statement of Confirmed Disbursement from 30.03.2001 to 02.06.2006

ANNEX 4 Page 1 of 1

ASAP

PROJECT COMPLETION REPORT

STATUS OF PROJECT ACHIEVEMENTS

Components and activities

Targets at appraisal* Achievements Performance (%)

I. ADF/Loan: 1st tranche conditions For details see Annex “” Fulfilled 100% 2nd tranche conditions For details see appraisal report Cancelled 0% Liberalization activities For details see Annex “8” For details see Annex “8” 74% Privatization activities For details see Annex “8” For details see Annex “8” 38% Other Policy issues For details see Annex “8” For details see Annex “8” n/a Overall Policy Reform performance

For details see Annex “8” For details see Annex “8” 49%

II. ADF/TAF Grant: Studies Implement diagnostic studies Done but not at the

appropriate quality 70%

Training To train 3,300 post employees of the privatized government owned enterprises

Only 649 were trained 20%

Privatization Expert Implement privatization studies

Done 100%

Equipment Buy computers and printers Done 100% * All targets at appraisal were not specific, the PCR Mission has to identify measurable indicators to examine the project performance

ANNEX 5 Page 1 of 1

ASAP PROJECT COMPLETION REPORT

IMPLEMENTATION PERFORMANCE RATING

FORM IP 1 - IMPLEMENTATION PERFORMANCE Components of Indicators Score (1 to

4) Remarks

1. Adherence to Time Schedule 1 Most of the planned activities were delayed

2. Adherence to Cost Schedule 1 Only 43% of the grant and 51% of the loan was disbursed.

3.Compliance with covenants 2 GOL delayed in fulfilling loan/grant conditions; Delayed disbursement by the Bank

4. Adequacy of Monitoring& Evaluation and Reporting

2 No Medium Term Review undertaken; Ineffective Supervision Missions; Periodic Reporting not on schedule and No Final Audit of project Accounts

5. Satisfactory Operations (if applicable) - n/a TOTAL 6 Overall Assessment of Implementation Performance

1.5 Category US (Unsatisfactory)

ANNEX 6 Page 1 of 1

(ASAP) PROJECT COMPLETION REPORT

BANK PERFORMANCE RATING

FORM BP 1 - BANK PERFORMANCE RATING Component of Indicators Score (1 to

4) Remarks

1. At Identification 1 The project was not well identified (no evidence of Identification Mission)

2. At Preparation of Project 1 The project was not well prepared (no evidence of Preparation Mission)

3. At Appraisal 1 Poor Appraisal with Poor Project Design and unreasonable/unverifiable indicators. Poor perception of the Lesotho Socio-Economic situation

4. At Supervision 1 Supervision Missions were ineffective with inadequate professional mix. Besides, recommendations by Supervision Missions (6) not effectively heeded by Bank Senior Management..

Overall Assessment of Bank Performance

1 Category US (Unsatisfactory)

ANNEX 7 Page 1 of 1

(ASAP) PROJECT COMPLETION REPORT

PROJECT OUTCOME RATINGS

FORM PO 1- PROJECT OUTCOME

No Component Indicators Score

(1to4) Remarks

1 Relevance and Achievement of Objectives i) Macro-economic Policy 1

ii) Sector Policy 1 iii) Fiscal Policy 1 iv) Financial 1 v) Poverty Alleviation, Social and Gender 1

vi) Private Sector Development 2 vii) Environment n/a

2 Institutional Development i) Institutional Framework including Restructuring 2

ii) Financial and Management Information Systems Including Audit systems

1

iii) Transfer of Technology 1 Inputs under the loan component not procured

iv) Staffing by qualified persons including turnover, training and Counterpart staff

2

3 Sustainability i) Continued Borrower Commitment 2

ii) Environmental Policy n/a iii) Institutional Framework 1 iv) Technical Viability and Staffing 2 v) Financial Viability including Cost Recovery Systems 1

vi) Economic Viability 1 vii) Environmental Viability n/a

viii) O&M Facilitation (availability of recurrent Funding, foreign exchange, spare parts, Workshop facilities etc.)

2

4 Economic Internal Rate of Return TOTAL 17 Overall Assessment of Outcome 1.1 Category US

(Unsatisfactory)

ANNEX 8 Page 1 of 11

Policy Reform Framework: Government regulations & control of prices, exports and imports: Status Indicators Benchmark/

item At Appraisal May 2006 Proposed at Appraisal Status at Project Closure

Recommendation / Remarks

I. Marketing and Pricing Policies (i) Carry out a survey of traders and dealers to determine adequacy of measures to identify outstanding issues by June 30, 1999;

(i) met Government has withdrawn from price fixing, marketing and trade controls on maize, sorghum, wheat and their by- products. Need to assess impact of the reforms to date and to determine additional constraints,

Assessments were done and reports are available.

(ii) Evaluate economic impact of the reforms in the maize, sorghum and wheat sub-sectors by December 31, 1999;

(ii) met

(iii) Complete diagnostic studies on scope of problem and impact on sector by June 30, 2000;

(iii) met Controls remain on imports and exports of live animals, meat, poultry, milk products, sugar, pulses, fruit and vegetables (under Marketing Act of 1967)

Unsatisfactory diagnostic study was done. Recruiting process was hard and unworkable. The candidates were incompetent. The consultant for diagnostic study for marketing did not do a good job. Copy of the report is available. The recommendations did not come from the report analysis.

(iv) Complete plan of action by September 30, 2000 for review by the 3rd joint Donor and Government Annual Review of APCBP in October 2000;

(iv) unmet

1.1 Promote efficient and effective agricultural input supply, marketing and processing systems through deregulation.

Input supply and distribution is partially handled by the public sector because Government receives donor commodity aid of fertilizer, agro- chemicals and machinery and implements. While

(v) Government to issue a policy statement on what type of commodity aid it will seek and the manner and timing of its introduction in a manner that does not distort the market, by Dec 31, 1998;

(v) unmet

GOL should continue its effort toward full liberalization especially with the valid recommendations that were generated under ASAP.

ANNEX 8 Page 2 of 11

Status Indicators Benchmark/ item At Appraisal May 2006 Proposed at Appraisal Status at

Project Closure

Recommendation / Remarks

Government would like to continue to receive the grants because of the balance of payments effect, it will seek to dispose, of the commodity aid by public auction.

(vi) Government to withdraw from: (a) the management, financing and loan guarantees for Coop Lesotho by Dec 31, 1998; (b) distribution of agricultural inputs including fertilizer by Dec 31, 93; (c) agro-chemicals by Dec 31, 99; and (d) farm machinery services by Dec 31, 00.

(vi) partially met (a) met (b) unmet (c) unmet (d) unmet

1.2 Government subsidy

Subsidies in agriculture have remained in place for many years without re-assessing if rationale is still valid.

Re-evaluate the rationale of all remaining subsidies in agriculture and prepare a plan by December 1999 for reform or elimination.

partially met

II. Divesture (i) Confirm the scope and sequencing of enterprises on the divestiture schedule by Negotiations;

(i) partially met

Divest public sector ownership of commercial operations to enhance private sector role, curtail public sector losses, and increase impact on growth in the rural sector.

Government has identified a priority list of 16 enterprises and services for divestiture, and has submitted the list to the Privatization Unit (PU) of the Ministry of Finance. Emphasis will be placed on getting a few of them completed at a time and all the 16 will be completed in the next 3 years.

The process started, but the government realized that the economy is not ready for such action, yet. The government then reviewed its strategy and decided to slow the process. This affected the private sector position and created undesirable results, from private sector view.

(ii) In consultation with PU, recruit a Consultant to assist in the diagnostic and divestiture planning and documentation by December 30, 1998.

(ii) met (report is available)

Government should rebuild trust with private sector through sustained and transparent policy actions. Continued changes in policies in different directions would yield negative impact on the economy. Government may identify the direction and design/ implement appropriate policies with appropriate adjustments toward same direction. This should be through a transparent process.

III. Privatization, divesture, and restructuring (See Annex “8-2”) ASAP 1st Tranche

All conditions were fulfilled and money had been transferred to the Special Account in the

See Annex “E” met The conditions for utilizing the money for 1st tranche are not suitable for Lesotho’s conditions. Lesotho’s

ANNEX 8 Page 3 of 11

Status Indicators Benchmark/ item At Appraisal May 2006 Proposed at Appraisal Status at

Project Closure

Recommendation / Remarks

Lesotho Central Bank and later transferred to the Reserve Fund to-date.

ASAP 2nd Tranche

Cancelled Cancelled See appraisal cancelled

private sector dose not have problem with foreign currency (Rand), because all exports and imports of Lesotho come and go through South Africa. It is recommended that Lesotho keep the loan for 1st tranche (UA 1.78 m) and renegotiate with bank the conditions for utilizing the UA 1.78 million. Lesotho needs good preparation process to appraise a policy reform programmeme tailored to fit with Lesotho unique situation. Policy reform is a dynamic process not a one shot action

ANNEX 8 Page 4 of 11

Privatization, Divesture and Restructure Status Action Enterprise At Appraisal July 2003 May 2006 Proposed/ time Status

Recommendation/ Remarks

1. Feedlot Not in use for fattening. Operations of the feedlot were separated from the abattoir. Decision made to lease the feedlot. Land surveying to be carried out. Submitted to PU for leasing.

Removed from the list through Aide Memoir under APCBP

Omitted (i) Transaction to be concluded; December 1998

(i) omitted

The removal of the Feedlot from the privatization list needs more analysis to find out its effect on the market and private sector

(ii) Valuation of assets, ascertain status of title; December 31, 1998

(ii) unmet

2. Poultry Plant

Capacity of 60,000 birds built in 1960s. Supplies only 8% of demand for point of lay birds. Loss making. Has commercial potential. Plant lo inside MOA compound. Proposal is to sell equipment.

The enterprise is still being run by the Department of Livestock. Initially, a recommendation had been made by a privatization advisor that this enterprise be transferred to NUL. However, the Ministry is considering keeping the enterprise for research purposes under the Department of Research. (under liquidation scheme)

Same as 2003 (Reopening it for emergency situations)

(iii) Conclude sale; June 30, 1999

(iii) unmet

Currently, no action is suggested, but after risk of Avian Flu; the future of this plant should be reassessed.

(iv) Confer with Wool & Mohair Assoc. and other traders on plans for strengthening wool marketing; Dec 98

(iv) met

(v) Carry out diagnostic study to determine divestiture plan; March 30, 99

(v) met

3. Wool and Mohair Marketing

Operate 95 woolsheds, classing and p4king wool and mohair prior to marketing through PE. Not meeting objectives of improving market, Al structure required to discharge mandate. Provides conduit for subsidy to W&M Growers Assoc. but handles only half of production.

Negotiations with the LNWMGA are still on-going. The main factor hindering progress is the fact that the association is not able to provide a standard proposal. LPMS has been requested to assist the association with writing the business plan. (under privatization scheme)

Same as 2003

(vi) Discuss divestiture plan with WMA and initiate implementation of the plan;

(vi) partially met

The divesture plan should be completed

ANNEX 8 Page 5 of 11

Status Action Enterprise At Appraisal July 2003 May 2006 Proposed/ time Status Recommendation/

Remarks June 30, 1999 (vii) Complete divestiture arrangements, Dec 1999

(vii) unmet

(viii) Prepare detailed inventory of TOU assets and financial statements; Dec 98

(viii) met

(ix) Prepare phase-out plan with intermediate targets and actions for discussion by the joint donor APCBP Annual Review; Oct 98

(ix) met

4. Technical Operations Unit (TOU)

Heavy drain on government finances. Drain on foreign exchange. Eliminates private sector competition. Distorts farming systems at expense of employment by effectively subsidizing mechanical operations and crowding out intermediate technology options. Workshops do not support private machinery operators. TOU operated inefficiency.

The auction for tractors and machinery is still On-going. Out of 11 auction points identified, only 3 are remaining and will hopefully be covered by August end. A significant percentage of Equipment and Machinery comprising Tractors and Ploughs estimated at M1,530,516 has been disposed of. (under liquidation scheme)

Same as 2003

(x) Phase out TOU operations in accordance with agreed phase out plan; Dec 2000

(x) unmet

The phase-out plan should be implemented

(xi) Prepare framework for privatization of veterinary services and drug supplies including legal aspects; June 30, 1999

(xi) unmet

5. Veterinary Services

Few private sector vets operate and those only part time and in competition with Government vets.

No decision has been made because the study on Reform and Restructuring of the Animal Health Services which forms a basis for decisions on the future of veterinary services has not been finalized. However, the future of veterinary Clinics was be decided by end of 2003. (under restructuring)

Same as 2003

(xii) Carry out stakeholder consultations, design a support package for private vets and paravets and start training of paravets by December 1999. Paravets should be operational in 5 districts by December 2000 and 10 districts by Dec 2001. Withdraw provision of GOL services in those areas served by private

(xii) unmet

The livestock sector in Lesotho faces several problems. This sector needs to be privatized to improve its efficiency and effectiveness

ANNEX 8 Page 6 of 11

Status Action Enterprise At Appraisal July 2003 May 2006 Proposed/ time Status Recommendation/

Remarks vets; December 1999 (xiii) Meet targets of shares of privatized clinical Vet Services; 50% by Dec 2000 50% by Dec 2001

(xiii) unmet

6. State Owned Farms 6.1 Mejametalana Farm.

Produces vegetables well below capacity. Subsidized production distorts the market and crowds out the private sector. Submitted to PU Decision to be made to sell or lease.

Cabinet has approved a recommendation regarding the buyer identified as eligible for purchase of the enterprise. However, the approval is on the basis of a long term lease and not an outright sale. (under privatization scheme)

The farm was Leased to private sector investor in Dec 2003.

Conclude by June 1999 met The farm incurred losses of M 600,000 during the last three years due to unexpected situations (floods that damage the water pump and death of the substantive leaser). The lease contract should be development not a commercial one

6.2 Ts’alitlama Farm.

Produces vegetables well below capacity. Subsidized production distorts the market and crowds out the private sector. Submitted to PU. Decision to be made to sell or lease.

Negotiations with short listed bidders have been terminated on account of insufficient information to prove their credibility. Cabinet Memorandum being drafted to recommend leasing and re advertising. (under privatization scheme)

Same as 2003 (Crops do not have more information)

Conclude by June 1999 unmet Visited on Tuesday May 9, 2006. The farm is well equipped (machinery and green houses). All equipments are not in use. Equipments will be obsolete soon.

6.3 Ts’akholo Fish Farm.

There is no water supply and no production. The site may be better suited to vegetable production.

Structures have been dismantled and auctioned. (under liquidation scheme)

Liquidated 1. Carry out a rapid diagnostic study December 31. 1998 2. Decision on alternative use March 31, 1999

1.dropped 2. met

No need for diagnostic study because of liquidation.

6.4 National Pig

Not running at capacity for either supply of breeding stock or meat production.

The structures have been dismantled and sold to the interested individuals. The

Liquidated 1. Complete diagnostic study; March 31. 1999 2. Submit to PU for sale or

1.dropped

No need for diagnostic study because of liquidation.

ANNEX 8 Page 7 of 11

Status Action Enterprise At Appraisal July 2003 May 2006 Proposed/ time Status Recommendation/

Remarks Breeding Herd Farm.

Management hampered by financial management through warrant. Achieving 37% of capacity.

land has been transferred back to the Ministry of Health. (under liquidation scheme)

lease and conclude transaction by December 31, 1999

2. met

6.5 Mokhotlong and Quthing Sheep Studs.

Demonstration farms producing rams for sale. Output below capacity. No operating account. Not meeting objectives. 3000 ewes required but capital not available. Potential for lease.

Preparations are being made by the Ministry to capacitate the LNWMGA for acquisition of the enterprise. (under privatization scheme)

Same as 2003 1. Review options for supply of breeding stock and the role of these breeding facilities; September 31. 1999 2. Conclude by December 31, 1999

1. unmet 2. unmet

Affirmative privatization action is needed to ensure production and marketing efficiency. Also, strengthening the role of associations in economy is necessary.

6.6 Molimo Nthuse (Basotho) Pony Trekking Center.

Can be sold outright or transferred to Tourist Board.

Negotiations with short listed bidders have been terminated on account of insufficient information to prove their credibility. Cabinet Memorandum being drafted to recommend leasing and re advertising. (under Privatization scheme)

With Cabinet: a possible candidate has been identified and recommended to Cabinet.

Conclude by December 31. 1999

unmet Follow up of the Cabinet decision is needed

6.7 Thaba-Tseka Pony Center.

Possible to lease or possibly sell the facility,

Liquidated 1. Review options for supply of improved pony stocks; March 31, 1999 2. Prepare inventory of assets and financial statements; ascertain states of title; and conclude transaction by June 30. 1999

1.dropped 2. met

No need for review or inventory because of liquidation.

6.8 Botsabelo Dairy

Farm located in a pen-urban area. May not be suitable for farming purposes. Already

Liquidated Conclude sale by December 1999

met No more action needed

ANNEX 8 Page 8 of 11

Status Action Enterprise At Appraisal July 2003 May 2006 Proposed/ time Status Recommendation/

Remarks Farm. submitted to PU. 7. Training Centers, FTCs 5

Key facilities for attaining policy objectives. Not achieving capacity output in either training or production. Inefficient financial management.

A decision has been made that the FTC's be transferred to the Local Authorities.

The Ministry has reviewed it and will not be privatized

(i) Prepare and implement a plan for rationalizing the use of the centers; Sept 30, 99 (ii) Prepare and start implementation of a plan to commercialize the centers; October 31, 99

(i) unmet

(ii) unmet

This training center should not be subsidized to avoid market distortions.

8. Forestry Facilities 8.1 Woodlots

Draft Forestry Bill awaiting Parliamentary approval. Bill contains guidelines for transfer of woodlots to communities.

The Ministry of Forestry and Land Reclamation is currently working towards improvement of the standard of the enterprise to the level that would, make it a viable project.

(i) Consult with communities; December 31, 1998 (ii) Prepare and implement a time bound schedule for transfer of woodlots to communities; Sept 30, 1999

(i) unmet

(ii) unmet

8.2 Forestry Sale yards & Treatment Plants.

- Woodlots are ready to be transferred to communities, waiting for local community to have the modality and management plans which are not there yet. - Three quarters of seedlings are produced by private sector and one quarter is produced by government. The government buys seedling at a fixed price of M 1.2/ seedling from producers and distributes them for free to farmers. If government withdrew from selling seedlings, private sector can cover the market because there is a surplus every year.

(i) Update asset inventory and financial statements; June 30, 1999 (ii) Conclude by December 31, 1999

(i) unmet

(ii) unmet

Ministry of Agriculture and Ministry of Forestry did not provide supporting documentations Buying seedling from producers at fixed price and distribute them for free to farmers is preventing any future market for seedling. It will be an issue when the fixed price becomes below the cost of production and producers switch to other activities. This will be an issue. The government may focus on research and information only and leave the commercial part for producers.

ANNEX 8 Page 9 of 11

Other Policy Issues Item Status at Appraisal Status in May 2006 Recommendations/

Remarks IV. Food self-sufficiency versus food security

Food self-sufficiency objectives led to support for a high-cost package of credit, subsidized inputs, technical services and prices supports. PARASTATALS were created to market agricultural inputs, the main staples produced locally, as well as to regulate trade in cereals, beans and fertilizers. In the 1980s, this role was entrusted to Co-op Lesotho, an Apex trading body with GQL equity holdings. Due to serious financial and management problems. Co-op Lesotho collapsed in 1993 and is being restructured into an ordinary registered co-operative with no more direct government involvement in its affairs. GOL’s cessation of financial preferences to Co-op Lesotho is conditionality for loan effectiveness. In spite of interventionist policies and strategies noted in paras 3.3.3, 3.3.4 and 3.5.8 of the appraisal report, Lesotho failed to achieve food self-sufficiency: Past policies in the staple grain sector increased food insecurity for the majority of households: most of the rural households and all urban households. Only a small minority of surplus producers have benefited. Past marketing policies have been distorted and imposed heavy implicit taxes on the economy. Government subsidies to PARASTATALS drained public resources and worsened the budget deficit. Agriculture’s relative position as a main source of household income has depreciated. However, it remains the biggest single source of livelihood, with 82% of the population classified as rural and engaged in agricultural activity. The government still perceives the agricultural sector as the cornerstone for advancing the country’s major development objectives. Household Food security is now accepted that the former policy goal of food self-sufficiency is unattainable. Also, its pursuit through state administered price supports, marketing controls, and an import restriction has been costly, and harmful to the majority (particularly the rural poor). It has been realized by GOL that household food security is a more appropriate policy goal.

Government switched from self-sufficiency objectives to food security. Food security is the current objective of the government.

Import substitution and export promotion are dynamic tools. Continued monitoring of commodity competitiveness’ positions is important to advise policy makers on the appropriate policy instruments. These policies should affect producers’ decisions to adjust their production mix to insure better resource allocation. The government may have flexible measure to allow easy move of resources among different activities favoring comparative and competitive advantages.

V. Access to land and security of tenure

1979 Land Act and 1980 Land Regulations entitles people to hold leases to land, including agricultural land, for up to 90 years. Although the Act provides some opportunities for securing titles, it is not effective in rural areas where the basic situation remained traditional, and land is made available under usufruct rights allocated to the Chief. Another major problem with the Act is that it has not been

The government is in the process of adjusting the existing Land Act. Position of women on land ownership is under consideration.

ANNEX 8 Page 10 of 11

Item Status at Appraisal Status in May 2006 Recommendations/ Remarks

clearly explained to the population, and consequently, its application has been haphazard. The existing land tenure system compromises efficient agricultural land use, contributes to soil erosion and cripples the livestock sector by causing overstocking of rangeland beyond its carrying capacity.

VI. Role of Women in agric. Dev.

Land Act 1979 undermined the role of women in agricultural development. Efforts are being made to change the Land Act to improve the gender equity.

VII. Role of Government, Universities, VIII. NGOs, & Private Sector in Agricultural Research

MOA’s research activities are undertaken by the Agricultural Research Division (ARD). ARD generates, adapts, and transfers agricultural technologies and scientific knowledge and provides relevant services for both subsistence and commercial farmers. Its mandate covers crops, livestock, natural resources, and related disciplines. The Faculty of Agriculture (FOA) in the National University of Lesotho (NUL) conducts limited research besides teaching courses in agriculture. Some Non-Governmental Organizations (NGOs) and private South African companies carry out limited variety-testing and seed production activities.

No major change

IX. Poverty alleviation

With over 80% of the population classified as rural and 55% of the depending on agriculture as their primary or secondary source of income, deregulating agriculture, promoting private sector led economic growth and support rural development, are potentially effective means of tackling poverty bead on in Lesotho;

High poverty ratio is still a major obstacle to economic development in Lesotho.

Government should not link its support to poor to prices, i.e. provide subsidy without distorting market prices. This will enhance private sector and improve its role in creating jobs and improving rural incomes.

X.Employment and rural incomes

Employment creation in the face of limited alternative opportunities, agriculture will remain a key source of employment for many, and employment creation in this sector remains an important goal. Policies that encourage labor intensive techniques and efficient small-scale agricultural production and processing represent an effective means of exploiting the potential for job creation in the agricultural sector. GOL views private sector promotion as being capable of increasing employment opportunities. It attaches priority to training private individuals so as to enhance their entrepreneurial capacity and minimize their dependence on public sector employment.

The policy and regulations are still not promoting the environment for private sector to grow. This affected the role of private sector to increase employment especially in the rural area.

Paving the road for private sector to play more effective role in employment and incomes improvement is the major challenge for GOL. A sustained and transparent policy reform programmeme will lead to achieving these objectives.

XI. Donor There is no real or practical donor The government may take the

ANNEX 8 Page 11 of 11

Item Status at Appraisal Status in May 2006 Recommendations/ Remarks

Coordination coordination. Most of other countries have same problem.

lead in having more meetings and worships between donors.

XII. Private sector capacity building & entrepreneurial skills training

Over the past few decades, the Government directly participated in the production, marketing, and processing of most agricultural inputs and outputs, thereby severely limiting private Sector involvement in these activities. Agricultural commodity prices were stabilized through government regulation and control of prices, exports and imports. An estimated 50% of state enterprises are operating at a loss and under poor management. These enterprises have also received substantial Government subsidies over the years. The result of their inefficient and non-commercial practices has burdened the Government with substantial financial obligations, thereby leading to an expansion in public expenditure. Except for research and extension, GOL has decided to privatize various state owned enterprises in a bid to promote private sector led economic growth and to drastically reduce budgetary transfers in the form of implicit subsidies that parastatals have been receiving. GOL’s removal of policy constraints to the private sector’s participation in the supply and distribution of most agricultural inputs and services constitutes conditionality for loan release.

Privatization programme and role of private sector in economic development may have more discussion to be explored in a better way. There are no millionaires in Lesotho but they are ready to take responsibility. The economic environment is still not ready to receive private sector. The Government has the tools to create the environment to encourage Private Sector to grow. The government has to facilitate the private sector to jamb on. The parastatal is still supported by the government. Also, there is mistrust between private sector and government.

ANNEX 9 Page 1 of 4

Economic Overview Lesotho is a very small country with less than 2 million people compared to more than 600 million who live in Africa, South of Sahara and more than 800 millions who live in the whole of Africa. During the period 1998 – 2003, Lesotho consumed more food per capita than Africa, South of Sahara and whole Africa for cereals (234.5 – 245.1 kg/yr), sugar and sweeteners (16.2 – 15.8 kg/yr), and meat (16 – 15.5 kg/yr); compared to (118-123 kg/yr) and (144 – 146 kg/yr) in cereals, (9.5 -11 kg./yr) and (14.5 – 15.8 kg/yr) in sugar and sweeteners, and (11 – 11.4 kg/yr) and (14.2 – 14.8 kg/yr) in meat for South of Sahara Africa and whole Africa; consequently. During the same period, Lesotho consumed less food per capita than South of Sahara and whole Africa of starchy roots (45.0 – 48.7 kg/yr), pulses (8.8 – 7.4 kg/yr), vegetable oil (2.9 – 3.0 kg/yr), vegetables (23.1 – 8.5 kg/yr), fruits – excluding wine (17.6 – 14.3 kg/yr), and milk excluding butter (17.4 – 15.6 kg/yr); compared to (162.3- 159.7 kg/yr) and (130.5 – 130.3 kg/yr) in starchy roots, (10.0 -9.6 kg./yr) and (9.1 – 9.0 kg/yr) in pulses, (7.3 – 7.6 kg./yr) and (8.2 – 8.3 kg/yr) in vegetable oil, (33.0 – 32.4 kg./yr) and (52.9 – 54.0 kg/yr) in vegetables, (52.5 – 48.3 kg./yr) and (54.7 – 52.9 kg/yr) in fruits – excluding wine, and (27.5 – 29.5 kg/yr) and (35.0 – 38.0 kg/yr) in milk – excluding butter for South of Sahara Africa and whole Africa consequently. The conclusion is that Lesotho’s food consumption should be viewed carefully, as it reflects on the levels of income that pertain in the country. Improving the income levels would therefore change the food consumption trend in the country.

ANNEX 9 Page 2 of 4

Lesotho: Food Supply and Per Capita Food Supply, 1998-2003 Calorie No.

Lesotho Africa, South of Sahara Africa Per Capita Food Supply Per Capita Food Supply Per Capita Food Supply Year

Vegetal Products

Animal Products

Grand Total

Vegetal Products

Animal Products

Grand Total

Vegetal Products

Animal Products

Grand Total

1998 2,432 118 2,550 2,041 138 2,179 2,232 170 2,402 1999 2,455 117 2,572 2,053 138 2,191 2,239 172 2,410 2000 2,477 114 2,591 2,051 140 2,191 2,233 176 2,409 2001 2,505 114 2,619 2,062 141 2,203 2,246 175 2,421 2002 2,515 114 2,629 2,063 142 2,205 2,247 176 2,423 2003 2,512 114 2,626 2,077 141 2,218 2,259 178 2,437

Cereals - Excluding Beer Lesotho Africa, South of Sahara Africa

Food Supply

Per Capita Food Supply

Food Supply

Per Capita Food Supply

Food Supply

Per Capita Food Supply

Year

1000 mt kg/yr. Calorie

No. 1000 mt kg/yr. Calorie

No. 1000 mt kg/yr. Calorie

No. 1998 411 234.5 1966 68,161 118.1 1,010 109,218 144.2 1,217 1999 417 235.8 1986 70,528 119.1 1,019 111,732 144.2 1,219 2000 427 239.2 2019 72,301 119.1 1,019 113,533 143.2 1,211 2001 432 240.8 2047 74,179 119.3 1,022 116,688 143.9 1,218 2002 438 243.5 2050 75,928 119.2 1,021 119,148 143.8 1,217 2003 442 245.1 2066 80,417 123.3 1,039 123,826 146.2 1,229

Starchy Roots Lesotho Africa, South of Sahara Africa

Food Supply

Per Capita Food Supply

Food Supply

Per Capita Food Supply

Food Supply

Per Capita Food Supply

Year

1000 mt kg/yr. Calorie No. 1000 mt kg/yr. Calorie

No. 1000 mt kg/yr. Calorie No.

1998 79 45.0 83 93,688 162.3 432 98,837 130.5 343 1999 83 47.0 86 97,193 164.2 436 102,170 131.8 346 2000 88 49.2 90 98,478 162.3 433 103,762 130.9 345 2001 88 48.9 90 101,136 162.6 434 106,407 131.3 346 2002 88 48.8 89 101,793 159.8 427 107,440 129.6 342 2003 88 48.7 89 104,184 159.7 427 110,373 130.3 343

Sugar & Sweeteners Lesotho Africa, South of Sahara Africa

Food Supply

Per Capita Food Supply

Food Supply

Per Capita Food Supply

Food Supply

Per Capita Food Supply

Year

1000 mt kg/yr. Calorie

No. 1000 mt kg/yr. Calorie

No. 1000 mt kg/yr. Calorie

No. 1998 28 16.2 159 5,459 9.5 92 11,004 14.5 141 1999 28 16.1 158 5,486 9.3 90 11,207 14.5 141 2000 28 15.9 156 5,924 9.8 95 11,995 15.1 147 2001 28 15.8 156 6,591 10.6 103 12,573 15.5 151 2002 28 15.8 155 6,864 10.8 104 12,817 15.5 150 2003 28 15.8 155 7,149 11.0 106 13,355 15.8 153

Lesotho imports all its food supply of sugar and sweeteners

ANNEX 9 Page 3 of 4

Lesotho: Food Supply and Per Capita Food Supply, 1998-2003 (cont.) Pulses

Lesotho Africa, South of Sahara Africa Food

Supply Per Capita Food

Supply Food

Supply Per Capita Food

Supply Food

Supply Per Capita Food

Supply Year

1000 mt kg/yr. Calorie

No. 1000 mt kg/yr. Calorie

No. 1000 mt kg/yr. Calorie

No. 1998 15 8.8 81 5,789 10.0 93 6,889 9.1 85 1999 15 8.7 80 5,772 9.8 90 6,886 8.9 83 2000 12 6.9 64 6,132 10.1 94 7,230 9.1 85 2001 14 7.5 69 6,085 9.8 91 7,297 9.0 84 2002 15 8.2 76 6,320 9.9 92 7,595 9.2 85 2003 13 7.4 68 6,247 9.6 89 7,615 9.0 84

Vegetable Oils Lesotho Africa, South of Sahara Africa

Food Supply

Per Capita Food Supply

Food Supply

Per Capita Food Supply

Food Supply

Per Capita Food Supply

Year

1000 mt kg/yr. Calorie

No. 1000 mt kg/yr. Calorie

No. 1000 mt kg/yr. Calorie

No. 1998 5 2.9 70 4,186 7.3 174 6,228 8.2 198 1999 5 2.9 69 4,438 7.5 180 6,458 8.3 201 2000 5 2.8 69 4,399 7.2 174 6,419 8.1 195 2001 5 2.8 68 4,542 7.3 176 6,658 8.2 198 2002 6 3.1 76 4,761 7.5 180 6,871 8.3 200 2003 5 3.0 73 4,956 7.6 183 7,067 8.3 201

Vegetables Lesotho Africa, South of Sahara Africa

Food Supply

Per Capita Food Supply

Food Supply

Per Capita Food Supply

Food Supply

Per Capita Food Supply

Year

1000 mt kg/yr. Calorie

No. 1000 mt kg/yr. Calorie

No. 1000 mt kg/yr. Calorie

No. 1998 40 23.1 13 19,024 33.0 24 40,042 52.9 37 1999 39 22.3 12 19,794 33.4 25 42,520 54.9 38 2000 39 21.6 12 20,066 33.1 25 43,384 54.7 38 2001 39 21.5 12 20,456 32.9 25 42,915 52.9 37 2002 17 9.6 6 20,634 32.4 24 44,643 53.9 37 2003 15 8.5 5 21,135 32.4 24 45,768 54.0 37

Fruits - Excluding Wine Lesotho Africa, South of Sahara Africa

Food Supply

Per Capita Food Supply

Food Supply

Per Capita Food Supply

Food Supply

Per Capita Food Supply

Year

1000 mt kg/yr. Calorie

No. 1000 mt kg/yr. Calorie

No. 1000 mt kg/yr. Calorie

No. 1998 31 17.6 22 30,292 52.5 92 41,417 54.7 93 1999 31 17.4 22 30,484 51.5 90 42,422 54.7 93 2000 30 16.8 21 30,272 49.9 87 42,675 53.8 92 2001 30 16.7 21 30,848 49.6 87 43,167 53.2 91 2002 28 15.7 19 31,640 49.7 87 44,870 54.1 93 2003 26 14.3 18 31,503 48.3 85 44,789 52.9 91

ANNEX 9 Page 4 of 4

Lesotho: Food Supply and Per Capita Food Supply, 1998-2003 (cont.) Meat

Lesotho Africa, South of Sahara Africa Food

Supply Per Capita Food

Supply Food

Supply Per Capita Food

Supply Food

Supply Per Capita Food

Supply Year

1000 mt kg/yr. Calorie

No. 1000 mt kg/yr. Calorie

No. 1000 mt kg/yr. Calorie

No. 1998 28 15.6 73 6,354 11.0 54 10,779 14.2 68 1999 28 16.1 74 6,558 11.1 54 11,234 14.5 69 2000 28 15.5 72 6,781 11.2 55 11,907 15.0 71 2001 28 15.6 72 6,977 11.2 55 11,764 14.5 70 2002 28 15.5 72 7,271 11.4 56 12,190 14.7 70 2003 28 15.5 72 7,454 11.4 55 12,529 14.8 70

Milk - Excluding Butter Lesotho Africa, South of Sahara Africa

Food Supply

Per Capita Food Supply

Food Supply

Per Capita Food Supply

Food Supply

Per Capita Food Supply

Year

1000 mt kg/yr. Calorie

No. 1000 mt kg/yr. Calorie

No. 1000 mt kg/yr. Calorie

No. 1998 31 17.4 30 15,876 27.5 50 26,511 35.0 59 1999 27 15.4 27 16,322 27.6 50 26,908 34.7 59 2000 28 15.7 27 17,363 28.6 52 28,544 36.0 61 2001 28 15.6 27 18,072 29.1 52 29,997 37.0 63 2002 28 15.6 27 18,982 29.8 54 31,181 37.6 64 2003 28 15.6 27 19,260 29.5 53 32,214 38.0 65

Source: FAO website, FAOSTAT Table X: Population in Lesotho, South of Sahara Africa and Africa, 1993 - 2003

Population (000')

Year Lesotho Africa, South of Sahara Africa

1998 1,751 577,318 757,339 1999 1,770 592,003 774,960 2000 1,785 606,843 792,736 2001 1,794 621,865 810,700 2002 1,800 637,053 828,830 2003 1,802 652,423 847,129 Source: FAO website, FAOSTAT

ANNEX 10 Page 1 of 3

Recommendations and Follow-up Matrix Main Findings & Conclusions Lessons Learned/ Recommendations Follow-up Actions Responsibility Formulation & Project Rational The ASAP was a sub-component of a larger project – the Agricultural Policy and Capacity Building Project (APCBP), comprising the Balance of Payment (BOP) and the Privatization and Divestiture components. The project was designed to: 1) Strengthen the agricultural private sector entrepreneurial skills and improve their capacity building, 2) Increase the privatization of agricultural PARASTATALS, and 3) Liberalize the agricultural marketing policies and prices.

- The sub-projects should be monitored and supervised very carefully to link their results with overall results of the larger project. - The government must take the lead in benchmarking policy issues - The government contribution should be well described and guaranteed at the beginning of the project. - Roles and regulations of the Bank should be clarified at the beginning of the project - Government priorities should be reviewed periodically to consider any modification of them.

- Donor coordination is imperative. This is a continued unresolved issue. - In the preparation and appraisal phases the government must involve deeply. - In the appraisal phase the government should deviate portion of the cash contribution in a separate bank account. - Training and workshops should be used to improve the implementation skills. - The government involvement and input at the preparation and appraisal stages is very important

- Government and donors - Preparation and appraisal teams - ADF project manager should monitor the bank account process - PIU - Preparation and appraisal teams

Project Implementation - several (6) supervision missions, but no follow up to the findings and recommendations - Lack of communication and mistrust between Bank staff and Government representatives - Lack of the management and teamwork skills of government staff. - Changes of government priorities during implementation - Lack of knowledge about the projects at the lower level of implementation. - Lack of public awareness for successful activities

- Supervision mission is a management tool to get information to confirm the implementation plans or to modify them. - The relationship between Bank staff and Government representatives should not be police or investigation relation, but it should have more interactive and constructive relation. - The skilled staff in the government leaves due to low salaries. Then new staff joins the government without experience. This is continues issue everywhere. - Sometimes the priorities change during the implementation this should be considered. - Centralization problem – every thing in the hands of the government headquarters.

- Review the recommendations of previous supervision mission at the beginning of each new one. - An orientation to the Bank staff before they start their activities and informal meeting and/or workshop before the start of each project. - Provide management and teamwork skills training from time to time to overcome this problem - Review the government priorities in regular bases - Encourage the government to delegate part of the planning and implementation

- Government & donors - Project manager - PIU - PIU - Project manager

ANNEX 10 Page 2 of 3

Main Findings & Conclusions Lessons Learned/ Recommendations Follow-up Actions Responsibility - Separation between the parts of the project at the lower levels of implementation

decisions at the field level - Workshops and seminars during the implementation to share success stories among different implementing agencies/ departments and Bank staff

- Project manager

Compliance with Loan Conditions & Covenants - 14 months delay of the project start. - Disagreement between the bank and the government on the agreed policy reforms under the project - The government did not continue fulfilling the loan conditions for the second tranche. - The conditions for utilizing the money for 1st tranche are not suitable for Lesotho’s conditions. Lesotho’s private sector does not have problem with foreign currency (Rand), because all exports and imports of Lesotho come and go through South Africa.

- The bank should start the supervision missions early enough - The government did not review the policy reform programmeme carefully. Also, the review of the policy benchmarks and their indicators should be a continued process in each supervision mission - Expect changes of the priorities of the government during the project implementation - It is recommended that Lesotho keep the loan for 1st tranche (UA 1.78 m) and renegotiate with bank the conditions for utilizing the UA 1.78 million.

- Regular supervision missions from the first year of the project - More involvement of the government in the formulation of the policy benchmarks; and more review of the government priorities during the implementation. - Regular meetings (annual or semiannual) with the government high officials to review priorities - Meeting(s) needs to be arranged to discuss the proposed changes in the conditions of the utilization of 1st tranche fund.

- Project manager - Project manager & PIU - PIU - ADB & GOL

Performance Evaluation & Project Outcome There is no regular performance evaluation of the project activities: - A mid-term evaluation occurred in 200? - Two audit reports, only one was submitted to the Bank in 2002 and the other one is still in draft and not available - Large number (9) progress reports were prepared during the life of the project, but there is no follow-up of the recommendations.

- M & E unit is a very important as a management tool. This unit can give great help to the supervision mission and other missions

- The projects should train the Government staff to perform the M&E job for all donors’ projects to insure fairness and neutral job. If the project felt unfair M&E report, then the project can call for an international firm to do kind of arbitration report.

ADB project planning team

ANNEX 10 Page 3 of 3

Main Findings & Conclusions Lessons Learned/ Recommendations Follow-up Actions Responsibility Sustainability Very few sustainable activities are found in the project such as: - the government owned enterprise that is leased to private sector and - the training for the privatized enterprises (there were no records to track these employees after they left their government jobs)

The project should be flexible to focus on the sustainable activities by giving them more resources.

Provide resources to the M&E unit to track the trained employees after their early retirement.

- PIU, the Project manager, and Government