Document of The World Bank FR OMCIaAL USE ONLY Reprt No. 4987 PROJECT COMPLETION REPORT LESOTHO: LESOTHO NATIONAL DEVELOPMENT CORPORATION (LNDC) AND BASOTHO ENTERPRISES DEVELOPMENT CORPORATION (BEDCO) (CREDIT 702-LSO) March 14, 1984 Eastern Africa Projects Department Industrial Development and Finance Division r This docu_ent hb a restricted distnbutio and may be ued by recipients only in the perfonmamce of their official dutie Its contents nmy not othrwise be diased witbout World Dank aoriion. CURRENCY EQUIVALENTS Currency Unit = Maloti (N) February 1977 US$1.0 = RO.87 R 1.0 = US$1.15 January 1980 US$1.0 = MO.83 = RO.83 M 1.0 = US$1.20 - R1.0 June 1983 USS1l0 = M1.08 - R1.08 H 1.0 = US$0.93 = R1.0 GLOSSARY OF ABBREVIATIONS ADB: African Development Bank BEDCO: Basotho Enterprises Development Corporation CDC: Commonwealth Development Corporation CIDA: Canadian International Development Agency DEG: Deutsche Gesellschaft Fuir Wirtschaftliche Zusamuenarbeit Entwicklungsgesellschaft (Gbh) EDESA: Economic Development for Equatorial and Southern Africa EDF: European Development Fund EIB: European Investment Bank FMO: Nederlandse Financierings - Maatschappij Voor Ontwikkelingslanden N.V. FRIDA: Fund for Research and Investment for the Development of Africa KFW: Kreditanstalt far Wiederaufbau LBFC: Lesotho Building Finance Corporation LHF: Lesotho Housing Finance LIH: Lesotho Investment Holdings LNDC: Lesotho National Development Corporation LNIC: Lesotho National Insurance Company RMA: Rand Monetary Area RSA: Republic of South Africa SACU: Southern Africa Customs Union SSE: Small Scale Enterprise STIC: Sebaboleng Trade and Industrial Center UNDP: United Nations Development Program FISCAL YEAR BEDCO: April 1 - March 31 LNDC : April 1 - March 31 FOR OMCIAL USE ONLY PROJECT COMPLETION REPORT LESOTHO: LESOTHO NATIONAL DEVELOPMENT CORPORATION (LNDC) AND BASOTHO ENTERPRISES DEVELOPMENT CORPORATION (BEDCO) (CREDIT 702-LSO) TABLE OF CONTENTS Page No. Preface i Basic Data Sheet Highlights iii I. Introduction 1 II. Hacroeconomic, Industrial and Financial Sector Objectives 2 III. LNDC: The Institution 6 IV. LNDC: Allocation of the Credit 13 V. LNDC: Operational and Financial Performance 14 VI. LNDC: Conclusions 18 VII. BEDCO: The Institution 20 VIII.BEDCO: Allocation of the Credit 22 IX. BEDCO: Operational and Financial Performance - 23 X. BEDCO: Conclusions 25 Annexes LNDC A-1 List of Subprojects Financed under Credit 702-LSO A-2 Financial Characteristics of Subprojects Financed under Credit 702-LSO A-3 Economic Characteristics of Subprojects Financed under Credit 702-LSO A-4 Sum-ary Description and Present Status of Subprojects Financed under Credit 702-LSO A-5 A Comparison of Forecast and Actual Operations (1977-1983) A-6 Portfolio as of March 31, 1983 A-7 A Comparison of Forecast and Actual Income Statements (1977-1983) A-8 A Comparison of Forecast and Actual Balance Sheets (1977-1982) A-9 Consolidated Income Statements (1977-1982) A-10 Summarized Consolidated Balance Sheets (1977-1982) A-11 A Comparison of Forecast and Actual Financial Ratios (1977-1983) BEDCO B-1 List of Subprojects Financed under Credit 702-LSO B-2 Characteristics of Projects Financed under Credit 702-LSO B-3 Summary Description and Present Status of Selected Subprojects Financed under Credit 702-LSO B-4 Summary of Operations (1977-1982) B-5 Analysis of Equity Portfolio as of June 30, 1982 B-6 Forecast ana Actual Income Statements (1977-1982) B-7 Forecast and Actual Balance Sheets (1977-1982) COMMENTS C Coumments Received from Borrower This document has a rstied distribution and may be used by repients only in the pofonnance ofl their offidc duties. Its contents may not othdwise be dislosed without World Bank authorization. - i - PROJECT COMPLETION REPORT LESOTHO: LESOTHO NATIONAL DEVELOPMENT CORPORATION AND BASOTHO ENTERPRISES DEVELOPMENT CORPORATION (CREDIT 702-LSO) PREFACE This is a completion report on Credit 702-LSO to the Lesotho National Development Corporation (LNDC) and the Basotho Enterprises Development Corporation (BEDCO). The credit of US$2.5 million was approved in April 1977, signed in May 1977 and fully disbursed in December 1982. The Association's Eastern Africa Regional Office has prepared this report on the basis of information gathered during missions in July 1982 and March 1983. The report presents a factual review of LNDC's and BEDCO's institutional development and their utilization of the proceeds of the credit. BEDCO has offered some specific comments and clarifications; these have been taken into account in finalizing the report and are reproduced as Annex C. This project has not been audited by the Operations Evaluation Department. - ii - PROJECT COMPLETION REPORT LESOTHO NATIONAL DEVELOPMENT CORPORATION AND BASOTHO ENTERPRISES DEVELOPMENT CORPORATION (CREDIT 702-LSO) BASIC DATA SHEET (Amounts in US$ millions) As of 6/30/83 Original Disbursed Cancelled Repaid Outstanding Credit No. 702-LS0 2.5 2.29 0.21 - 2.29 Cumulative Loan Disbursement 1978 1979 1980 1931 1982 (i) Estimated 1.0 1.6 2.2 2.5 - (ii) Actual 0.1 0.6 1.2 2.1 2.3 (iii) (ii) as Z of (i) 10.0 38.0 55.0 84.0 92.0 PROJECT DATA. Original Credit Dates Actual or Re-Estimated Board Approval 4121/77 Credit Agreement 5/20/77 Effectiveness 8/23/77 Credit Closing 12/31/81 12/10/82 Physical Completion 12/31/79 12/31/80 MISSION DATA No. of No. of Date of Month/Year Weeks Persons Manweeks Report Identification 3/73 0.43 2 0.86 4/23/73 Preparation 8/75 0.43 2 0.86 Preappraisal 2/76 0.36 1 0.36 Appraisal 3/76 3.00 4 8.43 5/5/76 Technical Assistance 6/76 1.00 1 1.00 Post Appraisal 8/76 1.00 3 3.00 .9/10/76 Supervision I 8/77 1.00 1 1.00 10/12/77 Supervision II 1/78 1.43 2 3.00 4/11/78 Supervision III 4/79 2.00 3 6.00 6/11/79 Supervision IV 8/80 1.90 2 3.80 10/14/81 Supervision V 8/81 1.90 2 3.80 10/14/81 Completion 7/82 2.00 2 4.00 9/13/82 FOLLOW-UP PROJECTS Second Lesotho National Development Corporation Project, Credit 985-LSO, approved on January 15, 1980 in the amount of US$4.0 million. - iii - PROJECT COMPLETION REPORT LESOTHO: LESOTHO NATIONAL DEVELOPMENT CORPORATION AND BASOTHO ENTERPRISES DEVELOPMENT CORPORATION (CREDIT 702-LSO) HIGHLIGHTS The Association's involvement with the Lesotho National Development Corporation (LNDC) began in 1973. Between 1973 and 1976 the Association provided LNDC with technical assistance and advice to assist it to overcome a significant deterioration resulting from a period of management instability. In 1976, the Lesotho Government requested the Association to provide LNDC and its subsidiary, the Basotho Enterprises Development Corporation (BEDCO), with financial assistance. The credit under review aimed at both institution building of the two corporations and providing financial support to Lesotho's industrialization effort, which faces numerous. inherent constraints, thereby creating much needed employment. The credit provided US$ 2.2 million to LNDC for medium and large scale investments and US$ 0.3 million to BEDCO, which was separated from LNDC in 1978, for small scale indigenous enterprises. At the time of credit appraisal, LNDC had numerous serious weaknesses. Almost all of its subsidiaries and associated companies were experiencing severe problems, ranging from poor management to unsatisfactory financial performance and condition. LNDC had an inadequate organizational structure, poor procedures, especially financial control, inadequate staffing, and weak project identification and preparation capabilities and relied significantly on expatriate staff. During the period of credit implementation, LNDC made important progress in overcoming many of these weaknesses, with specific achievements including strengthening and improving control of subsidiaries, significantly improving financial control, recruiting and training Basotho staff and localising some managerial positions, implementing a quite successful divestiture program and introducing an active investment promotion program. However, LNDC has a number of weaknesses yet to overcome regarding procedures, staffing, portfolio quality and financial performance, which has consistently been poor, with losses in all years. Since 1978, three experts, provided under the auspices of Irish Aid, have occupied key positions in LNDC and made important contributions towards strengthening the institution. LNDC will need to rely on expatriate staff in key areas for some years to come, in view of the extreme shortage in Lesotho of qualified professionals. Although, the appraisal did not set specific employment targets, the slower than forecast growth in LNDC's portfolio suggests that achievements in the appraisal projection period (1977-81) fell short of expectations. Nevertheless, the limited statistics - iv - show that LNDC's role in employment generation was significant. Moreover LNDC's performance in creating jobs has been improving markedly as a result of the investment promotion program. In addition, LNDC has made a significant contribution to policy and planning in the sectors in which it operates. LNDC utilized the IDA credit for fourteen projects, of which eight are now operating profitably. BEDCO, only recently established at the time of credit appraisal, has benefitted from a comprehensive financial and technical assistance program from the Canadian International Development Agency (CIDA), and thus the role of the Association in assisting BEDCO's development has been minor. BEDCO has succeeded in establishing fairly sound systems and procedures, having made substantial progress in overcoming weaknesses during credit implementation, particularly regarding supervision and financial control. In addition, it has launched a satisfactory program for training its client entrepreneurs, and has made good progress in streamlining its organizational structure and recruiting Basotho staff. On the other hand, the bulk of BEDCO's portfolio, including the thirty-one projects financed under the IDA credit, is of poor quality, and BEDCO'sfinancial performance has been much poorer than anticipated. Like other institutions in Lesotho, it continues to rely on expatriate staff in key areas. Overall, given the difficulties of launching successful small enterprises, particularly in Lesotho with its numerous constraints BEDCO has performed reasonably well in exposing Basotho nationals to small scale industrial and commercial activities. Other points of interest are: - Special characteristics of Lesotho's economy (Section II) - Features of LNDC's operations (paras. 5.01-5.04) - The evolution and status of LNDC's portfolio (para. 5.05) - LNDC's weak financial performance (para. 5.06) - BEDCO's subsidiary status (para. 7.02) - BEDCO's portfolio and causes of poor quality (paras. 9.05 and 9.06) PROJECT COMPLETION REPORT LESOTHO: LESOTHO NATIONAL DEVELOPMENT CORPORATION BASOTHO ENTERPRISES DEVELOPMENT CORP0RATION (CREDIT 702-LSO) I. INTRODUCTION 1.01 The Lesotho National Development Corporation (LNDC) was established under the Lesotho National Development Corporation Act in 1967 as a statutory corporation to promote and finance modern non-agricultural projects in Lesotho. LNDC got off to a good start under its first Managing Director, a South African industrialist, who was successful in establishing about 15 projects and setting up good internal operational procedures. After his departure in 1973, a suitable replacement could not be found for some time. Instead, the General Manager of the Lesotho Bank, a wholly government-owned commercial bank, was assigned responsibility for managing LNDC, while also continuing to serve as head of the Lesotho Bank. A separate Managing Director for LNDC was appointed only in 1975, although on a temporary basis, under a UNDP project for which IBRD was the executing agency. In mid-1976, a full-time Managing Director was provided by the Canadian International Development Agency (CIDA). 1.02 The uncertainty concerning management which prevailed between 1973 and 1976 had considerable negative effects on LNDC and offset the progress which had been made in the early years. Good staff could not be recruited and retained; the organization structure became ineffective and internal procedures deteriorated; there was inadequate follow-up on the investments which had been made, leading to a rapid deterioration in their performance; and the very few new projects which were started were not adequately evaluated. 1.03 The Association's involvement with LNDC began in March 1973, with a very brief fact finding mission at about the time of departure of the first Managing Director. Although the Association subsequently fielded four brief technical assistance and updating missions, continued to provide LNDC advice on policies and procedures, and assisted Government in recruiting the temporary Managing Director in 1975, it was not until February 1976, that Government requested the Association to provide financial assistance to LNDC, as well as to its recently acquired subsidiary, the Basotho Enterprises Development Corporation (BEDCO), which had been established in 1975 as a government company to promote the development of small-scale indigenous enterprises. An appraisal mission visited Lesotho in March 1976, and a post-appraisal mission followed in August 1976. The post appraisal mission recommended a credit of US$2.5 million, of which US$2.2 million for LNDC and US$0.3 million for BEDCO. 1.04 The credit under review, Credit 702-LS0, based on Appraisal Report No. 1332a-LSO dated March 17, 1977, was approved on April 21, 1977, signed on May 20, 1977 and declared effective, as scheduled, on August 23, 1977. The credit was fully disbursed on December 10, 1982, about one and one-half years behind schedule. 1.05 The credit was to be passed on by Government at 8.5Z per annum and 7X per annum to LNDC and BEDCO respectively. The credit conditions for LNDC included a free limit of US$100,000 and an aggregate free limit of US$700,000. BEDCO would submit for prior approval the first ten projects for which it sought IDA financing; after these, it would submit, on a quarterly basis, a summary list of projects for IDA reimbursement. A debt to equity ratio of three to one was specified for both corporations. On loans made by LNDC out of its portion of the credit, Government would bear the foreign exchange risk for a one percent fee to be passed on to subborrowers; Government would bear the risk on loans made by BEDCO out of its portion of the credit for no fee. LNDC would repay its portion of the credit according to the standard composite amortization schedule applicable for development finance companies; BEDCO would amortize its portion of the credit through LNDC according to a fixed schedule over 10 years including four years of grace. Finally, both LNDC and BEDCO were to onlend the proceeds of the credit at a minimum 12% per annum. 1.06 The project had two objectives, namely to (i) facilitate the development of non-agricultural enterprises in Lesotho through the provision of foreign exchange resources for extending term financing to small, medium and large scale projects in Lesotho, thereby creating employment opportunities locally for the expanding labor force; and (ii) further the development of LNDC and BEDCO as effective development institutions and financial intermediaries. The one project risk noted in the appraisal report related to lending to small-scale enterprises (SSEs). This risk was deemed worth incurring because development and training of new Basotho entrepreneurs were key to future expansion of the industrial sector, and employment effects of BEDCO's lending were expected to be high. In order to minimize the risk of SSE failures, BEDCO would provide training and technical assistance to its subborrovers. 1.07 Credit 702-LSO was followed in 1980 by a second credit for LNDC of US$4 million (Credit 985-LSO), which is only partially committed. BEDCO was projected to have sufficient resources at least through 1982, and thus the second credit did not provide it with additional IDA assistance. II. MACRO-ECONOMIC, INDUSTRIAL AND FINANCIAL SECTOR OBJECTIVES 2.01 Lesotho is one of the UN designated (1976) least developed countries. The country is small, with a 1980 population of 1.3 million, growing at 2.3% per annum, occupies 30,350 sq. km., and is completely surrounded by the Republic of South Africa (RSA). Although Lesotho is mountainous, soil erosion is extensive and only 13% of its land area is suitable for crop farming, subsistence agriculture and livestock farming remain the leading sectors of the economy, providing livelihood for some 90% of the resident population. Given the constraints to agricultural development, Government has looked to the sectors of industry, tourism and commerce to play a crucial role in employment generation. LNDC and BEDCO were created in order to promote these sectors, through the provision of various types of financial assistance (loan, equity, buildings/sites for lease on industrial estates and guarantees) to medium/large local and foreign enterprises (LNDC) and small indigenous enterprises (BEDCO). Lesotho faces formidable constraints in its efforts to develop in manufacturing. These include: the scarcity of natural resources other than - 3 - water and small diamond deposits; the small size of che domestic market; the dearth of local entrepreneurs; the shortage of Basotho managerial staff and skilled workers; and, as a result of its membership in the Southern Africa Customs Union (SACU), which provides for the free movement of all goods in the area, competition from more experienced manufacturers in the RSA, which makes it difficult for local establishments to meet their market expectations. 2.02 The most significant characteristic of Lesotho's economy is its critical dependence on the RSA, from where more than 95Z of its imports originate, as do all of its electricity and most of its foreign investment and tourism. Its exports either end up in the RSA or transit through the RSA's ports to the rest of the world. More than 23% of its labor force and about one-half of its male labor force depend upon employment in the RSA, mainly in mining, and over 70% of the Government's income comes from receipts from SACU. 2.03 Despite the country's handicaps, Lesotho's econony grew rapidly in the 1970's, with real GNP and GDP increasing at annual rates of 9.3% and 7.7% respectively. This growth was primarily due to four factors: (i) a substantial rise in external assistance; (ii) increases in miners' remittances; (iii) increased customs revenues from SACU; and (iv) the expanded output from the diamond mine which opened in 1977, but closed in 1982. Despite the growth, the structure of the economy changed little, and real per capita GNP remained at a low M 135.8 in 1980/81. 2.04 Unfortunately, the impressive growth achieved in the 1970s is unlikely to be maintained in the 1980s. The increase in resource availability was used to fuel consumption and consequently imports, while public expenditure grew to levels unmatched by public revenues. Over the past three years, customs revenue has stagnated as have the number of migrant workers and hence miners' remittances, as a result of the growing use in the RSA mines of local labor and increased mechanization of the mines. These factors, coupled with a dramatic drop in external assistance, have translated into serious budgetary and balance of payments deficits. Government's first priority will have to be to restore the country's financial health. Nevertheless, Government's longer term challenge remains how to provide non-agricultural employment opportunities for the growing population. 2.05 The industrial sector - mining, building and construction. and manufacturing -, while still small and at an early stage of development, has been one of the fastest growing sectors of the economy, although growth slowed down significantly after 1977/78. Industrial value added as a percentage of GDP grew from about 3 in 1970/71 to 19.1 in 1977/78 and an estimated 20.1 in 1979/80. The mining and construction subsectors have been the growth areas; the value added from manufacturing and handicrafts grew only sluggishly over the decade, and their contribution to domestic product in fact declined from 5.7% in 1974/75 to an estimated 4.8% in 1979/80. The poor performance of the manufacturing sector is largely due to Lesotho's significant development constraints (para. 2.01) which have led to low production and in some cases failure. During most of this period, LNDC concentrated more on strengthening its existing portfolio than promoting new investment, while BEDCO could count - 4 - few successes among the small projects established with its assistance. The mining and quarrying sector fared better because of the opening of the Letseng diamond mine, and because of buoyant demand from the construction industry. The upsurge in construction, in turn, resulted from the increase in infrastructural projects and housing. 2.06 Employment in industrial activities remains small. It is estimated that in 1980, total modern sector employment was 41,307, of which 890 were employed in mining, 4593 in construction and 3906 in manufacturing and handicrafts. In terms of employment generation, the performance of manufacturing has been disappointing: while during the period of the First National Development Plan (1970/71-74/75), some 2000 jobs were created, during the first three years of the Second National Development Plan (1975/76-1979/80), only an estimated 630 of the targeted 4500 jobs were created. 2.07 In 1982, there were about 80 firms involved in medium ard large scale manufacturing activities, which still have a subsectoral structure typical of early industrial development. In terms of employment, the largest subsectors are textiles and furniture/joinery, with others including building materials, chemicals and metal based products. Most medium and large scale enterprises have been sponsored by foreign, particularly South African, investors who have established in Lesotho specifically to take advantage of Lesotho's preferential access to the EEC and access to other African countries. As a result, a high 50% of output is exported. Nevertheless, manufactured exports represent only a small fraction of manufacturing imports, and the trade gap in manufacturing is sizeable. Comprehensive data on small scale industries is not available. However, informal handicraft and service activities may be substantial, employing as much as 23,000, although the number of modern small scale industries, about 30 in 1978, are still few. 2.08 The tourist sector experienced rapid growth following the construction and subsequent expansion of the 470-bed Holiday Inn with casino facilities, and the number of tourists increased from less than 5000 a year in 1969 to an estimated 175,000 in 1977. In 1979, employment in tourism was estimated at about 1500, up from 500 in 1975. The performance of the commercial sector has been influenced by a substantial increase in catering, in response to the needs of the tourist population, while wholesale and retail trade, dominated by a few large operations belonging to chains in the RSA, grew little or not at all in real terms between 1974/75 and 1977/78. Together, the contribution of tourism and trade as a percentage of GDP declined from a peak of 19.5 in 1975/76 to 12.1 in 1979/80. 2.09 The capabilities of the Ministry of Trade, Industry and Tourism to formulate policies and plan for industrial development are relatively weak, and the institutional framework for industry rudimentary. Government 's strategy emphasizes industrial development through private enterprise, although it has been prepared to take the initiative in starting enterprises itself, if necessary. Since approval of the credit under review, some new initiatives have been taken to strengthen the industrial development effort. While the primary policy instrument remains a set of fiscal incentives, including tax holidays or a series of deductions from taxable income, LNDC has begun offering workers' training grants on an experimental basis to selected industries. A Trade Promotion Unit and Trade Promotion Council have been established to encourage exports, the former to provide assistance to exporters, the latter to advise Government on policies. However, the Trade Promotion Council has rarely convened; in addition, there are still no specific incentives for small scale enterprises. Moreover, a recent study of Lesotho's incentive system vis-&-vis other countries in Southern Africa concludes that while Lesotho's investment incentives are superior to those offered in Zimbabwe and Swaziland, they are significantly less competitive than those offered in Bostwana and the South African "homelands. The study further concludes that Lesotho does not have the resources to match these incentives, and, therefore, it should concentrate on improving the administration and delivery of its incentive package. 2.10 The Third National Development Plan (1980/81-1984/85) anticipates the creation of 1500 and 750 jobs per annum respectively in manufacturing and commerce. It goes further than the Second National Development Planning in setting out specific objectives for industry, and these include the promotion of foreign investment from diversifled sources, the development of small scale local entrepreneurs, the promotion of import substitution, export and agro industries, the diversification of export markets and the maximization of local raw material use. 2.11 LNDC and BEDCO are part of a financial system which includes three commercial banks, the Lesotho Building Finance Corporation, the Lesotho National Insurance Company, the Lesotho Agricultural Development Bank and the Central Bank of Lesotho. The latter four institutions were created in the last five years, with the Central Bank of Lesotho replaclng the Lesotho Monetary Authority (LMA), itself established in 1978. The commercial banks, of which the Lesotho Bank Is the largest, perform the traditional commercial banking functions, lending mostly short term and now heavily to Government. While the commercial banks do engage in some term lending, LNDC and BEDCO remain the principal industrial sector term financiers. The banks traditionally have had substantial surplus liquldity which used to be invested in the RSA, but Is now, by requlrement, invented in the LMA. While bank liquidity tightened In 1982, It began to ease near the end of the year, as government borrowing declined. 2.12 Lesotho is part of the Rand Monetary Area (RHA), and lts local currency, the Maloti, first issued in 1980, is fully backed by and freely convertible at par into the Rand. Lesotho's membership in the RH& makes it largely dependent upon monetary and credit pollcies set by the South African Reserve Bank. Interest and inflation rates generally follow trends in the RSA, with interest rates somewhat lower, due to the smaller demand for credit, and inflation rates somewhat higher. In 1975, interest rates charged to borrowers ranged from 8.5% to 14Z, with long term rates ranging from 8.5% to 12x; inflation, which was about 19S in 1975, was forecast by the Association to decline to an average 9% between 1976 and 1980. Actually, the level of interest rates declined at the end of 1978 and. remained more or less stable until the end of 1980. after which it began to increase sharply, reaching as high as 222 in mid-1982. Inflation was about 162 in 1977, 12.5% in 1978, 15.9% in 1979, 15.72 in 1980 and 14.9Z in 1981. - 6 - III. LNDC: THE INSTITUTION 3.01 The following issues and recommendations were discussed and agreed at the time of credit appraisal (March 1976), post appraisal (August 1976) and negotiations (February 1977) or raised during the period of credit implementation. Those issues which arose during the period of implementation regarding LNDC's operational and financial performance are discussed in Section V. (a) Audit (i) The audits of LNDC for both FY1974 and FY1975 were qualified with respect to LNDC subsidiaries (companies in which LNDC's shareholding is at least 51%) and associated companies (in which LNDC's shareholding is 50% or less), as the extent of their equity erosion had never been properly assessed, and their fiuancial performance and position were not consolidated into LNDC's accounts. The appraisal mission recommended that LNDC be required to submit by October 1976, an unqualified audit for FY1976, which would include a consolidated balance sheet for the LNDC group. The draft FY1976 audit was submitted November 17, 1976, and judged satisfactory, and the finalized audit was presented at negotiations. (ii) Starting in 1980, the fourth year of credit implementation, LNDC became subject to the state audit system, according to which LNDC's auditors are appointed by and responsible to the Auditor General, and the audit remains a draft until after it has been reviewed by the Auditor general and approved by Parliament. Since this time, LNDC has been able to submit to the Association only draft audits, without normal audit opinions or management letters; moreover, these have not been completed within their deadline of four months after the end of LNDC's fiscal year. In April 1983, the Auditor General agreed with an IDA mission to allow arrangements enabling LNDC to meet the Association's requirements for a full and comprehensive audit. (b) Policies (i) In 1975, LNDC adopted a Policy Statement. Although the Statement was largely based upon the Association's suggestions, a few new clauses, (e.g. regarding foreign exchange risk exposure), still needed to be added and a number of existing ones amended. At the time of post- appraisal, IDA and LNDC agreed upon a suitably revised Statement, which was subsequently adopted by LNDC's Board. (ii) LNDC's Policy Statement limits the Corporation's equity and total exposure per project to 10X and 20% - 7 - respectively of LNDC's net worth . Two of LNDC's FY1981 approvals - a brewery/soft drinks plant and a shopping center - violated these limitations. 1/ Particularly given LNDC's history of problems with subsidiaries, the Association strongly recommended that LNDC undertake responsibility for the shopping center only on a managed fund basis, and that it reconsider its approval of the brewery/soft drinks plant or reduce its exposure. Government and LNDC agreed that the shopping center would be administered by LNDC on a managed fund basis, although the agreement has yet to be legally formalized. However, without decreasing its exposure as suggested, LNDC proceeded with the brewery/soft drinks plant, which it considered important for LNDC, as the project's expected high returns would contribute to improving LNDC's financial performance and reducing its dependence on government resources. Unfortunately, the project incurred a large loss in FY1983, its first year of operations. (iii) In July 1982, and April 1983, LNDC proposed changes in various provisions of its Policy Statement specifying maximum permissible exposure limits. Among the proposed changes was that leased premises be excluded from the definition of financial commitment in the provision limiting total financial commitment in any given project to 60X of the project's total capital cost. This was considered necessary by LNDC in view of the need, under existing circumstances (para. 5.03), for investors to lease from LNDC, rather than own their premises. The Association advised LNDC that it could not agree to the various amendments proposed, but that with respect to the provision cited above, it would accept an increase in the percentage specified from 60 to 75. LNDC has accepted the Association's position on the proposed changes. (c) LNDC's Board. The LNDC Act specifies that the Corporation's Board of Directors shall consist of not less than four and not more than nine directors. At the time of appraisal, LNDC's Board had four directors, including the Prime Minister as Chairman, the Ministers of Finance and Industry, and LNDC's Managing Director. The appraisal mission noted that the Board had not been providing LNDC with sufficient direction, in part due to inadequate preparation and also because of its political composition. Accordingly, the mission recommended that the Association urge Government to 1/ LNDC requested financing under Credit 985-LSO for the soft drinks plant. The project was rejected primarily because of the policy violations it entailed. - 8 - enlarge and strengthen the Board by appointing non-government Directors with technical expertise. Three additional Directors from business circles were appointed prior to negotiations. While at the time, Government planned shortly to fill the two remaining positions, as of April 1983, the Board had not yet been further enlarged. However, there have been changes in the Board's composition: inter alia, the Minister responsible for both planning and foreign affairs has become a Director, the Minister of Trade, Industry and Tourism has replaced the Prime Minister as Chairman, and Cabinet has approved a proposal that the Prime Minister become LNDC's President. LNDC has requested several external institutions, including DEG, FMO and IFC to become LNDC shareholders, and is proposing that the remaining two Board vacancies be reserved for representatives of these institutions. While its quality has improved since the appraisal of Credit 702-LSO, the Board is still weak in providing LNDC guidance; it remains subject to political influence; and both ministerial members and their permanent secretaries, who serve as advisors to the Board, apparently are unable to devote enough time to review LNDC's projects and programs. Cd) Organization: The appraisal mission noted that although LNDC's organizational structure at the time of appraisal represented a noticeable improvement over the past, it still suffered from a number of weaknesses. In particular,responsibility for project implementation and supervision, and' ntrol of subsidiaries was not well defined, and there as no entity in charge of finance, accounting and nistration, which were being handled on an ad hoc is. During post-appraisal, LNDC proposed new organizational structure, which, although diff ent from the one recommended by the appraisal miss an, the Association found satisfactory. This new struc ire was adopted by LNDC in 1976. During subsequent yearK LNDC successively streamlined its organizati al structure, which now comprises four departments and a. office of internal audit. The four departments are e Industries, responsible for project promotion, appraisal and implementation as well as administrtion of LNDC's property portfolio; Operations, responsiN,e for LNDC subsidiaries and associated companies and \ after care of all projects; Finance; and Administration responsible for personnel, administration, training, and legal issues. LNDC's current organizational structure is generally satisfactory. (e) Staffing: The appraisal and post appraisal missions noted that LNDC remained understaffed at headquarters, particularly in the areas of accounting, technical - 9 - aspects of project processing and finance, that some managerial positions in subsidiaries were vacant, and that LNDC was still heavily reliant on expatriates. Certain key staff, in particular, a Financial Controller and a Director of Operations, needed to be recruited as soon as possible. While by negotiations the position of Financial Controller remained vacant, the appointment of a candidate had been finalized. As it transpired, the candidate changed his mind, and a Financial Controller was not recruited until 1978. At negotiations, it was agreed that LNDC would recruit a Director of Operations, satisfactory to the Association, by November 30, 1977, and this condition was met. LNDC and the Association also agreed at negotiations on a five-year training program for Basotho staff, which LNDC had prepared, and that LNDC would start to implement it right away. LNDC launched an active recruitment and staff training program and also created a special management training unit. (f) Share Capital. Although LNDC's Act authorizes the Board to determine LNDC's share capital, the appraisal mission noted that it had not yet done so. At negotiations,Government and LNDC agreed that the share capital of the Corporation would be determined, and the Government's share defined, at the latest by May 31, 1978, unless The Association agreed to an alternative date. LNDC's Act was amended and the Corporation's authorized share capital set at M10 million prior to the deadline. However, it was not until 1979, after it had been made a condition of negotiations for the second LNDC credit, that Government's share was fixed at M4 million, and that existing Government grants and loans to LNDC were converted into paid-in capital. (g) Corporate Stra*egy: The appraisal mission noted that LNDC had no clear cut strategy and recommended that as soon as possible LNDC adopt (i) a short term corporate strategy emphasizing analysis and consolidation of existing subsidiaries to place them on a financially sound footing, and, where necessary and feasible, sell them off; and (ii) a medium to long term strategy to be outlined by LNDC's new management. A satisfactory short term strategy was adopted in 1976. At negotiations, LNDC submitted its proposed long term strategy, which was discussed and agreed upon by LNDC and the Association. This strategy emphasizes the promotion of new economically viable investments that would create added employment for Basotho. In addition, it enunciates LNDC's intention to concentrate on providing loans and factories for lease, in preference to making equity investments. (h) Operations Manual. LNDC had been operating without any documented guidelines, with the result that projects - 10 - were not being thoroughly evaluated, supervision was undertaken on an ad hoc and unsystematic basis, and financial reporting and accounting records were weak. At the time of appraisal, LNDC was in the process of drafting a comprehensive Operations Manual and was requested to submit the completed draft for discussion and agreement at negotiations. However, LNDC was not able to finish the draft in time and promised to complete and submit the draft for the Association's review by June 30, 1977. Although an initial draft was completed within the year, it was not until 1979, as a condition for the second LNDC credit, that a final draft was submitted and agreed upon. (i) Legal Agreements. Following suggestions from previous Association missions, by the time of appraisal LNDC had made progress in formalizing relations between it and its subsidiaries, and had entered into legal form much of the financial assistance it had previously granted them without formalised agreements. Nevertheless, much legal work remained to be done. As a condition of negotiations, LNDC was requested to finalize all outstanding legal agreements, in some cases retroactively, and ensure that proper documentation was available for all its commitments. This condition was noted as fulfilled. However, LNDC's legal procedures remained weak during the period of credit implementation, and legal agreements are lacking now for a number of loans and a significant number of leases, mainly site. In addition, LNDC apparently has no share certificates for a number of investments. The Association has requested LNDC to finalize all legal agreements by October 31, 1983. (j) Divestiture. Majority ownership of companies entailed significant administrative and financial burdens to LNDC. In order to reduce these burdens, at negotiations, it was agreed that LNDC would annually review each of its subsidiaries to determine their suitability for divestiture on the basis of criteria (e.g. the profitability of the subsidiary concerned), which had been agreed with IDA at negotiations. LNDC has made very good progress in its divestiture program, and by April 1983, had sold or completed negotiations to sell all or part of its holdings in 21 companies. For most companies, in view of their traditionally poor performance, LNDC realized little on their sale. In divesting, LNDC has taken particular care to sell only to buyers having the expertise and resources required to turn the companies around. While LNDC has attempted to sell its shareholdings locally, the lack of competent Basotho technical partners has required it to divest in most cases to foreign entities. It is apparent that LNDC's care in selecting buyers is generally having positive results as measured by - 11 - improvements in the turnover, employment and financial performance of companies following divestiture. (k) Financial Reporting. At the time of appraisal, LNDC lacked a systematic internal financial reporting system and, as a result, financial control was very weak, especially with regard to the subsidiaries and associated companies. Accordingly, the appraisal mission recommended that LNDC should develop a financial reporting system acceptable to the Association. By negotiations, LNDC had engaged an international management consulting firm to develop and implement a new management information system, and by the end of 1977, a uniform reporting system had already been installed in most subsidiairies and associated companies. (l) Interest Rate. The draft Project Agreement provided for a minimum interest rate of 13% per annum to be charged on subloans. At negotiations, the Lesotho delegation maintained that a rate of 13% per annum would be too high in comparison with rates charged by other financial institutions in Lesotho and in neighbouring countries, and that the rate would discourage foreign investors from coming to Lesotho. It was tnerefore agreed to reduce the lending rate to 12% per annum, which was expected to be positive in real terms (para. 2.12). LNDC's other charges - 152 per annum on development costs for buildings, with annual escalation of 5%, and 1% per annum on guarantees - were considered satisfactory. LNDC maintained a 12X per annum interest rate on all of its loans until the second IDA credit, when it reduced the rate to 11% per annum. LNDC is now charging up to 2% per annum on guarantees, but has not changed its charge on leased buildings. Development during Credit Implementation and Present Status 3.02 Management. In August 1977, Mr. Montsi took over as Managing Director of LNDC, following a government decision to localise the position. Mr. Montsi provided LNDC with strong leadership, helped to correct many of the deficiencies of the past, and broblened LNDC's role into the main actor in the industrial development field. LNDC took important initiatives during Mr. Montsi's tenure, including the introduction of an investment promotion program (para. 3.03), the creation of a unit trust - the Lesotho Investment Holdings (LIH) - as the first attempt to develop the rudiments of a capital market, and the establishment of the workers' training grant scheme. Mr. Montsi resigned at the end of September 1982, and was replaced by Mr. Mofolo, a lawyer and previously head of LNDC's Administration Department, as Acting Managing Director. Although Government was aware substantially in advance of Mr. Montsi's planned resignation, it has still not officially appointed a new Managing Director. The appointment of a replacement for Mr. Montsi is long overdue, - 12 - and the Association has stressed to Government the importance of resolving the situation as soon as possible. 3.03 Subsidiaries. During the period of credit implementation, LNDC succeeded in streamlining and strengthening control of its subsidiaries and associated companies. Initially, LNDC was involved in day-to-day management of those companies in which it was a major shareholder, and in most cases, even had to prepare their accounts. Progressively, however, LNDC moved into an advisory, rather than managerial role, and encouraged the subsidiaries for the first time to take on responsibility for their own performance. Through the years, LNDC exerted considerable efforts to strengthen its companies. Nevertheless, LNDC was not able to improve the financial performance of many of its companies, and consequently the need for an active divestiture program (para. 3.01 (j) was reinforced. 3.04 Project Identification, Promotion and Development. Supervision missions to LNDC during the early years of credit implementation noted that the Corporation's project identification and preparation capabilities were weak, and urged LNDC to concentrate on developing bankable projects. LNDC's approach to investment promotion emphasizes identifiying target companies which may be persuaded to locate in Lesotho because of its advantages and relying mostly on projects prepared by investors, rather than generating projects from within. Consequently, while the investment promotion program has begun to yield positive results, LNDC's own project identification and development capabilities remain weak. However, at the request of Government, LNDC has begun to research what possibilities remain for import substitution, and, where potential exists, plans to prepare project profiles for attracting promoters. 3.05 Staffing. LNDC's total and Basotho professional staff have grown respectively from 19 to 34 and 12 to 29 between negotiations of Credit 702-LSO and April 1983. Since 1978, LNDC management has been assisted by a team of three (initially four) experts under the auspices of Irish Aid. The experts have occupied the key positions of Financial Controller, Director of Operations and Director of New Industries and bave played a crucial role in assisting LNDC to improve its performance. LNDC has exerted considerable efforts in training the local staff, both in Lesotho, particularly in accounting, and abroad. In addition, it has localised several middle level managerial positions. Although LNDC has made progress in developing its manpower, it has failed to place sufficient emphasis on training of staff on-the-job. LNDC has also experienced problems of turnover of competent staff. As a result of these problems, LNDC will need to continue to rely on expatriate staff for some time to come. 3.06 Despite LNDC's recent efforts to review and improve its overall staffing situation, a number of divisions have vacancies which LNDC intends to fill as soon as possible. The Operations Department has traditionally been understaffed, which, until now, has precluded it from extending its monitoring and control functions beyond LNDC subsidiaries and associated companies where LNDC is the major shareholder. As the division responsible for project appraisal/implementation needs considerable - 13 - strengthening, LNDC needs to recruit a division manager. LNDC has no technical expertise and, in view of the importance of factories among its operations, urgently needs to recruit a building engineer, and eventually also an industrial engineer. Recruitment of additional staff is also a priority for LNDC's legal and real estate and internal audit sections. While LNDC has strengthened the staffing of the traditionally weak Finance Department, it needs to consider whether recruitment of an additional and experienced accountant is necessary. 3.07 Procedures. LNDC has been least successful in strengthening its procedures. Despite the Association's repeated recommendations, it has only recently taken steps to efficiently operate internal management information and central filing and recording systems. The quality of project appraisals remains weak, particularly regarding the market, financial and economic analysis. As explained above (para. 3.06) supervision has been neglected for companies in which LNDC is not the major shareholder. However, the Operations Department is now developing a systematic monitoring system, and once adequately staffed, plans to regularly supervise all projects in LNDC's portfolio. Regarding legal procedures, the failure to formalize many financing operations in legal form has been discussed above (para. 3.01 (i)); another weakness has been the tendency of the legal section to become involved in operations at too late a stage. While financial control has improved significantly since Credit 702-LSO was approved, there remain weaknesses to overcome, e.g. in the areas of debt collection and medium term planning. Finally, LNDC urgently needs to improve control of its property portfolio and thus strengthen and define the responsibilities of its real estate section. 3,08 Project Implementation. By the original completion date of December 31, 1979, LNDC had committed only US$1.4 million, or 65Z, of its component of the credit, for the following reasons: (i) LNDC received more funds from Government than had been anticipated at appraisal; (ii) some projects were approved by LNDC at too early a stage and required further preparation before complete appraisals could be submitted to the Association, or were submitted but subsequently withdrawn, or were altered after submission; (iii) LNDC responded to questions raised by the Association on some subprojects only after substantial delays. As a result, the final date for subproject submission had to be extended by one year to December 31, 1980. The slower than originally anticipated rate of disbursement (see Basic Data) was clearly a result of the longer commitment period, as well as LNDC's delays in submitting disbursement requests when it did not urgently need reimbursement for expenditures incurred. While all disbursement requests were submitted by the revised closing date of June 30, 1982, clarifications required delayed the last disbursement to December 1982. IV. LNDC: ALLOCATION OF THE CREDIT 4.01 As shown in Annex A-1, the proceeds of Credit 702-LSO were used to finance ten subprojects above the free limit for a total of US$1.7 million and four free limit subprojects for a total of US$0.3 million. Thirty-eight percent of amounts approved were for subloans, and 62Z were for construction of factory buildings for lease. While no subprojects were rejected by the Association, one subproject was cancelled when the sponsors abandoned it. The Association's review of and comments on the subproject - 14 - applications were instrumental in leading to changes in the design of or financing arrangements for several of the subprojects. Six of the subprojects required LNDC financing only in the form of leased factory buildings, and for these, as agreed with the Association, LNDC submitted simplified appraisals, which limited the scope of the Association's review. Given the importance of factory buildings in LNDC's operations, in mid-1982, LNDC and the Association agreed that in the future LNDC would prepare comprehensive appre sals for all projects, including those involving only factory buildings. LNDC itself bears the foreign exchange risk on its investment in factory buildings. 4.02 The economic characteristics of the subprojects financed are summarized in Annex A-2. Six of the projects were new and eight were expansions, mostly of projects in which LNDC was already involved. They include two textile projects, three projects in the food sector (a maize mill, a bakery, and a wholesale fruit distributor), two furniture projects, a shoe project, one wholesale operation (with three outlets), a tannery, an umbrella assembly project, a hotel laundry, a candle project, and a transport project. Seven of the projects export one hundred percent of their output, but only three make any signficant use of domestic resources. All of the projects are located in either Maseru, the capital, or Maputsoe, the only other significant industrial center, although one branch of the wholesale operation is located in the interior. Ten of the projects are from 50% to 100l foreign-owned. About 1000 jobs have been created at an average cost of about US$3,478 per job. 4.03 Annex A-3 summarizes financial aspects of the subprojects in so far as information was available from LNDC. It shows that LNDC financing accounted for an average 71% of total project costs, as a result of the large number of projects which were expansions and which entailed only the construction of new premises for lease. As a general rule, LNDC overestimated project costs in its appraisals, and compared project cost estimates in the final versions of appraisal reports (para. 3.08 (ii)), only one project had cost overruns of any magnitude. Eight of the projects are now operating profitably, including one which was liquidated, two are operating unprofitably, one is under liquidation, and three consistently unprofitable projects have been divested. In March 1983, one project was an LNDC subsidiary and four were LNDC associated companies. As of March 31, 1983, three of the subprojects were in arrears of more than 24 months on loan repayments; these included the subproject under liquidation and one for which the loan will be rescheduled once the divestiture is legally finalized. The loans for an additional three subprojects previously in arrears have been rescheduled. As of the same date, three projects were in arrears of more than three months on rental payments. 4.04 Summary descriptions of the fourteen projects financed under Credit 702-LSO, their historical performance and present status are provided in Annex A-4. V. LNDC: OPERATIONAL AND FINANCIAL PERFORKMANCE 5.01 Operations. Since its inception, as of March 31, 1983, LNDC had approved (net of cancellations) a total of M 33.4 million for about 115 - 15 - projects, including 50 leasing only sites. 2/ Amounts approved were distributed as follows: M9.1 million in loans, M6.7 million in equity investments; M12.5 million in factories and sites; and M5.1 million in guarantees. As LNDC only recently began to keep comparable records of commitments and disbursements, data on commitments is available only since 1980, although LNDC has been able to reconstruct historical disbursements by year back to 1977. 5.02 Annex A-5 provides a summary of LNDC's actual operations in the period 1977-83, and comparative data as forecast at the time of appraisal for 1977-81. As shown in Annex A-5, the pattern of LNDC's operations has been somewhat erratic, with approvals in the period 1977-83 fluctuating between M2.2 and M8.4 million. Approvals increased between 1977 and 1979 from 12.2 million to M4.8 million, and thereafter decreased each year to a low M2.5 million in 1982, before increasing to a peak of M8.4 million in 1983. Similarly, the volume of approvals by category also fluctuated. In contrast, following 1977, for which projected approvals were based upon LNDC's pipeline, appraisal forecasts assumed annual percentage increases in the various types of approvals and, accordingly, in total approvals. Cumulatively, and by year, however, over the 1977-81 appraisal projection period, actual total approvals of M18.2 million exceeded appraisal forecasts of M10.5 million, although this was not always the case for individual types of approvals. Over the period on the whole, equity approvals, amounting to M4.9 million, and factory approvals, amounting to M5.6 milion, were substantially higher than appraisal forecasts of M.2.6 million and M4.1 million respectively. On the other hand, loan approvals, M3.5 million, were slightly less than forecasts of M13.8 million. During the projection period, LNDC also approved 13.2 million in guarantees, which were not incorporated in appraisal forecasts, mainly to support borrowing by LNDC subsidiaries and associated companies. LNDC's operations also included the development, with grant financing, of industrial estate infrastructure in Maseru and Maputsoe; a third estate, at Thetsane on the outskirts of Maseru, was completed in February 1983. Available commitment and disbursement data indicate that the rate of project implementation was substantially slower than forecast at appraisal. While it is valid that there often have been significant delays between approval, commitment and disbursement of projects, it should be noted that the appraisal forecasts, in assuming that all projects would be committed in the year approved, appear over-optimistic as compared to the performance of most development finance institutions. 5.03 The significantly higher than forecast level of equity approvals was largely due to one project, the brewery/soft drinks plant, which accounted for more than 40% of total equity approvals. The higher than forecast level of factory approvals was in response to a greater than anticipated demand from investors as a result of (i) their desires to minimize their risks in Lesotho by renting, rather than owning buildings; and (ii) the difficulties in acquiring land under the land tenure system, and, since its passage, under the 1979 Land Act which precludes majority foreign-owned enterprises from leasing land directly and implicitly also 2/ LNDC has not yet been able to provide a complete breakdown of its site portfolio, and the number of projects leasing sites is an estimation. - 16 - from owning buildings on land leased from LNDC. In addition, the provision of factory buildings is a facility offered by other countries in Southern Africa and the "homelands" as an incentive to attract investors, and LNDC needs to provide them if Lesotho is to remain competitive. With regard to loans, during the appraisal projection period there was little advantage for foreign investors in borrowing from LNDC, and they tended to bring in capital from the RSA; it was not until the surge in commercial interest rates in the RMA starting in 1981 that LNDC's comparatively low rate of 12Z per annum became attractive. 5.04 The pattern and nature of LNDC's approvals reflect its character as a holding company, as well as its need to be flexible in the type of assistance it offers, given its position as the only significant source of investment financing for medium/large scale enterprises in Lesotho. For many projects, LNDC provided more than one source of financing. LNDC's approvals included projects in various activities commerce, construction, manufacturing and tourism, and project sizes also varied considerably, ranging from as low as MO.1 to 110.5 million for the brewery. Portfolio 5.05 In March 1976, about 72% each of LNDC's equity and loan portfolios, and 19 of the 28 projects included in the portfolios, related to projects with financial difficulties. Almost all of the loans outstanding were to companies in which LNDC was already exposed through equity investments. As of March 31, 1983, a still high 55% of LNDC's total portfolio (equity, loans, factories, and guarantees, but not including sites for which complete and accurate data is unavailable), 70% of the equity portfolio, 58% of the loan portfolio and 74% of the guarantee portfolio were outstanding in non-profitable companies (Annex A-6). The quality of the factory portfolio, on the other hand, was significantly better, with only 31% in problem projects. The quality of the portfolio as a whole was significantly influenced by the poor performance of two of the larger projects included; 28 of the 42 projects in the total portfolio were operating profitably. The total portfolio included ten subsidiaries, and twelve associated companies and was distributed as follows: equity, 22%; loans, 19%; factories, 40%; guarantees, 15%; and sites, 4%. While the level of arrears in 1976 was not ascertainable, they were estimated to be substantial. As of March 31, 1983, 28% of the loan portfolio was affected by arrears of more than three months, with arrears amounting to M240,000, or 7% of the portfolio. Factory rental arrears of over three months amounted to about N243,000, affecting about 30% of the factory portfolio. Financial Performance and Condition 5.06 Annexes A7-8 and 11 provide actual and forecasted income statements, balance sheets and financial ratios for LNDC in the period 1977-81, as well as actual and estimated results for 1982 and 1983 respectively. LNDC's financial performance since 1977 has been below the Association's expectations when Credit 702-LSO was appraised. The Corporation has operated at a loss in all years since 1976, when it stopped receiving non-operational income from sugar levies and mining royalties. As anticipated, rental income has been LNDC's primary source of revenue, - 17 - accounting, however for only 44Z of gross operating revenue in 1977-81 as compared to appraisal forecasts of 582. Dividend income in absolute terms has been at about the same level or more than forecast, and has represented a substantially higher return on equity investment than anticipated. While the appraisal projected net profits of between 4.7Z and 6.2% of average total assets in 1977-1981, the Corporation made net losses in this period which successively amounted to 38.1%, 3.2Z, 9.5Z, 1.4% and 4.5Zof average total assets. LNDC's net loss increased to 7.9Z of average total assets in 1982 and is likely to represent some 6% of average total assets in 1983. In 1980 and 1981, LNDC received government subvention(s) totalling 1 619,000 to cover expenses for the investment promotion program and in 1979-81,government subventions totalling M514,000 in lieu of dividends from the Holiday Inn3/. LNDC did not receive either of these subventions in 1982 or 1983; their loss was an important factor in LNDC's particularly poor performance in 1982, when it made a large operating loss, although a less important factor in 1983, for which LNDC's estimated large loss results mainly from excessively high provisions. Three main factors have caused LNDC's poorer than expected performance. First, a slower than expected growth in the portfolio, particularly through 1980, when the total gross portfolio amounted to M10 million as compared to the forecast M13 million. Second, LNDC's portfolio did not improve as fast as expected, leading to substantially higher provisions than forecast in all years. Third, administrative expenses, ranging from between a low 6.8Z (1980) and 15.2% (1977) of average total assets, have been higher than forecast, as a result, inter alia, of costs of the manpower development program and inadequate financial control. In 1983, LNDC was able to markedly reduce its administrative expenses, which contributed to a significant improvement in its performance before provisions. LNDC's prospects for becoming profitable will depend upon its success on divesting or turning around remaining unprofitable projects in its portfolio, selecting new projects which realize appraisal profitability expectations and containing administrative expenses. 5.07 Despite losses, LNDC's long term debt/equity ratio has throughout remained low, never exceeding 1.411, and below expectations. This has been a result of significantly lower than anticipated borrowings and higher than anticipated government capital expenditure grants. However, LNDC has intermittently experienced a precarious cash flow situation, and its net working capital position has throughout been worse than forecast. The consolidated financial performance and condition (Annexes A-9-10) of the LNDC group have followed more or less similar trends to those of the Corporation. 5.08 Resource Mobilization. LNDC has been relatively successful in mobilizing resources from foreign multilateral institutions other than the Association, including the European Investment Bank (EIB), the African Development Bank (ADB), the European Development Fund (EDF), and the Kreditanstalt fur Wiederaufbau (KfW). It has also been successful in mobilizing resources from the domestic banking system for projects, in most cases by guaranteeing commercial bank loans. While the Corporation has had 3/ In 1980, 1981 and 1983, LNDC also received additional operating subventions (M9,000, M470,000 and M187,000 respectively) which have not been incorporated as income in the analysis of LNDC's performance. - 18 - little success in mobilizing equity from local sources for projects, as a result of a lack of an equicy investment tradition among savers in Lesotho, it has made an important first step towards establishing a capital market through the creation of LIi. Reporting 5.09 Despite repeated reminders, LNDC has yet to begin submitting _ quarterly reports to the Association, which consequently has relied almost entirely upon supervision missions for information on developments. LNDC seems to have considered preparation of the quarterly reports low on its list of priorities, given the number of problems it has had to tackle over the years. 7I. LNDC: CONCLUSIONS 6.01 LNDC's performance in achieving the objectives of the first line of Credit has been mixed. One main objective of the Association's assistance to LNDC was to generate local employment opportunities by supporting the creation of medium and large scale enterprises. While the appraisal did not set specific employment targets, the disappointing performance of the manufacturing sector in creating jobs d'iring 1975(76 - 1979/80 (para. 2.06) and the slower than expected growth in LNDC's portfolio suggests that achievements fell short of appraisal expectations. This failing results from LNDC's particularly weak project identification and preparation skills in the early years of credit implementation and substantial delays between initial project approvalsand implementation; in addition, LNDC's limited staff resources were burdened with the difficult task of strengthening the performance of the large number of LNDC managed companies. Now that many companies have been divested, remaining subsidiaries and associated companies are far less reliant on LNDC than ln the past for day to day guidance, and the investment promotion program has begun to show results, LNDC should perform, and indeed already has begun to perform better in creating new jobs. However, LNDC's performance under the credit cannot be evaluated in isolation; it should be stressed again that LNDC operates in an extremely difficult environment where Industrial development efforts face numerous constraints. Even lf LNDC did not achieve appraisal expectations, the limited statistics availaole indicate that LNDC's role in employment generation was, nevertheless, significant. A survey conducted by LNDC in June 1978 of its subsidiaries and associated companies shows that in 1978 LNDC companies already contributed 57Z of estimated modern manufacturing employment in 1980. Moreover, LNDC's impact on the Lesotho economy goes beyond what can be demonstrated by statistics on job creation and the operational results of companies it has assisted. In the absence of a strong parent ministry, it has contributed significantly to planning and policy formulation in industry, commerce and tourism. It has actively promoted Lesotho as a tourist and investment area. Finally, it has succeeded in developing a modern handicrafts industry. 6.02 Regarding institutional developments, while LNDC has made significant progress in correcting many of the numerous problems noted at the time of appraisal, it still needs to achieve much to develop into a strong institution. The limited availability of trained and experienced - 19 - staff in Lesotho has made achievement of credit objectives a difficult task, and LNDC will need to exert considerable effort to overcoae the problems it still has. Provided it is willing to exert such efforts, and it receives the full support of Government, it has encouraging prospects. Role of the Association, Beneficiary, and Borrower 6.03 LNDC and the Association pursued a constructive dialogue throughout credit Implementation, and LNDC was generally receptive and in agreement with suggestions made by successive supervision missions. Probably because of other views on priorities, staff weaknesses and overstretched management, LNDC was not always successful In implemnting measures agreed upon. The Association's role In advising LNDC, rather important during the early years of credit implementation, declined with the beginning of the Irish assistance program; nevertheless, LNDC seemed to value the Association's contribution in providing an outside, and thus more objective, assessment of performance. Government officials were cooperative in receiving missions and openly discussing their conclusions and concerns. As for the Association's role, it probably would have been useful if it had fielded more frequent supervision missions and exerted more efforts to assist LNDC in such areas as strengthening project appraisal. - 20 - BASOTHO ENTERPRISES DEVELOPMENT CORPORATION VII. BEDCO: THE INSTITUTION 7.01 Despite its recent establishment, by the time of appraisal, BEDCO had made reasonably good progress in recruiting staff and developing basic operational procedures. In view of its anbitious plans - establishment of an SSE credit scheme, development of industrial estates and establishment of a number of enterprises which would eventually be sold to Basotho entrepreneurs, it was agreed that BEDCO would need to implement a number of measures before approval of the IDA credit. These included: recruitment of essential expatriate staff, preparation of a training program for Basotho staff and an operations manual and adoption of a revised policy statement. During the course of appraisal, loan negotiations and supervision of the project, the issues outlined in the following paragraphs were discussed: 7.02 BEDCO's Subsidiary Status: At the time of appraisal in May 1976, BEDCO was a wholly-owned subsidiary of LNDC. Due to the poor relationship between the Managing Directors of LNDC and BEDCO, the latter was in the process of breaking away from LNDC by seeking a separate corporate status. As LNDC's management was expected to change, and in order to avoid the wasteful duplication of staff and efforts that a separate BEDCO would entail, the mission recommended that BEDCO should retain its subsidiary status. BEDCO was nevertheless separated from LNDC in 1978, and established as a separate public corporation under the Ministry of Trade, Industry and Tourism. 7.03 Subsidiary Loan Agreement: The Association had proposed that the US$300,000 portion of the credit earmarked for BEDCO should be channelled through LNDC, and that BEDCO would pay a fee of 1% per annum of the principal amount outstanding for administrative service rendered by LNDC. During negotiations, however, the Lesotho delegation argued that there was no need to channel the BEDCO component of the credit through LNDC. It was agreed, therefore, that the US$300,000 would be passed on by Government directly to BEDCO. 7.04 Policy Statement: During negotiations, the Association reviewed and commented on BEDCO's proposed revised Statement of Folicy. The statement specified that BEDCO could finance projects with capital costs of up to M 50,000. This was agreed, but in order to formally delineate the lines of responsibility of LNDC and BEDCO, the Statement was amended by adding a provision limiting BEDCO's maximum investment in a single project to M 30,000. In 1979, BEDCO revised its Statement of Policy without prior consultation with the Association, including changes in two major lending policies which had been agreed with the Association, namely: (a) Interest rate: The new statement provided that BEDCO's interest rate would generally be the minimum commercial bank lending rate, regularly adjusted on a monthly or quarterly basis; this suggested a floating rate over the term of its loans. The minimum rate which had been agreed with the Association for BEDCO loans was 12Z per annum. It had further been agreed that BEDCO would not lower this rate without the concurrance of both Governmeat and the Association. BEDCO ultimately decided to maintain its lending rate at 12%. - 21 - (b) BEDCO Exposure: In the revised policy statement, BEDCO's maximum loan financing per project was raised to M 50,000 with no explicit limit on the size of projects. While the Association agreed that, because of inflation, increases in the limits originally specified might be necessary, in order to ensure that the delineation of roles between LNDC and BEDCO was maintained, it suggested to BEDCO that a limit be put on the size of projects it would finance. Initially, BEDCO management argued that such a limit would be too restrictive. Subsequently however, BEDCO amended the Statement once again, limiting its assistance to projects with capital costs not exceeding M200,000 and its maximum investment per project to M100,000 and/or 80Z of the project's capital costs, whichever was less. BEDCO maintained that the higher cost projects would be the exception rather than the norm , and that it fully intended to continue to assist the small scale entrepreneur. Accordingly, the Association accepted the changes BEDCO had made. 7.05 Recruitment and Training of BEDCO Staff: During negotiations, the Association reviewed BEDCO's five year program for training Basotho staff and found it to be satisfactory. It was agreed that BEDCO would begin to implement the program immediately. It was also agreed that BEDCO would recruit a senior Projects Officer by November 30, 1977; this condition was met. 7.06 Board of Directors: When BEDCO was still an LNDC subsidiary, LNDC's Managing Director was a member of BEDCO's Board. Following the incorporation of BEDCO as a separate public corporation, however, the Board was reconstituted, and LNDC's representation was terminated. IDA supervision missions which visited BEDCO in 1979 and 1980, recommended to Government and BEDCO management that LNDC be reappointed to BEDCO's Board, because of LNDC's greater experience in promoting industry, and also in order to facilitate coordination of the activities of the two institutions. In 1982, LNDC was reappointed to the Board and is currently represented by a Senior Project Officer. Developments and Present Status 7.07 Management, Organisation, Staffing and Procedures: Until 1980, BEDCO had been headed by three successive Managing Directors provided by the Canadian International Development Agency (CIDA), the main entity providing technical and financial assistance to BEDCO. In July 1980, Mr. Sebatane, who had been Deputy Managing Director, was appointed BEDCO's first Mosotho Managing Director. Mr. Romatete, a Mosotho with BEDCO for two years, was appointed Deputy Managing Director in September 1981. Over the past year, BEDCO has had a CIDA funded expatriate advisor to the Managing Director. Overall, BEDCO's current top management is committed and has been fairly effective in redressing the Corporation's weaknesses. 7.08 BEDCO has made good progress in developing and streamlining its organizational set up and improving its institutional capabilities in the past five years. BEDCO now comprises five departments (Projects and Investments, Management Services, Marketing, Secretariat, and Finance), each with faily well defined responsibilities. The existing organization structure is suitable for BEDCO's operations. BEDCO's professional staff has rapidly increased from 11 professional of whom 6 were Basotho, at the - 22 - time of appraisal, to 24 professionals, of whom 18 are Basotho. The expatriate staff include the Advisor to the Managing Director, the Financial Controllei, and the Manager of the Technical Services Division, all of whom are provided by CIDA, two advisors to the Projects and Management Services Departments and a woodwork expert. Most of the 18 Basotho professional staff are recent graduates of the National University of Lesotho and are still relatively inexperienced. BEDCO will need expatriate support in the finance department and key technical areas for at least the next three to four years. 7.09 The major weaknesses noted by IDA supervision missions relate to project supervision, financial control, and debt collection. BEDCO has been exerting efforts to strengthen its procedures, and has made considerable progress redressing the problems it has had in these areas. 7.10 Project Implementation - The US$300,000 BEDCO component was committed at a slower pace than anticipated at appraisal. Although it had been expected that the amount would be fully committed by December 31, 1979, only US$57,000 had been committed by this time. The slow commitment rate was due partly to a low level of lending operations and to the availability of resources for lending from other sources - mainly CIDA. The slow commitment rate was also caused by BEDCO cancelling commitments which the Association had already approved; altogether a total of [ 100,060 committed for some 13 subprojects was cancelled and subsequently reallocated to alternative projects. Consequently, BEDCO, like LNDC, required an extension of the deadline for submission of subloan applications. As a result of the slow commitment rate, disbursements in the first two years also lagged begind appraisal estimates. However the disbursement rate picked up in the subsequent two years, and the the component was fully disbursed on schedule by the original closing date of December 31, 1981. VIII_ BEDCO: ALLOCATION OF THE CREDIT 8.01 The US $300,000 BEDCO component was utilized to finance 31 small scale enterprise projects (Annex B-1). IDA reviewed in detail the first 10 SSE projects submitted for financing, and thereafter approved the rest on the basis of summary project profiles submitted by BEDCO. Twcnty of the 31 subloans (65%), representing about 30% of the amount of the component, were less than US$8,000 each. The largest subloan approved amounted to US$57,000, or about 20% of the component. About one-half of the subloans were for a period of three years and the other half for more than three to five years; all subloan maturities included a six-month grace period. The status of the 31 subprojects financed under the component is summarized in a Annex B-2 4/. As of June 30, 1982, only six subprojects, accounting for 40% of the total amount disbursed under the component, were operating profitably, while nine, accounting for 22% of amounts disbursed, were classified as marginal projects (i.e. those breaking even and some expected to make a small profit by the end of 1982). The majority of the 4/ As only a few enterprises regularly prepare and submit to BEDCO financial statements, there are no data on the financial characteristics of the subprojects financed by the Association. - 23 - subprojecrs, representing 38% of the total amount disbursed, were unprofitable. Poor manarement was cited by BEDCO as the major cause of the poor performance of most of :he projects it has assisted (para. 9.06). 8.02 The main characteristics of IDA financed projects are summarized in Annex B-2. Twelve of the 31 subprojects are concentrated in the production of garments and account for 30% of the total amount disbursed by the Association; the other principal economic activities are metalworking (11%), leather processing (9%), food processing (8%), furniture and wood working (6%) retail trade (6%) construction materials (3%) and miscellaneous services (27%). Except for four projects - two garment manufacturers, a leather processing enterprise and a producer of wood and stone carvings - which export part of their production, all of the projects produce for the local market, and 55% depend entirely on imported raw matrials. About 75% of the subprojects and 86% of the subloan amounts are concentrated in Maseru, mostly on BEDCO's industrial estate. All of the projects were new concerns. The 31 projects financed created 304 permanent jobs at an average investment cost per job of M 2300 - about the level estimated at appraisal. Brief descriptions of some of the subprojects are provided in Annex B-3. IX. BEDCO: OPERATIONAL AND FINANCIAL PERFORMAINCE OPERATIONS 9.01 Industrial Estate Construction Program: At appraisal, BEDCO had completed the first of three phases of the construction of the Sebaboleng Trade and Industrial Center (STIC) in Maseru. In addition to completing the final two STIC phases, BEDCO planned to build three mini-industrial estates at Maputsoe, Thaba Tseka and Mohales Hoek by the end of 1981. Although the industrial center in Maseru was completed as planned, the construction of the mini-industrial estates have not progressed due to lack of funds. Recently, the British Government agreed to finance the construction of the Mohales Hoek estate, which is expected to be completed by March 1983. Neither the Association nor CIDA consider the construction of the mini estates a priority at the moment, given the need for BEDCO to focus on strengthening the performance of enterprises at STIC, and CIDA does not plan to provide financing for that purpose. 9.02 SSE Credit Scheme and Equity Investments: The evolution of BEDCO's operations from 1977-1982 and a summary analysis of its loan and equity investments approved up to March 31, 1982 are presented in Annex B-4. The volume of loan operations over the six year period ended March 1981, was lower than projected at appraisal largely due to two factors: BEDCO did not construct the mini-industrial estates as expected at appraisal, and the number of Basotho nationals attracted by the assistance BEDCO could provide, and who were considered likely to succeed in running small businesses, turned out to be much smaller than previously expected. As of March 31, 1982, BEDCO had approved 104 loans totalling M 1.1 million of which about 80% had been disbursed. Loan approvals stagnated in the first three years, grew sharply in 1980 and 1981 but declined rapidly in the last fiscal year following BEDCO's decision to consolidate its existing portfolio. Annual loan approvals averaged M 213,000 for 17 projects as compared to M 263,000 for 80 projects forecast at appraisal. During the six year period (1977-82), BEDCO approved 12 equity investments (for which - 24 - no forecasts were made at appraisal) for a total of M 138,220. Two investments in companies facing severe operational problems were sold off in 1981, and BEDCO is in the process of selling two more unprofitable companies (Annex B-5). 9.03 BEDCO's loans have ranged from M 1000 to M 57,000; the majority have been less than M 5000. However, larger loans in the M 10,000-50,000 range accounted for about 72% of the total amounts approved; overall, the average loan size was about M 10,000, about two and a half times the size estimated at appraisal. In number, production of garments was the dominant activity for which loans were approved, although the retail trade sector accounted for the bulk of the value of approvals, followed by garments and production of construction materials. Nearly 97% of both the number and amount of loans were for new projects. Ninety percent of the amounts approved were for fixed capital investments and the rest for working capital purposes. Equity investments approved (Annex B-5) ranged from M 8 to N 27,000 with BEDCO's shareholding varying from 27% to 100l. All companies in which BEDCO holds equity investments were also recipients of loans from BEDCO. 9.04 Entrepreneur Training: BEDCO launched an entrepreneur training development program in 1979. In addition to giving induction courses to new BEDCO clients, the training department has conducted several seminars in basic management principles, bookkeeping, tailoring, dressmaking, salesmanship etc. for groups of entrepreneurs. The majority of BEDCO- assisted entrepreneurs have attended at least one course each. The training department also sends entrepreneurs to courses conducted by other institutions such as the Lesotho Opportunities Industrialization Center. 9.05 Portfolio. As of June 30, 1982, BEDCO's total portfolio amounted to M 3.6 million, consisting of M 2.1 million in real estate holdings (mainly in the industrial estate in Maseru), M 1.0 million in loans and M 0.9 million in equity investments. Overall, BEDCO's loan and equity portfolios are of poor quality, which has necessitated provisions of M 0.6 million. As of June 30, 1982, out of 96 projects in BEDCO's loan portfolio, 77 projects accounting for about 72% of the outstanding loan portfolio were unprofitable, and seven out of the 10 companies in which BEDCO had equity investments were operating at a loss. Loan arrears of over three months amounted to M 163,000 at the end of June 1982, representing a high 48% of the outstanding loan portfolio; 52% of the loan portfolio was affected by arrears. Rental arrears of more than three months amounted to H 23,000, representing about 35Z of the annual rental income from the arrears affected factory buildings. 9.06 The poor performance of BEDCO assisted enterprises is attributed to a number of factors of which the most important are: (i) Poor Management: At the time BEDCO was created, it had been expected that the credit facilities and other promotional services it would offer would attract from South Africa Basotho nationals who had acquired commercial and some industrial skills to set up their own small businesses with BEDCO assistance. To date, however, Basotho nationals who have returned from the RSA represent a small number of BEDCO's clientel. The majority of BEDCO clients are former civil servants and rural artisans, who had had very little experience in running modern commercial enterprises and much less in - 25 - industrial activities. While a number of them have gradually ixuroved the performance of their small businesses as they have acquired e7perience, the majority still lack basic management capabilities. For example, no more than about 25% of BEDCO-asissted enterprises keep books of account on a regular basis; (ii) Lack of Skilled Workers: Inadequate management capabilities on the part of project sponsors is exercabated by lack of skilled workers. This problem is particularly prevalent in enterprises engaged in manufacturing activities. In addition to tne poor quality of their products, most of these enterprises are not able to maintain consistent levels of production because of frequent machinery breakdowns due to poor maintenance. As a result of these constraints, Basotho owned small enterprises are not able to compete with nearby South African enterprises of similar size which have ready access to the Lesotho market; (ili) Working Capital: The majority of BEDCO assisted entrepreneurs cite lack of adequate working capital resources as a major constraint. Because of poor management and financial performance and lack of collateral, BEDCO clients have no access to short term commercial bank credit to finance their working capital needs. To address this problem, BEDCO started financing working capital loans in 1979 and set up a subsidiary company (BEDCO Trading) which purchased raw materials in bulk for sale to BEDCO clients at prices marginally above cost. 9.07 At the time of appraisal, it had been expected that some of BEDCO assisted entrepreneurs on the industrial estate would graduate and move off the estate to make room for new entreprises. To date, however, none of the entrepreneurs have "graduated; the few that have left, have done so following the collapse of their bussinesses. Financial Performance and Condition 9.08 Due to the high cost of providing training and extension services to SSEs, rather poor financial prospects were forecast for BEDCO at appraisal, and it was expected that it would make losses up to 1981. BEDCO's actual performance has been much poorer than projected (Annex B-6). Due to the poor performance of enterprises in its portfolio, over the period 1978-82 factory rental, loan and dividend income was lower than forecast, While promotional and technical assistance expenses have exceeded estimates by about 40% in each year. (BEDCO's performanace in 1977 was better than forecast). BEDCO's losses have averaged a high 34% of total assets compared to only 12% forecast at appraisal. To finance its operations, BEDCO has relied on grants from bilateral agencies, notably CIDA, and on Government subventions to meet its operating expenses; BEDCO has not incurred any major long-term debts. As of June 30, 1982, BEDCO had a debt equity ratio of only 0.4:1, well below the 3:1 limit agreed with the Association. X. BEDCO: CONCLUSIONS 10.01 The general objectives of IDA's assistance to BEDCO, i.e. providing foreign exchange resources for financing small-scale enterprise projects, thereby creating employment opportunities, and contributing to the building of BEDCO into an effective institution have partially been - 26 - met. BEDCO's performance over the past five years has been satisfactory in certain respects and below expectations in othera. On one hand, BEDCO has, over this period, established fairly sound systems and procedures, mobilized resources to support a modest volume of lending operations and to implement part of its industrial estates construction program; it has also developed a satisfactory program for training its client small scale enterpreneurs. On the other hand, the bulk of BEDCO's portfolio is of poor quality, and its financial performance has been much poorer than anticipated. In addition, BEDCO continues to rely extensively on expatriate support at middle management levels and for its key technical and professional staff needs - a common problem in Lesotho due to a general shortage of qualified and skilled nationals. Overall, despite various constraints such as a shortage of adequately qualified Basotho staff, lack of special incentives for SSE development, and a dearth of skilled Basotho entrepreneurs, BEDCO has played an important role in the difficult task of promoting and assisting the development of small-scale entrepreneurs in Lesotho. Prospects for BEDCO becoming a more effective institution will largely depend on continued support from both external agencies and Government. - 27 - An A-1 LISUIH) NATMNXL LEELN CORPOATMN (LNOC) list of S ects rized tinex Credit 702-4M Total DaIte AmoUt &igxmt Amalt Nme of &ftmject Number Audwrized astforizd Cfld Dfs Lzred Internatinal Txtila (Pty) Ltd. AL-i 03/08/78 316.2 130.4 185.8 Selkol Joinery Ltd. AL-2 10/04/78 127.2 - 127.2 lesotbo Milling Co. AL-3 12/13/78 150.1 19.1 131.0 Iesotbo Sboes Ltd. AL4 1Z/19/78 126.5 - 126.5 Dto Iesotio ltd. AL-5 12/5/79 495.9 65.6 430.3 Mbluti SkiDn AL-6 1/10/80 200.0 - 200.0 kbputaoe Bakery Ltd. AL-7 6/26/80 151.2 8.5 142.7 Iesotbo IheellUa FAhifacturexs (Pty) Ltd. AL-8 8/27/80 112.4 30.7 81.7 Juripe Fruits ALr9 2/10/81 244.7 43.2 201.5 Iesotho CLothing AL-10 2/10/81 113.2 - 113.2 Hote1 Victoria Landry iL-1 12/13/77 33.4 - 33.4 lolonyam Cardl"e L,-2 6/27/78 92.8 - 92.8 Mblu]ti Furniture T3dustries Ltd. BL-3 10/278 45.3 - 45.3 Frniture lndistri ILtd.(canoel3d)EL-4 11129/79 48.0 48.0 - Freigitpdck Internaticnal BL-5 12/1/80 83.6 2/ - 83.6 1/ Aa additional US$107.9 tbxusand mm astborzed tier the next INC credit: Credit 985-LEM. 2/ ha additiomal US$76.6 thcusand sa authorized inder the next LNDC Credit: 985-L90. EAPI JLme 1983 som IpSOn NTAnAL DEVELir PaQACIN (LbW) Ecxndc Characteristics of pUbprojects Finarncd Vnder Credit 702-LSO (M'Q(Xb) % Raw Pennanent Materials Rates of Retum Economic NW or X Basotho EAloyuent ltic Z Sales per Appraisal Nae of Sebproject Sector location ETpansion (Omership Created 1/ Sources Irted ERR FLR Internatlonal Textiles Textiles MHeru tw 50 130 noe 100 27.0 23.5 Selkol Joinery Wbod Products Maaeru Eaion 100 35* none now 28.0 28.0 leslth, !Ilulirg Maize Millirg Mapwtae ESqseion 33.3 - 50 10 not sppilcable 2/ lesotho Shoes Footar Maputee Nw none W50t 67 100 not applicable 7/ Metro lEsothD fIlesale Maseru Expaion 50 8) noe noe not applicable 7/ Retail Maputace Trade Mtahes- Hok Maluti Sldr Tannery Maseru EKpansion 50 5 none 100 72.0 68.0 Maputsoe Bakery Bakery Maputwce N now 60k 98 none not applicable 2/ Lesotho ULbrella Mainufacturers Umbrellas Maput,e EKpansion none 270 noe 100 not applicable 7/ Smripe Fruits Vegetable/Fnit Maseru NMw 50 46 5 none 21.4 23.2 9 Distribution lesotho Caothirg Textiles HMputooe ow none 110* none 100 not applicable 2/ Hotel Victoria lanry Service Meseru Naw 100 nca 10 100 n.a. 134.0 iblonyam Cugle Cardle Maseru ExUISion 50 none none 30 128.0 103.0 Maluti Furniture LIndustrie Frniture Maputsoe EKpansion 100 50 none 100 132.0 131.0 Freightpak Intemational Transport Masetu Rehabiltation nome 10 n.a. n.a. not applicable 2/ Distribution I/ Appraisal data less marked with asterisk (*), in dch mse latest actual data. 7/ For factory buildirzs, the siaplfied apraisal format required from INC did not provide for calcilatixi of ERR and FIRR Note: n.a. - not available EAPID March 1983 LMo NCW& WMKme OWATIM (110C) Fimrial Qcractarimati of Nrojects Financed under tedt 7M-LEO Profit bBfoze Tai/ lypc LlD Total latest Year for Total Project Tbtal Prolect Cost Fll ns Lhidl actual DIta Profit Mefore mc cost (X) Non of &bgwoject Appr Actulal Oerrmn Lj,EFIG 3 ! la AvaLable Apra Actual kap l An ts lnternatiaial Textlke 877.0 le t sau0p 2/ L,e 273.8 308.0 5/ n.a. 35.1 n.a. in lqddatha formst 2/ Selkol Jointy 189.0 180.7 - (8.3) L 9n.6 1982 58.0 (43.9) 30.7 (24.2) sodd - profitable in 1983 Iesotlho Milling (silos) 148.5 150.5 2.0 F 150.5 1982 54,5 6/7/ 215.3 617/ 36.2 n.a.11/ profitable Lwotho ioms 530.5 523.6 (6.9) F 160.4 1981 126.9 #/V/ 220.0Or 23.9 8/ 4.?oT proitable Mbtro Lesotto (3 proJects) 1575.8 1377.0 2/ (198.8) 2/ E,F 677.2 2/ 1981 137.2 Tr 636.77 S 8.7 n.:. pI ofitable Ialuti Sdns ( reappraised) 161.0 167.5 6.5 L 167.5 1961 225.9=/ (58.4)71 n.a.11/ n.e./ sold Hrztes bbery 407.0 394.8 (12.2) F 163.0 1983 59.8 91.0 14.7 23.1 profitble Lesotlo Uehlla fscacwn 153.1 151.1 (2.0) F 150.1 1981 9OO.0 IO/ 301D0I10/ n.a.II/ n.a. profitable Snarips Frnits (as reappraised) 4B.0 365.1 (72.9) F,E,G 270.0 1982 48.7 (90.7F 11.1 (24.8) utprofitable Lesotho C1othfin.g 360.6 359.8 2/ (0.8) 2/ F 229.8 nom 474.2 / n.a., 131.5 n.m. profitabla Ibtel Victoria Ladry 32.5 29.1 - (3,4) - 1 29.1 1982 56.3 /9/ 170.1 7/9, 173.2 n.. mot1o Hotsls for ia ted - profitable for flast tin ln 1962 Iblpm Cdlla 84.0 8D.7 (3.3) L 80.7 1981 101.7 9/ (18.7) 9/ n../ n facto mold Hluti Funidtue nD tris 78.4 75.3 (3.1) 2/ L 36.3 1983 (e) 77.2S/ (83.0) I/ n.a.w n. l. aver baim =*t - taVrofiftable Fuijghtpok Intanrtknal !/ 89.5 W8.5 69.0 P 158.5 nIm 171.5 5/ n.s. 191.6 n.a. pwfitable t/_Part af thb project finanhed under Credit 702{90 ald prt under Crit 9W-11 Miain estista baed an m t acbally disbused am mzbrojeot a data not available fzde L2 N / L:loan Elequdty; FMfactory; C:g.ate ' U %UIh otherwim indioated, apprial figre is for sar Smar of opezutis a actual. p/ pfuial flgurea third yer of qnr tior whil acbmal for dLffeznt yer of opestiou, or Mt available. Apprial firew firet yer of oaratima tilu acul for differet ywr of oprations or not avilable. 3f Jpa l re for pr~ject. ctual fl for .get ,. </ OUiuapprol eal dact.l fijure for IB3T wrh d y , not jut prqject. Ib/DOdh appraisal aid Actual fi.ws a hfor uDIr Tid for iftle c W ruter thn tde project. /CalaIation rut possibLe -profitf Is for ulea eq = ile total ant is for poject. Am i 1983 - 30 - Annex A-4 Page I-of5 LNDC Summary Description and Status of Subprojects Financed under Credit 702-LSO (i) International Textiles (ITPL). ITPL "-.s created in 1976 as a joint venture, owned 75 percent by Taiwanese investors experienced in the business and 25 percent by LNDC, to manufacture kritted outer garments with imp rted materials. According to the original project design, ITPL would subcontract the manufacture of about 50% of each garment as piecework to some 500 Basotho housewives, who would use knitting iachines purchased from ITPL on hire purchase. ITPL would manufacture the balance of each garment and assemble the component pieces in its plant. However, while ITPL purchased the knitting machines intended for the housewives, subcontracting never started, and the machines are being held in storage. LNDC left management of the company to the Taiwanese investors, who performed unsatisfactorily. LNDC has been unsuccessful in soliciting any information from the -company regarding its performance, and ITPL has built up substantial arrears on its LNDC loan, for which the loan agreement was never finalized. ITPL was finally put into liquidation in mid-1982. (ii) Selkol Joinery. Selkol Joinery, an indirectly owned LNDC subsidiary, was created in 1976 to manufacture a variety of wooden products out of imported wood. In 1978, Selkol undertook an expansion/modernization which was financed in part by an LNDC loan under Credit 702-LSO. While the expansion was expected to enable a 30Z increase in production and sales, turnover at first stagnated, subsequently declined, and in 1982 amounted to only 75% of that prior to the expansion. The company has throughout been operating at a loss. Principal reasons for Selkol's poor performance include (a) increases in the cost of raw materials; (b) a lack of competent technical management; and (c) a too diverse product range. After an unsuccessful attempt to sell Selkol to a group of BEDCO clients, in the latter part of 1982, LNDC sold the company to a South African firm involved in furniture manufacture and distribution. As agreed at the time of the sale, the acquiring firm first streamlined the range of Selkol's products to include mainly beds and wardrobes sold both domestically and in the RSA, and is now expanding operations by introducing the manufacture of mattresses. LNDC has approved a loan of M200,000 for the expansion, which it has submitted for approval under Credit 985-LSO. Selkol's employment has increased fro. 35 in August 1982 to 60, and the expansion will create an additional 40 jobs. As in the case of other companies which have been divested, the new owners have assumed the LNDC loan granted under Credit 702-LSO. (iii) Lesotho Milling Company (LMC). Lesotho Milling Co. was established in Maputsoe in 1973/74 and Is a joint venture (50/50) between Tiger Oats of South Africa and Lesotho Food Industries, which in turn is jointly owned by a small South African Milling company (60.3Z) and LNDC - 31 - Annex A-4 Page 2 of 5 (39.7%). LMC produces maize meal for domestic consumption out of maize primarily imported from the RSA. Although the mill is a protected industry, initially its financial performance was weak because of competition from illegal imports of subsidized maize products from the RSA. However, performance improved starting in 1979 when Tiger Oats, which is closely involved with millers in the Republic, acquired the shares previously owned by two other South African companies. Since then, LMC has been increasingly profitable and a source of dividends for LNDC, even though, for a short period in 1982, Government temporarily liberalized the import of maize/maize products into Lesotho. The IDA loan was used to finance the construction of two storage silos for lease to LMC. (iv) Lesotho Shoes. Lesotho Shoes was established in Maputsoe in 1979 by Braun Holdings of the Netherlands (76Z) and Jaguar Shoes of South Africa (24Z) and operates out of premises leased from LNDC and constructed with proceeds of the IDA credit. Initially manufacturing only ordinary footwear for export to the RSA, Lesotho Shoes subsequently acquired a franchise to manufacture athletic footwear. The company has recently undertaken a small expansion, for which LNDC approved a loan of M150,000. Since the second year of operations, the company has been increasingly profitable, and its employment has grown from the initial 30 to 150 in 1982. (v) Metro Lesotho. Metro Lesotho was until recently owned 50% by LNDC and 50% by Metro of RSA, which is one of the larger wholesale/retail chains operating in Southern Africa. Metro Lesotho was incorporated in 1974 and began as a wholesaler distributor of consumer goods in Lesotho, with outlets in Maseru (1976), Maputsoe (1978) and Qacha's Nek (1979). In 1980, it expanded by opening a wholesale outlet for various types of building materials in Maputsoe and a wholesale/retail outlet for consumer goods in Mohales' Hoek to serve Southwestern Lesotho. The buildings for this expansion were financed under Credit 702-LSO and leased to Metro. According to the project appraisal submitted to the Association, the expansion was also expected to include a second building materials outlet in Maseru; however, this outlet was apparently subsequently dropped. In mid-1982, LNDC and subsequently IDA, under Credit 985-LSO, approved a further Metro expansion, involving establishmentof wholesale warehouses in Butha-Buthe and Mafeting; after substantial delay resulting from difficulties relating to land titles, LNDC exepcts construction of the new buildings to begin shortly. Metro Lesotho is highly profitable and a source of dividends for LNDC. In 1981, LNDC transferred its shares in the company to its newly formed subsidiary, Lesotho Investment Holdings (LIH). (vi) Maluti Skin Products (MSP). Maluti Skins was incorporated in Maseru in 1978 as a joint venture between LNDC and the Fund for Research and Investment for the Development of Africa (FRIDA) to take over the business of the liquidated Lesotho Sheepskins Products (LSP), which had been an LNDC associate company. As much of the equipment - 32 - Annex A-4 Page 3 of 5 inherited from LSP was obsolete, LNDC extended MSP a loan, under Credit 702-LSO, in order to purchase replacement equipment as well as a drying unit. While LSP had manufactured a variety of sheepskin products, MSP consolidated production to include primarily car seat covers as well as slippers and coats, all of which for export. While initial expectations for MSP were high, the company has throughout operated at a loss as a result of (a) poor management: (b) production inefficiencies and inadequate cost controls; (c) quality inconsistencies and excessive waste; (d) more recently, obsolete equipment; (e) insufficient working capital; and (f) inadequate technical expertise. By early 1980, it became apparent that !SP would require a substantial injection of new funds to continue. In April 1982, LNDC and FRIDA sold MSP to a consortium of American, holding majority control, Zimbabwean and South African interests, which together have the required technical expertise, market and funds to turn the company around. As conditions of the sale, the consortium Agreed to (a) repay the IDA sub-loan according to an agreed schedule; (b) increase MSP's equity by M150,000; and (c) reserve a seat for LNDC on MSP's Board. With M285,000 in financing from LNDC, the consortium is currently expanding NSP's capacity as well as modernizing its tanning equipment. While MSP Is not yet profitable, it operated at break-even in the six months ending March 31, 1983. The consortium plans to establish a separate handbag operation in Lesotho with financing from LNDC. The MSP expansion and the handbag concern are expected to create 70 and 160 new jobs respectively. (vii) Maputsoe Bakery. Maputsoe Bakery was established in 1980 by the proprietor of Border Bakery in Ficksburg, South Africa, with LNDC providing leased premises financed under Credit 702-LSO. The bakery, which opened in early 1981, initially produced only bread loaves, using locally produced flour; it is now, in addition, producing confectionery. The bakery produces entirely for domestic consumption, particularly in the northern part of Lesotho, and has been granted protection against imports of bread from the RSA. The bakery has been operating profitably. (viii) Lesotho Umbrella. Lesotho Umbrella, incorporated in Lesotho in 1972, is owned by German and South African investors, and operates in a factory leased from LNDC at the Maputsoe Industrial Estate. The company imports components for umbrella frames from its main parent company in West Germany, and uses the components to produce both completed umbrellas and assembled umbrella frames. Most of its output Is exported to Europe, mainly (75%) to West Germany, from where the umbrella frames are exported to umbrella manufacturers in other European countries. To meet rising demand in Europe, in 1980 Lesotho Umbrella undertook an expansion, for which LNDC financed an extension of the leased factory under Credit 702-LSO. Lesotho Umbrella has been very profitable, and its employment has expanded from the initial 45 to 300. (ix) Sunripe Fruit and Vegetable Wholesale Cold Stoe (Lesotho). Sunripe Fruits (Lesotho) started operations in 1980 as a 50/50 joint venture between LNDC and Sunripe Fruits (Pty) Ltd. of the RSA to take over - 33 - Annex A-4 Page 4 of 5 the Lesotho operations of Sunripe's (RSA) Ficksburg branch. Sunrips (Lesotho) distributes In Lesotho fresh fruits and vegetables produced in South Africa. LNDC financed part of the project costs under Credit 702-LSO In the form of a loan for equipment and construction of a factory/warehouse for lease. As a result of management problems, high wastage, overuanning and high overheads, Sunripe (Lesotho) operated at a loss in both 1981 and 1982. LNDC is confident that Sunripe's (Lesotho) performance can be turned around with proper management and tightened controls, and, in 1982, assumd full ownership of the company and installed new management. However, the company continued to have serious financial problems, and LNDC decided to transfer 50% of its holding In Sunripe to a new partner with expertise In the business. Sunripe's turnover has since increased, and improved purchasing practices have resulted in better prices for fruits and vegetables Imported from the RSA. LNDC is in the process of developing a program of backward integration for Sunripe (Lesotho) in conjunction with another LNDC project, Basotho Canners, by developping nucleus farms to supply the two companies with produce which could be exported in various forms to Europe. LNDC envlsages that Sunripe's shares would eventually be sold to the local farmers supplying the company. (x) Lesotho Clothing Industries. Lesotho Clothing Industries was Incorporated In Lesotho in 1980 as a joint venture between Phoenix Clothing of South Africa (52X) and an Ainrican Investor (48X), who subsequently assumed full ownership of the company. Lesotho Clothing operates in Maputsoe out of premises financed under Credits 702-LSO and 985-LSO and leased from LNDC. The company has been producing malnly women's and men's shorts for export, primarily to the USA and South Africa. Lesotho Clothing undertook a first expansion to produce jeans for export, and recently completed a second expansion involving an increase in capacity for existing operations, diversificatlon of markets to Include inter alia the EEC, and addition of wetsuits to its existlg product lines .=tE will manufacture the wetsults under franchise from an American firm and will export them to the RSA and the USA. Lesotho Clothlg has been profitable since its first year of operations. (xi) Hotel Victoria Laundry. The project in question was a laundry for the Victoria Hotel, which at the time was one of several hotels operated by Lesotho Hotels (Pty) Ltd., Itself a wholly-owned subsldiary of LNDC. After successive bad managements and a h'story of losses, the Lesotho Hotels was put into liquidation in 1981,82. Paradoxically, the liquidator brought in Its own managernnt team, end, for the first time, the Victoria and Lesotho Hotels made a profit In the year endlng March 31, 1982. The various hotels in the group have been split up and the Victoria, with two others, sold to an Italian concern, which assumed the IDA sub-loan. (xli) KolonyaUa Candle Company (KCC). KCC started operations in 1968 as an LNDC subsidiary (about 512) to mnufacture fluted candles for the local market. An lnitlal expansion was undertaken In 1971, wben XCC ioved to the Maseru Industrial Estate, occupying preimies leased from - 34 - Annex A-4 Page 5 of 5 LNDC. A second major expansion was undertaken in 1978 with financing from LNDC out of the proceeds of Credit 702-LSO. At the time of the 1978 expansion, KCC had a history of losses, primarily due to low output resulting from the lack of sufficient machinery, a problem which the expansion was expected to resolve. LNDC's new joint venture partner in KCC, a South African company experienced in the industry, and which had been KCC's source of imported wax, was also expected to assist in improving KCC's performance. Despite substantial increases in turnover, KCC conzinued to operate at a loss after the expansion, as a result of competition from he RSA, where candle makers were receiving transport rebates for which KCC was not eligible. In September 1981, LNDC divested its interest in KCC to its co-shareholders, which would be able to benefit from the rebates. Conditions of the sale included (i) that KCC's products would be diversified according to an agreed timetable by the addition of soap and plastic masterbatch; (ii) that the production machinery of KCC would be modernised; and (iii) that the IDA loan would be repaid according to an agreed schedule. The program, to be implemented over one year, would require additional investment of M 0.75 million and create 70 new jobs. KCC has started manufacturing plastic masterbatch and plans to begin producing soap shortly. The company as a whole is operating at about break-even. (xiii) Maluti Furniture Industries. Haluti furniture began operations in 1973 as a family owned business which manufactured an increasingly diverse range of pine wood products, mainly household furniture, for export to the RSA and Europe. The company ran into financial problems, which were corrected in part by LNDC's injection of capital in 1978. As a result, LNDC became the majority owner, holding 51% of the enlarged share capital, with the original owners maintaining responsibility for management. In 1978, Maluti Furniture undertook an expansion which was financed by LNDC under Credit 702-LSO. Weak management, obsolete machinery and an inadequate marketing strategy have since plagued the company, which operated at a loss. As a result, the company ended up requiring a large capital injection, which LNDC was not prepared to invest, to remain viable. In mid-1982 LNDC came to an agreement with a South African furniture company, a major exporter of pine products, to buy out LNDC's interest in Maluti Furniture. Unfortunately, the minority shareholder would not agree to work with the new partner, and, consequently, the rescue package was never implemented. LNDC is once again searching for a suitable partner. (xiv) Freightpak International. Freightpak International was established in 1978 by an international freight services company to undertake the following activities: international shipping, road transport services, local furniture removals, warehousing and export packing of industrial, commercial and household goods, and distribution. In 1980, it requested assistance from LNDC in the form of leased premises (warehouse and office), as its business was expanding and existing premises would no longer be available. Construction of these premises was financed by LNDC under Credits 702-LSO and 985-LSO. Freightpak is operating profitably. u onD uEsonD ONTIONML IWDRgN GMPCRATION (WX) A ovrison of Atual arni Forecasted Operatium (FY 1977-82) (H mflions) 1977 1978 1979 1980 1981 1982 1983 Year endig Harch 31 Foreast /Actuwl Foreat Actual Forecast Actual Forecast Actud! Forecst Actual Ptail Acttnl APPJRVA1S (net carollatfois) loan 0.5 0.3 0.6 1.2 0.7 0.8 0.9 0.6 1.1 0.6 0.3 3.5 Equity bwtrnzt 0. 0.8 0.5 0.4 0.5 1.1 0.6 2.0 0.6 0.6 0.2 0.9 Sites and Factory adldirgs 0.7 0.8 0.7 1.0 0.8 2.6 0.9 0.3 1.0 1.9 1.9 2.7 wrantees 2/ - 0.3 - 0.3 - 0.3 - 1.8 - 0.5 0.1 1.3 Total 1.6 2.2 1.8 2.9 2i. ti T. 4.7 2.7 3.6 2.5 8.4 Cmitmzts. loas Om sm ama aeM 0.7 0.2 - 1.9 Equity Iviestmnts as as as as 2.0 as 0.5 0.2 0.8 Sites and Factory BLIhdirge approvals n.a. appwals n.a appvals na. apprmas 0.4 apprvals 1.0 0.5 1.7 Qaraztee 2/ - - 0.3 0.5 Tbtal T7 T. i Dishrnst loam 0.8 3/ 0.1 0.6 - 0.7 0.5 0.8 1.3 1.0 0.5 - 1.2 6/ Equity Dwtes 0.8 0.2 0.5 - 0.5 0.5 0.6 - 0.6 1.5 2.4 - Sites ad Factory Izwutum t 0.5 1 0.5 0.7 0.5 0.7 0.9 0.8 0.6 0.9 1.0 1.1 0.2 / iDtal 2.1 0.7 1.8 05T 1.9 T; I2 1.9 2.5 3.0 3.5 T7Y' LiquUatioiu 6/ loaM - - _ - _ _ _ 0.1 - 0.5 0.2 - 6/ Equity lwestomtB - - - 0.1 - - - 0.2 - 0.3 0.1 - W/ Sites art Factory lurtS - - - 0.1 - - - - - - - - Tbtal - 0.2 - 0. - 0.3 Pymat of Omratees - - 0.1 0.1 0.1 _ 6 no w rnt i.i Llustrial estate infrastructure of MI.7 milUin for ditch disbur_mas wre to be mad w 1977-79 4Apraisal forasts did mt ir&1ds forwAst of gamrhtem. 1nwludeH 0.4 miUlon appvsd, ad outstazdtzg at 3/31/76 TnoAule H 0.4 allion ap rwd sd oitstadie at 3/31/76 b Euks H 0.2 milit sppIved ard outsteiti at 3/31ln6 As of 1rbr 30, 1982 / AISAL FWS DID NZ DUIE FEWr3AMs tF I M NMR (F PAMUIS ON G MnS. EAPID June 1983 - 36 - Annex A-6 IESUD NATBiAL muEW caRNAn (I}) Suu7 &Aly_ds of LZ's Ebrtfo]io as of NIrh 31, 1983 (W00O(b) 51_eidiarias Aobiated Ciowdes Others Total ig. am--l b. Ami b. himm lb. Amun A. Profitabe Projerts Eqity lIestets 4 924 6 369 - - 10 1293 TaoS 3 242 1 175 4 558 8 975 Factory EJlldis I/ 2 320 4 2858 12 2222 18 541X Qiarantees 1 75 3 610 - - 4 685 Sub-total 10 Ml6 - W IT w B. lkn-Pbofitable ProJets Eqpity Inuectaeats 6 2851 5 218 - - 11 3069 loanrs 5 1410 2 68 3 6D4 10 2C82 Factory Buildfnp g I 1 565 2 306 2 570 5 1441 - QmN-nnrmir 1 18is 3 298 1 75 5 2175 Sub-total TIf -(T 62B1T C. Projects in liqziddatim Eqqty Invesbxets - - 1 15 - - 1 15 Loens - - 1 259 - - 1 259 Factory, UildiM s1/ _ _ _ _ 1 185 1 185 Sub-total T 185 D. Otbers Loans 3/ - - - - 2 290 2 290 Factorj Bildrgs 4J - - - - 7 765 7 765 Qarwantees5 4 75 4 75 Sib-Wt - - - - - -9ubrtotal ~ ~ ~ ~ ~ ~~ ~ 13 1130 zy 13 E. Total Euuity Iiuevstmenta 2/ 10 3775 12 602 - - 22 4377 Loans 8 1652 4 502 9 1452 21 3606 Factory Bbldi.n 1/ 3 885 6 3164 22 3742 31 7791 Qn^2rntees 2 1877 6 908 5 150 23 2935 Sub-total 23 8189 28 5176 36 5344 87 18709 Sites 61/- - - - 771 - 771 Total. 23 8189 28 5176 36 7/ 6115 87 7/ 19480 / Factory building and site amDmnts axe as revalued on the Ltsis of r1aweenEt cost less depreLatim 2/ FairxlJes con profitble mAsbsidiary In ibdih UIDC's hAlding Is not direct but tbrough a adsidiary interediate buoldLg cmpany. 3/ Tnc-loe coe lomn to am indiildual for purposes otber tban a project aod one loan to a coany hibth has just stated operatin. 4/ Tneclbxe three factorier leased to osopanier for hdich LNDC we not able to proede Information cn ourrent perfornene, coe nmket area, c_e h AldLng ocoiied by a gnuexnment service entity, one builting which is unocrupied but will sbDrtly be leased tD handicraft companies as sales ctlet, and ome brlding leased to a coqpy, ubidh has just started operatins8. 5/ TnIclxks a guarantee tD a divested company for icdh lNDC does not haue informatimi an performanee, and guarantees for thdee sets of staff loans. 6 LNDC has not yet been able to oo pile an acozzate and cowplete lrekd&ur of its site portfolio. / Farludlng mater of sites. EAm Juxe 1983 A~~~~~~~~~~~~~~~~~~~~~~n . uWo WIONAL m aRr ONV11-XI (M): A Mqparim of Forecest NWd ktul Incooe Statements CFY1977-M) (H millins) 1977 1978 1979 1980 1981 1982 1983 (P) Year eu llng March 31 F Forecsao t ktual Forecast ktual. Forecast Aktual Forecast Actuil 77 _ s INE hitreat 152 104 212 98 258 165 406 145 456 303 218 278 Divdernds 1/ 200 190 200 197 200 205 200 284 238 260 161 583 PRetal LInEci 412 216 539 236 777 340 965 432 1151 563 818 944 kcamting wId mapent Fees - 7 - 16 - 4 - - - 188 117 - Ilnytxant Prxtion 9ubyentim - - - - - - - 310 - 309 - - Otler 30 4 30 12 30 - 30 48 30 114 92 196 Gross Ino 794 521 g91 559 1,265 764 1,601 1,219 1,875 1,737 1,406 2001 Interest 45 51 124 ,74 2Ms 105 298 123 377 171 340 416 Wag ard Salares 360 140 432 234 518 522 622 213 3/ 746 266 3/ 471 512 dministrative 380 278 274 635 970 652 Iepreciati,m 12 19 14 23 16 26 17 27 18 160 199 224 lwestn t Prmticn 2/ - - - 19 - 16 - 310 - 309 78 73 Tbtal pEnses 71 3M 37M M 737-M ' ITIRW 1,541 2,058 T77 Project (Lose) Extnerdinary Item Ad Proviulca 377 (69) 411 (69) 523 45 664 272 734 196 (652) 124 Provsions (75) (1289) (53) (117) (60) (430) (70) (376) (83) (644) (519) (1299) Otler (net) - 3 - 55 - (146) - - - (3) 53 - Not Profit (I1s) 302 (1,355) Mr TWIT g (1 4 -65T (478) (1,118) T175) Additial Gmnert Iubwticn - - - 9 470 - 187 tbt Profit (Loss) to Fetained ramLnm302 (1355) 358 (131) 463 (531) 594 (95) 651 (8) (1118) (988) a- a - - -~s= / In Acktul Statemnts 1n i yemant subwenticn in ieu of Ibliday In dividan of M 157,000 in FY1979, H 157,000 in FY1980 aMl H 200,000 in FYl9BI. In F& 1977 u-d 78, dividenis weare reived frmn the Ibliday In. 2 hn MY1980 and 1981, LNZ) allocated to tle actqpry "Isnentamnt prowticW" varying parcinteps of the dLf ferent types of othr expensm. In otlhr yea, W0 asUocated to "Investnt prowtion" aly those eua directly attrihbtabl to prortion activities. Mdis dhnge in acaunting e32lais tIe aimificant drop in investment promotion esesm in FY1982. 3/ An additional M 81,000 in 1Y1980 and M119,000 in FY1981 of salaries + wag ame included In intesteint proDtii expqrnse u A-8 IESED N NLEEnQLM"N CaVTN (tUDm A ia i of tat ad AcuI Q l urn (FT1977-2) 1977 1978 1979 iD 19811 l9 1903 To"r edng hdi 31 Foit Aci Fi Acit sl tAcablt Mii Fomat Jf htcwt AM 1 Aetii AC A59u$ tbt Ga-met Am_" (12) (133) (90) (115) 3D 31 355 228 579 532 119 (176)1/ Isv 1894 1633 2350 2381 2813 1967 3363 3081 404 3525 30 Equfty 1360 734 1861 769 2371- 1089 2S33 - 1094 333m 2283 4417 591 __i 3,5 2,3S 91 3,150 5,14 1 ij 4175 7,372 5,7 4207 ID,ao * l Paowlslm (8%) (2108) (967) (2179) (1007) (
Группа Всемирного банка · Project Completion Report
Lesotho - Lesotho National Development Corporation (LNDC) Project
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