Lesotho - Thaba Bostiu Rural Development Project

DOCUMENT OF INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Pubbc Use "Oh' p"IfRepornNo P-1181-LSO FILE COP It" -s REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE KINGDOM OF LESOTHO FOR THE THABA BOSIU RURAL DEVELOPMENT PROJECT February 9, 1973 This report was prepared for official use only by the Bank Group It may not be published, quoted or cited without Bank Group authorization The Bank Group does not accept responsibility for the accuracy or completeness of the report CURRENCY EQUIVALENTS US$1 = Rand (R) 0.78 R 1 = US$1.28 R 1,000,000 = US$1,280,000 FISCAL YEAR April 1 - March 31 INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE KINGDCM OF LESOTHO FOR THE THABA BOSIU RURAL DEVELOPMENT PROJECT 1. I submit the following report and recommendation on a proposed credit to the Kingdom of Lesotho for the equivalent of US$5.6 million on standard IDA terms to help finance the Thaba Bosiu Rural Development Project. PART I - THE ECONOMY 2. A report on the current economic position and prospects of * Lesotho was distributed to the Executive Directors on September 27, 1971. There have been no fundamental changes in the economic situation since then. The following paragraphs summarize the main characteristics of the economy and highlight its problems and prospects. Country data are given in Annex I. 3. Lesotho is a small, mountainous nation surrounded by South Africa. Average annual per capita income is below $100. Recurrent crop failures cause shortage of food supplies and malnutrition is widespread. The country has few natural resources except for water and beautiful scenery, neither of which is fully exploited. Diamonds are found in the mountains but commercial development has so far been on a small and inefficient scale by individual diggers. Oil exploration has recently begun but there have been no promising finds. 4. Because of its location, Lesotho has close economic ties with South Africa. It belongs to a monetary and customs union with Botswana, South Africa and Swaziland, uses the South African rand as its currency, relies on South Africa to provide central banking services and foreign exchange and receives a substantial portion of its current revenue from the common revenue pool of the customs union. South Africa is Lesotho's main trading partner; and about 170,000 Basuto, almost half the male labor force, work in South Africa because of limited employment opportunities in Lesotho. 5. Lesotho has been politically divided since January 1970, when after alleged election irregularities, Prime Minister Chief Jonathan suspended the Constitution, dissolved Parliament, jailed the opposition leader and many of his followers and dismissed many civil servants who sympathized with the opposition. Since then, the Prime Minister has1ruled by decree. However, early in 1972 he released the opposition leader and some of his followers and is actively seeking their cooperation in bring- ing about national unity. - 2 - 6. The economy has been stagnant for a number of years and the increasing volume of remittances from Easuto working in South Africa has probably been the most significant growth element in the economy. Agriculture provides a livelihood for about 85 percent of the resident population and contributes about 65 percent of GDP. The other productive sectors are small, and only around 20,000 persons find wage employment within Lesotho. Manufacturing, mining, construction and public utilities together contribute no more than 5 percent of GDP. Government adminis- tration accounts for 8 percent and the remaining 22 percent represents the'estimated added value of trade and services. 71 During recent years the government's budgetary position has improved considerably. The recurrent deficit was reduced from about 50 percent of recurrent expenditure in 1966 to about 15 percent in 1971 mainly as a result of the renegotiation of the Customs Agreement and a strong check on recurrent expenditures. Lesotho's share of the common revenue pool increased from R1.9 million in 1969 to R5.9 million in 1971 and it now contributes nearly 60 percent to total recurrent revenues. The recurrent deficit is met through grants-in-aid from the U.K. 8. Since government is unable to generate any budgetary savings and the monetary union with South Africa limits the possibilities for domestic borrowing, virtually all of its development expenditare has to be provided from abroad. The U.K. and private aid agencies have in the past financed most of the government's capital expenditure which averaged about R2.6 million per year since 1966. This low level of spending is partly due to the shortage of personnel experienced in planning, preparing and implementing projects and partly to the un- settled internal political situation. 9. In 1971, Lesotho adopted its first development plan which calls for government capital expenditure of about R6 million per year over the next 2-3 years. Prospects for increasing capital expenditure to this level are fairly good, as the government has recently been successful in expanding its sources of aid to include Canada, Denmark, the Federal Republic of Gernany, Sweden and the United States. However, difficulties in meeting the recurrent costs of essential government services and new projects are likely to continue. 10. Government is also improving its administrative ability to carrj out development projects. It is initiatLng studies in the transport, education, tourism, telecommunications and power sectors to identify suitable projects for external financing. Having been designated by the United Nations as one of the Least Developed. Countries, Lesotho is receiving an increased amount of technical assistance from UNDP and bilateral sources. The move toward political reconciliation enables government to utilize more fully its internal manpower potential. It is hoped therefore that within a year, or two additional clearly defined projects suitable for external assistance will have been prepared. - 3 - 11. Nevertheless, the scarcity of natural resources and its geographic position make Lesotho's prospects for economic development rather poor. Present government programs may lead after a few years to some increased agricultural production. A medium-scale diamond mine is expected to come into operation in late 1973; but the prospects for developing mining of diamonds and other minerals on a large scale seem limited. Any substantial development in manufacturing must be export oriented and this at present is hampered by the uncertainty of free access to markets in South Africa, which are often protected by cartel or market-sharing arrangements. The prospects for tourism are somewhat better, and the construction of a second hotel/casino complex is now underway. 12. Lesotho's external public debt is very low and largely in the form of loans for self-liquidating projects. Since Lesotho is likely to continue to be able to draw on the foreign exchange earnings of the whole Southern African monetary area to service its external debt, its credit-worthiness depends upon its budgetary position. Its present budget deficits are expected to continue to decline but it may take three to four years before government is able to finance current expenditure from its own resources. Therefore, development investment requires finance by external lenders of practically the entire cost of projects, and on the softest possible terms. - 4 - PART II - BANK GROUP LENDIG TO LESOTHO 13. The project now proposed would be the first Bank group operation in Lesotho since independence in 1966. One previous credit of $4.1 million was made for a road project in 1966, when the area was still the UK High Commission Territory of Basutoland. In addition to the present project, a credit is planned if possible in FY1974 for preliminary works and design for a dam, reservoir and tunnel to divert water for export to South Africa. The Bank was Executing Agency for a UNDP-financed feasibility study of the scheme, which is known as the Malibamatso River Diversion Project. The credit would be followed by a Bank loan to assist in financing the construction of the scheme. Any progress on these projects will depend on the successful completion of negotiations between Lesotho and .outh Africa which are currently stalled over the issue of the water sales price. If satisfactory arrangements are concluded between Lesotho and South Africa on the price of water, Lesotho would benefit from a substantial addition to her resources for development. 1L. Other contemplated Bank group operations in Lesotho are related to the development plan's stated objectives of increasing agricultural production and improving and expanding economic and social infrastructure. We plan to supplement our capital assistance with substantial amounts of technical assistance. We plan to advise the government on the scope and focus of the transport, tourism and education surveys it intends to under- take. Our Permanent Mission in East Africa (PMEA) helped prepare the present project which provides for an evaluation unit to collect data to be used in the preparation of future projects in agriculture. We hope to be able to continue to provide assistance in the identification and preparation of future IDA projects. PART III - AGRICULTURAL SECTOR 13. Agriculture in Lesotho is dominated by subsistence farming which constitutes about 50 percent of GDP. Productivity is low, and the limited available data suggests that yields have slowly declined over the past 20- 25 years due primarily to overstocking of livestock and soil erosion. Only 15 percent of the country's small area is suitable for cultivation while the rest is mountainous and suitable only for grazing. Growth in both human and livestock populations has led to increasing pressure on arable land ( 50 persons per square mile). Tne main crops are maize, sorghum, wheat, beans and peas; although food crops (mainly maize and sorghum) are grown on 75 percent of arable land, Lesotho has to import substantial amounts of food each year. 16. Overstocking, improper cultivation, torrential rainfall ana inadequate soil cover nave all contriouted to the acute soil erosion. Conservation programs started in the 1930's introduced countour farming which has helped reduce the problem. However, since traditional grazing management and cropping systems were not altered the program has been only partially successful. Under the traditional land tenure system a farmer has exclusive rights to the land he tills, but only during the time he has crops on the land. After harvest, his exclusive rights cease and any crop residues left become communal grazing fodder available to the livestock of all the people in the area. The individual farmer has no incentive to control the number of his animals; and overstocking, elimination of the vegetative cover and erosion result. Fortunately, there are signs that this traditional system is changing as precedents for year-round exclusive land use are being established. Grazing control and pasture management regulations which government intends to introduce would require grazing permits and the culling of undesirable stock, promote proper soil conservation practices and give farmers exclusive rights to their crop residues. 17. The problems caused by erosion and traditional farming methods have been compounded by the lack of trained manpower to carry out agri- cultural improvement programs. The Ministry of Agriculture is currently under-staffed and in particular has a critical shortage of extension officers due largely to the dismissal of many experienced staff during the 1970 political disturoances. The government intends to increase its capacity to administer agricultural programs by adding a Planning and Marketing Unit staffed largely by UNDP experts and by rehiring some of the workers previously dismissed for political reasons. 18. Agricultural development has also been retarded by the lack of established institutions to furnish nationwide credit and marketing services. Until now these services have been provided by a number of unrelated organizations with little central coordination or control. Marketing is carried on through private traders, through a cooperative organization backed by government and through a government-controlled livestock marketing corporation. Credit is provided by a number of small institutions which are currently unable to handle credit on a national scale. Government recognizes the need to build stronger institutions and has decided to establish a Produce Marketing Corporation for crops. In addition, in 1971 it established the Lesotho National Development and Savings Bank as the channel for development financing, including agri- cultural credit. However, it will be some time before these new entities are able to provide extensive services as the legislation establishing the marketing corporation has not yet been enacted and the bank began operations only in late 1972. 19. Increasing agricultural production is one of the key goals of the current Development Plan, and government has begun a number of programs designed to tackle the serious problems in the agricultural sector. In addition to the present project and the manpower development and institution-building programs described above, it has undertaken a large UNDP-sponsored project in the north designed to demonstrate modern farming methods and to train a core of agricultural staff for other projects. It has also started a project to promote agricultural development in the south by strengthening the existing extension service in the area. It will be some time before these programs have any impact, but they constitute an important start. PART IV - THE PROJECT 20. A report entitled "Appraisal of the Thaba Bosiu Tural Development Project - Lesotho" (No. PA-147a dated January 24, 1973) is being circulated separately. A Credit and Project Summary is provided in Annex III. 21. The project was identified and prepared by government with major assistance from the Bank and also FAO and was appraised in the field in March 1972. Negotiations for the proposed IDA Credit were held in Washington in December 1972. The Lesotho government was represented by- H.E.M.T. Mashologu, Ambassador to United States; Mr. K.T.J. Pakhetla, Permanent Secretary, Ministry of Agriculture; Mr. T. Thahane, Director of Planning and Development; Mr. E. Waddington, Permanent Secretary, Ministry of Finance; Mr. M. P. Sejanamane, Planning Officer, Ministry of Agriculture; Mr. B.M. Woods, FAO Adviser, Ministry of Agriculture and Mr. V. Burke, Project Manager Designate. Objectives and Main Components 22. The main objective of the project is to raise the standard of living of about 12,000 smallholder families by increasing their maize, sorghum, wheat and bean production. The government will attempt to achieve this aim by arresting soil erosion and introducing modern agricultural practices in the project area leading to integrated crop and livestock farming on a rotational basis. This rotation method combines better cultivation techniques with controlled grazing of stock. It would initially be introduced on a pilot basis on 5,000 acres of the total project area of 300,000 acres. Farmers practising these rotational farming methods would be given full rights over their cropping, and provided with contiguous grazing land which would enable them to fence their land, limit stock numbers and introduce a cropping plan to include fodder, grassland and crop rotations. But the farmer will need education, persuasion and demonstration before accepting these new methods. The project therefore provides training, extension services and research facilities to help introduce the new concept of farming. The government's new grazing control and pasture management regulations (see para. 16) will assist in bringing about necessary changes in land use and grazing patterns. 23. The main project components are (a) farm inputs as short-term credit in kind; (b) medium-term credit for tractors and dairy cattle; (c) extension services; (d) marketing; (e) training and research; (f) road development and soil conservation. Organization and Execution 24. The project would be carried out by the Thaba Bosiu Rural Development Authority (the Authority) which has been created by the Lesotho government pursuant to regulations satisfactory to the Association. The Authority, which is composed of the Senior Permanent Secretary (Chairman) and top civil servants of relevant ministries, would approve budgets, recruit senior staff and provide marketing and credit services. It would be free from normal government regulations with respect to staff selection, salary scales, procurement and accounting procedures. The project manager, assisted by a financial controller and division heads for land planning and soil conservation, marketing and credit and extension services, will be responsible for day- to-day management and execution of the project. A Project Liaison Committee is being established in order to involve participating farmers in project management and to serve as a forum for discussion of farmers' views and problems. 25. The project is the first of its kind in Lesotho and also relatively large for such a small country. Staffing and training would, therefore, be critical to its success and the project makes provision for this. It also allows a year for planning and preparation, and provides for a gradual build- up over six years to the total estimated number of farmers served. The planned number of extension workers is relatively low (1:250 farmers), but since project participants would form farmers associations of 20 to 100 members the extension workers would make more efficient use of their time. The government is aware of the difficulties in staffing and administering the project and has already selected the project manager, identified local staff, and begun some small training programs for school leavers with bookkeeping backgrounds. Credit and Marketing 26. The Authority would provide the credit and marketing for the project initially, because existing institutions are at present inadequate (see para. 18). However, government may ultimately wish to transfer these functions to national institutions once they are fully operative and, accordingly, provision for such a transition has been made in the credit agreement. 27. The Authority would operate market centers through which it would distribute farm inputs, market crops, and collect credit repayments and from which advisory services would be extended. The Authority would not be the exclusive marketing outlet in the project area; farmers would still have an option to sell to private traders. Therefore, it is not possible to ensure that the seasonal credit granted to farmers by the Authority be collected at the time of marketing. The Authority would have to rely on the sanction of further credit refusal and on help from farmer associations to ensure repayment. Credit to most individual farmers would be made through approved farmers' associations which would assist in the processing and collection of loans. In accordance with current practice in Lesotho, if a farmers, association has a member in default to the Authority, the Authority would not make a loan to am member of this association in the following year. Members of the association would,therefore, put pressure on an individual delinquent to cure a default. 28. The customs agreaent wijth South Africa permits free access to the South African market for the crops to be produced under the project. It is expected that about half the maize wiLl be consumed in Lesotho and all other produce sold in South Africa, where it will either be taken up by the appropriate marketing boards or, in thle case of beans, exported through conercial channels. Prices fixed by the marketing boards are usually higher than world prices. Evaluation Unit 29. A project evaluation unit would monitor the progress of the project and collect and evaluate data fol the preparation of future rural development projects in other areas. USAID is furnishing a rural sociologist who would be attached to the unit and focus on some of the broader problems of rural development. Project Costs and Financing Plan 30. The total cost of the project is estimated at $9.8 million - $5.4 million (56%) in foreign and $4.64 million (44%) in local costs. IDA would provide $5.6 million (57%) of total costs. Of this amount $3.8 million would be for foreign costs and $1.8 million for local costs. The remaining funds would be provided by USAID as a grant, the government, local banks and participating farmers (see Annex III for details of the financing plan). IDA and USAID funds would be made available to government who would pass them on to the Authority as a grant. Commercial bank loans for crop purchases would be made directly to the Authority. 31. USAID has approved, subject to available funding, a six year program to provide $2.8 million as a parallel grant to finance the soil conservation component of the project. An agreement providing for this assistance for the first two years ($1,056,000) is expected to be signed shortly; and signature of this agreement would be a condition of effectiveness of the proposed credit. The remaining finance for soil conservation will be provided by subsequent agreements. USAID is providing the senior staff for the Land Flanning and Soil Conservation Division of the Project Authority and the rural sociologist for the evaluation unit. USAID has agreed that the staff it provides will be under the control of the project manager, because of the need for soil conservation to be closely integrated with the other aspects of the project. Procurement and Disbursement 32. All vehicles, tractors, farm equipment and fertilizer (totalling $0.9 million) would be procured by international competitive bidding in accordance with Bank/IDA guidelines. However, to facilitate initial purchases and emergency replacements the project manager would be given freedom to purchase through local competitive tender items costing less than $8,000 up to an aggregate of $60,000. Project roads ($0.6 million) are in small isolated sections and buildings ($0.6 million) are few and widely - 9 - scattered. Neither would be sufficient in value to attract international competitive bidding. Contracts for roads and buildings, would therefore, be subject to government local tender procedures which require competitive bidding. Seeds ($144,000) and dairy cattle ($60,000), suitable for local conditions, would be purchased in nearby South African markets. Equipment for soil conservation to be financed by USAID ($0.3 million) would be subject to USAID procurement procedures. 33. The credit would be disbursed against the cif cost of imported goods or 90 percent of the cost of locally procured goods. The Association would finance 100 percent of total expenditures of expatriate staff to minimize the burden on the government.Disbursement for all other project items would be against 90 percent of total expenditures. The credit provides for retroactive financing from January this year of up to $100,000 for staff training costs and the salary of the project manager. Economic Justification and Benefits 34. The estimated economic return, including the return on soil conservation, is 11 percent. Project overheads and training are a high proportion of costs as the project is the first of its kind in Lesotho and is designed to bring about basic changes in traditional attitudes. The project would increase annual cash crop production of maize by 4,600, sorghum by 3,100, wheat by 7,000 and beans by 4,100 tons and thereby increase exports, reduce dependence on food imports and help feed a growing population. The annual cash income of some 12,000 farm families is estimated to increase from US$25-28 to US$60-75. It is hoped that the demonstration effect of the adoption of rotational farming techniques, which could lead subsequently to three or fourfold increase in farm incomes, will be widespread throughout the country. 35. The cost of marketing services is recovered through buying and selling charges, and part of the cost of providing credit services is recovered through interest charges. The government will consider introducing a development levy at a later stage, when the project is sufficiently well established, integrated farming introduced and when participation has proved profitable. 36. Although adverse factors, such as weather, have been taken into account in calculating the rate of return, the project would be subject to many uncertainties that cannot easily be quantified. Success depends, for example, on overcoming resistance to change in a traditional society, which would affect the willingness of farmers to accept new techniques, including enclosure and livestock limitation, and to maintain soil conservation works against insidious erosion; on persuading tractor operators to use more efficient methods; on prompt collection of credit, in the light of past failures. But farmers in the project area show willingness to accept change and enthusiasm for the project, while government offers fervent support and has publicized the project extensively. The chances of success are there- fore good. The project is extremely important to Lesotho, which has few alternatives for economic development. - 10 - PART V - LEGAL INSTRUMENTS AND AUTHORITY 37. The draft Credit Agreement between the Association and the Kingdom of Lesotho, the Recommendation of the Committee provided for in Article V, Section 1(d) of the Articles of Agreement of the Associa- tion and the text of a resolution approving the proposed credit are being distributed to the Executive Directors separately. 38. Ever since the suspension of the constitution in 1970, Lesotho has had a de facto government. However, the government has indicated its intention to honor its international obligations; and after considering the factors involved, I have concluded that the de facto government should not be regarded as a bar to Bank group lending. 39. The draft agreement conforms to the normal pattern for credits for agricultural projects. 40. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 41. I recommend that the Executive Directors approve the proposed credit. Robert S. McNamara President by S. Aldewereld Attachments February 9, 1973 ANNEX I Page 1 of 2 COUNTRY DATA - LEOGE AREA /2 POPULATION 1 DENSITY 30,350 kmt- 0.9'million (mid-1971) 30 per ka Rate of Growth:? to?.59(from 1966to 1971) 210 per km2 of arable land POPULATION CHARACTERISTICS (year) HEALTH (1970) Crude Birth Rate (per 1,000) Population per physician Crude Death Rate (per 1,000) Population per hospital bed (00 Infant Mortality (per 1,000 live births) INCOME DISTRIBUTION (year) DISTRIBUTION OF LAND OWNERSHIP (year) % of national income, lowest quintile .. % owned by top 10% of owners highest quintile *% owned by smallest 10% of owners ACCESS TO PIPED WATER (year) ACCESS TO ELECTRICITY (year) % of population - urban.. % of population - urban** - rural .. - rural NUTRITION (year) EDUCATION (1966) Calorie intake as % of requirements Adult literacy rate % Per capita protein intake .. Primary school enrollment % F,4 (unadjusted) /2 GNP PER CAPITA in 1970 : US $90 GROSS NATIONAL PRODUCT IN 1967/68 ANNUAL RATE OF GROWTH (%, constant prices) US $ Mln. % 1960-65 1967-70 1 96?/68 GNP at Market Prices 7L.3 100.0 .. .. 3 Gross Domestic Investment 8.1 10.9 .. Gross National Saving 7.1 9.6 Current Account Balance -1.0 -1.3 . . /. Exports of Goods, NFS 10.3 13.9 .. -? 7 Imports of Goods, NFS 36.3 68.9 .. 0.0 - - -5 - OUTPUT, LABOR FORCE AND PRODUCTIVITY IN 1967/68 Value Added Labor Force V. A. Per Worker US-$ Mln. % Mln. % us $ _% griculture 42.4 65.h .. ndustry 3.2 1.9 .. Services 19.2 29.7 .. Unallocated . Total/Average 6L.9 100.0 100.0 100.0 GOVERNMENT FINANCE General Government Central Government ( Rand M1.) % of GDP ( hand MIn.) % of GDP 197071 1971 1968-71 197 0/71 197 196 -7 Current Receipts ** ** *. 10.7 Current Expenditure 12.1 Current Surplus Capital Expenditures .* *. .. 2.1 External Assistance (net) ** ** ** 3.* /1 Dc facto population. In addition, about 150,000 Bacotho n 7r-nts worki n- in South >fr! 7 The Pcr Capita NP ostincto ic at 1970 narket -ricco:, cclculaotd by the sarre conver iong technique as the 1972 World Atlas. All other conversions to dollars in this table are at the average exchange rate prevailing during the period covered. /3 In current prices. 7T Etimated deflator of 24. 77 oods only. ; 170 not available not applicable ANNEX I Page 2 of 2 COUNTRY DATA - LOTFD Sept Pt MONEY, CREDIT and PRICES 1965 1969 1970 1971 1971 1972 (Million .nd outstanding end period) Money and Quasi Money .. .. .. Bank Credit to Public Sector (net) .. 1.7 2.2 .. Bank Credit to Private Sector .. 1.. (Percentages or Index Numbers) Money and Quasi Money as % of GDP .. .. .. General Price Index (1963 = 100)/1 20/.7 120.5 125._ 172.5 15.0 1 Annual percentage changes in: General Price Index/1 u.I 3.3 4.1 5.7 * 7.7 Bank credit to Public Sector .. .. 22.4 Bank credit to Private Sector .. .. * -- * BALANCE OF PAYMENTS MERCHANDISE EXPORTS (AVERAGE 196h-70) 1967/68 1973 1971 US$ Mn % (Millions US $) Cattle 3nd other live 3nral. 1. . Exports of Goods, NFS 10.2 .. .. rood stuff 1.0 1 Q. Imports of Goods, NFS 36.3 .. .. col 1. i . Resource Gap (deficit -) . Mohair 0.C .5 Diamonds 1.1 ?1.2 Interest Payments (net) ... .. .. All other commodities 0.1 1.9 Workers' Remittances 6.7 .. .. Total 5.2 100,0 Other Factor Payments (net) -0.6 Net Transfers 18.9 .. .. EXTERNAL DEBT, DECEMBER 31, 1971 Balance on Current Account . US $ Mln Direct Foreign Investment Net MLT Borrowing Public Debt, incl. guaranteed 7.7 Disbursements .. .. .. Non-Guaranteed Private Debt Amortization .. .. .. Total outstanding & Disbursed Subtotal * ** ** /2 Capital Grants .. .. .. DEBT SERVICE RATIO for 197 Other Capital (net) .. ..% Other items n.e.i Increase in Reserves (+) .. .. .. Public Debt, incl. guaranteed Non-Guaranteed Private Debt Gross Reserves (end year)/2 . . . Total outstanding & Disbursed Net Reserves (end year) . . . RATE OF EXCHANGE IBRD/IDA LENDING, (Jan. 1973 ) (Million US $): Through - Dec. 1971 june 1 C72 - ot. 1972 IBRD IDA US $ 1.00 =R 0.71 Floating with Pound terling R 1.00 US $ 1.40 Outstanding & Disbursed - 5* Undisbursed Dec. 1971 - June 1972 Since Cct. 1972 Outstanding incl. Undisbursed - US $ 1.00 . R 0.77 US31.00 = RC.78 R 1.00 = US $ 1.33 R 1.00 = US31.9p /1 Consumer orice index South Africa. '2 Lesotho uses the South African Rand as its currency and has no central bank of its own. It, therefore, does not maintain its own foreign exchange reserves, and the debt service ratio is not a useful concept for assessing the government's creditworthiness. not available not applicable ANNEX II THE STATUS OF BANK GROUP OPERATIONS IN LESOTHO Statement of IDA Credits at January 31, 1973 (US$ million) Amount (Less Cancellation) No. Year Borrower Purpose IDA Undisbursed 82 1966 Lesotho Roads 1.1 Of which has been repaid Total held by IDA 4.1 Total undisbursed - ANNEX III Page 1 Lesotho - Thaba Bosiu Rural Development Project Credit and Project Summary Borrower: Kingdom of Lesotho Beneficiary: Thaba Bosiu Rural Development Project Authority. Amount: Various currencies equivalent to US$.6 million. Project Description: The project would provide the following over a six year period for about 1?,000 peasant farmers on 60,000 acres of land: (1) On-farm Inputs: Credit in kind consisting of improved seed, fertilizers, pesticides, spraying and cultivation services, tractors, ploughs, cultivator/planters, and dairy stock. (2) Training Extension and Research Services: Additional staff, buildings, equipment and vehicles for (a) extension services, (b) expansion of existing farmer and tractor training centers and (c) research designed to support the integrated farming program by developing improved cropping and grazing patterns appropriate to the small farmer. (3) Credit Services: Staff, buildings, equipment and vehicles needed in connection with providing project credit. (4) Marketing Services: Staff, equipment, vehicles and five principal and six subsidiary markets to serve as the focal point for distribution of materials, for purchase and storage of project output, repayment of credit and provision of extension services. (5) 3oil Conservation: Around 1700 km of diversion terraces; 600 drainage structures; repair to, or reconstruction of, 6800 km of terraces; and protective fencing, grass and tree planting. ANNEX TII Page 2 (6) Roads: About 90 km of all-weather gravelled main roads, 100 km dryweather ungravelled subsidiary access roads and 400 km of farm access roads. (7) Integrated Farming: Staff, buildings, vehicles, equipment and additional fertilizer and livestock inputs for inte- grated farming (i.e. fencing and sheds for improved livestock production, controlled grazing of livestock and the implementation of a cropping plan that includes fodder, grassland and crop rotations). (8) Project Administration: Staff and buildings for the project authority which will implement the project. Estimated Cost: Costs: Project costs are estimated at $9.8 million, with $5.4 million (569) in foreign costs and $4.4 million in local costs. A more detailed breakdown is set forth in the following table: Costs in US$ (thousands) Item Local Foreign Total Seed, fertilizer, pesticides, cultivation, tractors and dairy cows 223 937 1,160 Training, extension and research 625 512 1,137 Credit services 313 198 513 Market services 766 323 1,089 Soil conservation 961 1,500 2,461 Integrated farming 91 99 190 Roads 239 386 625 Administration 382 533 915 Sub-total 8,090 Contingencies 736 944 1,680 Total project cost 7_77 7,72 9,770 ANNEX III Page 3 Financing Plan: Summarized project financing (including contingencies) is as follows: Farmers Banks Govt. USAID IDA Total -------------US$ (thunsdans--------------- On-farm costs 280 - /1 120 - 1,070 1,470 Staff and operations - 530-- 280 1,220 3,000 5,0M0 Vehicles and equipment - - 40 300 390 690 Buildings - - 70 180 640 890 Soil conservation works - - 5O 1 100 540 1 690 Totals 20 7i 777'-1 2,7B6 7,65 9,700 (Percent) (3) (5) (6) (29) (57) (100) /1 Incremental working capital for crop purchases. 7_ Including UNDP US$40, 000. The $5.6 million provid ed by IDA comprises the equivalent of the foreign costs not financed by USAID (i.e. 83.8m or 70% of foreign costs) and the local costs not financed from another source (i.e. tl.8m or 3% of local costs). The USAID contribution is for soil conservation (except aerial survey and vehicles); the commercial banks contribution is for produce financing and the farmer's contribution is for downpayments and credit reserves. Estimated Disbursements: 73/74 74/7" ?$/76 76/77 77/78 78/79 7/80 0. 0.4 1.2 0.9 1. 1.0 0.7 Procurement Arrangements: (1) Vehicles, tractors, farm equipment and fertilizer (totalling US$0.9m)would be procured on the basis of international competitive bidding on the basis of Bank/IDA guidelines. (2) Roads (US$0.6m), buildings (US$0.6m), seed ($144,000) and dairy cattle ($60,000) would be procured pursuant to the Borrower's tender procedures. (3) Soil conservation equipment financed by USAID ($0.30m) would be procured in accordance with USAID regulations. ANNEX IIT Page h Rate of Return: The most probable rate of return, including the return on soil conservation is 114. The integrated farming phase of the project has returns in the 1-20/o range. Appraisal Report: Report No. PA- 1h7n dated January 24, 1973 Agriculture Projects Department. IBR D－그962 긱