Basutoland - The economy

EA-149 This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION 'rT~'L WI'fYlkW115V OF BASUTOLAND August 6, 1965 Europe and Middle East Department f-TT12 1 L'?KT- N7 1-TTTIT A T 'T9TC E 1 Sterling = U. 5. $2. 80 U. S. $1 = b0. 357 = 7s. 2d. Rand 1 0. 5 = 10s. R and 1 = US. $1. 40 CONTENTS Page Map Basic Data Summary and Conclusions I.* GENERAL..................... *............*. ......1 .AnLo vJU nU.i1. ***O***O*** ********************ue************ S O J History and Government .. ............ ............... 1 Kopr e -nJamton,mpoet an uca--aonrr .1.1.~~ ~1lU U_tLj 1:UI' . LuL fA,IUJ I :, to.. Lul.. . . .. . .. . . .. . National Income ....... ..... .............. ... ......... Foreign Trade ........................................... Migrant Workers ................ ...... .............. . ...... 6 Principal Economic Sectors: Animal Husbandry 7; Agriculture 8; Soil Erosion 9; Cooperative Development 9; Manufacturing 10; Mining 10; Infrastructure 10 III. GOVERNMENT FINANCES ...... ................................. 11 Government Ordinary Revenue and Expenditure .............. 11 Development Expenditure ................................... 12 IV. CREDITWORTHINESS AND CONCLUSIONS ......................... 13 Statistical Tables R_ads BASUTOLAND Roads Railways 0 5 0 5 20 25 FouriesbuMILE ··· ··. District boundaries ---/ B.å~ UTHBUTHE &~~&\ ~V~ 5000-7000 Fick, 7000-9000 I\EREMEN1~x 900 1\2 FY HE f AN . 051(m M1Moo00k - A R ASUTOLA* JUNE 1964 IBRD-1358 BASIC DATA Area: 11,700 square miles Population (1963): 930,000 (of which resident 730,000) Rate of growth, 1960-63: 1.7% p.a. vensity (total per square mile): 79 Density (resident per square mile): 62 Density (resident per square mile of arable land): _lU Per capita income: not known (estimated at $ou) ublic sector operations (Q thousand): 1963/6h 19956-1963/6h Increase Government current receipts 2,095 5% p.a. Government current expenditures 3,01 11% p.a. Deficit 1,409 Government investment expenditures 457 15% p.a. Total external assistance 1,986 51% p.a. External public debt: 1963/64 1960/61-1963/64 Average Total debt $2,152,000 $1,030,000 Total debt service $ 218,000 $ 168,000 Debt service ratio (% of recorded exports) 4.2 3.6 External trade $ million): 1962 1963 1956-63 Change Recorded exports 5.2 5.3 -0.3% Recorded imports 10.0 n.a. 3.4% (1956-62) Deficit T.n. a. Invisibles n.a. n.a. 1963 1958-63 Average Share of total exports: wool 5h.3% 48.5% mohair 22.2% 20.9% External financial assistance ($ million): 1963/61 1960/61-1963/6t Average Commitments Disbursements Commitments DisbursemAnts Soft assistane 0_2 V2 .O 40 Hard assistance 0.6 0.2 0.5 0.4 Hajor donor: U.K. 508 50 04 SUM1ARY AND CONCLUSIONS Basutoland. one of three Pritish dPnendencies in Southern Africa, is entirely landlocked within the Republic of South Africa, where abont one-fi fth of its non1 i fi rid t.mnorary P.mnl nvMPnt and which is the mizin market for export- and the' main source of i mnnrt.- Bai5ni+,nn reean.ty atai - a li--mie,4or-n ofP government. Independence is likely in 1966. There are political pro- blems 4+.h Snuth Afria, mai__ly a_es at of the latter's an2+heid policies. Tribal authorities and political parties, however, agree that Basutoland must cow+4muits modus r r 4+h enn+h f's4 ~L J . L'_L _LQ dLI1I'Jr,~ V11U JVU.LUOV r4 e s 4UII n A'± f4.L ca.. .L 11c A economic activities are animal husbandry (sheep and goats) and subsistence ag6. _L.. % U. J . LOLXK,* F& VV O kP _1k.P1LL WVV.L i-.UIU 111VIla-LI- OVLU LLL OUU LLW ±lA . have declined during the last decade and are not sufficient to pay for the nfltd.oiug cmouuy± ofi mports, which are financed also by Uited aingdom assistance and migrant workers' remittances. Basutoland faces consider- aUle uiiculTies. Generaly poor and over-exploited soils in uificut terrain have led to stagnant agricultural output, while social customs have hindered the introduction of technical improvements and modern management in both animal husbandry and agriculture. 3. To overcome these difficulties, the Government has concentrated on improving the standard of agriculture through the example of a nucleus of progressive farmers and on developing marketing and credit cooperatives. Much has also been done to control erosion. Education, mainly primary education, has also been given high priority. Government development ex- penditures for 193/64 and 196/65 placed more emphasis on infrastructure (particularly roads), on secondary and university education and on tech- nical training to farmers. Government current expenditure, also assisted by United Kingdom grants, is increasing rapidly and is expected to grow further. 4. No dramatic improvement should be expected in Basutoland's economic position during the next few years. Economic performance is severely circumscribed by limited natural resources. The government administration is competent although perhaps weak on planning. Basuto- land, which receives a substantial amount of budgetary aid from the United Kingdom, is not creditworthy for loans on conventional terms. The territory, however, needs foreign financial assistance and, in con- sideration of its poverty, should be eligible for assistance from IDA. I. GENERAL A.. ~ L DdL4LU!d1, UCj.epenUdent Uerritory O.. UIIO UU U11L Vllym Lo .UI enclave within the Republic of South Africa with an area of 11,700 square miles kabout the size o tne State 01 Marylanu. me country Ls fur the most part hilly or mountainous with three zones: the "lowlands" lying on the west at an altitude of about 5,000 feet, which are the main crop pro- ducing areas and where four-fifths of the people live; the "foothills" and the "highlands", both to the northand east, which contain elevations of 6,000 to 11,000 feet and are suitable for animal husbandry. Mountain ranges run from north to south and form the sources of two of the largest rivers in South Africa, the Orange and the Tuguela. There are no natural forests. Deeply eroded soils are a striking feature of the Basutoland landscape. 2. Rainfall averages about 30 inches a year, falling mostly be- tween October and April. Severe droughts are rare. In the lowlands, temperatures vary from 90oF or more in summer to 200 in winter; in the highlands, the range is wider and temperatures often fall below zero. History and Government 3. Basutoland, the most populous and politically the most advanced of the three High Commission Territories has been governed under a system whereby the British administration has been combined with the local hered- itary chieftainship, headed by the Paramount Chief. 4. Constitutional advance in recent years has been rapid. Under the 1960 constitution, a legislative assembly, with half of its members chosen by elective district councils and the other half consisting of members nominated by the Paramount Chief and government officials, legislated in respect of all matters other than external affairs, defense, internal security, currency, finance and the civil service which were reserved to the British Resident Commissioner. The 1960 constitution also provided for an Executive Council, which although formally advisory to both the Resident Commissioner and the Paramount Chief, in practice dealt directly with many local issues. 5. In October, 1963, a Constitutional Commission, composed of representatives of the political parties, recommended the establishment of Basutoland as a protected State (to be called Lesotho) with the Para- mount Chief as constitutional monarch and an advanced form of self- government. It recommended a Lower House to be elected by universal - 2 - suffrage; a Senate, having powers of delay, with two-thirds of its members consisting of Principal Chiefs and one-third nominated by the Paramount Chief; and a Cabinet under a Prime Minister having the exenutive power. The Commission, in practice. aimed at formulatina a constitution which might, with a minimum of change, become the constitution of an independent Basutoland. 6. A constitutional conference was held in London in April-May 1964. It agreed to give effect to the recommendations of the Constitu- tional Commission regarding the LeishturP_ the Premtive and the plse- toral system. The conference also agreed that, after general elections to he held in Anril, 19IA Ramitoland should htin a form of internql self-government. The United Kingdom would retain responsibility for O_fn jV+.O-t-n_n1 n-r-r_q4W.Z 4"+.OV-nn1 -?1 cam4- ane -r !nm-ntP__~ but has declared that it intends to delegate these powers as fully and Basutoland Parliament requesting it not less than one year after the 1965 elections. IT iso 141,Th, theefre th ,^1t -auoan~411 be%ndeedn sometime in 1966. 7. The public administration is reasonably efficient. Although there~± stll.. ar man.Ly expat~ U...L±.LLU 11 - LVJ-.. LV±e ULI the medical service and the agricultural and the veterinary departments, is staffed, to a very conusuerav. exent, by lucal people bo at Zens and at junior levels. This has been the major success of past development efurts in Dasutland, and the territory is relatively well equipped administratively for independence. The efficiency of the local adminis- tration, on Te other hand, is impaired by the various, and often overlap- ping, channels of authority: the Chiefs, the district administrAtion, and the district councils. 8. The tribal structure is closely integrated and the Basutos are strongly attached to their hierarchical system of Chiefs, all owing alle- giance to the Paramount Chief. The present Paramount Chief - otlotlehi Moshoeshoe II - is young, well educated and sees himself as a constitutional monarch. The tribal system has not prevented the development or political parties, of which there are four. Probably the best organized is the Basutoland Congress Party (BCP), which won the majority or the elected seats in the National Council at the general elections of 1960 but is, at present, the opposition party. It is influential in the area of Maseru (the largest town) and among the Basuto workers in South Africa. It is the least favourably disposed to the Chiefs and believes that their powers ill disappear over time. The BCP is anti-communist, left leaning and anti-South African; it has links with the Pan-Africanist Congress, a ban- ned nationalist movement in South Africa. To the right is the Basutoland National Party which was created as the Chief's party and is closer to South Africa. The third party is the Marematlou - Freedom Party which is also left-inclined. The struggle for power is principally between the National Party and the BCP. There is a small but active Communist party. A+ +V .IeA ,=, 4- A -~A 41 I 04C + ,z, T,T+4 - I P-,,+- -eon 4-,m i in the Legislature. 9. Basutoland's main political problem lies in its relationship &aL IZJ Ji... X ae IJ.a.L U1± VA"onIL4 '.JJ W4.4U~ V L.A A WC L AlL' .11 -.Z7.LVJ, 1 was though that Basutoland, with the other High Commission Territories, wo.U.L. .LI4. *L .A JUT- LJ- 1.Uj.L-V .LU1 % .LI±l L U11Z Vl.Lu± .l j~ %;ViL>U.%It1j.L' 1 VJLJML the inhabitants". Several factors have since made it unlikely that the peop± L erriu ±LLLu± WL..L. UV L1M1UrU.LULL1 WJUILL11iOVULU1LIA.L1V.LQcL the coming into power, in 1948, of the South African Nationalist Party and its policy of racial separaim.on kapartnenw; ne wIanarawal of Couth Alrica from the Commonwealth in 1961: and, more recently, certain indications by tne South African authorities that were tne Territories to Dbe incorporaued, they would become part of a series of semi-independent, all-African Bantu States which are being set up in the Republic to give effect to the policies of racial separation. 10. All political parties in Basutoland are opposed to apartheid and in recent years the territory has become a haven for South African retngees. Movement of people to and from Basutoland is now strictly controlled by South Africa, which has set up border controls along the territory's bound- aries. 11. Basutoland's own existence depends, to a very large extent, on South Africa, which is the market for its exports, the supplier of its im- ports and the source of employment for a large part of the labor force. In addition, Basutoland, together with the other High Commission Terri- tories, is part of the customs and monetary area of the Republic of South Africa. Under an agreement of 1910 between the United Kingdom and South Africa, there are no tariffs between the latter and Basutoland, other than on imports of a few consumer goods. Imports from countries outside the customs area are subject to tariffs fixed by South Africa, and until 196b. Basutoland received a fixed percentage ( about 0.9% ) of all customs and excise revenue collected by South Africa; the revenue so obtained was much larger than what would have accrued if the revenue had been determined by the value of Basutoland's imports. This proportion was renegotiated in 1964 to distribute the revenue disbursed by South Africa among the High Commission Territories so as to better reflect each territory's import trade, and in the future Basutoland's share will be only 0.47%. 12. The South African Rand is the unit of currency in Basutoland. The territory, however, is not obliged to follow South African rules and regulations affecting monetary and international capital movements. Fi- nancial independence is safeguarded under a "gentlemen's aareement" with South Africa, whereby transfer of funds to or from Basutoland is permit- ted except when it clearly represents an attempted circumvention of con- trols on capital movements of South Africa. This system is workable insofar as the volume of transactions passing through the territory is small. It could be affected by political change in Basutoland or by major difficulties in relations with South Africa. However, it is like- ly that a system similar to the present one, but more precisely defined, will continue after Basutoland's independence. 13. The realities of Basutoland's economic dependence on South Africa have tempered the attitudes of the major political parties. In spite of the deeply rooted hostility towards South African apartheid po- licies, all parties agree that for economic reasons Basutoland must be prepared to work with South Africa. A successful transition to indepen- dence also depends on a continuation of the moderation of the South Afri- can authorities and on the role which other African countries may play in Basutoland, but unless political and social strife were to alter drastic- ally the situation in the whole of Southern Africa, Basutoland is likely to maintain its close economic relations with its powerful neighbour. 14. During the next few years Basutoland, the United Kingdom and South Africa will have to settle many matters of importance. Apart from currency, banking and customs, which have already been mentioned, arrange- ments will be required for Basuto migrant workers in South Africa, for trade relations, and for communications (telephone, roads, railways, ports). Most important is the Droblem of migrant workers. which are now a major source of income for the territory. The South African authorities have indicated that priority for employment within the Republic will be given to local Africans, but they have also stated that African workers from the High Commission Territories, and particularly from Basutoland. will be preferred to workers from other countries. Population, Employment and Education 15. Basutoland has a population of about 930,000; over 200,000 of thpq arp absentee wnrkpr. and t.hir familip. whlo reside temnorarily in South Africa. The average density is about 62 persons per square mile but . rie to aln 1mos Q+ 0 i nt+h InAnlanz. Tota.l popunilat i is estimn Ate to have increased at the rate of 1.775 per annum in recent years. There are no larce +.nurn* Mani +.h. administrative canIal, has ahout I0) VY) people. There are some 2,000 Europeans. 16. Basutoland has no industries, and apart from employment in the V 'J. ~.V ~' 'A. LLI koL Ll'r J. ULIA. LCD .I .L.A L, j. . L Vi 'J. . Ll largest part of the resident population remains engaged in agriculture and anIimal --A--,I---4 where-_ 1~eeplyet -4hu eiee yeir-. tion, is large. 17. Basutoland has the best developed educational system among the enrollment of over 152,000, or more than 50% of pupils of school age) and about 20 secondary snools (with over 2,000 pupls), mostly run by cnurcn missions, but controlled and aided by the Basutoland Government. Various teacher training colleges, two technical schools and a small university college, which is being developed into a University for the three High Commission Territories, complete the educational sYstem. 11. STRUCTUME OU THE EUUUI National Income 18. No national accounts statistics are available. The average annual income per household has been estimated by the government to be between E 20 and 1 30. Other available data are: million Estimated value of major crops (excluding exports, 1960) 5.1 Value of imports of goods and services (1961) 5.0 Total 10.1 Resident population (1960, ooo) 680 Per capita ($) 42 Although, taking into account the output of other sectors (minor crops, livestock, tertiary activities). per capita incomes mav well be about $60, there is no doubt that Basutoland is one of the poorest countries in Africa. 19. More important, per capita incomes have probably stagnated and even decreased between 1950 and 1960. The value of output of main crops is estimated to have increased from about ! 6 million to about ; 7 million in the decade. As resident population increased from about 590,000 to 680.000 during the same neriod. the value of cron output per head may have remained unchanged at around b 10, but in terms of constant purchasing nower 1/ it mav have decreased h ome LO-.n The value of exnorts ner na- pita decreased from L 4 to E 2, while that of imports grew from 6 5 to L 6. The growth of imnort.s was made nossible br British finannial aistance which rose from about & 0.20 per capita in 1950 to about &, 1 in 1959 and to nearly 2 in 1961. Fnrion Trnrlp (Table1 29) stantial part of its consumer goods and virtually all of its capital eqipen *Rcode ip~t, iv he period 191-6 haeincreased. by nearly one quarter. In contrast, recorded exports have declined by abu oncJtlir maial ±44 AII.LL4.J a res,1*.t of.1 a. dec.i..lneUS i. w0o V'priceS nL,ot IJ ol-.1J± pensated by changes in exports of mohair, cattle and wheat. These com- ±I±'.U1 L L , I VL1 ~ V.L'. VJ US o.4.mL' U .7VIO %ILL U4'-.FUI U.0, L4 fi 1J'..L CU_U11U L .H about half of the total. Virtually all exports are marketed in or through Sou Ara.ce 17 SUth1 AR.iIC;a Q0113umer PiJc;e ind1eX' - 6 - 21, With increasing imports and decreasing exports, the trade balance has shown a mounting deficit. The following table, based on figures provided by the Government, gives an approximation of Basutoland's external position for 1961. Data on exports and, partic- ularly, on imports do not include all of the movement of goods across the border with South Africa. Receipts , million Expenditure L million Exports 1.5 Trade imports 3.1 U.K. grants and loans 1.8 Govt. imports 0.2 Custom & excise Services 0.3 revenue 0.9 Other 1.4 Migrants' remittances 0.8 Total 7.0 Total 5.0 It is apparent from these data that most of the trade and services deficit has been financed from United Kindom's financial assistance and from mi- grant workers' earnings. 22. As the territory is part of the monetary and customs area of the Renublic of South Africa. Basutoland's balance of payments is strictly de- pendent on that of the Republic. In this respect, Basutoland is just like another nart of the territnrv of the Repnblic of Snith Africa, althouah it does receive foreign economic assistance not subject to South African con- t.rols ndr in prat+ie has- ansieal ms rf ipedn in it-s external financial relations. Were the present arrangements to be abandon- Aed ratlandl' bnlance n nments ounld stil1 largely depend on Snuh Africa, the biggest market for its exports and labor and its most impor- +an+ suplior T+ ulnd alson cha defi+ in -i+ ons+i nn A+Ih +.a TTYnited Kingdom, related to the considerable financial assistance which it receives. Migrant Workers 23. The movement of workers to South Africa is one of the most im- portant features of the economy of Basutoland: it Anbsorbs about jp o the total adult male population of the territory, and represents a major source of income fPor nasuto-1-nd M-Ig-nt workerst total en-ngs in South Africa were estimated to be about 1 6 million in 1961. This tem- p oary igrat ~..Li benefits the econom suboluant~ Uia.L~l.j U)y IL L0eV JJ6 VVJ.,U pulation and by contributing to the residents' income. On the other hand, Uone II)$-LVt Vuv;ow 0. ±UUU VJ Lavor Lo nas a ucpr g U.tluLu U11 u 1 uemuliy, as it drains the most productive section of the labor force, particularly 24. Basuto workers in South Africa are employed mainly in the gold mines, where they usually spend between two and four years. At present, the only limitation to the number or Basuto worKers in South Arrica is placed by the demands of the various recruiting organizations, the major one being the Johannesburg Chamber of Mines. However, the number of mi- grant workers may be affected, although not to a major extent at least - 7 - for the next few years, by the recent South African policies of preference to local Bantus and by the establishment of border controls. Principal Economic Sectors 25. Animal Husbandry (Table 3). The main source of cash income to the Basuto farmer is animal husbandry, particularly sheep for the produc- tion of wool, and goats for the production of mohair. The livestock in- dustry provides some 85% of the value of recorded exports, mainly through sales in South Africa of wool and mohair. From 1951 to 1963 the number of sheep declined by 9% while prices of wool decreased by 60%. As a result, wool exports have more than halved. During the same period, the number of goats increased but the price of mohair declined. Primitive methods of animal husbandry. together with the land tenure situation (see below, para. 29) make it difficult to improve permanently the quality of sheepn and onptq Althnah some nrnorpqq qPpmn to have bAn made in renpnt. years. The cattle population has also decreased considerably during the In+ HPnHP decade butrinpq were nnsrln~ +.'hp value of ePorts wasn. not. adversely affected. Quality is also poor in this field and improvement animals, and there is little processing of by-products in the territory. 26. An economic mission headed by Professor Chandler Morse, which V vJ0. ~ ~ a UJal 1 ..j.7 U & "C J./ UILCU ULlq;- r VK-,± Ih U LIflaAA effort for the improvement of small stock be directed to a redistribution. disease. A similar set of recommendations was also put forward for the breeding and on the improvement in processing and marketing of hides. C oncerted efforts to put, thet-se rIeCOmmendffIat,Lion -into) praIceUL_ mtih uced in the mission's opinion, in increasing the population of sheep and goats by one-quarter and exports of wool and mohair by u% over the Iyy level. The mission pointed out that the precondition for a program of this nature was the expansion of the staff of the Agricultural and Veterinary Depart- ments and, in particular, the creation of an animal husbandry extension program similar in purpose to that existing in agriculture. It was re- cognized, however, that the organizational changes alone would require several years and that, in view of the difficulties in instructing the people in better stock-raising techniques, the results in terms of animal population and exports mentioned above could hardly be expected in under a generation. The development of the livestock sector will therefore burden more the current than the capital budget of the Government and a special provision for this sector is being made in government current budgets. This also explains the small allocation for animal husbandry in the government 1959-63 Development Plan (2% of total expenditure). 1/ Cf. Basutoland, Bechuanaland Protectorate and Swaziland, Report of an Economic Survey Mission, London 1960. The Mission was appointed in consultation with the Bank. -0- 27. Agriculture (Table 4). The second most important economic ac- tivity in the country is agriculture. O an estimated total or nearly 900,000 acres of arable land (12% of Basutoland's total area), about 800,000 acres are estimated to be under crops, the remainder lying fal- low. Increasing population has led to the plowing of more and more mar- ginal lands - particularly in the highlands - better suited for grazing and requiring a longer fallow if used for crops. Soils are generally poor, sandy and tired from long years of cultivation without use of fertilizers. 28. The main crops are maize (planted on more than 50% of total cropping acreage), wheat, sorgum, peas and beans, barley and oats. A few fruits and vegetables are also grown. Land holdings are small: 64% of the farmers hold less than 6 acres. Agriculture is conducted almost completely on a subsistence basis and techniques of cultivation are still very primitive: there is practically no irrigation and little use is made of agriculture machinery, fertilizers, insecticides, etc. Deficien- cies in marketing arrangements make it difficult for the farmers to dis- pose of crop surpluses. For instance, South Africa has a deficiency in wheat and a surplus in maize, but the Basuto farmers continue to plant mostly the latter. However. considerable improvement in market conditions, as well as in cropping patterns, has been brought about by the development of marketing cooneratives. 29. While migration, lnk of nnital and nor training of the Basuto farmers are partly responsible for the present state of Basutoland's agri- nuliturp- thp Inni tnirp qit.iition i. _nothPr imnHimpnt. fn thp iP.vP1on- ment of Basutoland's agricultural production, and in some instances even tn main+ain present levels rP ri+ All +oa InnA upz held in tnst for the Basuto Nation by the Paramount Chief and may not be alienated. Arable land is all11ocated by Ci4efS to individuals, m-hile grazing right-s are co-- munal. Plots are allocated in small units and the farmer does not hold anyj t++1 A1+1_,A A.-A+- al cus+oms o no rmA4mt a man +o he As prived of his land without good reason, land tenure is in fact not secure ennuci~h + n e n mevm - hi+vadi-A nn1alo1n l mko it. more difficult to provide collateral for obtaining credit, as well as to establish l1arger and more co-pe1titive.- farMling units. Th Paaon-he has been willing to lease land to approved investors, generally for periods for industrial investors. 30. To overcome age-old customs and traditions which impair the de- 4. g.L - cu 4- - 4- U ~ J -IIL~ --d. - - -. -p~ LLJ~LLLL J .p . ~ sive farmers", trained in agricultural techniques and regularly assisted by demonstrators and extenson officers. i0to smaily through the progree- sive farmers movement and technical education that the Government is trying to solve the problems posed by the land tenure situation in nasuzoland. The number of progressive farmers is still small (800 at the end of 1964), but the Government hopes that other farmers will 1ollow their lead, Ine - 9 - Morse mission recommended that the number of progressive farmers be in- creased substantially. A.lhughl_ itL didUno autempt to forecast theu development of agriculture, the mission indicated that simply by changing the present cropping pattern from tne preponderance of maize to greater planting of wheat, peas and beans, considerable gains in productivity could be obtained. The Government has set a target of 1,000 progres- sive farmers by 1966. Expenditure on agriculture, including soil erosion works, has been prominent in past government development efforts: it absorbed one-fourth of total resources in the 1959/63 Development Plan. 31. Soil Erosion. With four-fifths of the country's area being either steep foothills or mountains, and with rainfall concentrated mostly in one portion of the year (October - April), Basutoland is ex- posed to heavy soil erosion. The increasing population (which has led to the cultivation of lands better suited for other purposes) and over- stocking in certain areas have aggravated the problem. The first at- tempts to control erosion began in 1936, and measures of conservation have been carried out continuously since then. Although conservation works have been extended to virtually all the cultivated lands, they have not succeeded in halting erosion; in fact, partly because of the lack of maintenance by the Basuto farmers, it is said that in some areas there has been a marked deterioration. Yet, the control of ero- sion is a prerequisite to agricultural development in Basutoland. The Morse Mission stated that "the prosperity and indeed economic survival of Basutoland depend on the conservation of its soil". The Department of Agriculture has given high priority to conservation works against erosion and substantial allocations for this purpose are included in development expenditures. Among the projects undertaken in this field, of some interest is the "betterment area" scheme. whereby an area is closed to both cultivation and grazing for a sufficient number of years to permit the restoration of conditions favourable to checking erosion. The intention is to extend this type of scheme to a number of areas. 32. Cooperative Development. The Government places great emphasis on the develonment of the cooerative movement. In a country where entrepreneurship is very limited, cooperatives seem to provide a promis- ing substitute. Although started only after the Second World War and covering only a minority of farmers, the cooperative movement has already shown vi1nqh1 riilts. The lraest membershin is in marketinp coonera- tives (21 in 1963) which, besides providing marketing facilities to __- tv~~ it.n qt. q'hl i 7.p T)i --. nf' nnri t-nfl timq1 tr)TMncH t.i P. ;;nd encourage cultivation of non-traditional crops. Agricultural credit in their inception in 1958/59, the number of credit societies has substan- t-ll4 ~1-cesd 1hr were *~ 114 at t he en ovf 101 noJ mer ~i4r+ 1- ~ 1959, an evidence of the great need for agricultural credit in Basuto- centered around progressive farmers. Finance for the cooperatives is obtaid.U ulkuouj,ii UUVt::rnmen4* .Loans anIu .Loans LIU111 UVJi11C01%..LGdL UdCX11r,, lV1LL' 41 1 0 - in, - guaranteed by the Government, and channeled through a central body, the small size, the financial position of the cooperatives is very weak. A reen inuir±y L1asiVV~ reeldl hatV ther are may inlUventI societis an many instances of unsatisfactory management. The Government has been taki_ng steps too correct the situatio.LR X Manufacturing. Apart Irom a iew prnting works ana repair shops there are virtually no manufacturing or agricultural processing enterprises in Basutoland. The country, with limited natural resources, a large subsistence sector, poor communications and few skilled workers, offers no incentive to the establishment or secondary industries. The Morse mission felt that, although the handicaps to manufacturing were great, a textile venture using local material might have a chance of suc- cess, particularly if foreign capital and skill could be brought in and an export market could be developed. The Government has established an industrial estate near Maseru; this is run by a government owned company. The estate is intended to attract local and foreign enterprises which would use Basutoland as a babe for exports *to'both South Africa and the Common-- wealth. Proposals for tax reduction to pioneer industries are also under study. No assessment has been made of the likely influx of industries. 34. Mining. No major deposits of minerals have so far been dis- covered. The results of a reconnaissance survey conducted in 1938-1939 were disappointing and since then the only mining venture which has materialized is an exterprise extracting a small amount of diamonds. The. need for a full geological investigation was eihasizod by the lorse 1assion, 35. Infrastructure. The main road system of Basutoland, totalling 560 miles, is confined almost entirely to the extreme western part of the country. It consists of a road running north and south from Maseru. bran- ching towards the mountains to the east and connected with South Africa's road system on the west. The standards of these roads are generally low. There are some 400 miles of secondary roads which serve many Basuto vil- lages and are the main arteries for moving agricultural produce from the interior. Most of these roads are badly constructed, costly to maintain and unsuitable for heavy vehicles. Both the Government and the Morse mission have given high priority to the improvement and the expansion of the road system. The main purpose of the large road construction program planned by the Government during the next few years is to provide farmers and livestock owners with easy access to the market. The Government has applied to IDA for assistance in financing the reconstruction of the main North-South road and of a fAdapr rod in northprn R. utoland R1 pt+.r r- -ntA i. q~irnn~1 i PA nnl -ir t.n~ Un.pmii -f'rrnm -n qynl a-irr - ment-operated diesel station. Consumer demand is increasing and there n-n +.nr rrt' cww~ + . 'M+U ~1c~*i~~~ + .Qn4 7 - A station has been completed for Maseru for which an offer of financing has ing the passing of the necessary legislation by the Basutoland legislature. - 11 - Since 1961, the Government has studied the feasibility of several projects to eXploi1t the abundant. -yate- r%f'q3 asuio.n1 ' snivrsl I In ua-z T. j zo+rAq.M that the territory's maximum requirements, for all uses, are less than a the Ox-Bow Scheme, a multi-purpose venture which would dam the waters of uses, and power. The feasibility of the Ox-Bow Scheme depends on the .P 0 _UL.L .%0 V. aqz.L.L."Ir, .JVV)ICI Cuv-A bVA V! 0 %AULL VULP.L.L~ L AW I.' C.LrL ment has been reached with the South African authorities. At present, .L1__L ! -U-1 4ldJ . __- 4.1- -I, - - /_ ,1 , - ' Government urainary Revenue ana Expenaiure kTao±e _-[; 37. On the basis of a per capita income of some $6u equivalent, government ordinary revenue was, in 1963/64, about 10% of national income. This is a relatively high ratio, in view of the poverty of the people and the high proportion of subsistence incomes, and is mainly due to the large amount of customs and excise duties received from South Africa. Between 1950/1 and 1963/64 ordinary revenue increased 5.O% per annum but, ex- cluding the South African contribution, it rose 2.s. Tax revenue, which has stagnated in the last decade, represents nearly 30% of total ordinary revenue; it is composed primarily of an African personal tax and income tax and, to a lesser extent, of export duties on wool and mohair. 38. During the 1950's, the policy of the United Kingdom was that the High Commission Territories should at least balance their current budgets, while Britain would provide assistance towards development. This policy was changed when it became clear that the level of current expenditure that could be supported by local revenues was not sufficient to ensure pro- per maintenance of public equipment, let alone a minimum of effective go- vernment services. Since 1960/61, therefore, the United Kingdom has given Basutoland increasing amounts of grants for its current budget. In 1963/64, grants-in-aid were equivalent to 38% of ordinary expenditures. 39. As a result of the new policy, ordinary expenditures have sharp- ly increased in recent years. The greatest part of this increase is at- tributable to expenditures on social services and on infrastructure, which represent, respectively almost 30% and 20% of total ordinary expenditure. Payments on public debt - virtually all from external sources - amounted to 20 of total ordinary expenditure in 1963/64. They increased more than twelve times since 1955/56, showing the recent origin of Basutoland's recourse to external loan financing. Development Expenditure (Tables 8-10) 40. Government development expenditure has always been financed from external sources, chiefly by grants and loans fram the United King- dom's Colonial Development and Welfare (C.D. & W.) funds. Of the 1959/60- 19o2/o3 Development Plan, which ended in March 1yo, 687 was fnancea by C.D. & W. funds and 32% by United Kingdom loans. Expenditure totalled b 1.9 million, or an annual average of L 0.5 million. Although modest in relation to current expenditure, the size of planned expenditures was substantially higher than in the middle fifties. Priority was given to agriculture - including soil erosion works - to housing, road construction and education. Per capita annual development expenditure in Basutoland (L 0.5) has been considerably less than in Bechuanaland (L 1.4) and in Swaziland (1 1.2) for comparable periods. This is also a reflection of the lack of projects ready to be implemented in Basutoland. 41. There was a decline in development expenditures in 1963/64 and with the start of construction of a new power station to serve Maseru, a shift in emphasis to more spending on infrastructure (41%) and less on social services (34%). The estimates of development ex- penditure for 1964/65 showed a very large increase over 1963/64, with sharp increases in spending on agriculture, roads and bridges, and educa- tion. It is certain, however, that actual spending will be much below the estimates, largely as a result of unforseen delays in implementing planned projects, and the final figures for the year may well show a decline over 1963/64. The estimates for 1965/66 are even more ambitious than those for 1964/65, envisaging development expenditures of about L 1.2 million, compared with estimated expenditures of about n 800,000 in 1964/65 and actual expenditures about half this figure. With the uncertainties and delays accompanying the formation of the first African government in Maysit is virtually certain that actual spendina in 1965/ 66 will again fall far short of the estimates. For this reason, little can be said about the breakdown of proiected exoenditures, though if the ID. project gets off to a good start spending on infrastructure will again absorb a substantial proportion of the total. 42. Development expenditure during the next few years is likely to add considerably to government current expenditure while, in view of the slow-vieldine nature of most of the available nroiects. the increase in current revenue resulting from development works will not be signifi- cant. This imnlies that dependence on United Kingdom budgetary aid is likely to increase in the near future, over and above the increase due to the cut in the share of South African customs revenue received by Basuto- land. In addition, new demands on the budget will be placed by the coming independence. -13- 1T? ~ r.T:.e.~ A lTr% ^^sK? -rW TfTr^1jC I V. URII V1 kill riMO k-W VIJijU±ULW1d 43. Total external long-term public debt as of april 1, 1965 amounted to $2.1 million equivalent (Table 1). Service payments on this ill average, between 1963 and 1972, about 4 of 1963 exports. This is not a very meaningful ratio in view of the fact that Basutoland is part of the South African customs and monetary area; more significant is the ratio of average service payments on total public debt to government current revenue. This was less than 4% of the 1963/64 current revenue. Even this ratio, however, is of limited relevance to Basutoland's ability to assume increased debt commitments. At present, Basutoland does not generate sufficient funds internally to finance government current ex- penditures, and the provision of current government services will continue in the foreseeable future to depend on external grants. 44. Notwithstanding the expenditures on development, Basutoland's economic position is not expected to show any dramatic improvement in the next few years. Indeed, the first task is to arrest the declining trend in incomes and exports. But the problems involved in transform- ing traditional tribal communities living at subsistence levels into a modern productive society will confront Basutoland for a long time. The poor natural resources and the deterioration of the soils will make it difficult to find investment opportunities carrying returns sufficiently high to attract private investment. Uncertainty about the Territory's future relations with South Africa also clouds the picture. The economy of Basutoland can be expected to continue to depend for a considerable time on assistance from abroad and, in particular, from the United Kingdom. 45. Basutoland's inability to service its external debt from its own resources is the result mainly of its primitive social and economic structure. Although there is scope for improving the present standard of government develonment planning, this is largely the result of the difficulties of planning in a country where natural resources are poor and declinine and the people have strong traditional customs. Modest but significant results have been obtained through the expansion of the cooperative movement and of technical education and the local oublic administration has been considerably improved. In these circumstances, Basutoland may be regarded as Pliaihl for a-istann from TDA. LIST U TABIES External Public Debt ......................... 1 Foreign Trade ................................................. 2 Livestock Statistics ........................................... 3 Agricultural Statistics .................................... . Total Government Receipts and Expenditures .................... 5 Government Ordinary Revenue .................................... 6 Government Ordinary Expenditure .............................. 7 Government Development Expenditure ............................. 8 Table la: BASUTOLAND - ESTIMATED EXTERNAL NEDIUM AND LONG-TERM /1 PUBLIC DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF APRIL 1, 1965 Debt Repayable in Foreign Currency (in thousands of U.S. dollar equivalents) Debt outstanding Item April 1, 1965 Net of Including undisbursed undisbursed TOTAL EXTERNAL PUBLIC DEBT 2,100 22100 Loans from U.K. Government Exchequer loan /2 1,126 1,126 Inter-Colonial loans 974 974 Note: Amounts outstanding for April 1. 1965 are derived from incomplete information submitted by Basutoland. /1 Debt with an original or extended maturity of one year or more. /2 An additional Exchenuer loan of R 160.no (15>h-on0 had been authori7e( as of January 1, 1965, but not yet raised. Statistics Division July 30, 1965 Tllp Th! PASTMOTAM - rcTTMATPD MOMTRAMTHAT.RRVTrR PAYMMTR OnM F.YTPRMAT. MRDTIM ANM T.nAyTRM PTTPT.Tr. nRT 0fT.qTAMVTNMn TM.7T.TTM7*Mr. TI1MT.pTrpqn Aq Ap APTT 1 1O65 /1 (In thousands of U.S. dollar equivalents) TOTAL DEBT DEBT OUTST YEAR (BEGIN OF PERIOD) PAYMNTS DURING PERIOD INCLUDING AMORTI- UNDISBURSED ZATION INTEREST TOTAL 1965 2,100 67 153 220 1966 2,008 69 152 221 1967 1,911 70 150 220 1968 1,808 72 149 221 1969 1,699 73 147 220 1970 1,584 62 145 207 1971 1,8O 61 135 196 1972 1,380 63 130 193 1973 1,278 66 128 194 1974 1,168 68 122 190 1975 1,051 68 119 187 1976 929 68 116 184 1977 811 56 105 161 1978 701 57 102 159 1979 631 54 53 107 EXCHEQUER LOAN DEBT OUTST YEAR (BEGIN OF PERIOD) PAYMENTS DURING PERIOD INCLUDING AMORTI- UNDISBURSED ZATION INTEREST TOTAL 1965 1,126 23 70 93 1966 1.103 25 69 94 1967 1,078 26 67 93 1963 1.0q2 28 66 9h 1969 1,024 30 64 94 1Q70 99h 31 62 93 1971 963 33 60 93 1972 940 3 q8 93 1973 895 38 56 94 1Q7), 8C7 )o C4 91 1975 817 43 51 94 So?A 771, 1C AK 1977 729 48 46 94 1o7R AQl d.f1 1979 630 54 39 93 Table lb: BASUTOLAND - ESTIMATED CONTRACTUAL SERVICE PAYMENTS ON EXTERNAL MEDIUM AND LONG-TERM PUBLIC DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF APRIL 1, 1965 /1 (cONT.) Debt Repayable in Foreign Currency (in thousands of U.S. dollar equivalents) INTER-COLONIAL LOANS DEBT OUTST YEAR (BEGIN OF PERIOD) PAYMENTS DURING PERIOD INCLUDING AMORTI- UNDISBURSED ZATION INTEREST TOTAL 1965 974 44 83 127 1966 905 44 83 127 1967 833 44 83 127 1968 756 44 83 127 1959 675 43 83 126 1970 590 31 83 114 1971 517 28 75 103 1972 450 28 72 100 1973 383 28 72 100 1974 311 28 68 96 1975 234 25 68 93 1976 155 23 68 91 1977 82 8 59 67 1978 20 6 59 65 1979 1 - 1b 14 Note: This projection of future service payments is derived from incomplete information submitted by Basutoland. /1 Includes service on all debt listed in Table 1 prenared July 3o. 1965. IBRD-Economics Department julyl? 16 Foreig Trade 1951 1956 1958 1959 1960 19b1 1962 1963 A. Value of recorded exports ('000) Livestock products 2,6Q3 1,519 1,129 1,487 1,30 1,320 1.,453 1Z0 Wool 2,204 1,025 608 831 732 805 869 1,028 Mohair 245 341 223 372 330 364 367 420 Cattle 66 82 221 213 187 105 185 231 Horses, donkeys, mules 1 1 1 5 - - 1 1 Sheep & goats 25 15 11 12 8 7 5 9 Hides & skins 62 55 65 54 49 39 26 51 Agricultural products 193 421 304 166 163 161 259 118 Wheat 68 197 138 44 101/ 66/ 156 52 Beans 89 210 140 115 53 87 101 33 Sorghum 3 14l 23 1 8 7 1- 3 Other 2 - 3 6 1 1 - - Diamonds - - - - n.a. 29 140 66 Miscellaneous 5 4 11 8 9 - - - Total 2,801 1,944 1,444 1,661 1,477 1,510 1,85L1 1894 B. Export indices (1950-52 100) Volume of exports Value of exports Export prices 1960-62 1960-62 1960-62 Wool 82 45 55 Mohair 101 116 116 Cattle 152 205 135 Wheat 135 204 151 Beans 75 93 124 C. Balance of trade (L'OO) 1951 1956 1958 1959 1960 1961 1962 1963 Recorded exnorts 2.801 1.9hh 1.hLL 1.661 1.L77 1.510 1.8q1 1.89L Recorded imports 2,836 2,937 2,947 3,629 4,0 3.060 3,580 n.a. Balance of recorded trade -35 -993 -1,503 -1,968 -2,611 -1,550 -1,729 n.a. 1/ Estimated Source: Basutoland's Office of the Secretariat and United Kingdom Colonial Office, Annual Reports on Basutoland (1950-1962). LabLe 3 Livestock Statistics 1951 1955 1958 1959 1960 1961 1962 1963 A. Livestock numbers ('000) Sheep 1,5664 1,339 1,339 1,232 1,037 1,227 1,434 1,431 Goats 637 655 506 594 579 632 749 791 Cattle 401 408 363 388 331 377 386 366 Horses 103 102 81 90 84 89 95 85 Donkeys 59 49 49 56 49 53 55 44 Mules 3 5 4 4 5 4 5 12 B. Pricesh./ Wool (pence per lb.) 60 30 23 23 26 26 24 22 Mohair (pence per lb.) 69/ 71 54 83 67 69 58 51 Cattle (pound per head) 13 17 18 18 18 12 21 n.a. 1/ Unit value of exports 2/ 1952 Source: See Table 2 Table 4 Agricultural Statistics Maize Sorghum Wheat Peas Beans Total Acreage (1950 443 139 122 21 6 731 ('000) T (196o 403 169 167 13 796 Output 1/ (L95o 2.345 50 5h9 91 9 (1000 bags) (L96o 1.330 590 63L 133 15 2/ Yields Der (L950 5.3 3.9 h.1 I.q jcre (bags (1960 3.3 3. 3.8 3/ /3,3 1.1/ kL per bag) C (IloCo.26 9 1 h o AAL Grs reun (I oc r 7 1.7 A 7ni )'q 1 A7 $ per acre 4/-( 777 -'4 (-0o 7( 0 1 r I InPff- (ioAr I eIJ 4o 17- _LI_/__ -L c - returns for ( Ilujul UlupJo 4/ _L± I (UU UUL),~4 I/ bags of 200 lb. c Y iewus as glven by one0 ralo 01 uoual recorued output to total recorded acreage. Yields revealed by sample investigations were, in 1960: maize 3.7; sorgnum 3.8; wheat 3-o; peas 3.3, beans 1.6. 3/ Average unit cost of exports and imports, except for beans and peas for which only export prices are available. 4/ Based on 1950-52 and 1959-61 prices. Source: Basutoland, Bechuanaland Protectorate and Swaziland, Report of an Economic Mission, London 1960, the"Morse"l Report. p.308, Basuto- land Department of Agriculture and United Kingdom Colonial Office, Annual Reports on Basutoland (1950-1962), and Report on the Agri- cultural Census of Basutoland 1960. Table 5 Total Government Receipts and Expendituresj (~bOO) 1964/65 1965/66 1950/51 1955/56 1960/61 1961/62 1962/53 1963/64 Estimates April-Jan. Estimates A. Revenue and Expenditure Ordinary revenue 989 1,362 1,859 1,882 1,884 2,095 2,479 1,865 2,085 Ordinary expenditure 1,007 1,477 2,311 3,088 3,259 3,504 4,169 3,032 4,837 Deficit -18 -115 -452 -1,206 -1,375 -1,409 -1,690 -1,167 2,752 Development expenditure 102 148 240 625 634 457 795 338 1,181 Total deficit -102 -263 -692 -1,831 -2,009 -1,866 2485 -15 -3,933 B. Financing of Deficit Grants-in-aid - - 390 1,141 1,441 1,534 1,726 1,231 2,752 C.D. & W* grants 90 99 178 402 470 325 730 272 926 Intercolonial loans - - 62 - - - - - Exchequer loans - - 223 163 35 - -- 188 Other sources - -27 - 2 2 l4 92 200 67 200 Total financing 90 72 628 1,768 2,088 1,986 2,656 1,570 4,066 1/ Financial year: April - March 31 Source: Basutoland's Office of the Secretariat. Table 6 Government Ordinary Revenue (£ L1000) 196/65 1965/66 1950/51 1955/56 1960/61 1961/62 1962/63 1963/64 Estimates April-Jan. Budget Tax revenue 491 516 497 511 505 613 634 359 641 BasutO tax ( 335 ( IncoMe tax ( 414 72 ( h34 h38 418 525 542 311 556 Poll tax 1/ ( 2 ( Export duties 47 107 63 73 87 88 92 48 85 Non-tax revenue 498 846 1,362 1,371 1,379 1,482 1,8h6 1,506 1,hhh Custois and excise ~ 344 589 959 909 953 958 1,165 1,168 743 Licenses and fees 51 87 169 180 198 197 391 175 449 Goverrinent property 63 92 122 138 161 158 215 12$ 209 Other 4o 78 112 144 67 89 75 38 _3_ Total 989 1,362 1,859 1,882 1,88, 2095 2,480 1,65 2,085 1/ Mainly on wool and nohair 2/ Share of South Africa's customs revenues Source: See Table 2 Table 7 Government Ordinary Expenditure L11000) 1964/65 1965/66 1950/41 1955/56 1960/61 1961/62 1962/63 1963 /6 Estinates April-Jan. Budget Administration 376 572 857 997 L,105 1,313 1505 1,135 1,88 Agriculture and livestock 90 80 139 151 217 228 261 182 297 Infrastructure 130 281 hh3 563 620 682 916 612 1,177 Public works 93 224 360 475 503 563 769 514 1,01l Posts and telegraphs 34 51 69 72 97 96 125 83 135 Cooperatives 3 6 1 16 20 23 22 15 31 Social services 246 41 603 1,08h 982 919 1,124 831 1,160 Health 90 162 252 295 360 312 601 256 423 Education 156 252 351 789 622 607 723 575 737 Financial obligations 6 82 178 197 208 2:31 239 180 298 Public debt 1 6 48 48 69 78 98 45 112 Pensions and gratuities 63 76 130 149 139 153 141 135 186 Miscellaneous 69 L8 91 96 127 101 125 92 57 Total 1,007 1,477 2,311 3,088 3,259 3,50L h,169 3,02 6,837 Source: See Table 2 Table 8 Government Develop nt Expenditure (Z),000) 1964/65 1965/66 1959/60 1960/61 1961/6:2 1962/63 1963/6) Estimates April-Jan.Esti e A. Expendliture Econonic services 63 73 264 198 117 215 93 174 Agriculture 59 59 234 96 90 142 66 106 Livestock - - 1 34 15 22 12 22 Surveys 4 14 29 68 12 51 15 46 Irfrastructure 106 15 91 147 186 249 105 377 Power 10 3 7 3 66 67 67 67 Posts and telegraphs 12 2 22 41 12 - - 75 Roads arid bridges 81 9 59 34 30 119 15 182 Technical education 3 - 1 64 62 52 22 29 Cooperatives - 1 2 5 12 11 1 23 Industrial estate - - - - 4 - - i Social services 178 152 270 289 154 314 137 613 Water supply, 20 12 41 19 3 22 - 148 Sewage 14 24 29 18 3 15 1 17 Health 31 26 37 96 70 143 90 66 Education 23 47 69 90 28 134 46 307 Housing 90 43 94 60 50 - - ho Broadcasting - - - - - - 35 Statistical services - - - - 18 3 15 Total 07n 6'. 63, 0 6 3 1,, Table 8 (cont.) Government Development Expenditure 1964/65 1965/66 1959/60 1960/61 1961/62 1962/63 196:3/64 Estimates April-Jan. Estinates B. Source of funds C.D. & W. funds 201 178 402 471 325 730 272 926 Intercolonial loans 146 62 - - - - - Exchequer loans - - 233 163 35 - - 188 C.D.C. - - - - - 200 - - I.D.A. - . . - - - 200 Other loans - - - - 92 - 67 - Total 347 240 625 634 142 930 .339 1,314 Source: Basutoland's Office of the Secretariat and Department of Finance