Lesotho Compact

Lesotho, an extremely poor, landlocked country is surrounded by mountains and the country of South Africa, one of the largest economies in sub-Saharan Africa.  Despite being a part of the rapidly growing Southern African Development Community (SADC), the country historically has been unable to unlock the potential of its two greatest resources—its water and its people. Economic growth has remained sluggish for more than 20 years.  MCC signed a $362.5 million compact with the Government of Lesotho designed to increase economic growth and reduce poverty in July 2007.  The compact funded work with other international donors on one of the largest infrastructure improvement projects in Lesotho’s history, the Metolong Dam, as well as work with PEPFAR (the President’s Emergency Plan for AIDS Relief) to mitigate the negative economic impacts of poor maternal health, HIV/AIDS, tuberculosis and other diseases.

Development needs were jointly identified by the government and MCC as a result of broad collaboration with key stakeholders, including the private sector, non-governmental organizations and civil society. The Lesotho Compact funded projects in three areas:     

  • water sector;
  • health sector; and
  • private sector development.

The MCC compact integrated conclusions from Lesotho’s poverty reduction plan, the result of a three-year consultative process led by the government involving 20,000 people in 200 villages across the country.

By the end of the compact in September 2013, the government and MCC had spent nearly 99 percent of anticipated compact funds to improve water supply, increase access to essential health services, and remove barriers to private sector investment. Approximately 1 million people are expected to benefit from the investments. Further details of the compact results and impacts will be shared in forthcoming impact and performance evaluations, expected to be available beginning in 2017

  • Original Amount at Compact Signing: $362,551,000
  • Amount spent: $358,045,892

Estimated benefits at compact close correspond to $277.4 million of compact funds, where cost-benefit analysis was conducted:

  • 1,041,422Estimated beneficiaries at compact close over 20 years

  • $18,265,000Estimated net benefits at compact close over 20 years

Project Results

Health Sector Project

  • $122,398,000Original Compact Project Amount
  • $143,650,195Total Disbursed

Estimated Benefits

Estimated benefits corresponds to $143.65 million of project funds, where cost-benefit analysis was conducted.

Estimated Benefits
Time Estimated Economic Rate of Return (ERR) over 20 years Estimated beneficiaries over 20 years Estimated net benefits over 20 years
At compact closure 5.2 percent 752,003 $-53,610,000

The crisis in human health resources is a major issue in Lesotho, as in the rest of southern Africa. This has the potential to severely hamper the country’s efforts to reduce poverty and promote economic growth. The country faces difficulties retaining nurses and clinicians due to poor working conditions and greater career opportunities offered outside the country. Lesotho has one of the highest HIV/AIDS prevalence rates in the world—more than one of every five adults in Lesotho is HIV-positive, according to United Nations figures. Because only half of Basotho women give birth at medical facilities, there is also no way to ensure they are taking appropriate precautions to avoid spreading HIV, leading to infection in many newborns. Combining the efforts of the Government of Lesotho, the President’s Emergency Plan for AIDS Relief (PEPFAR) program and other donors, the objectives of the Health Sector Project were to mitigate the negative economic impacts of poor maternal health  HIV/AIDS, tuberculosis and other diseases. The U.S. Agency for International Development and the Centers for Disease Control and Prevention, working through PEPFAR, supported complementary public health policies, expanded HIV/AIDS prevention and care, strengthened the country’s health management information systems, and coordinated ongoing training for nurses. During the compact, PEPFAR expanded its program to prevent mother-to-child transmission of HIV/AIDS to each of Lesotho’s 10 districts and to increase the number of health centers at which it works.

The MCC-funded project was designed to strengthen the country’s health care system and its ability to deliver quality services by:

  • renovating health centers in order to help those centers achieve a common standard;
  • improving infrastructure in 14 outpatient departments and providing management training to support the extension of anti-retroviral therapy services;
  • constructing and equipping a new National Reference Laboratory and training staff in Maseru, and building dormitories and staff residences at Lesotho’s National Health Training College;
  • constructing a dedicated, central facility for collecting and processing blood, which included a mobile blood collection vehicle, storage equipment and collection units;
  • increasing capacity for nurse training and improving district-level health care human resource management; and
  • improving occupational health and safety and medical waste management practices.

By compact end, 14 outpatient health departments, the National Reference Laboratory, a National Blood Transfusion Center, and student and staff lodging at the training college were renovated and equipped. The number of blood units collected yearly by mobile collection units increased 124 percent from 3,381 to 7,593, and nearly 200 health practitioners were trained in infection, prevention, and disease control.

Several initial targets were not met as a result of construction delays on health centers. The government funded and managed the completion of the health centers within one year of compact closure, and post-compact monitoring will provide updated performance data in the future.
MCC’s original ERR of 12 percent was reduced to 6 percent after factoring in increased costs, borne by the government, decreased benefits due to incorrect baseline assumptions, and adding other donor costs for benefits which were attributable to the efforts of other donors in addition to MCC.

Evaluation Findings

MCC is conducting a combined performance evaluation of the infrastructure and Health Systems Strengthening Activities within the Health Sector Project. The evaluation will assess what services are provided in the renovated facilities, measure staffing and use of the facilities, change in key health outcomes, and improvements in overall health systems.  The evaluation design process is underway and data collection is expected to take place in 2017, with final results available by early 2018.

Key performance indicators and outputs at Compact End Date

Key performance indicators and outputs at Compact End Date
Activity/Outcome Key Performance Indicators Baseline End of Compact Target Quarter 1 through Quarter 20 actuals () Percent Compact Target Satisfied ()
Health Centers Activity

Outcome: Health centers are equipped and maintained at standards

Deliveries conducted in health centers (%) 36 80 47 25
Health centers equipped (%) 0 100 33 33
People with HIV still alive 12 months after initiation of treatment (%) 74 80 72 -33
Physical completion of health center facilities (%) 0 100 88 88
Physical completion of Outpatient Departments (OPDs) (%) 0 100 99 99
Physical completion of the Blood Transfusion Services facilities (%) 0 100 100 100
TB notification (per 100,000 pop) 640 400 644 -2

Private Sector Development Project

  • $36,105,000Original Compact Project Amount
  • $24,162,433Total Disbursed

Estimated Benefits

Estimated benefits corresponds to $20.95 million of project funds, where cost-benefit analysis was conducted.

Estimated Benefits
Time Estimated Economic Rate of Return (ERR) over 20 years Estimated beneficiaries over 20 years Estimated net benefits over 20 years
At compact closure 14.9 percent 368,319 $18,265,000

Over the last two decades Lesotho’s economic growth has been insufficient to significantly reduce poverty. Its sluggish growth was due in large part to external factors, including a decrease in remittances from citizens working abroad. The Private Sector Development Project aimed to stimulate private sector activity within the country by improving access to credit, reducing financial transaction costs, and increasing the participation of women in the economy.  The activities included:

  • improving the administration of land titles;
  • modernizing the commercial legal system;
  • strengthening payment and settlement systems;
  • supporting provision of credit bureau services, including implementation of a national ID scheme; and
  • training and outreach to support gender equality in economic rights.

By the end of the compact, MCC funds contributed to Lesotho’s increase from a baseline of 27 commercial cases resolved in 2008 to 158 cases resolved in the final year of the compact. More than $537 million in loans were provided by the country’s financial institutions, and the time to process a loan application was reduced from seven days to three during the compact. The government reported that they are continuing to regularize and register parcels post compact,  , and the number of cases filed at the commercial court increased from 149 in the year before the compact to 297 in the year following the compact.

As Lesotho was developing its MCC compact in 2005, MCC worked with the parliament to draft legislation to give married women the same legal status as men. The legislation passed parliament and was signed into law in 2006. The MCC compact program in Lesotho included funds for teams to conduct training targeted at women entrepreneurs, and involved a country-wide outreach program to inform women in rural areas of their new rights. As part of the Gender Equality in Economic Rights Activity, 6,200 people received training on gender equality advocacy.  In addition, more than 21,000 women now hold joint land titles compared to 3,200 at the start of the compact.

Evaluation Findings

MCC is planning a performance evaluation of the Land Administration Reform Activity‘s Legislative Reform and Modernization and Institutional Strengthening Sub-Activities, which established a new Lesotho Land Administration Authority, revised related land legislation and streamlined and strengthend procedures related to land administration. The evaluation will measure impacts on 1) the change in time to conduct a formal land transaction, including primary application for a formal lease and secondary formal land transactions;, 2) the change in volume of formal land transactions; and 3) the change in number and amount of land related bonds/ mortgages. Initial monitoring data is expected from the Lesotho Land Administration Authority in May 2017 with independent evaluator analysis and results expected in March 2018. MCC is also conducting an impact evaluation of the Land Administration Reform Activity that will measure the effect of the Land Leasing sub-activity on perceptions of land tenure, land investments and values. MSU provided the baseline report in 2016 and follow-up data collection is expected in early 2018 with final results expected to be available in January 2019.

Key performance indicators and outputs at Compact End Date

Key performance indicators and outputs at Compact End Date
Activity/Outcome Key Performance Indicators Baseline End of Compact Target Quarter 1 through Quarter 20 actuals () Percent Compact Target Satisfied ()
Civil Legal Reform Activity

Outcome: Commercial dispute resolution is increased

Cases filed at the commercial court 149 1,200 297 14
Time required to resolve commercial disputes (days) 129 350 275 66
Gender Equality Activity

Outcome: Knowledge, attitudes, and practices of women's economic rights are improved

People trained 0 6,000 6,192 103
Women holding titles to land 3,214 6,000 26,342 830
Land Reform Activity

Outcome: Strengthen land market and increase in loans

Bonds registered 161 500 353 57
Change in time for property transactions (%) 0 -71 -93 131
Stakeholders trained 0 243 575 237
Urban land parcels regularized 0 55,000 23,928 44

Water Sector Project

  • $164,028,000Original Compact Project Amount
  • $149,813,612Total Disbursed

Estimated Benefits

Estimated benefits corresponds to $131 million of project funds, where cost-benefit analysis was conducted.

Estimated Benefits
Time Estimated Economic Rate of Return (ERR) over 20 years Estimated beneficiaries over 20 years Estimated net benefits over 20 years
At compact closure 11.3 percent 361,122 $20,272,000

The water sector has played a significant and complex historic role in Lesotho’s economy.  While revenues from water transfers to South Africa account for approximately 5 percent of the country’s GDP, sustained drought cycles and inadequate water supply infrastructure have constrained growth and development in Lesotho’s lowlands. Increasing industrial demand, coupled with rising consumer demand for potable water put a heavy burden on both water supply and waste water services. The Water Sector Project was designed to support Lesotho’s vision to provide secure, adequate, sustainable and clean water supply and sanitation services to rural and urban consumers. It did so through the:
•    construction of a water treatment plant to support the Metolong Dam program;
•    rehabilitation of existing water supply infrastructure and expansion of the distribution network in urban and adjacent areas;
•    rehabilitation and/or construction of water supply points and latrines in rural areas; and
•    restoration of degraded wetlands in the Lesotho highlands and support for development of a National Wetlands Management Plan

By the end of the project, 13 water reservoirs were constructed and another five rehabilitated, five pumping stations had been upgraded, nearly 30,000 latrines were built, and 208 water retention structures in the wetlands activity areas were completed.

Evaluation Findings

MCC is conducting an impact evaluation of the Rural Water Supply and Sanitation Activity that will measure household hygiene behaviors, time spent collecting water, incidence of diarrhea, and household incomes. Results of this evaluation will be pubished in 2017. An independent evaluator was also hired in late 2016 to evaluate the Urban and Peri-Urban Water and Metolong Dam Activities. That evaluation is expected to measure changes in water demand, supply, use and time savings and be available by 2019.

Key performance indicators and outputs at Compact End Date

Key performance indicators and outputs at Compact End Date
Activity/Outcome Key Performance Indicators Baseline End of Compact Target Quarter 1 through Quarter 20 actuals () Percent Compact Target Satisfied ()
Metolong Dam Ancillary Works Activity

Outcome: Bulk water supply to lowlands is increased

Physical completion of Metolong water treatment works contract 0 100 82 82
Rural Water Supply and Sanitation Activity

Outcome: Rural water supply is expanded and sanitation is improved

VIP Latrines built 0 27,245 29,352 108
Water points constructed 0 250 175 70
Urban Water Supply Activity

Outcome: Urban domestic water supply is improved

Households with provisions to connect to water networks 0 2,454 2,312 94
Non-revenue water (%) 34 25 27 78
Physical completion of Urban Water supply works contracts (%) 0 100 96 96

Compact Changes

The Lesotho Compact included broad capital investments in infrastructure and major service delivery systems like those that manage water distribution. Because MCC compacts are a fixed amount implemented over five years, partner governments must focus on attaining compact results while balancing changes in costs and speed of implementation.

As projects encountered higher-than-anticipated construction costs—based on additional technical and regulatory information about the design of compact investments—the government committed additional funding to cover these cost overruns and avoid a reduction in scope of the compact’s Health Sector Project. The Rural Water Supply and Sanitation Activity infrastructure was scaled up to increase latrine coverage, while funding for the Civil Legal Reform Activity within the Private Sector Development Project was increased as well. Construction progress for the Health Sector Project was 88 percent complete by compact end, with contractors having completed 46 of 68 MCC-funded and 10 of 70 government-funded health centers. By July 2014, the remaining health centers had been completed by contractors using government funding.

Two changes in scope to compact activities also occurred during its implementation:

  • MCC cancelled the Automated Clearing House Sub-Activity within the Private Sector Development Project in December 2010, determining it would not accomplish the economic growth and poverty reduction outcomes envisioned during compact development. The remaining $600,000 in the sub-activity was transferred to the Debit Smart Card Sub-Activity in May 2012, which targeted expanding financial services to people living in remote areas of Lesotho.
  • In February 2012, the government officially requested removing National ID cards from the National ID and Credit Bureau Activity of the compact, to align the activity with its own national e-passport initiative.  The component was subsequently removed, and its $8 million funding directed where there were shortfalls, including the Urban and Peri-Urban Water Network Activity.

Coordination and Partnerships

Close coordination with governments, other international donors and development agencies saves time and money. This kind of cooperation avoids costly duplication and unsuccessful approaches, minimizes transaction costs for partner countries, and is critical to the success of MCC compacts.

The Lesotho Compact was implemented with the support of strong U.S. Government interagency partnerships. MCC took a ‘whole of government approach’ and coordinated compact projects with CDC, USAID and PEPFAR. The $600,000 PEPFAR Gender Challenge Grant Fund was awarded in July 2010, and has since been used to provide small grants to entrepreneurial women in Lesotho.  The Peace Corps and MCC broke new ground in assigning a Peace Corps volunteer to work with a Millennium Challenge Account for the first time. These partnerships supported complementary public health policy, expanded HIV/AIDS prevention and treatment services, and served to strengthen Lesotho’s national health systems.

The government committed approximately $100 million to cover cost overruns during implementation of the compact, and another $50 million after the compact term to complete projects and support sustainability. These additional funds preserved the original scope of the Health and Water Sector Projects, thereby contributing to the country’s stake in compact benefits. Additionally, the government assured funds for staffing and administrative costs of operations for the Commercial Court, mediation and small claim procedures, and the automated case management elements of the Private Sector Development Project following the close of the compact.

As a result of MCC’s role in connecting the government with the World Bank’s Public-Private Infrastructure Advisory Facility with the International Finance Corporation, the parties formed a public-private partnership that addressed internet connectivity gaps in health centers funded by MCC throughout Lesotho.

Finally, MCC coordinated with the World Bank, the European Union, the OPEC Fund for International Development, the Kuwait Fund for Arab Economic Development, the Arab Bank for Economic Development in Africa, and the Saudi Fund for Development on construction of Metolong Dam and a related bulk water conveyance system, one of the largest infrastructure improvement projects in Lesotho history.

Key Conditions Precedent

To promote and encourage desired investment outcomes under the compact, MCC and the government agreed that the following conditions precedent would be met before entry into force of the compact agreement or before disbursements of funds needed for the projects identified below.

Key Conditions Precedent
Key Compact Component(s) Major Condition Precedent or Policy Reform Required Rating
Private Sector Development Project

Civil Legal Reform

  1. Successful implementation of reforms in case management in High Court and Commercial Court.
  2. Successful operation of Commercial Court – with appropriate jurisdiction, new procedural rules including mediation procedures, and sufficient dedicated staffing.

Met on time

Full implementation delayed due to delayed procurement of computerized Case Management Systems. However, many process reforms made on time.

Harmonize Laws with Legal Capacity of Married Persons Act

Met on time

Health Sector Project

Health Care Centers Infrastructure Activity

The Government will, to the satisfaction of MCC, undertake a comprehensive technical review and update of the 2005 National Healthcare Waste Management Plan, including but not limited to preparation of updated capital and recurrent costs associated with the plan and a long-term finance strategy for funding these costs.

The Government will have enacted any new medical waste management legislation, and/or reform any existing legislation, that has been prescribed in the updated National Health Care Waste Management Plan, to include but not be limited to, new or reformed policies, regulations, and standards pertaining hazardous waste management, occupational health and safety, infectious disease control, pollution prevention, and/or related subjects, per the recommendations of the updated plan.

Met on time

The management plan and recurring costs were met on time. The Legislation was deferred one quarter due to multi-ministerial review.

Health Sector Project

Health Care Centers Infrastructure Activity

Met late

A related condition laying out the operationalization of decentralization encountered delays, was partially deferred, and completed by September 2012.

Health Sector Project

Health Program Implementation Unit

Implementing Entity Agreement between MCA-Lesotho and the Ministry of Health and Social Welfare signed and effective.

Met on time