Lesotho Compact

Lesotho, an extremely poor, landlocked country is surrounded first by mountains and then by largest economy in sub-Saharan Africa.  Despite being located within the dynamic and rapidly growing Southern African Development Community, the country historically has been unable to unlock the potential of its two greatest resources – its water and its people – and economic growth has remained sluggish for more than 20 years.  MCC signed in July 2007 a five-year, $362.5 million compact with the Government of Lesotho designed to increase economic growth and reduce poverty.  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.

The 2007 Lesotho Compact funded projects in three areas that were jointly-identified by the Government of Lesotho and MCC as a result of broad collaboration with key stakeholders, including the private sector, non-governmental organizations and civil society:     

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

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

At the end of the compact in September 2013, the Government of Lesotho and MCC had spent nearly 99 percent of the anticipated compact funds to improve water supply, increase access to essential health services and remove barriers to private sector investment with approximately 1 million people 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 late 2015. 

  • Original Amount at Compact Signing: $362,551,000
  • Amount spent: $358
  • Signed: July 23, 2007
  • Entry Into Force: September 17, 2008
  • Closed: September 17, 2013

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

  • $219,000,000Estimated net benefits at compact close over 20 years

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 constantly balancing changes in costs and speed of implementation.

As MCC and the Government of Lesotho encountered higher-than-anticipated construction costs — based on additional technical and regulatory information about the design of compact investments — the Government of Lesotho committed additional funding to cover these cost overruns and avoid a scaling down of the compact’s Health Sector Project. The Rural Water Supply and Sanitation Activity infrastructure was scaled up to increase latrine coverage, while the Civil Legal Reform Activity within the Private Sector Development Project was augmented as well. At compact end, construction progress for the Health Sector Project was 88 percent complete, with contractors having completed 46 of 68 MCC-funded and 10 of 70 Government of Lesotho-funded health centers. By July 2014, the Lesotho Government reported that the remaining health centers had been completed by contractors using Government of Lesotho 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 after 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 of Lesotho officially requested removing the National ID card aspects of the National ID and Credit Bureau Activity from the compact, to align the activity with its own national e-passport initiative.  The component was subsequently removed, and the $8 million allocated for those activities where there were shortfalls, including the Urban and Peri-Urban Water Network Activity.

Project Results

Private Sector Development Project

  • $36,105,000Original Compact Project Amount
  • $24,162,433Total Disbursed
  • 14.9%Estimated Economic Rate of Return over 20 years

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 shocks such as decreasing remittances from citizens working abroad. As a response, the Private Sector Development Project aimed to stimulate private sector activity within the country by improving access to credit, reducing transaction costs and increasing the participation of women in the economy.  The activities included: 

  • improving land administration;
  • 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 last year of the compact, more than $537 million in loans provided by the country’s financial institutions, and a reduction in time to process a loan application from seven days to three. The Government of Lesotho reported that in the year following the compact an additional 25,661 land parcels had been regularized and registered, achieving 90% of the compact target, and the number of cases filed at the commercial court increased from 297 to 515, equivalent to 43% of the compact target. In 2005, as Lesotho was developing its MCC compact, MCC worked with the parliament of Lesotho 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 and more than 26,000 women received joint land titles.

Estimated benefits at compact close correspond to $20.95 million of project funds, where cost‑benefit analysis was conducted:

  • 368,319Estimated beneficiaries at compact close over 20 years
  • $17,510,000Estimated net benefits at compact close over 20 years

Evaluation Findings

MCC is planning a performance evaluation of the Land Administration Reform Activity (Modernization and Institutional Strengthening Sub-Activity) that will measure the time and costs involved in the lease application process, and the number of land transactions, and the number of bonds or mortgages. It is expected to be available in September 2015. MCC is also conducting an impact evaluation of the Land Administration Reform Activity that will measure land tenure, the number of land conflicts and changes in land investments and values. It is expected to be available in June 2017. 

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 (Dec. 2013) Percent Compact Target Satisfied (Dec. 2013)
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

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

Health Sector Project

  • $122,389,000Original Compact Project Amount
  • $143,650,195Original Compact Project Amount
  • 6%Estimated Economic Rate of Return over 20 years

A major issue in Lesotho, as in the rest of southern Africa, is the crisis in human health resources. 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, yet it 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 HIV prophylaxis appropriately—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 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 establish a national stock of health centers that achieve a common standard;
  • improving anti-retroviral therapy services and improving management of hospital outpatient departments;
  • 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 that collects and transfers blood to the center as well as storage equipment and collection units;
  • increasing capacity for nurse training and improving district-level public human health care 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 the result construction delays on health centers. The Government of Lesotho funded and managed the completion of the health centers, 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 of Lesotho, decreased benefits due to incorrect baseline assumptions, as well as adding other donor costs for benefit streams not attributable to MCC funding alone. 

Estimated benefits at compact close correspond to $143.65 million of project funds, where cost‑benefit analysis was conducted:

  • 752,003Estimated beneficiaries at compact close over 20 years
  • $62,900,000Estimated net benefits at compact close over 20 years

Evaluation Findings

MCC is conducting a combined performance evaluation of the infrastructure and Health Systems Strengthening Activities within 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.

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 (Dec. 2013) Percent Compact Target Satisfied (Dec. 2013)
Health Centers Activity

Outcome: Health centers are equipped and maintained at standards

Physical completion of the Botsabelo facilities (BTS) (%) 0 100 100 100%
Physical completion of Outpatient Departments (OPDs) (%) 0 100 99 99%
Physical completion of health center facilities (%) 0 100 88 88%
Health centers equipped (%) 0 100 33 33%
TB notification (per 100,000 pop) 640 400 567 30%
People with HIV still alive 12 months after initiation of treatment (%) 74 80 79 83%
Deliveries conducted in health centers (%) 36 80 47 25%

Water Sector Project

  • $164,028,000Original Compact Project Amount
  • $149,813,612Total Disbursed
  • 12.57%Estimated Economic Rate of Return over 20 years

Historically, the water sector has played a significant and complex 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 for secure, adequate, sustainable and clean water supply and sanitation services for rural and urban consumers. It did so through the:   

  • construction of a bulk water conveyance system from the Metolong Dam;
  • rehabilitation of existing urban and peri-urban water supply infrastructure and expansion of the distribution network;
  • rehabilitation and/or construction of water supply points and latrines; 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.

Estimated benefits at compact close correspond to $144 million of project funds, where cost‑benefit analysis was conducted:

  • 236,874Estimated beneficiaries at compact close over 20 years
  • $138,670,000Estimated net benefits at compact close over 20 years

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. It is expected to be available in early 2016. MCC is also planning a performance evaluation of the Urban and Peri-Urban Water and Metolong Dam Bulk Water Conveyance System Activities that will measure changes in water demand, supply, use and time savings.

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 (Dec. 2013) Percent Compact Target Satisfied (Dec. 2013)

Outcome: Rural water supply is expanded and sanitation is improved

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

Outcome: Urban domestic water supply is improved

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

Coordination and Partnerships

Close coordination with governments, other international donors and development agencies saves time and money, 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 U.S. Centers for Disease Control and Prevention, 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 also 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 of Lesotho committed approximately $100 million to cover cost overruns during implementation of the compact and another $50 million to complete the projects after the compact term and support compact 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, following the close of the compact, the Lesotho 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.

Also, as a result of MCC’s concentrated involvement in connecting the World Bank’s Public-Private Infrastructure Advisory Facility with the International Finance Corporation and the Government of Lesotho, 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 facilitate and incentivize the desired investment outcomes under the compact, MCC and the government of Lesotho agreed that the following conditions precedent would be met before entry into force of the compact agreement or before certain 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

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 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 Program Implementation Unit

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

Met on time

Private Sector Development Project

Land Administration Reform Activity

Passage of a new Land Act and implementing regulations that: (1) establish greater land tenure security for all land occupants; (2) include provisions for compulsory acquisitions of land by the State that ensure prompt payment of compensation and protection from arbitrary takings; (3) ensure gender equity in land ownership and land transactions and is congruent with the Legal Capacity of Married Persons Act; and (4) establish a simplified framework for systematic regularization and registration of land and mechanisms that increase access to land and encourages formalization of land rights.

Met late

Twelve month delay: funding of the Land Activity was suspended for 45 days until the Act was passed.
Private Sector Development Project

Land Administration Reform Activity

Passage of legislation that enables the establishment of a new land administration authority that is professionally managed, autonomous in operations, self-sustaining, and provides efficient and cost-effective land administration services to public and private users.

Met late

Nine month delay: funding of the Land Activity was suspended for 45 days until the Act was passed.
Private Sector Development Project

Land Administration Reform Activity

Met on time

Water Sector Project

Metolong Dam Program Management Activity

Establishment of Metolong Authority and Metolong Project Management Unit

Met late

Water Sector Project

Metolong Dam Program Management Unit Activity

Full funding for Metolong Dam Project such that no material funding short fall is present based upon the confidential cost estimate of the dam design engineer.

Met on time

$300 million additional funding in loans leveraged to address shortfalls.