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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.

  • Original Amount at Compact Signing:
    $362551000
  • Amount spent:
    $358045892.18
  • Signed:
    July 23, 2007
  • Entry Into Force:
    September 17, 2008
  • Closed:
    September 17, 2013

Project Results

Health Sector Project

  • $122,398,000
    Original Compact Project Amount
  • $143,650,195.1
    Total Disbursed

Estimated Benefits

Estimated Benefits for the Health Sector Project
Time Estimated Economic Rate of Return (ERR) over 20 years Estimated beneficiaries over 20 years Estimated net benefits over 20 years
At compact closure 752,003 $-53,613,000

Project Description

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.

Private Sector Development Project

  • $36,105,000
    Original Compact Project Amount
  • $24,162,432.67
    Total Disbursed

Estimated Benefits

Estimated Benefits for the Private Sector Development Project
Time Estimated Economic Rate of Return (ERR) over 20 years Estimated beneficiaries over 20 years Estimated net benefits over 20 years
At compact closure 368,319 $18,266,000

Project Description

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.

Water Sector Project

  • $164,028,000
    Original Compact Project Amount
  • $149,813,611.5
    Total Disbursed

Estimated Benefits

Estimated Benefits for the Water Sector Project
Time Estimated Economic Rate of Return (ERR) over 20 years Estimated beneficiaries over 20 years Estimated net benefits over 20 years
At compact closure 361,122 $120,032,466

Project Description

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.