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LESOTHO PRIVATISATION AND PRIVATE SECTOR
DEVELOPMENT PROJECT (WORLD BANK CREDIT 2612)
FOURTH ANNUAL REPORT
FOR THE PERIOD 1 APRIL 1999 TO 31 MARCH 2000
This report has been
prepared as usual in compliance with the provisions of the Privatisation
Act No. 9 of 1995. The Work Plan for the Lesotho Privatisation and
Private Sector Development Project for the period beginning 1 April 1999
was qualified by uncertainty whether the project would be extended
beyond the original completion date of 31 December 1999. Nevertheless in
recognition of the fact that negotiations about a possible extension
were in progress between the Government of Lesotho and the World Bank
the draft Work Plan covered the entire year up to 31 March 2000.
In November 1999 agreement was finally reached that the project would be
extended to 30 June 2000. In general the past year has seen intensified
project activities with marked signs of accelerated progress which can
be ascribed in large measure to a growing understanding and acceptance
of the privatisation programme in Lesotho by various stakeholders.
2. Work Plan for 1999/2000:
The striking feature of the Work Plan for 1999/2000 was its reflection
of the general consensus on the urgent need for a new national dialogue
about privatisation and restructuring of the Lesotho economy. It had
been noted that the closure of the Lesotho Agricultural Development Bank
in particular and the continuing restructuring of Lesotho Bank had
activated fundamental questions among the general public about the
rationale for the entire privatisation programme. The Privatisation Unit
was therefore instructed to convene the pivotal National Dialogue which
took place on 1 and 2 September 1999. The National Dialogue helped to
focus attention afresh on the objectives of the project and strategies
for achieving these. The enterprise-based activities in various sectors
could therefore be related to an overall plan. The National Dialogue
also provided an opportunity for the Government of Lesotho to reaffirm
anew its commitment to the policy of economic restructuring, including
privatisation. The Right Honourable the Prime Minister and the
Honourable Deputy Prime Minister and Minister of Finance delivered
strong statements on behalf of the Government of Lesotho. Additionally,
other burning issues such as the importance of participation of Basotho
in the programme and the crucial role of foreign direct investment were
also addressed. Finally, the dialogue provided opportunities for frank
disclosure of information about historical performance and the resultant
distressed condition of key state enterprises including the state banks
and utilities which had hitherto been hidden from public view. The clear
political commitment demonstrated at the National Dialogue gave a fresh
impetus to the privatisation programme.
3. Enterprise Related Activities:
3.1 Loti Brick (Proprietary) Limited:
The Management Contract with Weneen Bpk of South Africa was formally
revoked in view of the provisional liquidation of that company in South
Africa. Alternative arrangements were put in place for management of the
company while it was re-advertised. A local buyer was eventually
identified and negotiations commenced and continued for the rest of the
year. In the meantime the Privatisation Unit was authorised by the
Ministry of Finance to purchase the shares of the old Lesotho Bank in
Loti Brick to be held in trust pending transfer to local investors.
3.2 Plant and Vehicle Pool Services:
After due advertisement Imperial Fleet Services of South Africa was
selected as the preferred strategic investor and negotiations commenced
in February 1999 culminating in final signature of a Sales Agreement in
January 2000. The Sales Agreement provided for the creation of a new
company Imperial Fleet Services (PVPS) Lesotho in which Imperial
Holdings would have an 80 per cent shareholding while the Government of
Lesotho held the rest. The agreement provided for the purchase by the
new company of a substantial portion of the Government vehicle fleet and
for lease back as well as maintenance arrangements for all vehicles
including those that remain under full Government ownership. An
important element of the agreement was the provision for assured
participation by Lesotho Private sector operators in both maintenance
and short term vehicle hire business.
3.3 Lesotho Bank:
Negotiations with Standard Bank of South Africa led to the agreement
whereby Standard Bank Lesotho took over control of Lesotho Bank on 1
August 1999, with the eventual acquisition of a majority shareholding in
a new Lesotho Bank (1999) with a 70 per cent shareholding by Standard
Bank, and 30 per cent held by the Government of Lesotho.
3.4 Lesotho Agricultural Development Bank:
A liquidator was appointed for the Lesotho Agricultural Development
Bank, and the process of liquidation commenced.
3.5 Orange River Lodge (Quthing Lodge):
After the sale negotiations with the originally identified local bidder
had fallen through, it was agreed to dispose of Orange River Lodge by
public auction. The property was bought by another local investor
through the auction process.
3.6 Minet Kingsway (Pty) Ltd:
In response to a proposal from Aon Risk Services, U.K. to take over the
entire shareholding of the former Lesotho Bank in Minet Kingsway (Pty)
Ltd, negotiations were held in February 2000. The negotiated agreement
provides for the acquisition of an additional 31 per cent shareholding
in the company by Aon Risk Services. This would bring the total Aon Risk
Services shareholding to 80 per cent, leaving the Government of Lesotho
with 20 per cent.
3.7 Lesotho Pharmaceutical Corporation:
In negotiations with Time Controlling Capital Investments (TCI) of South
Africa, agreement was reached for TCI to undertake due diligence in
Lesotho Pharmaceutical Corporation from 4 February to 31 March 2000 with
the possibility of acquisition of a majority shareholding in Lesotho
Pharmaceutical Corporation with effect from 1 April 2000 if the due
diligence turned out positive.
3.8 Lesotho Telecommunications Corporation:
Action was taken on several fronts to prepare Lesotho Telecommunications
Corporation for privatisation by mid-2000. On the regulatory side, a new
regulatory framework bill, the Lesotho Telecommunications Bill, was
prepared and submitted to Parliament. On the operational side, the firm
of Booz Allen and Hamilton identified strategic options for the
privatisation of Lesotho Telecommunications Corporation. Subsequently
Price Waterhouse Coopers were appointed to assist with the
implementation of divestiture of the Lesotho Telecommunications
Corporation for completion by 30 June 2000.
3.9 Vodacom Lesotho (VCL):
As part of the restructuring of the Lesotho Telecommunications
Corporation before its privatisation, it was decided that LTC divest its
shareholding in VCL. Consequently, bids were invited for take-over of
LTC’s 12 per cent shareholding in VCL.
3.10 Maluti Oil and Cake Mills (Proprietary)Ltd:
After negotiations with the first selected bidder had proved
unsuccessful agreement was finally reached with Continental Aid to
purchase the assets of Maluti Oil.
3.11 Water and Sewerage Authority (WASA) Non-Core Activities:
Three of WASA’s non-core activities, namely mechanical workshop, tanker
and pit emptying services were put up for privatisation through a
competitive bidding process. Despite concerted efforts to encourage and
stimulate participation by Basotho bidders, including a special bidders
conference, the final outcome was still disappointing. One bid only was
received for the mechanical workshop from a local company and one bid
also for the tanker and pit emptying services from a South African
operator. Negotiations with the bidders are in progress.
3.12 Water and Energy Regulatory Frameworks:
London Economics were commissioned to prepare draft legislation for a
new structure and the regulation of Water and Energy Sectors following
earlier advice that such legislation was a pre-requisite for the
restructuring of Water and Sewerage Authority and Lesotho Electricity
Corporation and the introduction of private sector participation in the
two sectors. The final report of the Consultancy was expected on 10
March 2000.
3.13 Lesotho National Insurance Holdings:
A proposal was received from African Life and St. Paul to take over part
of GOL’s stake in Lesotho National Insurance Holdings, and its
subsidiaries.
3.14 Lesotho Brewing Company:
The Government of Lesotho prepared a bid to take-over the shareholding
of the Commonwealth Development Corporation in Lesotho Brewing Company
for eventual transfer to the proposed Unit Trust.
4. Basotho Participation: Establishment of Unit Trust:
Following protracted consideration of various options for promotion of
Basotho participation as investors in the privatised companies, it was
finally recommended to Cabinet that the chosen vehicle be a Unit Trust.
Cabinet also approved related considerations to make the Unit Trust a
competitive, accessible and reasonably secure investment vehicle.
Recruitment of a manager for the proposed Unit Trust is under way.
5. Private Sector Advisory Committee:
The Private Sector Advisory Committee continued its useful role as a
consultative and advisory forum to the Privatisation Unit and the
Government of Lesotho on the implementation of the Privatisation and
Private Sector Development Project. The Committee continued to stress
the importance of Basotho investor participation as a key to the success
of the programme although existing limitations in the areas of capital
availability and entrepreneurship skills were acknowledged. Members of
the Committee played key roles in the planning and execution of the
National Dialogue on Privatisation and Restructuring of the Lesotho
Economy where some acted as presenters and facilitators of discussions.
6. Public Awareness Campaign:
The timely interventions of the Advisor posted in the Privatisation Unit
led to the production of a wide range of documentary and pictorial
materials to promote public awareness of the privatisation programme.
Regular press releases were issued to inform the public about critical
developments in the privatisation programme. Both the former and the
current Honourable Ministers for Finance led the Privatisation Unit team
in radio presentations and discussions of the privatisation programme.
It can be said that overall there was an increased awareness of the
programme also because of the nature of the targeted enterprises and
particularly Lesotho Bank which was exposed to much public attention. As
an example of targeted public awareness efforts, the project sponsored a
special workshop to explain the privatisation of Lesotho Bank to
representatives of Basotho Mineworkers in South Africa. They strongly
recommended extension of the public awareness initiatives on
privatisation to Basotho workers in South African mines.
7. Entrepreneurship Training Programme:
The Entrepreneurship Training Programme continued with its
entrepreneurship training activities though somewhat handicapped by
budgetary constraints. The Monitoring Board of the programme recommended
several initiatives which were only partially realised. The
Entrepreneurship Training Programme supervised the training of employees
retrenched from Lesotho Flour Mills which was financed through a special
provision that was included in the Sales Agreement. Discussions were
held on the future of the Entrepreneurship Training Programme after
project closure on 30 June 2000, with a focus on the
institutionalisation of the Entrepreneurship Training Programme in the
Basotho Enterprises Development Corporation (BEDCO).
8. Lesotho Chamber of Commerce and Industry:
The capacity building support to the Lesotho Chamber of Commerce and
Industry was gradually scaled down and came to an end in December 1999.
In earlier days the support had included staff salaries as well as
office equipment and rent subsidy. The assistance was clearly
appreciated by the Lesotho Chamber of Commerce and Industry, as
evidenced by representations received from the Chamber for further
continuation of the assistance. Unfortunately this could not be
sustained any longer from project resources.
9. Implementation Fund:
The Implementation Fund Committee ceased operations after the World Bank
indicated that the resources allocated to the fund in the original
budget had been re-directed to the restructuring of state banks. During
discussions at the National Dialogue there were repeated calls for the
Government to consider establishment of a Capital Venture Fund to
provide loans at affordable rates of interest.
10. Creation of an Enabling Environment: Commercial Court.
The establishment of the long awaited Commercial Court received an
impetus when two High Court Judges were assigned to the proposed Court.
Training sessions for staff were initiated under the auspices of the
project. Rules of procedure for the court were also outlined. It was
indicated that the new Lesotho Commercial Court would be inaugurated in
May, 2000.
11. Capital Markets Development:
It was noted that the culture of investment in new instruments such as
Treasury Bills and Unit Trust was rapidly gaining ground in Lesotho. The
proposed Unit Trust under the Privatisation Project would seek to
further develop the culture of investing and trading in these new
investment vehicles among Basotho.
12. Training and Capacity Building:
In keeping with its objective to strengthen the capacity for Private
Sector involvement in the economy of Lesotho, the project continued to
sponsor relevant training for staff of the project, officials of
Government from the Ministries and Departments, as well as private
sector participants. In so far as training for private sector
development has become big business, there was no shortage of courses on
offer, the only limitations being selection and resources. The emphasis
was on short courses whose results could be applied immediately. Among
the training sponsorships may be mentioned the following: Ms. M. Masitha
of Entrepreneurship Training Programme attended a course on Development
of Small Industries in Israel; Ms M.D.T. Guni of the Ministry of Natural
Resources went to Washington D.C. for a course on Promoting Competition
and Consumer Protection by Utilities Regulation; Mrs S.E. Phalatsi
attended a course on Procurement Procedures for IDA Aided Projects in
India. The project also sponsored participation in relevant courses
offered locally. It was noted that relevant training would continue to
be needed especially for the staff of the proposed Multi-sectoral
Regulatory Authority for Water, Energy and Telecommunications.
13. Conferences:
In addition to attendance at formal workshops and training courses, the
project sponsored attendance of staff and private sector participants at
selected conferences to promote exposure to new ideas, to publicise the
Lesotho transformation initiatives, and to stimulate networking. In view
of the project's strong orientation towards restructuring of Utilities
the Director of the Privatisation Unit attended the Africa Energy Forum
held in Amsterdam as well as a World Bank Conference on the
Privatisation of Utilities in Rome. Members of Staff of the
Privatisation Unit attended other relevant conferences such as the
Southern African Smart Partnership Dialogue held in Zimbabwe which
considered ways of promoting cooperation among Government, the Private
Sector, and Labour in Southern Africa countries.
14. Visitors to the Project:
During the year there was an increased number of visitors to the project
from Lesotho as well as from abroad. Among the visitors to the project
may be mentioned Mr. Tom Wright, the Irish Consul to Lesotho, Dr. Brown
from the Embassy of United States of America; Mr. M. Dreschler, from the
European Investment Bank, Ms. Kimberly Murphy, State Department
Washington D.C., Mr. Roger Riddell Overseas Development Institute U.K;
Mr. M. Harvey, DFID, Pretoria; Ms. A. Chidzero, International Capital
Corporation, Zimbabwe, and Niels Biering, UNIDO Lusaka. The World Bank
and the International Monetary Fund maintained a keen interest in the
implementation and progress of the programme. The World Bank fielded
regular supervision visits as provided in the Credit Agreement. IMF
field missions to Lesotho also regularly visited the project.
15. Audit of Accounts:
The Annual Audits of the accounts of the project have been undertaken by
the Auditor-General of Lesotho in accordance with the provisions of the
Privatisation Act.
16. Conclusion:
The Lesotho Privatisation and Private Sector Development Project has
been an ambitious undertaking to restructure the economy of Lesotho in
the face of many limitations peculiar to Lesotho in addition to the
usual challenges facing privatisation programmes in other parts of the
world.
With regard to local participation, the major constraints that were
encountered were the absence of a tradition of private sector investment
in sectors other than retail trade and the lack of local capital. The
level and basis of economic discourse also were major handicaps to the
extent that there was no set tradition of public disclosure of
information on economic issues such as the performance of state
enterprises. At the same time the small market size as well as the
absence of modern and clear regulatory frameworks in several sectors
stifled response from foreign investors, especially in view of existing
investments opportunities elsewhere.
The resistance that is usually encountered in privatisation programmes
emanating from workers worried about possible job losses and from other
entrenched groups with vested interests in the status quo ante was also
met in Lesotho. If anything the resistance in Lesotho was probably more
fierce because of high unemployment and limited alternative job
opportunities. Furthermore there was a pervasive fear of foreign
investment among some groups who view it as a threat to national
sovereignty. Another challenge, while not unusual in privatisation
programmes elsewhere but painfully evident in Lesotho, was the
distressed condition of many of the key state enterprises that called
for drastic restructuring as part of the divestiture process to stay
afloat.
In these circumstances implementation of the privatisation programme was
bound to be difficult. It is noteworthy that steady progress was made
albeit at a somewhat slower pace than had been originally anticipated.
The increased understanding of the privatisation programme as a result
of the intensified public awareness campaign, frank discussion of the
need for privatisation, and reiteration of Government’s commitment to
the programme at the National Dialogue held in September 1999, all
contributed to the accelerated progress seen in the year 1999/2000.
PRIVATISATION UNIT
MASERU 100
April 2000
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