The Competitiveness and Financial Inclusion (CAFI) is a Project of the Government of Lesotho implemented under the Ministry of Trade, Industry, Business Development and Tourism. The project is designed to strengthen private sector so that it plays a meaningful role in the economy. It is financed by World Bank to run for 6 years from July 2022 to June 2028. CAFI is funded through a loan of $45Million, with a supporting grant of $7,5Million, a total of $52,5 Million. There is a further grant of $950,000 (Nine Hundred and Fifty Thousand US Dollars) received specifically for the horticulture initiative, from the India, Brazil, South Africa (IBSA) Fund.
This project was conceptualized during the era of COVID-19 after job losses especially in the textile industry, and closure of many MSMEs due to liquidity problems. The project is aligned to the second National Strategic Development Plan (NSDP II) which has been extended, with the focus on digital government, digital infrastructure, digital population and digital business.
The success of the project will be measured against the following key results indicators:
- Number of enterprises benefitting from private sector initiatives of the programme (Of which are women-owned, of which are youth-owned);
- Value of financing (seed funding, grants, partial credit guarantee, MSME resilience funds) accessed by enterprises through the programme (Of which are women-owned);
- Percentage of enterprises supported by the programme with increased revenue (Of which are women-owned, of which are youth-owned); and
- Percentage of enterprises supported by the programme with increased employment (Of which are women-owned, of which are youth-owned.
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- Business Environment
CAFI is a successor of the previously known project that closed last year (2022) called private sector competitiveness and economic diversification project. It supported implementation of government to business digital services like One Stop Business Facilitation Centre (OBFC), Construction system of the Maseru City Council (MCC) and Land Administration system of the Land Administration Authority (LAA), and trade facilitation systems of the Revenue Services Lesotho (RSL). As all systems are operating independently currently, CAFI is to first enhance the systems and also improve interoperability such that there is secure exchange of data between the systems, thereby reducing the costs and time in doing business and also reducing bureaucracy being experienced by the private sector.
- The project is to support access to finance (biggest constraint) for startups and MSMEs. It’ll work with financial institutions to help develop financial products that respond to MSMEs’ needs, and with introduction of value chain financing. It will also be supporting review and improvement of Partial Credit Guarantee Scheme such that it responds to the needs of MSMEs
- Credit infrastructure systems that were implemented are going to be strengthened. Credit information bureau and collateral registry (which is already operational) is to be FULLY operational for MSMEs and individuals to use both movable and intangible assets as collateral. This will also help and broaden the scope such that corporate data is included.
- To improve the business environment, there is going to be strengthening of resilience of MSMEs in the country. Resilience fund for MSMEs and informal sector which was obviously identified as a huge gap during COVID-19 is to address the matter. Registry of all businesses including informal sector is needed to ensure all businesses are formalized in line with new business licensing and registration law
- On resilience also, government is exploring sovereign insurance in case of disasters where World Bank is assisting with the analysis
- Entrepreneurship and MSME development
Diagnostics made highlighted a gap in entrepreneurial skills. The Ecosystem is fragmented hence the intended impact is minimal.
- Establishing an Entrepreneurship hub and seed financing facility is to bring all ecosystem players together, where there will be Enterprise Support Organisations (ESOs) capacitated to be in position to incubate enterprises across sectors. Expectation is that most of the enterprises will be YOUTH AND WOMEN. Digital entrepreneurship is expected to be dominant, where the target is on innovative businesses.
- The target is to incubate 500 business startups where 50 of those are to go through acceleration.
- CAFI is looking to establish a venture capital fund to help ensure investment in those businesses that show traction to be supported to become corporates. This is for young people to grow their businesses to have global footprint as an engine to grow entrepreneurship in the country!
- There was a matching grant programme that was known as the Lesotho Enterprise Assistance Programme (LEAP) which was impactful (up to 500 businesses assisted), where it provided subsidy to procure services that made businesses more competitive, to expand and to link with international markets. The programme is to continue but with additional components:
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- Encourage enterprises to adopt digital platforms for marketing, running businesses, etc. This is to be an intentional effort.
- Access to broadband to support entrepreneurs
- To work with training institutions to help them develop programmes relevant to the industry to address skills mismatch, mainly on export sectors (managerial, supervisory and technical skills) improvement
- Export sector value chains: in NSDP and the project addresses horticulture / agriculture and textile and garment value chain
- Many people are familiar with fruit farms in Leribe (3 pilot commercial farms successful). CAFI focus is on scaling farming such that a new industry is created beyond the 3 farms to at least 18 farms in 5-6 years.
- The project has partnered with the National University of Lesotho (NUL) through their facility in Mabohong, which is to be used for all horticulture crops as an incubation hub and training centre.
- The India, Brazil, and South Africa (IBSA) Fund has contributed $950,000 fund towards the facility on horticulture, and the fund is being administered by the United Nations Development Programme (UNDP) Lesotho.
- NUL is also going to be an active participant to provide and develop training programme together with the Stellenbosch University, which has more than 100 years’ experience in horticulture, all thanks to South African High Commission. Lesotho is going to have a vibrant horticulture sector in the country.
Textiles and garment value chain
It is estimated this industry spans 3 decades of existence in Lesotho but has not been integrated in the economy.
Basotho are not participating as owners but as workers in the sector. There is need to change the status quo. Existing factories in Maseru and Maputsoe just cut, make and trim. Preproduction and postproduction are both outside the country. The idea is to revitalize the sector and ensure Basotho participate through the entire value chain of textile and garments industry. The International Labour Organisation (ILO) and the International Trade Centre (ITC) are to partner with the Lesotho National Development Corporation (LNDC), to promote investment in the sector.