THE LESOTHO HIGHLANDS WATER PROJECT:
THE ECONOMIC IMPACT OF PHASE IB IN LESOTHO
As Phase I of the Lesotho
Highlands Water Project draws to an end, we have to take stock of what Phase IB
means to welfare of the people of Lesotho.
We set out here to compile a list of gains and possible ways which have
ensured a flow of benefits realized in the country during the construction
phase of the project. This is a summary
of a study on the impact of Phase IB at micro–economic level.
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BACKGROUND
Phase IB of the Lesotho Highlands Water Project
(LHWP) is part of the original phase of construction committed to
by Lesotho and the Republic of South Africa (RSA) under the Treaty. Phase IB has the following main features:
Mohale Dam, Mohale Tunnel and Matsoku Weir. It will add 11.4m3 /sec
of the LHWP water to RSA by January of 2004.
Previous economic impact studies conducted in 1996 showed
that Phase IB would yield positive results on the Lesotho economy during its
implementation. Of significance at
macroeconomic level, it had been estimated that the sum of LHWP expenditures
and revenues cumulated over the period 1987 to 2002, would amount to about five
times Lesotho’s total gross domestic product in 1994. Expenditures on Phase IB began in 1992 and the construction phase
is ending in 2003.
Phase IB is bringing to Lesotho incremental
permanent benefits, as well as the transitory benefits, which relate to
construction activities of the phase.
Among permanent benefits the most important is the permanent
infrastructure that has been created, mainly roads, but also in housing, power
and telecommunication systems.
Hydropower sales and water transfer royalties are the main permanent
benefits. These developments will have
a lasting positive effect on Lesotho’s economy starting with Royalties revenues
beginning in 1996. Apart from the
transfer of water to South Africa, under transitory benefits, the LHWP provides
some scope for Lesotho to provide products and services locally, to optimise
local employment opportunities and develop skills base through appropriate
training.
PHASE IB IMPACT ON THE ECONOMY
The Lesotho Highlands Development Authority (LHDA)
commissioned an in-house study to analyse microeconomic impacts of the second
phase of the project to the people of Lesotho and on individual
enterprises. The results are listed
below as benefits which have accrued to Basotho since the start of Phase IB
activities in 1994 to date.
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Sales
of water from the project area have brought many benefits to affected
communities |
TRANSITIONAL BENEFITS[1]
During construction phase, the project has had a significant impact on Lesotho’s economy in terms of jobs created, skills acquired, supply of goods and services opportunities and tax revenues. The impact is more pronounced than during Phase IA construction phase according to studies conducted before the start of construction. Purchases of goods and services from Basotho contractors and further opportunities to subcontract under main contractors afforded many to participate in the project. A summary of transitional economic benefits and impacts attributable to construction of Phase IB is provided in Table 1 below. This is compared against predictions made earlier about the project:
Table 1: Comparison of actual impact as against projected impact in 1998 study: Summary
Activity |
Phase IB Actual Impact |
1998 Impact Estimates |
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Construction |
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Basotho
Employed during construction 1/1998-6/2003 |
9,000 jobs (14,500 person-yrs by June 2003) |
3,000 jobs (10,000 person- yrs by
2004) |
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Basotho
Labour (value) |
M623 million |
M460 million in current prices[2] |
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Basotho
Contracts (direct & subcontracting) in value |
M149 million |
M190 million contracting and sub-contracting in
current prices |
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Value
of Basotho Sub-contractors |
M98 million |
Nil |
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Basotho
Labour on Sub-contracts-wages |
M75 million |
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Basotho
Consultancy (value in supervision) |
M260 million |
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Basotho supply of goods and services |
+ M787 million |
Nil |
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Basotho
Consultancy (% of total consultancies) |
34% of contract values |
8% |
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Basotho
Labour from highlands-affected area- earnings |
M130 million from 1/1998-6/2003 |
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LHDA |
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Basotho
Labour |
M365 million cumulative to 6/2003 |
M280 million cumulative by 2004 |
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Compensation
Expenditure |
M26 million cumulative |
M25 million |
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Running
Costs |
M1, 500 million to date |
M 100 million p.a. |
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¨
Indirect GOL
and indirect labour opportunities |
M186 million |
+M240 million |
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¨
Other Benefits[3] Royalty
income directed to Lesotho Fund for Community Development |
M40 million p.a. |
M40million p.a. |
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Rural
Development Programme Expenditure |
M46 million (cumulative) spent to date |
M240million |
· Basotho labourers were used exclusively on the construction contracts. As a result, a little over 9 000 Basotho secured employment on major contracts and earned an estimated income of M623 million. (i.e. 14,500 person-years of jobs as opposed to 10,000 person-years, estimated in 1998,[4] including infrastructure but excluding LHDA). Of significance, about 45%[5] of this labour came from the highlands area. These people who are directly affected by the project earned approximately M130 million from 1998 to June 2003
· A number of Basotho companies contracted or subcontracted for different activities of construction. These were able to serve the project to the value of M149 million in direct contracts and sub-contracts. Another opportunity came to professionals who were consultants, working as consulting engineers together with contractors in designs and supervision of major works. Under this umbrella Basotho earned about M260 million. This they received mainly by going into joint ventures with international firms.
· Under major works, labourers working in subcontracts such as stone pitching received wages amounting to a total of M75 million for 1,600 jobs which translate into 2 100 person-years. Much as this source of employment contributed to Basotho earnings, this channel did not live up to LHDA's expectations of creating more job opportunities for local firms.
· Other beneficiaries have included the Lesotho Fund for Community Development[6] (LFCD) which has channeled water royalties revenue to benefit communities across the country in development-oriented programs, mainly in roads, small earth filled dams, forestry and soil conservation works. To date the total cost of projects funded under LFCD amount to nearly M80 million. LHDA on its part has expended a total of M316 million on resettlement, compensation and development under Phase IB.
Non-Construction Activities
Lesotho Highlands
Development Authority
·
LHDA as an organization has
benefited in terms of new skills acquired and experience in implementing a very
complex project. The organization has
been poised to demonstrate possibilities of capacity building in developing the
water sector and one of Lesotho’s few national assets. As Phase 1B draws to an end, LHDA is
rightsizing. Some of the skills will be
lost to LHDA but could be deployed effectively elsewhere in the national
economy.
Consulting Opportunities
· Involvement of Basotho in consulting has been mainly as employees and/or as partners of consulting engineers for major contracts, since more Basotho have had the benefit of Phase IA experience and capacity building. Careful planning on the side of LHDA to include specific provisions in tender and contract procedures went a long way to encourage participation of Basotho contractors.
·
5,200 Basotho working as consulting engineers have
collectively earned approximately M142 million in salaries working a total of
approximately 5,155 person-months.
Otherwise outright Basotho consultants have
earned approximately M153 million in Phase IB from consulting services to the
project.
Permanent Benefits
Permanent
Advance Infrastructure
·
Permanent infrastructure includes Roads, Power
Substations and Transmission Lines, Telecommunications, Housing & Services
at Mohale New Town, concrete bridges and Infrastructure for Resettlement and Development.
The cost of permanent infrastructure is approximately M1, 527 million[7]
for Phase IB. This is
higher than the figures in the 1998 study, which had estimated infrastructure
would cost M1, 200[8] million in
current prices.
Gross Fixed Capital Expenditures
·
As a result of LHWP, Lesotho has acquired fixed capital assets especially infrastructure. Related to these capital assets, Lesotho has
gained significantly on ancillary developments which are necessary public investments,
amounting to M313million[9]. These are the
Environmental Action Plan projects whose cost responsibility is Lesotho
Government. The projects are basically
on the development side, an example here is agricultural projects, income
generation, tourism and water and sanitation to villages not directly affected
by the LHWP works and reservoir.
Tourism
· Many activities are already being undertaken in the tourism sector by government in an effort to reform the sector. Other than in the nature reserves, tourism development remains largely at the conceptual planning stage within LHWP.
·
Lesotho's natural beauty and
alpine conditions are unique in Africa and can support even small-scale tourism
and spur rural development.
Full-fledged tourism is dependent on good infrastructure which Lesotho
does not have. However following LHWP
initiatives, the country is embarking on integrated plan of action putting in
place tourism facilities to cater for the industry. So even if the potential for tourism is there, it will take time
for the people in the highlands area to reap any benefits from tourism sector
activities in the area where incidence of poverty and unemployment is
high. In 2002, the Project started to
divest its assets which could be converted into tourist amenities.
· Comparatively though, there has been a notable impact on tourism to mountain areas as a result of Phase IB, which has made the area accessible. A total of 49,702 [10] tourists have visited Mohale construction area from 1998 to 2003. It is expected that once construction is over and tourism facilities are in place, Phase IB area will attract more tourists. Phase IA has had 45,716 tourists over the same period. This sector is expected to grow as a result of the now completed infrastructure facilities for Nature Reserves, which are all receiving visitors. Visitors to the project area, as tourists, come from the region and internationally. Among these tourists are school children from within Lesotho and neighbouring border towns in the Free State, visiting the project sites for study tours.
Socio-Environmental Issues
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Public Health and the environment, Phase IB. Machache area, Maseru Lesotho. |
A project of the size and complexity of the LHWP has the potential to damage the environment in which it is situated.
In recognition of
this possibility, the Project authorities took appropriate measures to mitigate
and compensate for consequent adverse impacts. Unlike in Phase IA, the Phase IB
Environmental Impact Assessment (EIA) and the Environmental Action Plan (EAP)
were completed before construction started.
There are losses to people affected by the project such as loss of land
due to resettlement and later losses from reduced water flows downstream and
other types of losses. These losses are being addressed and for resettlement
M241[11]million
has been allocated and spent to date.
This was not the case with Phase IA.
The main elements of the EAP are:
§
Compensation, Resettlement
and Development Plan
§
Natural Environment and Heritage
Action Plan
§
Public Health Action Plan
· The LHWP like any other big project affecting many people has not been without complaints leveled at its compensation policies. Response to affected people's plight has not been free of controversy. Project authorities are blamed for not dealing with environment and resettlement issues in a timely and effective manner. The accusations are from the affected people at the project area and international environmental activists as well. The main source of discord stems from the fact that LHDA is not seen to be paying specific and adequate attention to disclosure and consultation.
Conclusions
On the basis
of the findings of this study the following conclusions can be made:
·
Phase IB has had a notable
impact at the micro-economic level.
Employment has surpassed expectations, considering that about 15 000
person years had been realized by June 2003 compared to projected 10,000 person
years for major works, according to the 1998 LHDA Study. This is shown in the
improved employment value for Basotho in both non-construction and construction
activities.
·
The infrastructure in the
form of road network and bridges has improved access in various areas of the
highlands, easily connecting rural communities to each other. Basotho who live around the project area
have felt the greatest positive impact.
Lesotho Government agencies promoting commerce are thus in a better
position to encourage more businesses to exploit this newly enabled
accessibility to develop new markets for goods and services.
·
Contractors to the project
engaged many Basotho; primarily labour that had acquired relevant skills from
implementation of Phase IA. Newly
acquired skills will allow more communities at the project area to participate
in future phases of the LHWP or other similar projects.
· Basotho companies continued to win small contracts in both construction and non-construction activities such as construction of houses, roads, bridges and those that involved supply of furniture and equipment. Firms that were able to secure contracts were those that had either gained experience in Phase IA of the LHWP or had competency. Project authorities would do well to encourage experienced local firms in assisting the country to harness the existing enthusiasm from emerging small companies. This could come in a form of formal training or creating incentives for encouraging foreign firms to enter into partnerships with local firms for future phases.
· Evironmental and social welfare considerations on the project have brought about a lot of attention to project authorities concerning their responsibility to downstream communities. Global environmental awareness has turned the spotlight on the mitigation and management of downstream impacts of large dams. LHDA engaged consultants to undertake an in-stream flow assessment of the project. The results were an estimation of potential resource losses to communities as well as the costs of compensation for losses of resources and of mitigation of impacts.
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