The objective of this study has been to examine ways in which Lesotho’s export base can be broadened to lessen the extent to which it is currently dependent upon preferential access for clothing exports to the United States. It has been commissioned through the Lesotho Trade and Poverty Programme funded by DFID in response to the concern that dependence on this narrow base of export products to an equally narrow set of market destinations potentially makes the economy extremely vulnerable to external shocks.

There are several distinct but integrated parts to this study. It is not the intention to merely add to the growing list of recycled papers that have been undertaken for Lesotho on this subject. While this study will provide a review of these earlier works, it intends to build upon that base by introducing some strong quantitative but practical analyses of trade flows to identify potential competitive advantages that Lesotho may explore.

The outline is as follows:

• Section 1 will give an examination of the structure of Lesotho’s economy with an introductory piece to set the scene for later analysis. It will be in the form of tables showing the main compositional changes to the economy over the last few years drawing as much on up-to-date macroeconomic data as possible.

• Section 2 follows logically from the above with a section looking at productivity in Lesotho, and a comparison of wage rates with other globally competitive nations.

• Section 3 examines Lesotho’s current export profile, although, given the problems of getting data for intra-SACU trade, this will by necessity have to concentrate upon Lesotho’s “outside” exports to the US and other destinations. The most recent export data will be sourced from the Lesotho Revenue Authority (LRA).

• Section 4 provides a summary sub-report on the clothing sector in Lesotho. While recognizing that this is the very sector that we wish to diversify from, it cannot be ignored as the potential for increased market penetration to non-US destinations may well be greater than most other possibilities.

• Section 5 is a central part of the analysis and examines the South African global import data seeking to match this with the SACU tariff schedule to see if there are products that South Africa may be importing globally that could be sourced from Lesotho.

• Section 6 looks at global “fast growing exports” to see if there are any exports that Lesotho may be able to capitalize on.

• Section 7 moves logically to a revealed comparative advantage (RCA) examination, and while recognizing the data limitations, tries to examine areas where there may be a possible RCA for Lesotho.

• Section 8 is a summary of the almost proliferation of other studies that have been done in order to extract relevant material on diversification.

• Section 9 moves on from the previous section by providing and commenting on the constraints to development that have been identified in previous work.

• The final section, placed at the front of the paper, is a summary of the main conclusions and suggestions for the way forward.