I.  COMMERCIAL OVERVIEW

Lesotho is surrounded and economically dominated by the Republic
of South Africa.  As a member of the Southern African Customs
Union (SACU) and the Common Monetary Area (CMA), Lesotho's trade
regime is tied to South Africa's and the two countries share a
common currency base.  Nominally, Lesotho's imports come
overwhelmingly from South Africa, but inadequate tracking of
goods imported into Southern Africa may mean that import sources
are more diverse than indicated.  With a population of roughly 2
million and a very poor arable land base, Lesotho is a large
importer of grains and other foodstuffs.  Lesotho's industrial
base is concentrated in the textile/garment and agro-industrial
sectors, which operate primarily to transform imported raw
materials and semi-finished goods for export.

Lesotho has a weakly developed entrepreneurial tradition.
Although committed to IMF-guided structural adjustment to, inter
alia, promote private sector investment and employment, the
public sector remains the principal consumer of capital goods.
Because of proximity and knowledge of the market, South African
suppliers have a competitive advantage in the provision of most
consumer goods and some capital goods.  Lesotho's banking sector
is modern, if heavily regulated.  The communications and
transport infrastructure is adequately developed by regional
standards, in the major populated areas.

Based on warm bilateral relations and a broadening base of
personal links between Lesotho and the United States, Basotho are
well-disposed to (if still largely unfamiliar with) American
goods.  The Lesotho Government seeks to encourage greater
American participation in commercial life and welcomes
expressions of interest from potential U.S. suppliers and
investors.

Lesotho is home to one of the largest engineering and
construction projects in Africa, the multi-billion dollar Lesotho
Highlands Water Project.  Financed by the World Bank, African
Development Bank, European Investment Bank, Southern African
Development Bank and a wide variety of bilateral donors and
export credit agencies, the LHWP will capture, store and transfer
the headwaters of the Orange River system to South Africa's
industrial heartland in and around Johannesburg.  Phase 1A,
featuring one of the largest arch dams in the world and nearly 50
miles of water transfer tunnels through the Drakensberg and
Maloti mountain ranges, is well advanced and scheduled to deliver
water to South Africa in 1996/97.  Phase 1A also includes a 30MW
hydroelectric installation.  Phase 1B, scheduled to commence in
early 1995, features another large dam and more transfer tunnels,
as well as ancillary facilities.

The following firms have been awarded large contracts associated
with the LHWP:  Impregilo (Italy); Bouygues, Spie Batignolles,
and Campenon Bernard (all three of France); Concor Holdings, LTA,
and Group 5 (all three of South Africa); Hochtief and Ed Zublin
Ag (both of Germany); Kier, Balfour Beatty, and Sterling (all
three of the UK).

The goods and services contracting opportunities associated with
the LHWP are substantial.  American contractors and suppliers
have not featured prominently in Phase 1A, due in large measure
to highly competitive financing packages offered by European and
South African counterparts.  In general, successful bidders on
LHWP contracts have availed themselves of concessionary export
credits and mixed-credit grant aid made available through their
national governments.

The management of the LHWP has demonstrated its desire to raise
the American profile in the project.  An American is being sought
as Deputy Chief Executive of the Highlands Development Authority,
and an unwritten rule specifies that at least one American firm
will be short-listed for every major LHWP contract.