This policy note assesses the potential of foreign direct investment (FDI) to diversify Lesotho s exports. Lesotho must preserve capacity to produce more and better goods, seek new markets, preserve existing manufacturing jobs, undertake structural and institutional reforms, and take advantage of its location inside South Africa. Given the low savings in the country, as well as major fiscal challenges arising from declines in SACU revenues which leave fewer resources for public investments, and most crucially the need for international entrepreneurial know-how, the prospects for growth in new sectors will depend on the country s ability to attract new foreign direct investments, particularly from South Africa. This note also addresses the policy and structural constraints that must be overcome to attract FDI.