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Economy and business in East Timor

Economy and business in East Timor

According to COUNTRYAAH, 41.8 percent of the population lives below the poverty line (2014). With this, East Timor is among the 36 poorest countries in the world and the poorest country in Southeast Asia. The economy is mainly based on the production and export of oil and gas.

Business of East Timor

Historical background

Before the Portuguese colonial administration's break-up in 1975, East Timor was the least developed area in both East and Southeast Asia. As a result of the Indonesian invasion and the subsequent guerrilla activity, the economy was further deteriorated, which at times resulted in famine disasters. However, the Indonesian authorities made significant investments in agriculture and transport, as well as in educational and health institutions.

During the armed conflict in 1999, the banking system collapsed. At independence in 2002, the US dollar was introduced as the official currency, but in November 2003 the first Timorese centavos coins also came into circulation. In the same year, the first three commercial banks in Dili also opened.

A trade union was formed in 2001. The International Labor Organization (ILO) has established an authority for labor market issues, introduced labor law and rules for the working environment.

Oil and gas

In the 1990s, rich petroleum deposits were detected in the Timor Sea between East Timor and Australia. A disputed sea area southeast of East Timor, the so-called Joint Petroleum Development Area (JPDA) is jointly managed by East Timor and Australia. Agreements concluded between the two countries in 2001 and 2006, East Timor secures 90 percent of the royalty revenues from the Bayu – Undan and Greater Sunrise JPDA gas fields. The 2006 agreement postpones the final setting of national boundaries within JPDA for 50 years.

The Bayu – Undan field has been under development since the turn of the millennium with Phillips Petroleum as the operator. The gas is piped to Darwin in Australia. East Timor is working on plans to build a pipeline from the Greater Sunrise field to Beaco on the south coast of East Timor with a view to building a petrochemical plant and establishing other industrial activities in this area.

Petroleum revenues account for about 90 per cent of East Timor's revenue stream, which in June 2005 established the Timor-Leste Petroleum Fund. The fund was established according to an approximate pattern of the Norwegian Government Pension Fund Global, where the revenues from oil and gas recovery will be channeled. The Petroleum Fund was in 2018 was $ 15 803 million. The amount, which is transferred annually to the state budget, will, according to the regulations, be set to "Estimated Sustainable Income (ESI)", which is set at three per cent of the petroleum fund. This will enable the petroleum fund to secure East Timor's economy in the longer term.

Primary industries

Primary industries contribute 9.1 percent of the country's gross domestic product (GDP) and employ 41 percent of the working population.

The most important agricultural products are coffee, rice, corn, sweet potatoes, cassava, soybeans, mangoes, bananas, cocoa, various spices, coconuts and cotton. Animal husbandry, with cattle, sheep and water buffaloes, is a significant industry. Good fishing banks are found off the east and west coasts, but commercial fishing is limited.

Industry

The industry's contribution to the country's GDP is 56.7 and employs 13 per cent of the working population. The coffee industry has traditionally been dominant, and in 2004 one of the world's largest raw coffee processing facilities was opened in Estado. By the way, there are some smaller textile factories and a small fishing industry.

Energy

The country had a production capacity of about 40 MW until the armed conflict in 1999, when all hydroelectric power stations were more or less destroyed. In some districts, only about 10 per cent of households were connected to the electricity supply. The restoration of the power sector has been financed by international assistance, including from Norway, but was not yet completed in 2016. In 2016, about 50 per cent was connected to the nationwide electricity grid. In addition, around 7 per cent were connected to a local grid, which is supported by a micro-hydroelectric power station or photovoltaic plant.

Foreign Trade

The country's exports amounted to USD 16.7 million in 2017, while imports amounted to USD 681.2 million. With this, East Timor had a large current account deficit abroad. In addition to oil and gas, coffee and cattle are the main export goods. Basic products such as rice, sugar and flour, as well as petroleum, must be imported.

The five largest export markets were in 2017: Indonesia (25.38 per cent), the United States (22.30 per cent), Germany (13.65 per cent), China (8.49 per cent) and Australia (5.94 per cent).

The five main import markets were 2017: Indonesia (31.68 percent), China (15.12 percent), Singapore (13.09 percent), Hong Kong (10.11 percent) and Vietnam (6.61 percent).

Important goods are machinery, transport equipment, chemicals, fuel and fertilizers.

Transport and Communications

The road network is poorly developed and generally of low standard. The capital Dili has an international airport and port.

Development assistance to East Timor

East Timor receives bilateral development assistance from a number of countries and multilateral assistance from, among others, the UN, the EU and the Asian Exchange Bank.

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