Located on the eastern half of Timor Island in Southeast Asia, Timor-Leste lies close to Indonesia and about 600 km away from Australia. The country achieved independence in 2002, after a long period of colonisation and occupation that destroyed most of the nation’s infrastructure. A presidential election was orderly and peacefully held in March 2017, the first without international assistance since the UN departed in 2012.
GDP growth is expected to moderate in 2017 before reaccelerating in 2018 on rising government expenditure and private investment, according to the Asian Development Bank (ADB). The country’s 2011-2030 Strategic Development Plan focused on infrastructure development and economic diversification, the latter of which highlights the development of tourism, agriculture and downstream industries in the oil and gas sector. Although it is the major employer of the nation’s workforce, Timor-Leste’s agricultural sector remains underdeveloped.
Timor-Leste’s economy is heavily dependent on its offshore oil and gas resources, which generate more than 90% of state revenue. To manage and utilise the petroleum revenue, the government set up a Petroleum Fund in 2005 as the primary source of funding for infrastructure and social projects. A public-private partnership to build a new seaport at Tibar Bay, west of the capital Dili, with an expected investment of about US$490 million, commenced construction in June 2017. The new port is planned to handle the commercial cargo operations of the existing Port of Dili, which is highly congested with limited expansion possibilities.
Heavy dependence on imported food and machinery and sharp oil price declines have led to Timor-Leste’s widening trade deficits in recent years. The country’s major sources of imports include Indonesia, China and Singapore. Imports from China are mostly garments, machinery, metals and transportation equipment. The US, Germany, Canada, Belgium and Australia are the major destinations for Timor-Leste's exports.
Timor-Leste’s newly elected president remarked in May 2017 that his country supports and actively participates in the construction of China’s Belt and Road Initiative. Chinese companies have shown clear interest in Timor-Leste’s infrastructure and utility markets. The IMF noted that participation in the Community of Portuguese Language Countries, as well as its economic ties with Australia and the EU, would allow Timor-Leste to take advantage of global and regional integration trends.
Timor-Leste has acquired observer status in WTO and the Working Party for WTO accession was established in December 2016. The country’s application for ASEAN membership is under review. Meanwhile, most imported goods are subject to a 2.5% tariff and 2.5% sales tax, while additional excise tax is levied on 10 items including alcohol, tobacco, vehicles, private boats and aircrafts.
The oil and gas sector attracts most of Timor-Leste’s FDI while investment in agriculture (e.g. coffee), infrastructure and tourism are also encouraged. TradeInvest Timor-Leste is the official agency for investment facilitation and export promotion in Timor-Leste. It provides one-stop-shop services for investors, including application for trade and investment certificates.
According to UNCTAD, FDI stock in Timor-Leste totalled US$346 million in 2016, a decrease of 1.1% from the previous year. China’s investment in the country has grown, with cumulative FDI between 2010 and 2016 soaring from US$7.5 million to US$147.9 million, according to China’s Ministry of Commerce.
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