12 May 2016
Timor-Leste: Market Profile
Major Economic Indicators
- 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.
- Timor-Leste’s economy is heavily dependent on its offshore oil and gas resources, which generate more than 90% of state revenue. Despite declining oil royalties due to sagging oil prices, GDP growth is likely to accelerate in 2016 and 2017 on rising public and private investment. 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 west of the capital Dili, with an expected investment of about US$290 million, is expected to begin in 2017. The country’s 2011-2030 Strategic Development Plan focusses on infrastructure development and economic diversification, the latter of which highlights tourism and agriculture for further development. Although it is the major employer of the nation’s workforce, Timor-Leste’s agricultural sector remains underdeveloped.
- 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 key trading partners include Indonesia, Australia, China, Singapore, Malaysia and Portugal. Imports from China are mostly garments, machinery and construction materials. 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 links with Australia and the EU, would allow Timor-Leste to take advantage of global and regional integration trends.
- Timor-Leste has expressed interest in WTO accession, and its application for ASEAN membership is under review. Meanwhile, most imported goods are subject to a 2.5% tariff and 2.5% sales tax, while alcohol, tobacco or vehicles are levied with additional excise tax.
- According to UNCTAD, FDI stock in Timor-Leste totalled US$316 million in 2014, an increase of 11.3% compared with the previous year. China’s investment in the country has been growing with cumulative FDI doubling between 2010 and 2014, from US$7.5 million to US$15.8 million based on statistics of China’s Ministry of Commerce.
- 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. The Specialised Investment Agency (AEI) is responsible for reviewing FDI applications as well as providing one-stop-services for investment and export promotion.
More information on the Belt and Road countries’ economic and investment environment, tax and other subjects that are important in considering investment and doing business are available in The Belt and Road Initiative: Country Business Guides.