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Can Timor-Leste achieve a balanced development?

The Diplomat - January 8, 2020

Joao da Cruz Cardoso – Timor-Leste's Strategic Development Plan 2011-2030, commonly referred to as the SDP, aims to make Timor-Leste an upper middle-income country by 2030.

In line with this vision, from 2010 to 2018 the Government of Timor-Leste (GoTL) has spent about $11 billion through the state budget to develop the country. Out of this amount, $3.8 billion has been spent on capital and development, where the government spends money on infrastructure and other development activities that are seen as vital for long-term growth. Based on the Central Bank of Timor-Leste Annual Report 2018, receipts from oil and gas since the country's inception total $22.030 billion, of which $10.6 billion has been transferred to the state budget.

Despite all the investments that have been made, concerns about economic development persist due to lingering issues such as youth unemployment, lack of progress in the productive sectors, urban-rural gaps, and dependency on oil resources. With around $16 billion in current oil revenues, a small population to manage (about 1.3 million people), and many development experiences to learn from, Timor-Leste should be able to, at least, provide a decent living condition for all its citizens across the territory. So where has Timor-Leste gone amiss in its quest for a more balanced development?

How does Timor-Leste fare in the pursuit of achieving development?

In the last 10 years, the GoTL has spent more than $2 billion on infrastructure alone and the progress is undeniable. In the transportation sector, construction of national roads across the country has improved road accessibility, reduced travelling time, and improved connectivity among urban centers. Construction of an airport in Suai, a town in the southern coast of the country is now complete, providing a transport alternative and serving as supporting infrastructure for the development of the region. A port of international standard, located merely 10 km away from Dili, the capital city of the country, is now under construction, which is expected to improve trading activities and provide jobs for locals.

The result of investment in the energy sector has been remarkable given that about 80 percent of population has had access to electricity as of 2017. In the water sector, based on the Timor-Leste Population Census 2015, 75 percent of private households in the country have access to improved or safe sources of drinking water. Essential irrigation infrastructures have been constructed in areas with high agriculture potential such as Covalima, Manufahi, and Baucau to improve agricultural production.

Despite many criticisms, progress in education has been noteworthy given that the rate of literacy reached 84 percent in 2015, a remarkable feat compared to the literacy rate of 46 percent in 2004. In 2011, the GoTL established the Human Capital Development Fund (FDCH) as part of its strategies to improve and raise the capacity of Timorese human resources to achieve welfare and improve the country's economy. Based on the report published by the FDCH, 18,654 Timorese had benefited from the fund between the periods of 2011 to 2014 alone.

Despite all this progress, Timor-Leste has massive tasks at hand and a lot of work to do to achieve the kind of development it seeks. In 2015, the youth unemployment rate stood at 12.3 percent, which was particularly high compared to the national unemployment rate of 4.8 percent. The Timor-Leste Survey of Living Standards 3 conducted in 2014 shows that 42 percent of people in Timor-Leste lived below the poverty line. Furthermore, progress in urban and rural areas shows a sparkling contrast. For instance, based on information from the 2015 Census, 92 percent of private households in urban areas have access to improved or safe sources of drinking water while only 69 percent of private households in rural areas have this access; 81 percent of households in urban areas have used improved sanitation facilities versus 38 percent of households in rural areas; and although the literacy rate in urban areas has reached 94 percent, it stands at only 78 percent in the rural areas. Furthermore, inadequate health services in the rural areas are widely reported by the local media due to various reasons, including lack of staff and facilities at the health clinics. Moreover, a study conducted on the Rural Development Program (R4D) in 2017 found that Timor-Leste has high rural road density given that 97.8 percent of the rural people live within 2 km of a road of any condition, but the Rural Access Index (RAI) of Timor-Leste is only 49 percent. This means that only 49 percent of the rural population lives within 2 km of an all-weather road, a road that can be accessed all year around.

What can Timor-Leste do to achieve a more balanced development?

Learning from the experiences of the last 10 years, Timor-Leste needs to channel its efforts toward a more balanced development. This means that the quest for economic growth should not neglect the reality of the country in terms of imbalanced investments and unequal development in urban and rural areas that contribute to poverty. To achieve a balanced development, Timor-Leste must focus on strategies to tackle issues related to: a) addressing youth unemployment and slow progress in the rural areas; b) setting high priority on human development and social capital to improve people's welfare; and c) improving productive sectors to diversify its economy and minimize dependency on oil resources.

Timor-Leste, to begin with, is unique in the sense that the country's economy is heavily driven by the government's expenditure. This is why the GoTL needs to reset the rationale behind the state budget. Every year, normally, the ceiling amount of the state budget is determined by when the Petroleum Fund (PF) will be exhausted. Such rationale makes sense in the short term, especially when the PF accounts for at least 90 percent of the state budget, but if this approach remains unchanged, then Timor-Leste will continue to depend on oil resources. If the GoTL is serious about diversifying the economy, it is vital to utilize the state budget as a tool to boost productive sectors while the PF is still available. This means that the amount of the budget allocated to productive sectors should be based on clear targets in terms of how much productive sectors are expected to contribute to the country's economy, for example, in the next 5 to 10 years. Achieving the expected targets will become the determinant factor for budget allocation to the productive sectors in line with reasonable government programs, activities, and timelines. However, the progress must be tracked and assessed rigorously every year and accountability must be ensured. The state budget, if utilized well, can play a catalyst role to diversify Timor-Leste's economy.

Second, Timor-Leste needs to address unemployment for its young and fast-growing population. In recent years, the GoTL has sent many young people overseas for manual labor as part of its strategy to create jobs and offset unemployment among the youth. This strategy works for the time being, but for long-term gains, Timor-Leste needs to invest and create conditions within the country that enable these young people to make use of experience and skills they have gained upon their return to the country. Timor-Leste also needs to learn from countries like South Korea that have developed effective policies and strategies to increase skills of the youth to make them ready for the job market. To improve the skill-sets of the youth, the first step is to enhance the quality of education, especially at the tertiary education level in the country. At the same time, Timor-Leste must develop a demand-led training system to equip young people with skills that are actually needed by the market. Thus, creating a link between training systems and businesses as well as involving employers in developing training programs are vital to ensure a "skills-jobs match." Complementarily, job search assistance should be provided to help young people navigate through options and the requirements they need to fulfill for getting jobs. Moreover, Timor-Leste must promote entrepreneurship among the youth, not just as an employment strategy, but also as a mean for innovation. The government, therefore, has a big role to play by providing financial support, infrastructure (especially information and technology), and mentoring services.

Third, to prevent widening gaps between urban and rural areas, Timor-Leste must build basic infrastructure, improve public services, and increase productivity in the rural areas. This means that the government must provide adequate basic infrastructure for clean water, energy, education, and health along with adequate staff, facilities, and other resources for efficient service delivery to meet the needs of Timorese living in the rural areas and serve as prerequisites for economic activities to take place. At the moment, focusing on labor-intensive jobs is a viable option particularly in the agriculture and tourism sectors. Since many people living in the rural areas still depend on and practice agriculture, it has opportunities for further growth. However, Timor-Leste should think thoroughly about the most appropriate agricultural development model and agriculture commodity to focus on. Similarly, identifying and focusing on targeted areas for tourism development will also be important to create jobs and improve economic activities in the rural areas. It is important to know that the agriculture and tourism sectors are most effective to engage Timorese living in the rural areas, especially women who have been the most neglected labor force. Developing these sectors, thus, offers an opportunity to turn passive populations living in the rural areas into productive economic agents, contributing to the local economy.

What lies ahead for Timor-Leste?

Having a population with decent welfare is not a one-off phenomenon, but rather a culmination of much tireless work from all relevant stakeholders over many long years. For Timor-Leste, the government plays an important role in the efforts to develop the country due to the significant contribution of government expenditure to the economy. Therefore, the government should create opportunities for economic activities to thrive and conditions for jobs to grow by providing key infrastructure, developing business-friendly strategies, creating an environment for the private sector to grow, improving public services, and formulating other strategic policies for the country to move forward. When the government can provide the necessary basic conditions and ensure stability for the economy to grow, then other development counterparts will find ways to fill the gaps.

In the end, Timor-Leste must realize that its primary resource is not oil or other natural resources, but rather the people. Investing in education to produce a skilled population will have positive multiplier effects including innovation, job creation, effective public services, and good governance, which are essential for the economy to thrive. This is why the principal idea of development for Timor-Leste should be the wellbeing of the people rather than economic numerical indicators.

Ultimately, given our history, we should know that significant change can only happen when it comes from within. If we are willing to work hard and put our efforts together to bring Timor-Leste forward, then a prosperous Timor-Leste awaits in the future.

[Joao da Cruz Cardoso is an alumnus of the University of Illinois at Urbana-Champaign/Fulbright and the University of Hawai'i at Hilo/East-West Center. He works at the Major Project Secretariat of the Ministry of Planning and Strategic Investment of Timor-Leste. This article is the opinion of the author and does not represent the institution where the author works.]

Source: https://thediplomat.com/2020/01/can-timor-leste-achieve-a-balanced-development