Timor-Leste (T-L), the world’s newest nation, has done remarkably well since its independence in 2002. Compared to most post conflict countries, T-L has made solid progress in nation building, in restoring public services and private sector activities. However, progress remains fragile – as the tragic events mid-2006 have shown. T-L is still among the world’s poorest countries with low human development indicators. Given rapid population growth with 4%, one of the highest in the world, the country faces high unemployment rates, especially among the youth.
T-L is not only a young nation, but also its population is young, with 48 percent below the age of 17. A distinguishing feature of T-L’s economic structure is the sectoral distribution of the labor force. The economy of T-L is divided between a farm sector, which incorporates as many as 80% of the labor force, with most of these still dependent on subsistence production concentrated on basic foodstuffs with little internal or external trade, and around 20% in the non-farm sector, including government, in which micro and small enterprises dominate. Although it is difficult to quantify numbers of enterprises and the extent of their operations due to limited data available, it appears that ‘informal’ enterprises form a major component of the whole. In T-L, while business registrations give some guide to the extent of formal enterprise activity, even many registered entities exhibit ‘informal’ characteristics, in terms of scale, use of family labor, home-based operations, technologies employed, etc.
Overall, urban enterprises in T-L are confirmed as being very small, and both, formal and informal, are predominantly engaged in trading, and see access to finance as their most binding constraint in growing their business. The T-L country program intends to address this constraint through its Access to Finance component.
The Government of Timor-Leste has consistently underlined the need for rapid private sector development, which it sees as the only sustainable form of job creation. While this premise has been accepted by the Timorese society, putting it into practice is a struggle and business development is confronted with major challenges. They include, amongst others, an incomplete regulatory framework; unclear and cumbersome administrative procedures; high factor costs; poorly developed infrastructure; and growing corruption.
IFC/PEP-Pacific’s program in T-L will comprise of four key areas of engagement which will attempt to address some of the major problems outlined above:
- Access to Finance
- Business Enabling Environment
- Agribusiness
- Tourism
In addition, the program will look at possibilities to strengthen the self-organization of the private sector and foster public-private dialogue as an important means in giving the sector a voice and in becoming an important negotiation partner for government and other important players. Further, IFC/PEP-Pacific will look into possibilities to support activities in the oil and gas sector, also with respect to future investments.
A permanent office is established in Dili, the capital of T-L, co-located with the World Bank country office, to oversee delivery of the program, and to coordinate with PEP-Pacific’s regional programs, operated through Sydney, and the country program for Papua New Guinea.
