Timor-Leste: Life beyond oil*

The end of the oil era may be coming, but the lights will stay on in Timor Leste. Almost two-thirds of the population are younger than 24, and they are keen for a chance at a better life. With the right mix of inclusive planning, grassroots development and support for a vital private sector, the transition to a non-oil economy may signal bright days ahead for this young nation.

Timor Leste has achieved remarkable progress since restoration of independence in 2002.

In terms of stability, the country ranks above average for its cohort in the Human Development Index. As it heads into its fourth round of presidential and parliamentary elections, all signs point to a stable and peaceful process. Average life expectancy has increased by almost a decade, gross national income has nearly quadrupled, and Timorese children now remain in school for over a year longer.

Still, significant challenges remain. Food insecurity, malnutrition and poverty are widespread. Many Timorese lack adequate access to basic social services such as health, education and justice. The oil wealth has not lifted all boats.

Indeed, current oil fields, which generate 90 percent of domestic revenue for Timor Leste, are expected to be depleted in 2021, making economic diversification a matter of priority for the future government. The development of the country is largely funded by domestic public finance; foreign aid accounts for only about five percent of the gross national income. The challenge of accelerating the non-oil economy, and of moving the country towards the Sustainable Development Goals, will top the next government’s agenda.

There are some policy initiatives the new government could pursue from day one.

Investment in infrastructure must continue. But rather than focus exclusively on high-profile projects and main roads, infrastructure investment should prioritize inclusion, by ensuring that local communities throughout the country benefit as both producers and consumers of infrastructure. Work is already ongoing through local development initiatives, such as a UNDP-supported project that engages communities to build and maintain small-scale infrastructure like water supply systems and access roads. Such projects promote sustainability, ownership and awareness of relevant climate change and environmental issues.

Communities also have a greater role to play in making public administration more efficient, responsive and transparent. By decentralizing the provision and management of public services, including with appropriate funding at the municipal and village levels, communities can contribute directly to their own betterment and that of the country at large. With support from UNDP and other partners, the Government has already started its decentralisation programme, which will help focus on improving planning and administration capacity at the municipal and village levels. Expanding options for local e-governance, which can integrate several government agencies into a one-stop shop for service delivery, can further improve transparency and empower local planning and priority-setting.

The development of a healthy private sector is central to the transition to a non-oil economy. Currently, domestic public finance is already the key source of funding for all development activities – but in a post-oil Timor Leste, it is domestic private finance that will need to play a greater role. The government should therefore continue to create conditions for domestic and foreign direct investment. Here are some principles that can help:

• Focus on human resource development. Access to qualified human capital is at least as important as tax incentives in attracting investment.
• Stimulate investment in non-oil sectors, including agriculture, agri-processing, mining, construction, tourism and manufacturing.
• Encourage local entrepreneurship, particularly among youth, to spur job creation at the municipal and village levels.
• Ensure transparent public institutions, a level playing field and the rule of law.

We at UNDP are supporting these important transitions in Timor-Leste, as the country works toward its stated aim, shared with its global partners in the 2030 Agenda for Sustainable Development, to ‘leave no one behind’. Fifteen years of oil revenues have demonstrated that merely accumulating wealth is no guarantee of inclusive development. Now, facing a new era beyond oil, Timor Leste must draw upon its considerable advantages to widen the path forward for all its citizens.

*OECD INSIGHTS Blog (by Knut Ostby, UN Resident Coordinator and UNDP Resident Representative in Timor-Leste)