Unlocking Prosperity: Key Reasons to Invest in Timor-Leste

Despite being Asia’s youngest nation having restored its independence on 20 May 2002, the Democratic Republic of Timor-Leste has shown resilience in its pursuit of economic development.

Over the past two decades, the country has emerged from conflict and massive destruction of development gains to one of the most peaceful and democratic countries in the region.  Timor-Leste also experienced economic stress from 2017-2022 due to political uncertainties as well as external shocks such as COVID-19 and cyclone Seroja. However, it has been on a recovery path and economic growth is expected to reach 3.4 percent in 2024 – considered among the fastest in East Asia.

In this article, we explore the top reasons why Timor-Leste should be on your investment radar, from its untapped natural wealth to the burgeoning tourism sector, and the potential of its young and dynamic workforce.

Rich natural resources

Timor-Leste’s oil and gas industry accounts for approximately 70 percent of GDP and 90 percent of total exports. The Petroleum Fund, established in 2005, accumulates surplus revenues from the oil and gas sector to contribute to long-term financial stability and sustainable development. As of 2023 estimates, the fund holds approximately US$18 billion.

The Bayu-Undan field, operated by ConocoPhillips, has been a major revenue source since production began in 2004. Moreover, the government is pushing for the final approval of the contractual framework with the Australian government to develop the Greater Sunrise fields. Located in the Timor Sea, the Greater Sunrise fields contain an estimated 5.1 billion cubic feet of natural gas. The project is expected to start producing natural gas by 2028-2030.

Timor-Leste’s strategic location

Timor-Leste is strategically located as a maritime gateway to both the Australian and ASEAN markets. With a combined population of over 600 million people and a GDP of some US$3.6 trillion, the region presents opportunities for access to a large Timorese goods and services market.  ASEAN is forecast to be the world’s fourth-largest economy by 2030 with a combined GDP estimated to reach US$4.5 trillion.

As such, Timor-Leste also has the potential to be a logistics hub in the region. The country’s location between the Indian and Pacific oceans positions it along the path of major shipping lanes. These routes are frequently used for transporting goods between Australia, Southeast Asia, and other parts of the world. By being close to these maritime highways, East Timor can serve as a convenient transshipment point for cargo vessels.

Accession to ASEAN

Timor-Leste officially applied to join the Association of Southeast Asian Nations in 2011 and the country was ‘admitted in principle’ as the organization’s 11^th member in 2022. The country is aiming for 2025 or 2026 to be a full member of ASEAN.

By joining ASEAN, Timor-Leste has access to the bloc’s huge and dynamic market and opportunities to access capital needed for national development programs. In addition, Timor-Leste can leverage the free trade agreements ASEAN has with countries such as China, Japan, and South Korea, and thus boost foreign investments.

Moreover, Timor-Leste can also benefit from the ASEAN Political-Security Community (APSC) and the ASEAN Socio-Cultural Community (ASCC). The APSC can offer the country access to ASEAN’s mechanisms for dialogue, consultation, and cooperation on various security issues. These include territorial disputes, transnational crimes, maritime security (piracy), human rights, and human trafficking, among others.

Government incentives

The Timor-Leste government provides an array of incentives to attract foreign businesses. Further, a key principle offered from the incentives is that foreign investors are granted the same level of protection as domestic investors.

Tax exemptions

Foreign investors are eligible for a 100 percent exemption in income and service tax, and 100 percent exemption for custom duties and sales tax for capital goods and equipment used in a project.

Land leasing agreements

Foreign investors can lease state property for 50 years which is renewable for between 25 to 100 years.

Special investment agreement

Foreign investors and the Timor-Leste government can develop a legal agreement to set a permanent legal framework that applies to the investment project.

Employment of foreign workers

The Timor-Leste government will provide a minimum of five work visas are guaranteed for qualified employees in directing or technical roles that align with the needs of the investment project.  

Zone special benefits

Zone A: The government offers tax exemptions that are granted for a period of up to five years for investments in the municipality of Dili, specifically within the administrative posts of Cristo Rei, Dom Aleixo, Na’i Feto, and Vera Cruz.

Zone B: Tax exemptions for a period of up to eight years for areas corresponding to those located outside the boundaries of the urban area of the municipality of Dili.

Zone C: Tax exemptions for up to 10 years for special zones Oe-Cusse Ambeno and Ataúro.

A young and vibrant workforce

Timor-Leste boasts a young and vibrant workforce. With approximately 67% of the population under the age of 30, the country has a dynamic and growing labor pool ready to be harnessed. The government, along with various international organizations, has been actively investing in education and vocational training to enhance the skills of its youth.

Conclusion

Investing in Timor-Leste presents a unique opportunity to tap into a nation brimming with potential. Despite the conflict of the past and economic challenges, the country is on a promising path to recovery and growth. Its rich natural resources, strategic location, and impending full membership in ASEAN position it as a gateway to some of the world’s most dynamic markets.

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