09 January 2009

Foreign Investors Trickling Into East Timor's Fledgling Economy

Siti Rahil DILI 8 Jan 2009 (Kyodo News) - Foreign investors are beginning to trickle into impoverished East Timor as it struggles to achieve stability and develop its fledgling economy six years after its violent break from Indonesia.

Asia's youngest nation, which gained independence from Indonesia in May 2002 amid pessimism over its ability to stand on its own feet, has had to grapple with a military crisis that sparked violence in the country in 2006 and also the shooting of East Timorese President Jose Ramos-Horta by rebels early last year.

Today, the country is still mired in poverty and serious underemployment although it has a head start economically thanks to its oil and gas wealth.

But diplomats and economic analysts say the security situation has improved in recent months, and foreign investors have started to show interest in the country.

The current government, which came into power in 2007, is pushing for industries such as tourism, fisheries and agriculture that will create jobs and boost the economy while avoiding overdependence on the country's oil and gas resources.

As a sign of brighter prospects, Australian airline Austasia launched twice-weekly direct air services between the country's capital Dili and Singapore in August last year. It marks the first airlink between the East Timorese capital and Southeast Asia's wealthiest economy.

Although the airline is expecting its flights to be mainly filled by U.N. peacekeeping personnel and other humanitarian workers initially, the start of the new route could also stimulate growing interest in business and tourism, diplomats and officials say.

The company plans to increase the flights to three times a week from February this year. Previously, the only regular flights to East Timor had been from Indonesia's resort island of Bali and Australia's Darwin.

In yet another sign that this sleepy country is beginning to stir, a Singaporean businessman operating from Malaysia is planning to build the first luxury resort in East Timor, a move that could boost the country's tourism dream.

The businessman, Edward Ong, told Kyodo News that he will invest about US$250 million to build the resort on a sprawling site in Dili. A basic agreement for the project was signed between Ong and East Timorese government officials recently.

The resort, expected to be completed by 2012, will boast a five-star hotel with about 350 rooms, a 27-hole golf course set amid lakes, and a business park.

Ong said the resort will initially target business travelers but he also sees a big potential for tourism in the long run.

''We feel there's lot of potential, but it may take longer than we expect. It's a virgin place that people have not explored yet,'' Ong said.

The government plans to take advantage of the country's pristine coral reefs, deep seas and rugged terrain to promote the country as one of the world's best spots for scuba diving, snorkeling, whale and dolphin watching, trekking and mountaineering.

Meanwhile, China has emerged as a dominant player in the East Timor economy.

Mainland Chinese entrepreneurs have flooded East Timor, running many small businesses, such as retail shops, supermarkets, construction, restaurants and small hotels. Most of those interviewed said they wanted to escape the fierce competition and rising cost of doing business back home.

The Chinese government, one of the first countries to establish diplomatic relations with East Timor after it became independent, is clearly playing a big role in helping to rebuild the country's infrastructure.

It is constructing key government buildings in the capital, such as the president's office, which is expected to be completed early next year, the Foreign Ministry and Defense Ministry headquarters, China's envoy to East Timor Su Jian said in an interview at the Chinese Embassy in Dili.

Some Chinese businessmen are now planning bigger projects such as bigger supermarkets and hotels, he said.

''China is very optimistic about the future of East Timor,'' he said.

More businessmen from China, Singapore, Hong Kong and Macao also have been visiting East Timor in the past two years to seek business opportunities, he said. A Macao company is planning to build East Timor's first factory for making electrical goods, which will create about 5,000 jobs, he said.

''This is a new market, so the competition is not so fierce as other countries and the labor cost is very cheap. This government is very friendly toward foreign investors,'' he said. But there are still infrastructure-related impediments such as poor roads, telecommunications, water and power supplies, and the workers lack skills, he added.

One of the country's biggest hopes is coffee.

Singaporean businessman Bill Tan of Timor Global recently told Kyodo News he sees a big potential in reviving the country's coffee industry, which had been neglected under Indonesian rule, to its heyday of being among the world's best. Tan has been trading East Timor coffee for years, exporting unroasted coffee in bulk to Europe and Germany. His company recently opened a plantation.

Despite being flush with oil money -- US$200 million in earnings each year, which at this stage is more money than the country can spend -- the government is anxious to ensure the country diversifies its economy.

''We are trying to make people look at oil as something temporary...it calls for the government to invest in non-petroleum areas. If we become psychologically dependent, that's the danger,'' Secretary of State for Natural Resources Alfredo Pires said in an interview.

Currently most of the oil money is invested in U.S. government bonds, he said.

The government is investing in education for its youth. Last year, it sent about 175 students overseas for training in geology, mining and engineering, and by 2012, the government hopes to have sent about 10,000 of its youth for overseas study.

The fishing industry is another area the government is trying to develop. It recently ordered two patrol boats for about US$27 million to protect its waters from illegal fishing by foreign vessels.

In the oil sector, the government is now fiercely negotiating with a major oil and gas explorer for liquefied natural gas in the Greater Sunrise project to be piped to East Timor rather than Darwin so that a downstream processing plant can be built on the country's southern coast. That could create jobs that will benefit the country's economy.

The government also recently signed a contract for the construction of a big power plant by a Chinese company for the supply of electricity to the whole country before the end of this year.

1999 East Timor Crimes Against Humanity

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