EIU East Timor ReportEast Timor: From the ground up After independence, the real work begins(http://db.eiu.com/search_view.asp?from_page=composite&doc_id=DB1032407&topicid=TP) When East Timor became the world's newest independent country on May 20th, the mood was, quite rightly, one of celebration. Its new status marked the culmination of a long struggle for self-determination after two and a half years under UN administration, 24 years of Indonesian occupation, and 350 years as a neglected outpost of the Portuguese empire. However, although nationhood is in itself an important achievement, economic independence is still far off. The only significant export, coffee, earned no more than around US$10m in 2001. Hoped-for revenues from offshore oil and gas fields will take time to develop. Meanwhile, a lack of infrastructure, an uneducated population and an underdeveloped framework for business mean few opportunities for significant foreign investment. East Timor will thus remain dependent on aid. Income per head is estimated at US$431, of which US$400 has been contributed by international donors. A need to reinvent itself One of the biggest challenges is maintaining economic momentum after what might be termed the "UNTAET effect" wears off. The presence of international personnel for the UN Transitional Administration in East Timor (UNTAET) over the past two and half years resulted in a minor economic bubble. UNTAET was the interim body established by the UN Security Council to run East Timor before the new government, under the newly elected president and former resistance hero, Xanana Gusmao, formally took control on May 20th. Inevitably, the service economy built up around UNTAET is unsustainable. The UN successor mission and hoped-for improvements in areas independent of international personnel, such as agriculture (though market gardening has benefited from the foreign presence), will only partly compensate for the winding down of UNTAET operations. As a result, UNTAET and the World Bank predict that, at best, the economy will stagnate rather than contract in 2002/03. Key obstacles Another problem concerns land rights, a key issue for potential foreign investors considering buying or leasing property. Competing claims arising from Portuguese- and Indonesian-era titles jostle with claims based on customary law and long-term occupation, resulting in the situation that no one is quite sure who owns what. Furthermore, claimants can seldom prove ownership as few title deeds exist. Exacerbating matters are an inadequate legal system and the effects of massive population displacements caused by war and forcible resettlements during Indonesian rule. Then there is the country's shaky physical and commercial infrastructure. Main roads are in reasonable condition, but deteriorate dramatically in outlying areas. The power supply is uneven and unreliable. A fledgling postal service is only just starting, and half-decent telecommunications are unlikely to reach the districts for several years. Initially only six telephone lines will be assigned for each of the 13 districts, and none will be available for public use. The banking system, such as it is, barely extends beyond the capital, Dili, and caters chiefly to expatriates. Optimists may argue that the above are merely new-nation teething troubles. The problem with East Timor is that there aren't sufficient competent human resources to overcome these obstacles soon. The illiteracy rate is about 57%. The UN admits its major failing has been in capacity- building. For example, one of the few UN staff in the tourism development office is being replaced by an East Timorese who does not speak English and can barely use a computer. Although thousands of East Timorese have been recruited to the civil service, recruiting skilled senior-level workers has been difficult. Hopes in oil and tourism Despite the negatives, a number of areas offer hope for commercial development and foreign investment. The most promising is oil and gas exploitation, which East Timor plans to undertake with foreign co- operation. Offshore fields contain substantial reserves. However, a recent World Bank report suggests annual revenues will amount to only US$76m by 2006, as opposed to more than US$200m previously estimated. Moreover, negotiation between East Timor and Australia over division of revenues from the most lucrative field, optimistically named Greater Sunrise, remains contentious. A recently signed treaty gives East Timor the right to 90% of royalties, but from an area covering only 20% of Greater Sunrise; Australia controls the rest. East Timor wants access to deposits outside the joint development area defined in the treaty. Other areas of possible development are agriculture, fishing and tourism. Tales of pristine reefs, sparkling beaches and stunning mountain vistas are leading to suggestions East Timor should target ecotourism. However, a shortage of personnel with tourism or service-industry skills is a key obstacle. Overall, East Timor is in the position of trying to build an economy from scratch. Still, while there remain huge problems and strong reasons for investors to stay away, what cannot be measured is people's desire to rebuild. The knowledge that, for virtually the first time, they are doing this for themselves adds to that resolve.
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