ASIAN DEVELOPMENT BANK Setting the Scene FDI in Timor-Leste 10 - PowerPoint PPT Presentation

ASIAN DEVELOPMENT BANK Setting the Scene – FDI in Timor-Leste 10 December 2019

Foreign Direct Investment in Timor-Leste is lower than in other ASEAN countries FDI as % GDP 10 9 ASEAN-6 CLMV Timor-Leste 8 7 6 5 4 3 2 1 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: World Development Indicators, 2019 2

FDI is closer to the levels seen in other ‘least developed countries’ and ‘fragile and conflict affected situations’ FDI as % GDP 10 9 Timor-Leste 8 Least developed countries: UN classification 7 Fragile and conflict affected situations 6 5 4 3 2 1 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: World Development Indicators, 2019 3

Why would an investor come to Timor-Leste? 1. To access the local market 2. To access unique local resources 3. To leverage competitive / cost advantages But, foreign investors always have other options – lots of competition for FDI 4

Open is not the same as easy.. • On paper, Timor-Leste is very open to foreign investment. Core legal framework is set by 2017 Private Investment Law and 2018 Implementing Regulations. • Key features of investment regime: • Strong protection of investor rights • Few restrictions on areas for investment • Generous tax incentives • Dedicated agency (TradeInvest IP for promotion and facilitation) • But, doing business in Timor-Leste can be challenging. • Small local market • Challenges in accessing to factors of production • High cost structure • Weak business enabling environment 5

Timor- Leste’s competitiveness lags other ASEAN members in some areas. Institutions 6 Innovation Infrastructure 5 4 Business sophistication Macroeconomic environment 3 2 1 Market size Health and primary education 0 Technological readiness Higher education and training Financial market development Goods market efficiency Labor market efficiency ASEAN-6 ASEAN - CLMV Timor-Leste Source: World Economic Forum Global Competitiveness Report, 2014-2015

And there are notable weaknesses in the business environment Starting a business 100 Dealing with construction Resolving insovency 80 permits 60 40 Trading across borders Getting electricity 20 0 -20 Enforcing contracts Registering Property Paying taxes Getting credit Protecting minority investors Timor-Leste ASEAN 6 ASEAN - CLMV Source: World Bank Doing Business Indicators 2016

Towards a strategy for ↑ FDI 1. Investments to address key constraints / gaps • Transport connectivity • Skills • Utilities 2. Legal and institutional development • Property rights • Contract enforcement • Business regulation 3. Sector focused interventions • Tourism • Agriculture • Oil and gas • Others? But, doing this properly will take time. How can we attract FDI right now? How to integrate the investment promotion strategy? 8

Integrating investment promotion and facilitation with the broader development strategy 1. Focus investment promotion to priority sectors • Tourism • Agriculture • Oil and gas • Light manufacturing 2. Create very strong focus on investment facilitation • Focus on conversion rate – initial interest → completed investment • Identify problems, resolve impediments, facilitate This is fully consistent with the existing legal framework. No big reforms needed, just focus on ACTION 9

Thank you