Timor-Leste is facing one of the toughest challenges: to create jobs for a rapidly growing young population. This has been a key priority for the government’s economic policy goals since the early stage of independence. In spite of this intention, working through a complex environment and overcoming structural and institutional issues has proven to be a difficult endeavor.
In the last 10 years, the government’s economic policies, particularly fiscal policy, have been shaped by the windfall from petroleum revenues. Petroleum revenues enable the government to stimulate domestic consumption through direct or indirect subsidies. In the meantime, the government’s fiscal policy has been oriented toward capital accumulation. Public investment for infrastructure alone accounts for more than 30 percent of the government’s annual spending.
This strategy has seen some results. Timor-Leste has experienced modest economic growth, particularly in its non-oil GDP. Domestic consumption, including household consumption, has increased significantly, driving consumption-based poverty to decline. Wealth acquisition among households for durable goods has also increased. Other indicators of individuals’ well-being are also improving, such as school enrollment, life expectancy, and the child and maternal mortality rates.
Despite these positive developments, one continuing issue is the creation of new jobs. This is very critical because not much new formal employment has been created in the last 10 years amid modest economic growth. The 2015 census – the most recent one conducted in Timor-Leste – showed that the 4.8 percent employment growth every year between 2010 and 2015 was primarily due to growth in self-employment or own-account employment.
While the share of agriculture employment in overall employment declined, outside of Dili, the agriculture sector is sill dominant, accounting for between 65 to and 75 percent of employment. The rate of industrial employment remains unchanged. Although there has been a substantial increase in employment in the service sector, this sector to a large extent is concentrated in the capital. Outside of Dili, agriculture employment is still dominant. Without much employment, and with people facing economic hardship, it is the government’s subsidies that continue to maintain the current level of domestic consumption.
Even with the limited jobs available in the public and the private sector, the issue of productivity and a mismatch between demand and supply are having a big impact on the labor market. Some studies highlight a lack of basic quantitative skills and basic soft skills such as work ethic, communication skills, and teamwork.
The lack of employment is the direct consequence of the existing economic structure. The oil sector, although it accounts for more than 70 percent of Timor-Leste’s total GDP, does not generate many direct employment opportunities. The public sector, on the other hand, has expanded rapidly, and turned itself into the biggest employer in the formal sector. Productive sectors like agriculture have been experiencing a declining trend in term of GDP share, while the manufacturing sector is stagnant.
The private sector should play a bigger role in employment creation. As of now, private sector investment is extremely low, around 10 percent of non-oil GDP, according to the 2016 National Account Report. The World Bank’s 2018 Doing Business Report cites several structural impediments for doing business in Timor-Leste, namely: enforcing contracts, registering property, access to credit, and resolving insolvency. The 2015 Enterprise Survey also cites political instability, corruption, access to finance as the three biggest obstacles for businesses.
Making things worse is the ongoing political uncertainty, which has further undermined trust in the existing political institutions. From the business side, a study by the Market Development Facility identifies several structural problems facing Timor-Leste, namely limited sectoral knowledge and business management experience, internal management issues, and organizational issue.
Government officials have on many occasions stated the intention to address these obstacles so that the private sector can flourish and generate new jobs. It is an essential part of any economic diversification strategy. However, addressing the issue of the private sector will not automatically address the employment issue. As the Business Activities Survey consistently shows, although incomes and profits in the private sector have been growing consistently during the last few years, that is not always associated with new reinvestment and new jobs being created by the business sector. Furthermore, private sector activities have been largely concentrated in Dili, where the money is; therefore private sector employment is largely a Dili-based phenomenon. Without proper policy guidelines, this trend will continue.
Creating an economy that provides jobs for the population is critical. It is jobs that bridge the potential divide between economic growth, increased income, and individual well-being. Without employment, more people will be deprived even amid economic growth. Lack of employment, particularly for the youth, can be a source of social and political unrest.
Timorese government officials have good intentions. However, a new approach and new policy are required to realize their hopes. Achieving economic growth and promoting private sector investment alone are not sufficient to accommodate the high demand for employment.
Guteriano Neves is an independent policy analyst based in Dili. The views expressed here are the author’s own and do not represent any institutions that the author is affiliated with.