Introduction

A small, post-conflict country, the Democratic Republic of Timor-Leste (East Timor) is Southeast Asia’s newest nation and one of our closest neighbours. It comprises the eastern half of Timor Island, 640 kilometres northwest of Darwin, and an enclave of territory in the western part of the island, the rest of which is part of Indonesia. In area, Timor-Leste is around one‑fifth the size of Tasmania. It achieved formal independence in 2002. Its young population of just over 1 million is growing quickly.

Timor-Leste has been subject to colonisation since the Portuguese arrived in the Indian Ocean in the early 16th century. This included a brief period of Japanese occupation in 1941, and Indonesian administration from 1975 to 1991. Timor-Leste gained formal independence in 2002, after a UN-sponsored referendum in 1999. INTERFET, a multinational force led by Australia, was deployed to restore security in Timor-Leste following violence that broke out after the referendum. Australia continues to lead the International Stabilisation Force deployed at the request of the Timorese government to help restore stability following unrest in 2006. Australia’s Defence Cooperation Program and the Timor-Leste Police Development Program provide ongoing support to Timor-Leste’s security sector. Australia is also Timor-Leste’s largest development assistance partner.

Timor-Leste’s economy is small but growing. According to the International Monetary Fund, Timor-Leste’s GDP per capita in 2012 will be $9,468 (PPP terms). GDP grew 10.6 per cent in 2011 and is expected to grow by about 10 per cent in 2012. The economy is dominated by the oil and gas sector: two fields in the Timor Sea Joint Petroleum Development Area shared with Australia — Bayu Undan and Kitan — are responsible for almost all of Timor-Leste’s GDP. Oil and gas revenue is invested in a sovereign wealth fund, which holds over US$10 billion.

Timor-Leste’s economy is still in the early stages of development, and the nation’s comparative advantages are limited. Exports of oil and gas drive a current account surplus of 55 per cent of GDP. Timor-Leste’s small non-oil economy is still largely based on subsistence agriculture, so it is a net importer of almost all the goods it consumes. It is a modest exporter of coffee.

Timor-Leste’s Strategic Development Plan (SDP) aims to develop a middle-income and diversified economy by 2030. Government spending, especially on infrastructure, is driving economic growth. The private sector is nascent and Timor-Leste is actively courting foreign investment, including from Australia. Generating jobs, including through the export of labour, is a major priority for the Timorese Government.

Government, business and people-to-people links

Australia and Timor-Leste have a very close relationship based on proximity, history and people-to-people links. Australia has been at the forefront of international support for Timor-Leste during its first 10 years of independence to ensure security and stability in the country, and delivers a significant program of development assistance.

In 2011, Australia and Timor-Leste signed a new partnership agreement aligning our assistance with Timor-Leste’s development objectives. Our assistance focuses on rural development, including increasing agricultural productivity and improving roads and water and sanitation systems; strengthening public sector administration and governance; increasing access to quality education; and increasing access to health services, particularly for women and children.

Timor-Leste’s government is seeking to transform its frontier market into a vibrant private sector open to foreign investors. This gives rise to opportunities for Australian businesses which offer specialised skills and expertise, and provides opportunities for training that contribute to the development of the commercial sector.

People-to-people links between Australia and Timor-Leste are unusually strong and extensive. There are significant Timorese communities in Australia, more than 9,000 East-Timorese born according to the 2011 census, many Timorese leaders have studied in Australia, and some Timorese have children enrolled in Australian schools and universities. In 2011, 31 Timorese received scholarships to study in Australia through the Australian aid program. Hundreds of Australians are working in Timor-Leste with civil society groups, international organisations and the private sector. These varied contributions through communities, clubs, churches, schools and individuals have formed bonds of friendship and respect.

Cultural and sporting ties continue to grow between the people of Australia and Timor-Leste. The Timor Sea Cup soccer match, launched in 2008, sees teams from Timor-Leste, Nusa Tenggara Timur (Indonesia) and the Northern Territory play off as part of the Arafura Games. The Dili Marathon and Tour de Timor mountain bike race brings competitors from Australia and the world to test their mettle in Timor-Leste’s rugged landscape. There is increasing collaboration in music and the visual arts between artists from both countries.

Timor-Leste and Australia share many regional and global goals and interests: promoting democracy, ensuring maritime security, addressing irregular migration, promoting good management of fisheries, food security, responding to climate change and cooperating on counter–terrorism. Both countries contribute to peace and security in the Asia–Pacific region through cooperation in the ASEAN Regional Forum. Australia is a strong supporter of Timor-Leste’s aspiration to join ASEAN.

Timor-Leste leads the g7+ group of states that have come together to change the way donors deliver aid in fragile and post-conflict situations. Australia strongly supports the group’s New Deal for Engagement in Fragile States, which calls for relationships between donors and recipient countries based on mutual respect and accountability. These principles form the basis of our development partnership with Timor-Leste.

Towards 2025

Timor-Leste’s SDP for 2030, if fully implemented, will transform the country. Implementation will be challenging and will require prudent financial management and effective service delivery. Timor-Leste plans to develop oil and gas infrastructure on its south coast to generate ongoing revenue to implement the SDP. This may provide opportunities for Australian businesses in the areas of design, construction and related services. The future development of the Greater Sunrise gas field remains an important goal, given the revenues and experience in joint resource management that it will deliver to both countries. By 2025, there may be further opportunities in onshore resources and mining services as exploration efforts widen in Timor-Leste.

By 2025, Timor-Leste should be benefiting from closer political, security and economic integration with the region as a member of ASEAN. By that time, ASEAN members are likely to be Timor-Leste’s major trading partners and sources of foreign investment. The country’s increased regional integration with the ASEAN economies could increase opportunities for Australian businesses.

The services sector will become increasingly important to economic growth, creating opportunities for Australian businesses in financial services and microfinance, health and medical services, hospitality and tourism, transport, logistics, construction and education services, especially in English language training. Australian investment and skills transfer could assist Timor-Leste’s agriculture sector.

In 2025, cooperation on regional security is likely to continue to be a major pillar in the relationship, including on border security, climate change, illegal fishing and sustainable fisheries management. The need for joint patrols and closer trilateral cooperation between Australia, Timor-Leste and Indonesia in maritime security and disaster risk management will continue to underscore those mutual interests.