What next for Timor?

With the present situation slowly heading for political resolution, time has come to consider the next steps for the fledgling government of Australia’s newest neighbour.

Many theorists and commentators argue development in Timor is inexorably linked to GNP growth. This argument stresses successful development will not occur without increases in income levels, leaving us wondering how Timor can have a hope of pulling an economic rabbit out of the development hat. With the ongoing debacle that is the Timor Sea agreement, increases in real income will take time to trickle down, if they do at all: time that Timor does not have if it is to avoid a return to the recent unrest.

How can this be achieved in a country arguably verging on being penniless? The Timorese parliament is in the process of passing a US$415 million budget, which to use the words of former Foreign Minister Jose Ramos-Horta equates to being “the budget of a university or a small town in Australia”.

Nobel Prize winning economist Amartya Sen offers the first steps to a solution in his 1998 book Development as Freedom. Using what is described as a support-led process to deliver “social opportunities” - health care and basic education - Sen argues there is no need to wait for dramatic increases in real incomes.

In relation to Timor, the primary aim should be to improve the quality of life for a populace subsisting on approximately US$1 a day. According to conventional development wisdom, this requires money and resources, and this very fact supports the argument that incomes must rise before these essential services can be delivered to the people. Quite often, this argument is extended, with theorists advocating a complete postponement until capital becomes available for governmental social investment. Chicken first, egg follows.

At this point it seems an insuperable problem. What about the economics of relative costs? By their very nature, social services such as those the Timorese desperately need are labour intensive in their provision. In a country with an average wage of less than a dollar, these services are relatively inexpensive to provide.

There might be less money, but existing wage levels mean Timor doesn’t need as much money to provide such labour intensive services. Simply put, it costs a great deal less than delivering similar services in the developed world of trade unions and “living wages”. Ergo, there’s no need to wait.

With support-led initiatives laying the foundation for the more popular income-led growth, this approach should be given serious consideration. Other income and business-led initiatives have not fared particularly well. Take coffee as an example.

Fairtrade, Oxfam, Community Aid Abroad and even USAID and CNN have trumpeted the delights of Timorese coffee far and wide, with cafes charging us a premium to savour the deliciously sweet taste. More than a few pundits have argued coffee, along with oil and gas will lead to Timorese economic regeneration. Oil and gas aside, to date coffee has failed to deliver. It’s time we recognised the failure of coffee to save the day is for sound economic reasons.

Coffee is not scarce. Paraphrasing economist Tim Harford, coffee is grown all over the world and requires hard work but little skill to produce. Further complicating matters is trade in raw coffee is relatively free of economic barriers, subjecting it to unadulterated free-market forces. The lack of tariff or subsidy protection also makes it unattractive to farmers in developed countries, leaving coffee and other commodities like rice to the world’s poor to cultivate.

Coffee is also an easy business to get into, and initiatives like Fairtrade only make it more attractive to poor people looking to feed themselves. Such initiatives warm the hearts of developed world philanthropists and ethical consumers, but only benefit a small group of coffee producers.

The point is the existence of Fairtrade and like initiatives does not alter a very important fact - globally, too much coffee is being produced. As much as we all like the stuff, it is quite clear that on these facts alone successful Timorese economic development on the husk of a coffee bean is about as likely as them qualifying for the next World Cup.

Alternatives to coffee, oil and gas are needed. While not advocating the demise of the coffee industry, the relative economics mentioned earlier suggest several other areas for development that efficiently leverage lower relative wage levels and the use of labour intensive industry.

Leaving aside healthcare and energy, possible alternatives meeting these requirements include commercial fishing, aquaculture and agriculture. All also have the added benefit of scalability.

Although horribly devastated during the Indonesian withdrawal, Timor’s natural environment is breathtaking both on and offshore. The island is situated on the precipice of a 3.5km deep channel in the Wetar Strait, home to tuna, deepwater snapper and a vast array of marine life continually refreshing the coastal marine environment.

A key infrastructure aspect not destroyed by retreating Indonesian and militias is deepwater ports. The northern coast of East Timor is well serviced by excellent deepwater facilities, initially designed to cater for Indonesian warships. With this infrastructure largely intact, minimal investment would be required for these facilities to support a commercial fishing industry. Fishing and the subsequent packing and export are labour intensive and thereby low cost, making it hard to ignore.

Agricultural alternatives to coffee are also necessary. That the world’s poor wind up farming our coffee and rice is inarguable. Little known is that rice paddies have an alternative use in aquaculture as hatcheries for fish farming. Work has begun in this area assisted by UN Volunteers and the Department of Fisheries and the Marine Environment (DFME) but further government and development investment is necessary, providing both economic and health benefits.

Malaria is endemic in East Timor. During the wet season, rice paddies become breeding grounds for the malaria mosquito. Integrated farming methods like aquaculture provide fish to eat mosquito larvae, an economically efficient step toward lessening the over 130,000 malaria cases treated in East Timorese hospitals each year.

Another option is vanilla. An alternative cash crop to coffee, vanilla has comparable inputs and labour intensity to farm, and the economics are hard to ignore. Coffee yields four times as much crop per acre, but on price, vanilla yields deliver a return over six times larger to the farmer even with historically low vanilla prices. More simply - raw coffee prices per kilogram are about US$2 on a good day. On a bad day, vanilla is worth US$50 per kilogram. An investment in expansion of this crop magnifies the return to the economy and increases the pace of development.

There will of course be understandable resistance to the growth of Timorese commercial fishing, aquaculture and agricultural industries, especially when they compete for export dollars with Australian business. Nobody likes competition.

But Australian industry must face the reality that this is an unavoidable eventuality.

To deny or resist moves to boost East Timor’s economic growth invites a much less palatable outcome - the continued need for Australian soldiers and police keeping the peace in an impoverished neighbouring state.