Developing Timor-Leste’s Blue Economy

While Timor-Leste’s ocean economy represents approximately 87% of the country’s gross domestic product (GDP), this comes mainly from offshore oil and gas. Tourism, and fisheries and aquaculture can be the main drivers for employment creation, environmental sustainability, and food security.

Figure 1. Ocean Economy in Timor-Leste

Source: Partnerships in Environmental Management for the Seas of East Asia (PEMSEA) and Ministry of Agriculture and Fisheries (Timor-Leste). 2018. National State of Oceans and Costs 2018: Blue Economy Growth. 2018. Manila.

Coastal and marine tourism. Tourism, although the third most important sector for the country’s economy, makes up only 1% of its GDP. Timor-Leste has an astonishing setting for ecotourism and related activities such as scuba diving, recreational fishing, whale-watching, and cruises. In 2022, the government allocated $8.2 million to the tourism sector—an estimated $2 million was to be invested in activities directly related to the blue economy.

Fisheries and aquaculture. Despite abundant fish stocks and a variety of coastal and marine habitats, 90% of Timor-Leste’s fisheries are traditional or non-mechanized, and represents only 0.4% of its GDP. The country remains largely import dependent to meet its seafood demands. The Ministry of Agriculture, Livestock, Fisheries and Forestry is expected to invest $29.3 million or 1.5% of the 2023 Budget Rectification to promote sustainable increase in fishing and aquaculture production.^[1] Developing the seafood processing industries is also planned through the implementation of subprograms in 2024 to develop national industries and establish industrial centers.

Maritime transport and related activities. Maritime transport, ports and shipbuilding currently represent about 4% of the GDP. Port infrastructure is crucial given that 80% of international trade is transported by sea. Moving away from import dependency for basic products and food items calls for strategic investments in more efficient transport and port management systems, which will also reduce the costs of imports.

Trade and commerce. Timor-Leste has a narrow export base comprising over 90% oil and gas, with green bean coffee being its largest non-oil export product. As its vision for a blue economy expands, high value-added sectors such as seafood processing should adhere to World Trade Organization, the Association of Southeast Asian Nations, and the European Union-Pacific Economic Partnership Agreement requirements. Its accession to these organizations is expected to grow its fisheries sector, similar to the experience of Papua New Guinea.

Marine renewable energy and marine biotechnology. Marine energy is an area to explore to reduce the cost of electricity and improve energy security, which is fundamental to foster economic diversification and industrialization. Marine biotechnology and bio prospecting are also potential fields, including the patent and commercialization of pharmaceuticals, enzymes, cosmetics, and other products. Collaborations with research institutes under the Nagoya Protocol to the Convention on Biological Diversity^[2] will address Timor-Leste’s capacity gap in this field.

The government’s commitment to fight climate change includes $2.5 million in its 2023 budget to advance action to meet Sustainable Development Goal 13, and $46 million for high climate relevant activities, with special focus on marine conservation. The government also introduced climate budget tagging in 2023 to estimate, monitor, and track climate-relevant expenditures.

However, to overcome the challenges in becoming a blue economy, it is essential for Timor-Leste to increase awareness toward marine ecosystem conservation, build infrastructure, strengthen human capital, develop blue economy policies and institutional frameworks, and bridge the financing gap that limits blue growth.

Awareness building. Maritime resources conservation is fundamental in developing a blue economy. Awareness building through an integrated approach to coastal adaptation for protecting coastal livelihoods and productive lands needs to be included in education, such as tailored materials for school children, establishment of training centers on ocean and marine literacy in conjunction with community consultations, and introduction of simple nature-based solutions such shoreline mangrove protection. A coastal vulnerability assessment will also help guide the restoration drive by establishing a coastal baseline and identifying sites for restoration.

In the coastal regions of Timor-Leste, about 600,000 people reside in areas prone to disasters caused by rising sea levels, saltwater intrusions, erosion, inundation, and storm surges. However, residents near mangroves lack awareness on its importance and clear these to serve their needs for fuel wood and animal grazing areas. They lack technical know-how to preserve local marine ecosystem and develop sustainable business and employment opportunities. For example, communities involved in seaweed farming have not realized its potential as an income source.

Infrastructure development. The incipient state of the fisheries sector has been attributed to the underdeveloped port infrastructure with no large vessels for deep sea fishing, restricting fishing activities to small boats resulting in inadequate catch to meet the country’s domestic needs. Currently, Dili Port handles all shipments in Timor-Leste (except for the port in Oeccuse that was recently upgraded to handle freight and passenger traffic). The largest share of the country’s infrastructure fund was allocated to roads and bridges at 51%, followed by airports at 9%, agriculture at 4%, and ports at 0.35%.

With limited resources for competing priorities, there is mounting pressure on the use of the petroleum fund to pursue the government’s policy to finance infrastructure projects. Investment gaps in infrastructure can be addressed by collaborating with development partners to leverage their support in developing a pipeline of bankable and high-quality innovative projects to attract private investment in this domain.

Infrastructure gaps in port activities, maritime transport, and sustainable tourism must be addressed to accelerate the transition to high value sectors such as fish processing. Initiating marine spatial planning is one approach small island developing states have adopted for strategic and practical decision-making around ocean use and conservation. Timor-Leste can learn from other countries such as the case of Mauritius’ 2021 roadmap consolidating its tourism, seaports, and fishing sectors while building its aquaculture, marine biotechnology, and renewable energy.

Policy instruments and institutional framework. Timor-Leste has passed legislations to address environment concerns and curb marine litter such as the 2020 Zero Plastic Rule. However, policies and implementation framework on blue economy remain weak and lacking. The new Ministry of Agriculture, Livestock, Fisheries and Forestry will adopt a coordinated approach to develop the primary sectors.

Implementation of the National Oceans Policy, akin to other small island developing states would be beneficial to set a clear and strategic direction to function and operate in sustainable ways. The policy outlines six core objectives: effective ocean governance systems, diversified blue economy, strengthened natural ecosystems, investments in people, and strengthening actions to combat and adapt to climate change.

Strengthening legislations around the blue economy is imperative because there are gaps in Timor-Leste’s environmental laws. It needs to conduct legislative assessment to judge the relevance, efficiency, and impact of existing laws. For example, the solid waste management law lacks clear designation of responsibilities and does not feature any sector priority. Marine fishing is currently governed by a 2004 law, which needs enforcement to curb illegal fishing. Regulations and policies around ecotourism are impeded by the absence of specialized licensing requirements for high risk areas such as whale-watching and snorkeling. Cohesive policy measures in the Blue Economy Financing Roadmap launched in 2022 need to be ratified.

Establishment of a tourism board can help ensure coordination among agencies and in attracting private investments. Addressing capacity gaps in institutional arrangements, such as the lack of a thorough implementation plan, needs to be prioritized. Specialized technical training modules for officers and personnel need to be designed to strengthen knowledge gaps in effective compliance and specific hazardous waste streams such as municipal solid waste, plastic pollution, and medical waste.

Finance. Although the blue economy is not identified as a specific focus area in the budget, it can be captured across the government’s different priority areas. The 2022 budget allocated $144,000 (0.01%) explicitly for a blue economy program titled “Establish the Maritime Borders Office as a Center of Excellence on Maritime Borders and Maritime Jurisdiction in Timor-Leste: Blue Economy.” Constraints on the supply and demand sides have also restricted financing options. Lack of information on the Timorese market often prevents investors from foraying into the region and has led to a perceived market risk associated with prohibitively high costs. On the demand side, lack of bankable projects and awareness on the business environment tend to exacerbate the issue.

A bankable pipeline of projects, adhering to international standards and backed by a strong business proposal, can attract private sector funding. Other means of generating revenues can include introduction of payment for ecosystem services such as environmental tax and tourism levies, and an evaluation of the current mangroves ecosystem to quantify current sediment accretion through blue carbon habitats and generate saleable carbon credits in international markets.

Timor-Leste can benefit from the experiences of other small island developing states. Seychelles completed its marine spatial planning initiative in 2021, launched the world’s first sovereign blue bond in 2018, and secured the first-ever climate adaptation debt restructuring. Madagascar in 2019 successfully launched a mangrove carbon conservation project that generated income for the local communities through the sale of carbon credits.

Increasing Timor-Leste’s engagement with blue economy sectors that can translate to drivers of growth in the long run needs to start with focusing on building awareness among local communities on the importance of oceans and coastal habitat.

Simultaneously, it should build on the principles of the National Oceans Policy—a strategic roadmap identifying transformative investments for a blue economy in consultation with key stakeholders. An enabling policy environment also needs investments in human capital development.

Going forward, an advanced set of priorities to further bolster blue economy growth may include the introduction of various innovative financing instruments such as issuance of blue bonds, tourism tax or an environment fee, blended financing, impact funds, and blue-carbon credits.

This Insight article was prepared by Kavita Iyengar and Sonali Swain.

^[1] UNDP implements the ‘Small Bankable Blue Economy Project’ in Atauro, supporting 1,623 farmers (796 women) to develop seaweed farms. Seafood processing industries have been successful in countries similar to Timor-Leste such as Cape Verde, Papua New Guinea, the Solomon Islands, and Fiji.

^[2] Timor-Leste became a party to the Convention on Biodiversity in 2007 and adopted its first National Biodiversity Strategies and Action Plans in 2012.

Government of Timor-Leste and United Nations Development Programme. 2021. Financing the Blue Economy in Timor-Leste: A Preliminary Road Map. Dili.

Organisation for Economic Co-operation and Development. 2016. The Ocean Economy in 2030. Paris.

Partnerships in Environmental Management for the Seas of East Asia. 2019. National State of Oceans and Coasts 2018: Blue Economy Growth of Timor-Leste. Quezon City.

World Bank. 2018. Timor-Leste Systematic Country Diagnostic: Pathways for a New Economy and Sustainable Livelihoods. Washington, DC.