Cooperation & Economic Recovery in Timor-Leste

I think it is now safe to say we can call what we are now seeing, a recession. Most people would agree, we don’t need to wait for the official report of two successive quarters of contraction to call this one. What is unknown is how long this will last and how deep it will be. 

Many pundits are predicting how the coming months will play out in the Australian and international economy. What our economy will look like in 2, 5 or 9 months from now is anyone’s guess, because it is still uncertain how quickly we will return to a position where businesses can begin to open again. There are simply so many unknowns. Given we are told that a vaccine for covid-19 is most likely 12-18 months off but also that we should not assume a vaccine is possible, we are left even more uncertain. All we can safely say is that it’s looking like a long road ahead.

Recovery times depend on what sector you examine. Based in Dili, Timor-Leste, my company, the East Timor Trading Group is a hospitality, retail, and distribution business. The nature of our restaurants like Burger King, Gloria Jeans Coffee, and other retail businesses, is that we carry significant amounts of perishable stock which expires. We cannot simply put stock into storage and return later to sell it. This sector has suffered early and with a sharp downturn. In fact, our business is down by 80%. We are in a critical situation. 

We are doing what we can to look after employees to ensure they remain calm, positive, and healthy. We intend to see this through and come out the other side, but as yet the government has not offered a support package to business and employees like other governments around the world. 

It is now time for the government to sure-up the business landscape with help to those businesses that remain. If this is not done, the country will suffer dire consequences in the retail and hospitality sectors. 

Politically, things are moving in a positive direction now that the Prime Minister has withdrawn his resignation. This stability may lead to increased action to help the business community because even we as a large business are struggling. It is even worse for the many smaller businesses, many of which have closed already.

You might imagine that rents in Dili are less than in developed nations, but that is just not the case. We are paying similar rents to those in capital cities in Indonesia and Australia. At present, one of our landlords has offered a small discount, not enough to make it work, but it is a step in the right direction. We are asking this landlord and others to match the rent reduction to the drop in business; otherwise, we will be left with no option but to close those businesses. And that is a loss for us, the landlord, the employees, and to the country.

In short, we all need to work together to find an equitable solution, so that we all survive this crisis. I believe the reasonable response is for the drop in rents to reflect the drop in business activity. 

Timor-Leste, as most readers will know, has weathered storms before. To their credit, the government acted with great speed when the first case of covid-19 appeared, and so far the country has been successful in containing that one case. 

Former President and Nobel Laureate Jose Ramos-Horta wrote in an article for the Devpolicy Blog, the Timorese people are no ‘stranger[s] to seemingly overwhelming challenges’. However, he goes on to say, ‘the economic and psychological impacts of the pandemic are already being felt’. 

Timor-Leste will face an economic hit from covid-19, much like every other country, but how deep will it be?

The World Bank has predicted a ‘deep recession’ for the Asian region economies almost across the board and suggests China’s growth will be the lowest it has been since the death of Mao Zedong in 1976. It may avoid a recession, but as growth estimates range from -7.5% to -0.6% for the first quarter, to 1%, it is clearly an unknown as yet.

In its East Asia and Pacific Economic Update (April 2020) the World Bank says, ‘Significant economic pain seems unavoidable in all countries’, and that it will require ‘bold national action, deeper regional and global cooperation, and significant external assistance’. Given covid-19 is a true global problem, one can only pray that we will see unprecedented worldwide connectivity and cooperation. To achieve this unity, our multi-national or global institutions will I hope come into their own.

The OECD recently produced a report titled ‘Tackling the initial impact of Covid-19 containment measures on economic activity’. This provides two approaches to evaluating the economic impact of the shutdowns: 

1. The output approach: examining sectoral outputs

Expected output decline ranges from 50-100% depending on the sector. 

For example, travel and tourism has shut down completely; bricks and mortar retail has suffered heavily, but some shops remain open for online sales; restaurants and similar service industries have suffered large shutdowns, but some take-away food services remain. Transport is suffering due to supplies not be available from other countries. Non-essential construction work is suffering, as is small-scale manufacturing.

These sectors account for around 30-40% of total output in most countries. Allowing for variable levels of decline, the report estimates that the fall in GDP will be approximately 25-30% in advanced economies.

The report notes that there is, of course, substantial variation across countries: for example in the more tourism-reliant economies the impact will be severe, whereas in those countries relying on agriculture, mining and oil, the initial effects may be small but global demand is generally down.

2. The spending approach: examining consumption patterns

The second approach is to look at the detail of consumer spending. Similarly, expected spending decline ranges from 50-100%, depending on the sector. Shop closures for non-essential goods, large items such as cars, and transactions requiring direct contact have fallen sharply. Restrictions on local travel, eating out, and recreational services, have been hit, but not quite as hard. Spending on essential items, such as food and groceries remains largely unchanged. 

Taken overall, the expected decline using this method is around 20% in advanced economies, and more substantial in less developed economies. Both these estimates, it notes, are dependent upon how long the containment measures last – a complete unknown at this point. 

The OECD report makes it clear these are only one approach to obtain an estimate of global decline. While not utilising all the detailed data they hold, the message of sharp decline is consistent and corroborates the data coming from OECD business surveys and the contraction seen occurring in China for early 2020.

These OECD estimates have been reflected in a press release from the World Trade Organization on the 9 April, which estimates that the trade slump caused by covid-19 could be up to 32% – exceeding that of the 2008-09 global financial crisis, where world trade fell by around 20%. On a positive side for economies, they also suggest that a ‘rapid, vigorous rebound is possible’ if the correct foundations for recovery are laid now. An element of that foundation is, as the OECD also noted, that ‘if countries work together, we will see a much faster recovery than if each country acts alone.’ The WTO tempers any positivities by highlighting that the ‘extent of uncertainty is high’ given the many variables at play.

We are seeing the start of cooperation with Australia and the US agreeing to help Pacific and south-east Asian nations. The language used was that Pacific Island Forum nations would be treated like ‘extended family’ as they weather the health crisis, now compounded by the devastation wreaked by Cyclone Harold this week. Australia’s aid will be directed towards Timor-Leste, Indonesia and the south-west Pacific and focus on keeping supply lines open to expedite the delivery of medical supplies, personnel and equipment. 

The ‘extended family’ concept is wonderful. Because covid-19 does not discriminate, this is one of the few crises the world has faced as one. We can only hope that our fight against it might usher in a new form of globalisation if we work together to arise from the crisis.