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«Executive Summary Twelve years after independence, Timor-Leste eagerly welcomes investment and development opportunities. Plagued by conflict and ...»

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In 2011, the Government converted its microfinance institution into the National Commercial Bank of Timor-Leste (BNCTL) and expanded its mandate to include the provision of credit to small and medium-sized enterprises. While it has begun to implement some functions such as government payroll and the payment of social transfers, the BNCTL is still seeking international partners to meet its increased lending responsibilities. The Government recently injected an additional $10 million into BNCTL and removed monetary caps on loans to any single applicant in an attempt to provide additional credit for Small and Medium Enterprises. There are no capital markets yet.

10. Competition from State-Owned Enterprises

In November 2008, the Timorese government transformed Timor-Leste’s Public Broadcasting Service, Radio Televisão de Timor-Leste (RTTL), into a state-owned enterprise known as RTTL, E.P. RTTL, E.P. is wholly owned by the state under the supervision of the State Secretary of Social Communication, governed by an independent Board of Directors.

In mid-2011, the government established TimorGAP, E.P., a 100-percent state-owned petroleum company intended to partner with international firms in exploration and development of TimorLeste’s petroleum resources and to provide downstream petroleum services. TimorGAP is supervised by the Minister of Petroleum and Mineral Resources, but is governed by an independent Board of Directors. Firms that partner with TimorGAP are to receive preferential treatment in tenders for petroleum projects.

The government also created SAMES, E.P. in April 2004 (Government Decree No. 2/2004), a public enterprise that imports, stores and distributes medicines and medical products and equipment. In November 2005 (Government Decree No.8/2005), the government established ANATL, E.P., a state-owned company to administer the domestic airports in all its aspects, including air navigation. However, due to limited management and technical resources, the two public enterprises have not been fully operating as state owned companies but merely as a state autonomous self-funded institutions.

The Government of Timor-Leste has shares in one private company, Timor Telecom, a telecommunications provider. It owns 20.6 percent, while Telecomunicações Públicas de Timor (TPT), of which Portugal Telecom is the major shareholder, owns 54 percent. In 2013, two private foreign companies began telecommunications operations, ending Timor Telecom's monopoly of the fixed and mobile network. In exchange for the end of the monopoly, Timor Telecom acquired certain equipment procured by the government and will retain no-cost usage rights of some government-owned infrastructure and equipment until 2062.

Several autonomous government agencies are active in the economy: the Institute of Equipment Management (IGE), the Dili Port Authority (APORTIL), and the National Aviation Authority (AACTL). Postal and communications services may shift from the Ministry of Transportation Department of State: 2014 Investment Climate Statement June 2014 and Communications to autonomous agency-status eventually. Timor-Leste Electricity Company (EDTL) has recently ceased to be an autonomous institution and currently operates under the direct supervision of the General Directorate for Electricity. Other autonomous and self-funded institutions are the National Petroleum Authority (ANP, which regulates the oil and gas sector), and a lottery operated by the Ministry of Tourism. A newly created National Authority of Communication (ANC) under the Ministry of Transport and Telecommunication will eventually shift to become an autonomous and self-funded institution.

OECD Guidelines on Corporate Governance of SOEs Timor-Leste has not adhered to the OECD Guidelines on Corporate Governance of SOEs. Line ministers supervise SOEs but independent boards of directors administered them. Senior management reports directly to a 5-7 member Board of Directors. Line ministers are responsible for nominating or dismissing the President of the Board of Directors with approval from the Council of Ministers.

Sovereign Wealth Funds Established in 2005, the Petroleum Fund is Timor-Leste's sovereign wealth fund. The Minister of Finance is responsible for its overall management and investment strategy; the Central Bank of Timor-Leste is responsible for its operational management, although the Minister of Finance has the authority to select a different operational manager. By law, all petroleum and related revenue must be paid into the Fund, with the balance of the Fund invested in international financial markets for the benefit of present and future generations of Timor-Leste citizens. Most of the Fund's receipts are invested in U.S. Treasuries, but the Petroleum Fund Law permits the investment of up to 50 percent of the Fund in equities, 10 percent of which may be in exotic investments. The Petroleum Fund publishes monthly, quarterly, and annual reports on-line. As of December 2013, Petroleum Fund assets stood at $14.9 billion. The law governing the Fund provides that there shall at all times be appointed an independent auditor, which shall be an internationally recognized accounting firm (most recently Deloitte Touche Tohmatsu). The Sovereign Wealth Institute rated the Petroleum Fund an 8 out of a possible 10 points for transparency. The Petroleum Fund is the primary source of funding for the government budget, with a ceiling on annual withdrawals set by law at 3 percent of Timor-Leste's total petroleum wealth (defined as the current Petroleum Fund balance plus the net present value of future petroleum receipts).

In July 2010, Timor-Leste became the third country in the world and the first in Asia to be certified as compliant with the Extractive Industries Transparency Initiative (EITI). EITI is a Gendorsed undertaking that involves a country's government, extractive-sector companies, and civil society in ensuring transparency of resource sector payments and revenues.

11. Corporate Social Responsibility

Many firms, including leading foreign investors, support community activities, ranging from sponsoring the Tour de Timor bicycle race and other high-profile events to investing in education and rural employment, including partnering with USAID-funded activities. A Chamber of Commerce and Industry has been established and there is an active Rotary Club, but general awareness of corporate social responsibility is low.

Department of State: 2014 Investment Climate Statement June 2014

12. Political Violence

Since 2008, Timor-Leste has experienced a period of relative calm. National elections for president and parliament in 2012 were peaceful, free, and fair. Despite the country’s tumultuous past, the overall crime and safety situation is stable and has not changed significantly since the 2012 departure of the United Nations Integrated Mission in Timor-Leste (UNMIT) peacekeepers and the Australia/New Zealand International Stabilization Force (ISF).

13. Corruption

Transparency International ranks Timor-Leste at 119 out of 177 countries on its Corruption Perceptions Index. Despite the low ranking, the Government of Timor-Leste is taking some promising steps to combat corruption. In 2010, the Anti-Corruption Commission (CAC), an independent agency, opened its doors. That same year, the Office of the Prosecutor General also forwarded its first high-profile corruption case to the courts. Since then, the CAC has referred several cases to the Office of the Prosecutor General and has several ongoing investigations. In September 2012, former Minister of Justice Lucia Lobato was convicted of maladministration of funds and sentenced to three-and-a-half years in prison in relation to charges brought while she was still in office. Her appeal was denied by the Court of Appeals, which increased her sentence to five years in December 2012.

The government is working to establish internal discipline and performance standards. The U.S.

Millennium Challenge Corporation Threshold Program that focused on supporting anticorruption efforts ended in March 2014.

Bribery is a crime, subject to up to four years of imprisonment. It is illegal to bribe a foreign official, although Timorese law would not apply to an attempted bribery of a foreign official overseas. Bribes cannot be deducted from taxes.

There are several corruption watchdog organizations active in Timor-Leste, both local and international. A recent survey on perceptions of corruption found that 57 percent of Timorese believe corruption is a serious and growing problem, although not as important a concern as poverty and unemployment.

UN Anticorruption Convention, OECD Convention on Combatting Bribery The Government of Timor-Leste has signed and ratified the UN Convention against Corruption.

Timor-Leste is not a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

14. Bilateral Investment Agreements Timor-Leste and Portugal have signed an Agreement on Mutual Protection and Promotion of Investment. Timor-Leste signed a Bilateral Investment Treaty (BIT) with Germany in 2005, but it has not entered into force.

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Bilateral Taxation Treaties Timor-Leste does not have a BIT or bilateral tax treaty with the United States. U.S. investors cannot deduct taxes paid in foreign jurisdictions on income earned in Timor-Leste from their local tax obligations.

15. OPIC and Other Investment Insurance Programs The U.S. Overseas Private Investment Corporation (OPIC) and the Government of Timor-Leste signed an Investment Incentive Agreement in 2002. OPIC is open for business in Timor-Leste and welcomes contact from potential U.S. investors (www.opic.gov). Potential U.S. investors and exporters are encouraged to contact the U.S. EXIM bank (www.exim.gov) and the United States Trade and Development Agency (www.ustda.gov) as well.

Timor-Leste has been a member of the Multilateral Investment Guarantee Agency (MIGA) since

2002. The International Finance Corporation (IFC) maintains an office in Timor-Leste, colocated with the World Bank Country Office in Dili.

16. Labor The shortage of skilled labor is a significant constraint on private sector growth in Timor-Leste.

Business executives report difficulties locating skilled tradespeople to undertake or manage new construction projects. Public and private sector employers consistently encounter problems locating managerial, clerical, and other office staff. There is a surplus of young, inexperienced unskilled labor, with 15,000 new entrants into the labor market each year in an economy with an estimated total of 75,000 formal sector jobs. The government, donors, and employers place enormous emphasis on education and training in order to build local capacity.

The 2012 Labor Law put in place regulations for labor conditions, including a 44-hour work week, standard benefits such as leave and premium pay for overtime, and minimum standards of worker health and safety. In June 2012, the government set the minimum wage for full-time employment at $115 per month. Enforcement of labor laws is uneven, but increasing.

The Government of Timor-Leste has acceded to many of the major international labor and human rights conventions including: International Labor Organization (ILO) Convention No. 29 on Forced Labor; ILO Convention No. 87 on Freedom of Association and Protection of the Right to Organize; ILO Convention No. 98 on the Right to Organize and Collective Bargaining; ILO Convention No. 182 on the Worst Forms of Child Labor; the International Covenant on Civil and Political Rights; the International Covenant on Economic, Social, and Cultural Rights; and the International Convention on the Protection of All Migrant Workers and Members of Their Families.

17. Foreign Trade Zones/Free Ports There are no foreign trade or free trade zones in Timor-Leste. The GOTL is planning to pilot a free trade zone in the exclave district of Oecusse. However, laws defining and regulating the

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establishment of the project, known as the Special Zone for Social Market Economy (ZEESM), have yet to be approved by Parliament.

18. Foreign Direct Investment and Foreign Portfolio Investment Statistics

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(calculate) The GOTL only has data up to 2011 and has yet to publish any data for 2012-2013. Data on U.S. FDI in Timor-Leste and Timor-Leste FDI in the U.S. is not available.

Total Stock of FDI in U.S. Dollars (source: Central Bank of Timor-Leste) 2008 - 70.8 million 2009 - 119.3 million 2010 - 147.8 million 2011 - 196.1 million 2012 - 214.9 million 2013 - 233.5 million TABLE 3: Sources and Destination of FDI Data unavailable.

TABLE 4: Sources of Portfolio Investment Data unavailable.

19. Contact Point at Post NAME Shawn Baxter TITLE Political and Economic Chief ADDRESS OF MISSION/AIT Av. De Portugal, Praia dos Coqueiros, Dili, Timor-Leste TELEPHONE NUMBER +670 332-4684 ext. 2146 EMAIL ADDRESS BaxterGS@state.gov

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