Greenfield Industries- Tourism Systemic Change Pathways
Septmeber 2015 MDF Timor-Leste Version-1
Summary MDF Timor-Leste Country Strategy Poverty Of the approximately 185,000 households in Timor-Leste, nearly half are considered poor.1 In TimorLeste, poverty is: An overwhelmingly rural and agricultural phenomenon. Majority rural households are either poor or vulnerable to poverty. Commercial agriculture and multiple ways to earn incomes for households are key to achieving resilience and moving out of poverty. The primary cause for malnutrition amongst children under five, and young mothers. Over 58% of children under five are categorized as stunted, with a quarter of young mothers mal-nourished. Households need to be able to eat more and eat better. A function of large-scale unemployment. There are few jobs in rural or urban areas to absorb the large number of young Timorese joining the workforce annually. Fueled by poor connectivity between different parts of the country. Difficult terrain and poor infrastructure keep producers and markets isolated from each other and entrenches poverty in particular locations.
Economy Growth thus achieved is unsustainable over the long term. New avenues need to be explored and nurtured for a sustainable economic future of the country. The major impediments to growth are: An over reliance on large capital investments by the public sector as a key driver of economic growth. The economy needs diversification to instil resilience. A small and inexperienced private sector that struggles to grow and manage business models outside of government contracts. Insignificant levels of private sector investment in areas of value addition and processing A disconnect between rural production and urban demand. High unemployment rates compounded by a large annual influx of young Timorese entering the workforce.
1 WB Poverty Head Count (49.9%) considering USD 1.25 a day as the poverty line (2007 updated).
MDF Focus in Timor-Leste Encouraging investments in diversified businesses outside of oil and gas sector Stimulating establishment of alternate sources of incomes within and outside of agriculture Increasing investments in ventures focusing on adding value to local raw materials through greater processing Improving connectivity between producers and consumers and markets (both domestic and exports) MDF considers Agribusiness, Processing and Rural Distribution sector and Greenfield Industries such as Tourism and Manufacturing as the most effective vehicles for achieving this focus in Timor-Leste.
Women’s Economic Empowerment (WEE) All sectors are relevant for WEE, integrated in the systemic change pathways (see below).
Alignment with Government of Timor-Leste The Coordinating Ministry for Economic Affairs (MECAE) is particularly interested in improving the operating environment, thus making it easier for Timorese businesses to flourish. The focus of the ministry are the agriculture, tourism and manufacturing sectors as well as topics such SME financing in these sectors. MDF is engaged in conversation with the ministry on all these topics.
Note on Systemic Change Areas Currently the Agribusiness, Processing, and Rural Distribution and Greenfield industries sectors in Timor-Leste have products, services, and actors, but very little structure within which these factors can interact. This constrains the growth around any particular product (agricultural and non-agricultural), service, and activities such as processing, value addition, trading, and manufacturing. Given the amorphous nature of the sectors, MDF’s strategy, and consequent definition of systemic change areas, within these sectors are also broad. But engagement in these broad strategic and systemic change areas are critical first steps towards creating a well-defined, efficient, and effective market system in these sectors (for example, defining specific sub-sectors within the broader Agriculture sector in Timor-Leste). The systemic change areas that has been described in the later sections of this paper are pre-conditional to bringing about more focused changes in the sector. After MDF has laid the foundation for more “formed” market systems, it will seek to redefine and focus the sectors and systemic change areas on which it should focus next. It is expected that achieving the broad systemic change pathways as outlied in this document is a process that should take about 8 years from inception of the country programme, given the required levels of resources are in place from the start. However, the resource environment around
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implementing MDF in Timor-Leste has always been constrained, which has limited engagement of MDF Timor-Leste within each systemic change area to half the potential. This has pushed the timeline for achieving systemic change from 8 years as previously expected to 10 years (thus pushing back change horizon to 2023) provided resources are adjusted to the required levels going forward.
The MDF Framework for Defining and Populating Pathways to Systemic Change The systemic change pathway explained Competitiveness and change in sectors do not depend only on the actions of MDF. Sectors are complex and are influenced by a wide variety of factors such as global markets, changes in the policy and regulatory environment, the availability and quality of infrastructure, the cultural context and the environment. Some changes introduced by MDF will catch on quickly; others have faced barriers and moved slowly or not at all. MDF must be able to define which change areas it needs to focus on to make growth more robust and inclusive and then monitor progress towards achieving the quality of change that can be called ‘systemic’. For this purpose MDF developed its Systemic Change Framework as outlined in the figure below. This framework is applied separately to each key strategic change that MDF aims to foster within a sector or market system. The annexes to this Strategic Guidance Note provide a detailed example of how the framework is applied in Fiji.
Application of MDF’s Systemic Change Framework requires a deep understanding of a sector as well as experience working with market players to address constraints to pro-poor growth. The first step in applying the Framework is to develop an inclusive, pro-poor growth strategy for each sector. This sector strategy is typically based in on an Inclusive Analysis of Growth, Poverty and Gender at the sector level combined with a Household Level Analysis of Poverty and Gender Dynamics and defines a vision for inclusive growth as well key constraint areas to inclusive growth. MDF will then proceed to launch partnerships aimed at reducing the constraints identified and unlocking inclusive growth. At the same time, MDF uses the framework outlined above to further define its ‘strategic intent’ for a sector, as accurately as possible given that it will learn more from implementation about what is really needed and realistically feasible. Please refer to MDF’s Strategic Guidance Note on Systemic Change which shows how an inclusive sector growth strategy (for the Horticulture sector in Fiji) feeds into the country strategy, and how systemic change areas support the inclusive sector growth strategy. As mentioned, for each systemic change area, MDF applies the systemic change framework; the introductory section justifies the rationale for identifying the systemic change. Importantly, in time, based on the experience gained from implementing the first partnerships within a sector, it becomes clearer which systemic changes the programme should focus on. As the programme discovers more through implementing its partnerships within the sectors, it becomes clear that some constraint areas appear to be dimensions of, or seem to coalesce around more deep-seated problems. MDF then develops a better idea of which changes the market is ready for, and which changes requires more innovative approaches address the problems. Through the interplay between traction gained through partnerships and strategic intent, emerges firmer systemic change areas, which then become the ‘compass’ for programme implementation in the sector. This typically happens around two years into implementation as the first batch of partnerships start to yield results. To help define (and manage, monitor and communicate) the dimensions of change that deserve to be labelled ‘systemic’, MDF asks two fundamental questions: 1) are there appropriate incentives for market players to interact with poor people and to continue, expand and adapt the new business model; and 2) is the adoption and adaptation of the new business model continuing to serve the interests of poor men and women? For each question it has defined three key parameters. The table below reiterates these questions and briefly defines the parameters related to this. It should be noted that the first three parameters refer to the strength of the business case underpinning the change, and other three parameters refer to the beneficiaries of the change. Together they define the quality of change as well as the scale of change, making it truly ‘systemic’.
Parameters with Systemic Change Framework
Questions
Parameters
Definitions
Are there appropriate incentives for the market players that interact with poor people to continue, expand and adapt the new business model?
Autonomy
Independent action by businesses or other market players to adopt and/or improve a business model promoted by the programme.
Sustainability
The extent to which the business model promoted by the programme is sustainable and/or profitable.
Resilience
The extent to which the market system supporting the business model can adapt to stay competitive, take advantage of new opportunities and recover from adverse shocks.
Inclusiveness
The extent and depth to which the business model as practiced by market players includes and benefits the target group
Scale
The proportion of the potential target group that gets the goods, services and/or jobs promoted by the programme.
Women’s Economic Empowerment
The extent to which the business model includes and benefits women with respect to income, access to opportunities, access to assets, life chances, jobs, manageable workloads and decision making power.
Is the adoption and adaptation of the new business model continuing to serve the interests of poor people?
Then, by asking these two questions using these six parameters, the framework seeks the programme to define a ‘beginning state’ for each parameter. This is the state of the sector or market system at the start of the implementation process (‘at the beginning of the pathway to systemic change’). Once the programme is being implemented it defines the key market or regulatory gaps it seeks to address to make the market system work better. This is followed by a description of the ‘end state’ for the same parameter. It outlines how the programme wants to see the market system work. If this state is achieved, the work is done. The end
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state should be defined as per market needs to work well. Therefore it may occur that the programme defines an end state that it cannot achieve given its current resources and implementation window (contract duration). This makes the Systemic Change Framework a management tool not only for the programme, but also for its investors. It starts to define the ‘total potential’, the ‘total need’ and the ‘total time and resourcing’ required to meet those needs. As mentioned, the space between the beginning state and end state is the gap in the market system that needs to be filled, the pathway to systemic change that needs to be populated. MDF identifies four stages of progression along this pathway, captured for each parameter. These stages are ‘initial’, intermediate, ‘advanced’ and ‘matured’. In time, MDF will make progress against these parameters, but not at an equal pace (there may be very inclusive partnerships that lack scale and to some extent resilience, and partnerships that are strong on autonomy and scale, but less on WEE). Each partnership design needs to be strong and sustainable enough to be considered for co-investment by MDF, but no partnership is perfect. By managing its portfolio MDF will ensure quality of change at scale in a systemic manner. Nevertheless, MDF does not expect that all changes will reach the same level of institutionalisation in the market system within the life of the programme. Some changes may only reach an initial or intermediate level of systemic change, while others may reach an advanced or matured level of change. Using the knowledge and understanding gained from several years of experience, MDF can project the level of systemic change it expects to catalyse two years beyond the life of the programme.2 MDF assesses the progress of systemic change against these projections and analyses why change is happening faster or slower than expected. This helps the programme to better understand market dynamics and adjust its strategies appropriately. Finally, for each parameter, MDF will describe the beginning state and end state of where it is situated in moving forward along the pathway to achieve systemic change. This helps the reader understand how far MDF has progressed in terms of achieving its strategy objective, with whom (which partners), and why. As implementation and insight progresses, MDF periodically updates these stories (as well as, if needed, the desired ‘end state’).
2
The processes of change that MDF catalyses during the programme will continue beyond the end of the programme. MDF uses the DCED recommended two years post programme timescale for its projections.
Greenfield Industries sector Greenfield Industry signifies the infant stage of industry in two ‘non-oil’ sectors- manufacturing and tourism. In many cases the businesses emerging in these areas will be first of its kind ventures in TimorLeste and represent Timor-Leste’s budding non-agricultural economy. For MDF, Greenfield Industries sector is critical for pursuing economic diversification. Although manufacturing and tourism has been analysed under the auspices of Greenfield Industries, the sectors, and their constraints and opportunities, are inherently different. The same goes for the poverty profiles and WEE implications. Thus, for the sake of clarity, these two areas have been separated out in their systemic change outlooks in the following sections.
Greenfield Industries sector – Tourism Scale, constraints and opportunities Since independence in 1999, a small tourism industry has developed in Timor-Leste capitalising on the pristine natural beauty of the place and the presence of the large expatriate community who are living here for post-conflict development work. The fledgling industry has however struggled to grow beyond that. The revenue stream continues to be dependent on business tourism or expatriate-driven weekend tourism. In absence of proper infrastructure, high quality accommodation facilities, attractive tour packages, easily accessible information, and a coherent national tourism strategy, the industry is slow in its growth. Constraints and opportunities for the sector are given below: Basic tourism infrastructure, including information, lodging and board, at tourist sites, translate to few tourists (even amongst the resident expat ‘tourists) going out and spending time at these sites. This also prevents the creation of any tourist circuit around the country or around key tourism sites (i.e. old forts or dive sites) where visitors can stay over an extended duration. Inadequate and poor quality support services (hospitality, financial, technical) for the businesses in tourism sector means private sector players struggle to improve their skill and service offerings. There are few individuals who are trained to work within the unique tourism environment that Timor-Leste offers (i.e. cultural and marine tourism). There is no coherent, and consultative, tourism country strategy. The public agencies involved in tourism (i.e. Ministry of Tourism and the Secretary of State for Arts and Culture) are not aligned with the vision of tourism that is shared by the private sector. In the absence of a coherent tourism strategy, the promotion of Timor-Leste as a tourism destination has suffered.
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The position of the poor in the sector The poor are the workers (male and female) who are potentially employable in hotels and restaurants across tourism sites in Timor-Leste in various positions. Alongside, workers, there are a number of micro-enterprises (usually sole proprietors) who are engaged in providing products and services to tourists such as handicrafts and traditional textiles, tour guides, translators, dive guides, drivers etc. There are also smallholder farmers who can be potential suppliers of food products to guesthouses and restaurants. Currently there are approximately 4,000 to 5,000 individuals employed across TimorLeste in Tourism. This number, and the exact profiles of these individuals, is hard to ascertain due to a dearth of data and poor data collection initiatives.
The position of women in the sector In tourism sector, women are primarily involved as artisans (e.g. of handicraft products, textiles, and dolls) and employees (waitress, cook and housekeeper) in hotels and restaurants. There are a number of artisan groups in the country employing thousands of women, however the products that they make are often of poor quality and fetches low prices. Their low incomes are further compounded by the fact that poor awareness amongst tourists limits the number of customers that these artisans can sell to. For workers, limited access to formal trainings (classroom and on the job) limits individuals to get steady employment amongst the existing tourism businesses.
Systemic changes in Greenfield Industries – Tourism Tourism is one of the key pillars of economic development as identified by the government of TimorLeste. As a sector it offers the opportunity for broad-base, and inclusive growth, ability to generate economic transactions in the most remote of areas, and help create opportunities to earn incomes in places where agriculture is the only option. MDF has identified following pathway for systemic change in Tourism sector: New and existing businesses invest more in facilities, activities and marketing to attract more tourists into and within the country. Similar to manufacturing, as the abovementioned systemic change area establishes itself in the country, MDF expects tourism to also evolve into its own sector, moving out of the Greenfield Industry umbrella. The current focus of the tourism systemic change area is to establish tourist sites around Timor-Leste through the triggering of investments on sites all around the country. Post 2023, when local tourism sites (or the key sites) are able to receive and cater to tourists, more work needs to be done (and will be defined by subsequent and more refined systemic change areas) in the following spaces: 1. Working with private sector partners (hotel owner associations or tourism associations) and relevant public sector partners (ministry of tourism and secretary of state for arts and culture) on improving the travel connections to Timor-Leste from outside. This would involve dialogues around increasing flight frequencies, reduction in cost of flying into Timor-Leste, special tourism promotions (seasonal) etc. 2. Working with large, and international, media outlets (such as Lonely Planet, the Travel and Living Channel, Australian National Geographic etc.) in creating travel segments/ shows on Timor-Leste and presenting the country as a tourism destination to a global audience. 3. Influencing/ stimulating large scale investments (through large private enterprises, or public private partnerships) on key infrastructural aspects such as docking stations for cruise ships across the island, repairing of critical secondary roads connecting remote tourist sites to the main roads etc. Same as with the other systemic change areas, it is not possible to anticipate exactly how or when these changes may come to existence. If there are substantial changes in the way the government is thinking about tourism in Timor-Leste some of these changes, as well as some of the changes mentioned below in the systemic change pathways, could happen faster than anticipated. The converse is also true.
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Pathway 1: New and existing businesses invest more in facilities, activities and marketing to attract more tourists into and within the country. Background (‘before picture’) Tourism in Timor-Leste relies on business tourism or weekend tourism from expatriate communities for the bulk of their revenues. There is little effort from these businesses in attracting more international tourists from potential markets like Australia, Asia, Europe and North America. Existing tourism businesses (accommodation facilities and tour operators) are mostly centered on few geographical locations (Dili, Liquica, Atauro, and Baucau). This limits the potential for tourism to bring about inclusive and broad based benefits to the actors in the sector. As these few places see a steady, but low, number of visitors, there is little incentive for the owners to improve existing facilities or expand beyond these locations. Currently the sector engages approximately 4,000-5,000 households as suppliers, workers and service providers. However, opportunity for these households to earn additional incomes, or more households to be included in this sector is limited because of the small scale and rudimentary nature of Timorese tourism. Finally, the sector is disjointed because there is no common understanding between private and public sector about what tourism in Timor-Leste should look like, how the situation can be improved, or even what the first steps of development of the sector should be. The conversation with the public sector is further hobbled by the weak and dysfunctional relationship that businesses in the sector have with each other.
Anticipated ‘end picture’ (when markets work well) Public and private sector players engage in constructive, and frequent conversations on a country tourism strategy, which contributes to a coherent and unified country branding and marketing campaign. Timor-Leste is actively promoted as a tourism destination by all levels of actors in the sector resulting in a larger number of tourists start visiting the country. At least a quarter of incoming visitors into the country are true tourists. Beyond that, the incoming business travellers also take advantage of the ease of visiting tourism sites and gets out of Dili more. 5 to 6 high-end hotels in the iconic tourism sites host these tourists: Western regions for historical and cultural tourism; central regions for mountain and adventure tourism; and eastern regions for marine tourism. These three regions will act as hubs connecting other smaller, but adjacent, tourism sites (e.g. hot springs in Marobo close to the forts in Balibo and Maliana). These smaller sites, across the country would also boast 10 improved hotels and restaurants. Altogether, the tourism hubs and the smaller sites would trigger the creation of a countrywide tourist circuit, which would offer incoming tourists a range of options for sightseeing and activities. To channel visitors into these facilities, 10 tour operators would be active with new, and improved, tour packages covering heritage and cultural tourism, marine tourism, and adventure
tourism. These tour operators would also be aligned with 5 handicrafts manufacturers, who focus on producing high quality local handicrafts. The circulation of tourists in the circuit would be further facilitated by 5 inland and sea transport companies offer incoming tourists improved cars, boats and ferries that make inter-municipality and inter-island travel much easier and more comfortable. At the back end, 4 institutions, from universities to accredited training enterprises, offer a variety of skills relevant to a Timor-Leste context specific tourism. This change in the sector leads to the involvement of up to 10,000 households as workers, supplies and service providers.
Expected Pathway to Systemic Change (likely number, types and focus of partnerships) To attain this systemic change, MDF plans to work with a number of players in the sector across different products and services. These partnerships will cover: 3 high-end accommodation facilities in all key tourist locations and 2 smaller facilities in adjacent sites; supporting 4 tour operators to develop/impre tour packages on the various aspects of tourism in Timor-Leste; supporting 3 handicraft resellers on strengthening backward linkage with artisans or supporting major producer groups to improve their production and sales; supporting 2 training institutes and businesses to improve/introduce professional training programs; supporting 3 inland and sea-transport companies to introduce better, faster and more comfortable transport services; and supporting Ministry of Tourism, Association of Tourism Companies in Timor-Leste (AETL), and media outlets on developing and implementing a coordinated promotion and marketing campaign.
Women’s Economic Empowerment Globally tourism industry provides significant income and employment opportunities for women as workers, service providers or suppliers. It will also be true in Timor-Leste. Thus, a growing and betterdeveloped tourism industry will significantly increase income and employment prospects for thousands of women across the country. Benefits to women will be multi-faceted. More opportunities for jobs and supplying products and services to tourists would contribute higher levels of income for women. Greater investments in skills development would strengthen the employability of women across a number of jobs and a number of enterprises in the sector. Improvements to working conditions such as in handicraft manufacturing facilities could lead to a positive impact on women suppliers, who are trying to balance their productive activities with their reproductive duties. Lastly, as the sector develops, there will be a higher number of formalized jobs with perks such as- paid maternity leaves and back accounts, which would improve women’s control over their income and life choices.
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Results in time Over an implementation period of 10 years (covering 2013 to 2023), 500 FTE jobs will be created through the above-mentioned partnerships, of which 45% are expected to be females. Furthermore, over a thousand micro-enterprises (mostly female sole-proprietorship) will benefit by supplying craft products to the handicraft resellers.
Feasibility, efficiency and risks Through its existing partnerships in the sector, MDF has gained significant understanding of the market, and potential growth prospects, across key areas of infrastructure, services and activities for tourists, and skills development in tourism. While other stakeholders, such as The Asia Foundation and ILO/ BOSS, are involved with research or dialogues with the government on strategy, MDF is able to directly invest in, and develop tourism businesses critical in populating the sector and attract tourists. Thus, MDF is in a strong position to unlock the growth potential for Timorese tourism. Timor-Leste is relatively unknown to international tourists as it is the second newest country in the world and still mostly known through its history of violence and civil unrest. As there are no counter points of view promoting development since independence as well as highlighting tourism prospects, it will continue to be little known outside of business travellers or adventure tourists. Through MDF’s partnerships in the sector, market actors would be start by first stimulating domestic travellers, expatriates and business tourists who already know Timor-Leste. After a few years of development, and the removal of constraints, as stated above, new international travellers can be targeted. However, the future vision that is depicted here is dependent on the country’s political and macroeconomic stability over the course of the time and can be severely affected if political situation becomes volatile.