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Enhanced Cooperation and Integration Between Indonesia and Timor-Leste Final Report

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Enhanced Cooperation and Integration Between Indonesia and Timor-Leste Final Report Enhanced Cooperation and Integration between Indonesia and Timor-Leste Final Report This report recommends how Indonesia and Timor-Leste can enhance cross-border cooperation and integration to help boost economic growth and reduce poverty. It focuses on opportunities in the tourism and livestock sectors and reviews transport connectivity, trade, and the business and investment climate. The report was undertaken at the request of the governments of Indonesia and Timor-Leste and involved extensive consultations with government, the private sector, and civil society. BETWEEN INDONESIA AND TIMORLESTE AND INTEGRATION ENHANCED COOPERATION About the Asian Development Bank ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacifi c, while sustaining its e orts to eradicate extreme poverty. Established in , it is owned by members — from the region. Its main instruments for helping its developing member countries are policy dialogue, loans, equity investments, guarantees, grants, and technical assistance. ENHANCED COOPERATION AND INTEGRATION BETWEEN INDONESIA AND TIMORLESTE SCOPING STUDY JULY ASIAN DEVELOPMENT BANK ADB Avenue, Mandaluyong City Metro Manila, Philippines www.adb.org ENHANCED COOPERATION AND INTEGRATION BETWEEN INDONESIA AND TIMOR-LeSTE SCOPING STUDY JULY 2019 Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) © 2019 Asian Development Bank 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines Tel +63 2 632 4444; Fax +63 2 636 2444 www.adb.org Some rights reserved. Published in 2019. ISBN 978-92-9261-672-4 (print), 978-92-9261-673-1 (electronic) Publication Stock No. TCS190259-2 DOI: http://dx.doi.org/10.22617/TCS190259-2 The views expressed in this publication are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent. ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. The mention of specific companies or products of manufacturers does not imply that they are endorsed or recommended by ADB in preference to others of a similar nature that are not mentioned. By making any designation of or reference to a particular territory or geographic area, or by using the term “country” in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area. This work is available under the Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) https://creativecommons.org/licenses/by/3.0/igo/. By using the content of this publication, you agree to be bound by the terms of this license. For attribution, translations, adaptations, and permissions, please read the provisions and terms of use at https://www.adb.org/terms-use#openaccess. This CC license does not apply to non-ADB copyright materials in this publication. If the material is attributed to another source, please contact the copyright owner or publisher of that source for permission to reproduce it. ADB cannot be held liable for any claims that arise as a result of your use of the material. Please contact [email protected] if you have questions or comments with respect to content, or if you wish to obtain copyright permission for your intended use that does not fall within these terms, or for permission to use the ADB logo. Corrigenda to ADB publications may be found at http://www.adb.org/publications/corrigenda. Notes: In this publication, “$” refers to United States dollars, unless otherwise stated. ADB recognizes “Hong Kong” as Hong Kong, China; “Korea” as the Republic of Korea, “China” as the People’s Republic of China; and “East Timor” as Timor-Leste. On the cover: From Timor-Leste, the Mota’ain-Batugade Border Control Post provides view of Indonesia (photo by Glen Wood). Contents Tables, Figures, Boxes, and Maps vii Foreword—Suahasil Nazara x Foreword—Fernanda Borges xi Foreword—Bambang Susantono xii Acknowledgments xiii Abbreviations xiv Weights and Measures xvi Executive Summary xvii CHAPTER 1. Introduction 1 A. Rationale 1 B. Management and Funding 2 C. Structure of the Report 2 CHAPTER 2. Methodology 2 A. Approach 3 B. Process 5 PART I. AREAS OF COOPERATION AND CONNECTIVITY 7 CHAPTER 3. Area Profiles 9 A. Nusa Tenggara Timur and West Timor 9 B. Timor-Leste 15 C. Conclusion 18 CHAPTER 4. Development Strategies and Cross-Border Institutions 21 A. Development Strategy of Indonesia and Nusa Tenggara Timur 21 B. Development Strategy of Timor-Leste 22 C. Cross-Border Institutions 23 D. Conclusion 26 CHAPTER 5. Trade 28 A. Indonesia 28 B. Timor-Leste 34 C. Informal Cross-Border Trade 38 D. Smuggling and Illegal Trade 39 E. Conclusion 40 CHAPTER 6. Business Development and Financial Services 41 A. Indonesia and Nusa Tenggara Timur 41 B. Timor-Leste 49 C. Conclusion 60 iii iv Contents CHAPTER 7. Investment 61 A. Indonesia 61 B. Nusa Tenggara Timur 62 C. Timor-Leste 65 D. Conclusion 70 CHAPTER 8. Transport Connectivity and Trade Facilitation 71 A. Land Connectivity 71 B. Maritime Connectivity 78 C. Air Connectivity 86 D. Conclusion 89 CHAPTER 9. Special Economic Zones 91 A. Indonesia and Nusa Tenggara Timur 91 B. Timor-Leste 97 C. Conclusion 103 CHAPTER 10. Conclusions 105 A. Cooperation on Agriculture and Tourism 105 B. Regulatory Strengthening for Transport Corridors 107 C. Low-Intensity Zones 108 CHAPTER 11. Recommendations 109 A. Land Transport Corridor 109 B. Maritime Connectivity 112 C. Air Connectivity 113 D. Special Preferential System (Short Term) 115 E. Cross-Border Traditional Trade (Short to Medium Term) 116 F. Small and Medium-Sized Enterprises-Focused Financial 116 and Business Services (Medium Term) G. Small and Medium-Sized Enterprises Legal Framework in Timor-Leste 117 (Medium Term) H. Collaborative Working Committee for Chambers of Commerce (Short Term) 117 PART II. TOURISM 119 Part II Summary 121 CHAPTER 1. Introduction 124 CHAPTER 2. Why Tourism? 125 A. Regional 125 B. Indonesia/Nusa Tenggara Timur 126 C. Timor-Leste 129 CHAPTER 3. Challenges 132 A. Tourism Sector Competitiveness 132 B. Infrastructure and Connectivity 133 C. Business Development and Financial Services 136 D Marketing 139 E. Investment 139 F. Human Resources 141 G. Institutional Frameworks and Coordination 141 Contents v CHAPTER 4. Opportunities 143 A. “One Island, Two Nations” 143 B. Island Overland Itineraries 143 C. Marine and Cruise Tourism 147 D. Aviation Connectivity 149 CHAPTER 5. Recommendations 150 A. Recommendation 1: Improve Connectivity and Infrastructure 150 B. Recommendation 2: Joint Tourism and Investment Promotion 152 C. Recommendation 3: Build Leadership and Partnerships 154 D. Complementarities with Existing Programs 155 E. Impact on Environment and Vulnerable Populations 157 F. Stakeholders 158 G. Risks 159 H. Road Map 160 CHAPTER 6. Pilot Project 161 A. Objectives 161 B. Outputs and Activities 161 PART III. LIVESTOCK 165 Part III Summary 167 CHAPTER 1. Introduction 170 CHAPTER 2. Why Livestock? 171 A. Regional 171 B. Indonesia/Nusa Tenggara Timur 171 C. Timor-Leste 175 CHAPTER 3. Situation and Problem Analysis 178 A. Government Policy 178 B. Institutional Arrangements 179 C. Infrastructure 179 D. Access to Finance and Insurance 179 E. Investment 181 F. Climate Change and Natural Disasters 181 G. Inputs and Services 182 H. Production 186 I. Market Channels 188 J. Transportation 189 K. Processing 190 L. Cross-Border Trade 191 M. Retail 195 N. Conclusion 195 CHAPTER 4. Opportunities 197 A. Opportunity 1: Export of Timor-Leste Cattle through 197 Nusa Tenggara Timur to the Rest of Indonesia B. Opportunity 2: Export of Chickens and Day-Old Chicks 199 from Nusa Tenggara Timur to Timor-Leste C. Opportunity 3: Export of Pork and Piglets from Nusa Tenggara Timur 200 to Timor-Leste D. Conclusion 201 vi Contents CHAPTER 5. Animal Health and Sanitary and Phytosanitary 202 Standards Recommendations A. Recommendation 1a: Joint Health Checkpoints to Be Established 202 for Cattle Exiting the Island B. Recommendation 1b: A System of “Trusted Traders” (Authorized 205 Economic Operator) Be Established for Timor-Leste Cattle Exports C. Recommendation 2: Permission for Export of Poultry to Timor-Leste 208 to Be Extended to Nusa Tenggara Timur CHAPTER 6. Productivity 211 CHAPTER 7. Medium- to Long-Term Objectives 212 A. Feed 212 B. Value Chain Upgrading 212 CHAPTER 8. Crosscutting Recommendations 213 CHAPTER 9. Road Map 214 CHAPTER 10. Development Partner Partnerships 216 CHAPTER 11. Gender and Environment 217 A. Women’s Participation 217 B. Environmental Impact 218 CHAPTER 12. Pilot Project 219 Appendixes 1 Consultations 225 2 Part I—Additional Tables 235 3 Part II—Additional Tables 247 4 Part III—Additional Tables 250 References 253 Tables, Figures, Boxes, and Maps Tables 1 Gross Regional Product Share, Nusa Tenggara Timur, by Industry, 13 Current Market Prices 2 Nusa Tenggara Timur Summary Data 14 3 Timor-Leste Summary Data 19 4 Nusa Tenggara Timur Imports by Value, 2010–2016 31 5 Nusa Tenggara Timur Exports by Destination, 2012–2016 33 6 Nusa Tenggara Timur Exports to Timor-Leste, 2016 34 7 Timor-Leste Imports by Harmonized System 2 36 8 Timor-Leste Exports by Harmonized System 2 38 9 Approved Planned Foreign and Domestic Investments by Value 64 10 Realized Investments by Sector in Nusa Tenggara Timur, 2016 65 11 Estimated Value of Foreign Direct Investment Certificates Issued, 2006–2016 68 12 Estimated Value of Domestic Investment Certificates Issued 2006–2016 68
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