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Díli, 26 August 2026 — La'o Hamutuk submitted a Policy Brief entitled “Invest in Productive Sectors to Strengthen Economic Diversification in Timor-Leste” to the Government and relevant institutions, as a constructive contribution to the national debate on how Timor-Leste can build a sustainable, diverse, sustainable and inclusive economy less dependent on oil and gas exports.
This Policy Brief is based on the results of a National Colloquium on 17-18 March 2026, in collaboration with Oxfam Timor-Leste and Core Group Transparency (CGT). The document analyzes structural challenges facing Timor-Leste and makes short, medium and long term policy recommendations aimed at strengthening domestic productive capacity, reducing dependence on imports and petroleum revenues, and building an economic base that can sustain the well-being of the people and future generations.
Economic Diversification is a Strategic Priority
Timor-Leste continues to face structural challenges in economic development, including high dependence on petroleum revenues and the Petroleum Fund, a limited domestic productive base, dependence on imports and non- petroleum export capacity that needs to be strengthened. In this context, La'o Hamutuk considers that economic diversification should be a national strategic priority.
Diversification is not only about increasing the number of activities or sectors of the economy but means gradually changing the structure of the economy from a high dependence on petroleum revenues and imports to an economy that has strong domestic productive capacity, creates productive jobs, increases the value of local products, promotes non-petroleum exports and reduces the vulnerability of the economy to foreign shocks.
For La'o Hamutuk, economic diversification must also be seen as an opportunity to use limited and non-renewable petroleum assets to build economic capacity that can last beyond the era of petroleum extraction.
Non-Renewable Assets
The Petroleum Fund represents a national asset derived from non-renewable petroleum resources. Due to its non-renewable nature, the management and use of this asset needs to be done with responsibility, transparency, fiscal prudence and an intergenerational perspective.
La'o Hamutuk considers that the money from petroleum must be spent appropriately and sustainably, contributing to the formation of productive capital and national capacity. Investment in education, health, agriculture, water, productive infrastructure, human capacity, innovation and strong public institutions can help transform non-renewable assets into capacity that will benefit future generations.
The strategic objective cannot be limited to how to sustain public spending in the short term but must include how to use non-renewable petroleum assets to reduce dependence on petroleum itself. We cannot replace dependence on petroleum with dependence on the Petroleum Fund. We need to use non-renewable assets to build an economy that has the capacity to survive and develop on its own productive base.
Agriculture and Food Sovereignty as Pillars of Diversification
Agriculture plays a strategic role in the economy and people's lives, as it is directly linked to food security and sovereignty, employment, family income, rural economy and community development.
This Policy Brief recommends that public investment prioritize increasing domestic agricultural production and strengthening farmers' capacity to respond to domestic market needs. This includes support for local seeds, food production with high nutritional value and agricultural systems that are appropriate to the reality and ecological conditions of Timor-Leste.
Investment in agriculture should flow through infrastructure and services that farmers need, including water and irrigation, storage, processing, transportation, market access, appropriate technology and technical assistance. The objective is not only to increase production volumes, but to strengthen food sovereignty, increase farmer incomes, create domestic value and reduce dependence on food imports.
Processing Industry and the Domestic Value Chain
Timor-Leste has the potential to increase the value of local products, including coffee, cocoa, coconut, wood, candlenut and textiles. The processing industry, therefore, can be an important component of economic diversification strategy. La'o Hamutuk recommends to develop industry linked to agriculture and other productive sectors, so that local raw materials can be further processed in the country and create more value in the domestic economy.
The processing industry needs to advance together with investment in energy, water, infrastructure, markets, professional capacity and innovation. Industrial policy should also consider economic viability, market needs, social impact, environmental sustainability and the capacity to operate and develop over the long term. For La'o Hamutuk, industrialization cannot only mean increasing natural resource extraction. Economic transformation requires increasing domestic value, creating productive jobs, strengthening national productive capacity and respecting ecological limits and the non-renewable nature of natural resources.
Youth, Education and Human Capital
Economic diversification requires human capital that has knowledge, skills, innovation and the capacity to respond to changes in the economy and the labor market.
The Policy Brief recommends increasing support for youth engaged in economic activities, strengthening technical and digital competence, promoting innovation and improving connections between education, vocational training and labor market needs.
Timor-Leste can also take advantage of the experience, knowledge and savings of citizens who work abroad, through appropriate environments and mechanisms that facilitate their contribution to the domestic economy, including after they return. Investment in education and training, therefore, is not only a social expenditure but an investment in the sovereignty and economic capacity of the nation.
Productive Infrastructure, Water and Environmental Resilience
Public infrastructure must respond to the needs of a productive economy and people's well-being. Water, electricity, roads, irrigation and water retention and management infrastructure need to be planned with an integrated strategy, to support production, productivity, food security and resilience to climate change.
La'o Hamutuk considers that public investment cannot be seen only from the amount of money spent or the number of infrastructures built, but should also be viewed on the benefits that infrastructures provide to the people, economic productivity, sustainability and the capacity to operate and maintain infrastructure. The protection of water sources, soils, forests, biodiversity and ecosystems should also be integrated into economic planning. Economic diversification that degrades the natural base of production will not be sustainable in the long run.
Cooperatives and the Domestic Private Sector
The domestic private sector and cooperatives have the potential to be important drivers of economic diversification, especially in rural areas and in local product value chains.
The Policy Brief recommends the development of clear policies to encourage and promote productive cooperatives, especially those that can increase production, processing, market and community income. Public support for cooperatives and domestic businesses should be based on transparent criteria, fair access, accountability and measurable results. Support mechanisms should avoid creating permanent dependence on subsidies or public contracts and help build sustainable business capacity.
Strategic Recommendations to the Government and Relevant Institutions
Based on the analysis and recommendations in the Policy Brief, La’o Hamutuk invites the Government and relevant institutions to consider the following priorities:
1. Strengthen agriculture and food sovereignty
Increase investment in domestic production, local seeds, water, irrigation, storage, processing and market access, with priority given to smallholder farmers and rural economies.
2. Promote processing industries and domestic value chains
Develop industries that increase the value of local products, create productive jobs and strengthen the link between production, processing and the market.
3. Prioritize productive infrastructure
Integrate investment in water, electricity, roads, irrigation and water retention infrastructure with economic, social and environmental needs.
4. Invest in youth and human capital
Strengthen education, vocational training, digital competence, research, innovation and economic opportunities for youth.
5. Strengthen cooperatives and the domestic private sector
Create a transparent and clear and stable regulatory, financial and market environment to facilitate the development of domestic productive activity.
6. Strengthen governance and fiscal accountability
Ensure transparency in the planning, allocation and execution of public investment, including monitoring, evaluation and accountability for results.
7. Integrate environmental sustainability into economic policy
Ensure that the protection of water, land, forests, biodiversity and climate resilience become an integral part of planning and implementation of economic diversification.
Economic Diversification as a Way to Reduce Dependence on Extraction
For La'o Hamutuk, Timor-Leste's challenge is not only how to find new sources of income but especially how to change the economic structure to reduce dependence on the extractivist model, which is based heavily on the extraction and export of natural resources, especially non-renewable resources.
A diversified economic model needs to give greater value to production, knowledge, labour, innovation, nature and community capacity. This requires strengthening the capacity to transform local raw materials into more valuable products, creating productive jobs and increasing the benefits that stay in the domestic economy.
As part of this process, economic policy needs to consider the social and environmental impacts of economic activity. Natural resources cannot be seen only as a source of income or commercial raw material, but as part of the national heritage and the basis for the community's livelihood and future generations. Therefore, economic diversification needs to go hand in hand with food sovereignty, social justice, environmental protection, transparency, community participation and intergenerational responsibility.
Proposal for National Dialogue and Action
Through the submission of this Policy Brief, La'o Hamutuk calls on the Government and relevant institutions to consider the evidence and recommendations it presents in the processes of planning, formulating and implementing economic policy and the state budget.
La'o Hamutuk also calls on the National Parliament, the private sector, cooperatives, farmers, youth, academic institutions, civil society organizations and local communities to participate actively in the national debate on the future of Timor-Leste's economy.
Economic diversification requires political leadership, evidence-based planning, fiscal responsibility, transparency and public participation. However, success also depends on the will and capacity to transform existing assets and resources into investments that strengthen the people's capacity to produce, transform, innovate and live with dignity.
Timor-Leste has the right and responsibility to choose a development path that ensures that natural assets and public resources serve the interests of the people today and for future generations. Economic diversification must be a strategy to reduce dependence on petroleum, strengthen economic sovereignty and build a productive, fair, sustainable and resilient economy.
La'o Hamutuk hopes that this Policy Brief will contribute to policy dialogue and public debate on the transformation of Timor-Leste's economic structure — from a high dependence on non-renewable resources to an economy based more on domestic productive capacity, knowledge, labour, innovation, community and sustainable resources.
You can find, read and share the full Tetum-language Policy Brief document.
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