With most manufacturers being first-of-their-kind investors, they lack support structures and tailored services at all levels – including finance, skills and specialist expertise, backward linkages, logistics, marketing and distribution. MDF seeks to fill such gaps, for a small but growing portfolio of aspiring businesses, currently in the iodised salt, garments, mechanical services, and cook stove industries. MDF’s assistance to Mahanaim Garment and Manufacture is a great case in point: Neither the company - even though part of one of the biggest business groups in Timor - nor national training institutions had prior experience in commercial garment production. Therefore, in 2016 MDF supported the company in recruiting skilled professionals from overseas to help in the areas of product design, cutting, worker training and quality control, among others. In the beginning, the factory is to employ 45 Timorese women.
While a few more players already exist in the tourism industry, it faces similar challenges. MDF currently provides strategic support to a tour operator, a hotel and a handicraft business in building or upgrading facilities and machinery, developing new activities and transportation links, and/or enhancing skills and marketing. MDF’s work with the Balibo Trust illustrates such as multidimensional support package. The Australian charitable trust invested in rebuilding and converting one of Timor-Leste’s major rural heritage sites, a Portuguese fort, into a privately managed hotel. To help turn it into a successful commercial venture, MDF assisted in installing a water connection; cost-sharing the salary of an assistant hotel manager for one year; developing and implementing initial staff training; and marketing. The hotel has been a game-changing investment for Balibo’s small community. 20 jobs for women and men have been created so far; community members also benefit from the sales of local weaving and transport services. Visitors to Balibo Fort have increased by 25% within one year of the hotel opening. MDF has now begun a second partnership to build a conference room and more accommodation.
Lesson 4: Beyond ‘business as usual’ in market development programmes: the pros and cons of working with non-commercially oriented entities
One way in which MDF has been pragmatic and opportunity-driven in a context with few private sector players was its decision to partner with non-profit organisations: This includes Balibo Trust, a charitable organisation, in setting up a commercially driven hotel, as well as a social enterprise and NGO spin-off (registered as Concrete Product Business [CPB]), in manufacturing and marketing fuel-efficient and healthier cook stoves (see MDF’s website for more details). This approach has benefits as well as risks:
Advantages: Working with these non-profit partners has enabled MDF to pilot innovations and to generate benefits for poor communities when no other suitable players were available. As a result, the Balibo hotel showcases the concept of district-based hotels to other potential investors; and MDF’s cook-stove partnership illustrates a more viable, market-based approach to generating product uptake than hand-outs. Without MDF, neither partner would have had access to knowledge about strategies to achieve commercial viability. As such, MDF helped to push the boundaries of their operational model towards more sustainable ways of working.
Risks: Because non-profit partners are less familiar with marketing and business management considerations, they are also likely to require additional mentoring and advice, and for a longer period of time. It may even be unclear if or when such partners are able to ‘graduate’ from receiving external advice on commercial strategy. Overall, non-profit models are likely to scale up more slowly, and be less open to expansion than private, profit-driven business models. As a result, MDF takes special care to balance the extra support needs with the potential benefits of these partnerships. In the future, NGOs could also play their own part in becoming better equipped for rolling out market-based approaches, e.g. by bringing in more staff and advisors with business expertise.
Two further partnership examples in manufacturing and tourism are described in more detail below.
NPM INDUSTRIES – UPGRADING TRADITIONAL SALT PRODUCTION, IMPROVING HEALTH
The Business and Inclusive Growth Opportunities
Despite having access to sea salt as well as natural salt lakes, 60% of the salt consumed in Timor-Leste is imported. The demand for domestic salt will increase but local salt collection is dispersed, small scale and based on traditional methods using a decreasing supply of firewood and boilers. Without a large-scale producer to source, store, refine, process and package salt, the local products are uncompetitive. Furthermore, only 45% of the population currently consumes iodized salt, leading to widespread iodine deficiency disorders.
NPM Industries was established in 2011 to develop the local market for iodised salt at a commercial scale. It started by making independent investments in the construction and installation of a salt refinery plant, a laboratory facility and a warehouse. It was after this, in 2014, that the company engaged in discussions with MDF to assist with its large-scale investment in infrastructure.
MDF partnership activities
To MDF, NPM’s business model was highly promising: It had the potential to diversify the economy through value-added processing; to introduce more productive salt collection methods; and to lead to higher incomes as well as improved health among poor communities. As a consequence, MDF agreed to help NPM tackle a number of issues by cost-sharing:
International-standard training for the local in-house chemist managing the iodisation process;
On-the-job training for two salt refinery technicians managing the facility and quality control;
Introducing modern, more efficient salt farming technology using geomembranes (sheets of synthetic material which stop the flow of fluids) and solar evaporation techniques, to be used in addition to sourcing from local salt collectors;
Training for farmers collecting salt from the geomembrane ponds; and
Marketing the new product through attractive packaging, leaflets and television commercials.
Business Results and Impact
NPM’s facility is fully operational, with a total production capacity of 4,000 MT a year. Thus it could fully substitute its product for imported salt (currently about 2,000 MT a year). NPM sourced about 500 MT of local salt in 2015 and was on track to almost double this in 2016. UN and government programmes to support salt producer cooperatives facilitated this expansion. In total, NPM bought salt from 529 salt collectors in the first six month of 2016; of these, 50 female collectors worked in the geomembrane ponds. Apart from a regular income, these women stress the reduced workload compared to traditional salt collection methods. Therefore, they would like to work for NPM throughout the year, which will require that NPM install rain protection for the ponds. MDF and NPM are discussing ways to address this.
While NPM’s salt is similarly priced to imported iodised salt, a major growth barrier is the limited understanding of the product’s benefits in rural areas, despite NPM’s marketing efforts. A more active government policy including mandatory iodisation and certification would be needed to allow the product to reach full-scale. Meanwhile, NPM is also working on exporting a share of its production to Singapore.
SPECIAL FEATURE: An entrepreneur’s growth journey as a symbol Timor-Leste’s evolution: The personal story of NPM’s owner
The story of NPM industries reflects the evolution of Timor-Leste’s private sector particularly well. Its owner Subash Mishra started out as an employee of an international organisation when Timor-Leste was under UN administration. He would soon start up his own business, to provide electrical products and services to the public and foreign aid sector. Inspired by the growth opportunities in the country he decided to move on to something bigger: establishing the first iodised salt processing factory in Timor-Leste. With growing confidence in this business and Timor-Leste’s economy, he has set up a third business, Commodity Exchange, to export high-value spices including agarwood, clove, pepper and cinnamon. Inspired by high demand and low import tariffs in India and the idea of rejuvenating Timor-Leste’s once prospering spice sector, Subash Mishra invested in a processing facility and entered a new partnership with MDF to hire a processing expert and train farmers. Commodity Exchange has started to train 300 farmers in planting, plant management, harvest and post-harvest management of cloves, black pepper and cinnamon; bought a total of 7.5MT of cloves from these farmers; and started to grow seedlings to be distributed to its suppliers.
Lesson 5: Lessons for aspiring entrepreneurs in Timor-Leste: Common features of MDF partners with the greatest potential for growth and poverty impact
The businesses in MDF’s partnership portfolio that show the most progress in scaling up their operations and expanding benefits for the poor share a number of common features. The list below offers useful pointers both for aspiring entrepreneurs as well as programmes interested in supporting them:
The most promising partners have already had a profitable business line before working with MDF to diversify or expand into new activities. This means that they understand and accept the long and often unpredictable payback periods that businesses face in Timor.
They have been smart and creative in filling major gaps in the market or finding niche areas that have the potential for growth. This is not straightforward, as Timor-Leste’s markets are small in production capacity and buying power. However, several of MDF’s most promising partners have either carved out some space in the local economy to substitute their products for imports (e.g. NPM), are addressing previously unmet domestic demand for goods and services (e.g. Agi Ag), or are entering high-value export markets (e.g. Café Brisa Serena, Commodity Exchange).
Business owners are willing to be personally and actively engaged in all parts of the business – given that qualified staff is hard to find.
To make their businesses work, several MDF partners are investing heavily in trust- building with their suppliers. This is because social disruption - as well as inconsistent buying behaviour by the government and traders - have led to farmers’ scepticism towards new buyers.
They learn and adapt. In order to be successful, the most promising business partners have been operating in a highly adaptive way, by stopping or changing things that don’t work and adding new activities as needed. Initially, this learning process required the assistance of MDF, which functioned as a competent partner in monitoring results and client or supplier feedback.
PUTTING TIMOR-LESTE ON THE MAP FOR CRUISE SHIPS – MDF’S WORK WITH DIVE, TREK & CAMP TIMOR-LESTE
The Business and Inclusive Growth Opportunities
Dive, Trek & Camp Timor-Leste (DTCT) is a small but ambitious Dili-based tour operator which seeks to help transform tourism in Timor-Leste. Formed in 2014, it works with eight sub-contractors to provide a variety of country-wide tour packages. It also engages with villages to help them act as service providers in areas such as accommodation, catering and attraction development. So far, these tour packages have mainly catered to international workers in Dili and, increasingly, to business tourists.
As a next step, DTCT wants to promote Timor-Leste as an exotic international tourist destination. It successfully arranged trial visits for P&O Carnival cruise ships in 2015, which led to long-term agreements with three cruise liners to make one-day stops in Dili, four times a year. This means that up to 10,000 tourists could come to the capital and nearby districts for day-trips every year – generating significant additional demand for a range of local products and services, such as restaurants, transport, handicrafts, cultural demonstrations and guided tours.
The MDF partnership activities
As a small tour operator, DTCT required assistance to develop attractive, international standard tour packages and infrastructure to cater to the sudden boost in visitor numbers. MDF’s support focused on the launch of a guided tour bus, the Dili Explorer, which stops at ten sites in Dili and allows tourists to hop on and off throughout the day. MDF cost-shared:
The development of the Dili Explorer bus service, including a health and safety assessment, installation of bus stop infrastructure, map development and printing; and
The training of tour guides who will assist tourists at each site
MDF will also support DTCT’s website marketing and online booking tools
Business Results and Impact
In the words of DTCT’s co-owner, Kym Miller, she “would not have been able to organise the Dili Explorer, its marketing and tour guide training without MDF’s assistance”. The presence of an attractive tour package through the Dili Explorer will significantly enhance tourists’ experience, making it more likely that tourists come back for longer visits, or encourage others to do so. Positive feedback may also prompt more cruise ships to stop in Timor-Leste or stay for more than a day. So far, 77 tour guides and 36 bus drivers have benefitted directly from the Dili Explorer. In addition, MDF is actively supporting backward linkages to local suppliers. For example, DTCT is now developing a regular communications system with relevant local businesses, such as souvenir and coffee shops, to inform them about the days of the visits.
Significance for Timor-Leste’s economy
Indeed, the key benefit of the bus service is its ripple effect on the tourism industry more widely, by bringing customers to the doorsteps of existing and future businesses selling goods and services to tourists. Working with DTCT also allowed MDF to start tackling some of the broader constraints in Timor-Leste’s tourism infrastructure – such as the lack of accessible money exchange options. Many tourists on one of the first cruise liners were unable to purchase souvenirs and other local goods as they couldn’t change money. MDF and DTCT are now collaborating with Moneygram to set up a mobile money exchange station, thereby providing the conditions for businesses to benefit more from the influxes of tourists
More generally, DTCT has enabled Timor-Leste to make a major step into the world of international tourism. The interest of three major cruise liners points to Timor-Leste’s potential as a touristic location and a promising investment destination for businesses willing to take a leading role in this area. MDF stands ready to support new pioneering entrepreneurs in taking the tourism industry to the next level.