Market Development Facility study case Timor Leste
Case Study

KICK-STARTING INCLUSIVE GROWTH

Timor-Leste’s Transition to a Post-Conflict, Post-Oil Economy

Download Book
Market Development Facility study case Timor Leste
 

Acknowledgements

 

This case study was written for MDF by Melina Heinrich-Fernandes. It draws on the experiences of MDF’s country team as well as partner businesses and organisations in Timor-Leste. The in-country research involved interviews with and site visits to nine businesses; consultations with the DFAT post and other development partners, including ADB, USAID and IFC; conversations with the Timor-Leste Government’s Investment Promotion Agency, TradeInvest; and intensive discussions with MDF’s business advisors and management team.

James Maiden, MDF’s Global Communications Manager, provided valuable support during the field visits and case study development. In-depth insights into MDF’s operations in Timor-Leste came from MDF’s Country Representative, Shariful Islam, the Senior Market Development Adviser, Zannat Ferdous, and the Global Results Measurement Manager, Samira Saif. Brett Inder of Monash University provided additional research findings on private sector development in Timor-Leste and kindly offered his time to review this report.

The case study also benefitted from the global perspectives of MDF’s Team Leader, Harald Bekkers, Mujaddid Mohsin, the former MDF Country Representative in Timor-Leste and members of MDF’s Independent Advisory Group, Aly Miehlbradt and David Swete Kelly.

Production of this case study was managed by James Maiden, the layout by Stella Pongsitanan. The videos were shot by James Maiden and edited by Aris Sanjaya.


Timor is so new that anything seems possible.

Boneca de Atauro staff of the newly opened handicraft shop in Dili, celebrate at the opening of the outlet bringing the women’s cooperative a strong retail presence in the capital.
 

Executive Summary

 

Foreword

 

 

Foreword from MDF’s Team Leader Harald Bekkers

Why it is so important to ‘break barriers’ in private sector engagement to be relevant in a small island economy – a snapshot of MDF in Fiji

Fiji is an archipelago of more than 300 islands with a population of just over 880,000. It is a middle income country but, nevertheless, 35% of the Fijian population is classified as poor or vulnerable to income shocks. The traditional ‘export engines’ of the economy – sugarcane, copra and garments – are in decline or went through a period of restructuring. The domestic market for agricultural produce is small and mostly saturated. Faming household are sending their children to the city for a better future or leave the land altogether. There is significant migration, to the cities and abroad. The urban services sector is growing but cannot provide employment for all. There are many niches in the tourism sector and in exports that offer good potential for growth, and there is room for diversification and improvements in the range of inputs and services available to farmers and SMEs, but the number of local entrepreneurs is limited (yet rising). Many are first generation businesses with limited means to invest and limited managerial capacity to expand and overcome hurdles. The business environment can be discouraging; essential support services such as finance and logistics are just emerging.

Thus, there is no shortage of good business ideas in Fiji, but the mechanism to make these ideas become a reality is weak. In part this is due to the small island of the economy – there is not much room for specialisation. But in part this is also due to the fact that Fiji still needs to develop a critical mass of enterprises that taken together strengthen the country’s economic fabric and thus help increase the overall competitiveness of this small island economy. MDF decided to focus on three ‘growth engines’ in Fiji, which bring together many of the opportunities and issues raised above: Horticulture and Agro Export, Tourism and Related Support Services and Industries, and Export Processing.

MDF quickly realised that in order to be relevant in these sectors and to be relevant for inclusive impact for both women and men in Fiji it needed to find a way to work with emerging enterprises, help them grow and reach a scale relevant to address the market gaps and niches that should be filled. MDF had to engage entrepreneurs with the right ideas, the right incentives, but who otherwise struggled for lack of support. In the process it also quickly realised that technical assistance, the typical tool of choice in the private sector engagement toolkit, would not be adequate. What was also needed was to develop business plans, investments in factory set up, machinery and working capital, investments in better bookkeeping to make enterprises more bankable and, above all, enable entrepreneurs to sustain over a longer period of time until the business had achieved that critical mass and control over operations that it should be able to grow and innovate on it own. Currently over half of MDF partnerships in Fiji are with ‘first of its kind’ business ventures or with the vanguard, that will drive growth in Fiji in the future.

In horticulture, MDF is active on two fronts – helping agro exporters grow and diversify by being able to lean on a better organised supply chain, and making the market for agricultural inputs work better so that farmers can produce better quality in demand crops to exports at a better price.  Maqere was the first agro exporter in Fiji to invest in a full time technical field agent  with the specific objective to help plan farmers what to grow, and teach them how to grow it, so that export demand and local supply add up.  South Pacific Elixirs (SPE) is the first company in Fiji (and worldwide!) to develop a patented formula for a relaxant and (medicinal) anti anxiety drink from local yagona roots   targeting market in the US, Australia and Europe.  Standard Concrete Industries.  is as the name suggests a construction company. Supported by MDF the company diversified to become  the first company in Fiji to produce agricultural lime (‘aglime’) from local lime stone,   thereby making ‘liming’ a feasible option for thousands of local farmers to reduce increasing soil acidity (which hampers yields).   Devesh Bharos Farms became the largest commercial nursery in Fiji   supplying a large variety of seedlings throughout the year to hundreds of farmers, enabling them to tap into demand from the export and tourism sector.

In tourism MDF is active on three front – enabling tourism to spread to less visited parts of the country (spreading opportunities along with it, creating employment in places with few alternatives); reducing the imports of food items for tourists by increasing the volume, quality and diversity of locally available produce; and increasing the number of ‘things to do and things to buy’ for tourist (again reducing imports, but also creating a more ‘authentic’ Fijian tourism experience). When MDF me  Adi Chocolates  he was making chocolate in his kitchen (literally!). Now he runs the first semi mechanised artisanal chocolate factory  on the island, buying cocoa from local farmers and suppling to many hotels and resorts. Sales have increased five times. In a similar vein, premium cut fish was always imported in Fiji. MDF supported an emerging company Southern Solutions  to increase its capacity to source from local fishermen, process, pack and store to become a first of its kind business selling to hotels and resorts. Since then, sales have leaped frogged ten times. In a similar vein, in tropical Fiji, all fruit juices served in hotels for tourists were thus far imported. By partnering with Western Dairy  MDF is supporting the launch the first fruit juice drink, “Fresh and Juicy”, to be made with local fruits.  Finally, despite its lush interior, Fiji was never considered a trekking destination, but  Talanoa Treks, Fiji’s first trekking company  saw it otherwise. With MDF support for community sets up, capacity building and promotion they have seen their clientele double and now a small, but growing group of new travellers are travelling to Fiji for the first time for trekking; around 80 households within the communities have reported getting benefit from such visits. Finally, access to finance is another documented constraint for many SMEs in Fiji. MDF has partnered with  ANZ Bank  to launch the first kind market based advisory services that will help connect interested small business to ANZ loan schemes with the help of independent financial advisors who will be paid, from the loan schemes itself.

These ventures are just few examples of how growth opportunities are being created with catalytic support from MDF. There are more such examples of such innovative partnerships. However, it must be appreciated that working with such emerging companies requires more support, more guidance and more ‘handholding’ from MDF. These companies typically operate with the owner/manager having to multi tasks at various levels. Maintaining strategic oversights and objectives at times becomes a ‘casualty’ in managing day to day operations. Hence MDF staff needs to make frequent field visits to interact with these partners to monitor, go over plans and make changes as and when necessary. MDF needs to work with partners and solve problems as they arise. At times these can be solved by reworking a plan or bringing in new equipment; but also at times the solution lies in MDF being patient, given the business a chance to digest its ‘growing pains’, and resume discussions when the business is in a better place and the partner is more comfortable to drive the process forward. More often than not, partners have come back saying that these visits and the advice provided by MDF staff were of equal importance, if not more important, than MDF’s financial support! However, there are times when MDF needs to make the call to cancel the partnership when it realises that pushing forward with the partnership will not be beneficial for the partner of MDF. These calls are not based on a formula set in stone – it is not a tick box exercise. It is about knowing sectors and knowing partners – knowing when to push, when to pause and when to pull out.

In this manner MDF has developed a healthy portfolio of partnerships in Fiji, which it hopes to expand in years to come. It has demonstrated that private sector engagement in small Pacific island economies works and can yield real results in terms of increases in investment, in economic activity, and in jobs and income earning opportunities available for the poor women and men who need these to improve their livelihoods.

 

Foreword

 

 

Foreword from MDF’s Team Leader Harald Bekkers

Why it is so important to ‘break barriers’ in private sector engagement to be relevant in a small island economy – a snapshot of MDF in Fiji

Fiji is an archipelago of more than 300 islands with a population of just over 880,000. It is a middle income country but, nevertheless, 35% of the Fijian population is classified as poor or vulnerable to income shocks. The traditional ‘export engines’ of the economy – sugarcane, copra and garments – are in decline or went through a period of restructuring. The domestic market for agricultural produce is small and mostly saturated. Faming household are sending their children to the city for a better future or leave the land altogether. There is significant migration, to the cities and abroad. The urban services sector is growing but cannot provide employment for all. There are many niches in the tourism sector and in exports that offer good potential for growth, and there is room for diversification and improvements in the range of inputs and services available to farmers and SMEs, but the number of local entrepreneurs is limited (yet rising). Many are first generation businesses with limited means to invest and limited managerial capacity to expand and overcome hurdles. The business environment can be discouraging; essential support services such as finance and logistics are just emerging.

Thus, there is no shortage of good business ideas in Fiji, but the mechanism to make these ideas become a reality is weak. In part this is due to the small island of the economy – there is not much room for specialisation. But in part this is also due to the fact that Fiji still needs to develop a critical mass of enterprises that taken together strengthen the country’s economic fabric and thus help increase the overall competitiveness of this small island economy. MDF decided to focus on three ‘growth engines’ in Fiji, which bring together many of the opportunities and issues raised above: Horticulture and Agro Export, Tourism and Related Support Services and Industries, and Export Processing.

MDF quickly realised that in order to be relevant in these sectors and to be relevant for inclusive impact for both women and men in Fiji it needed to find a way to work with emerging enterprises, help them grow and reach a scale relevant to address the market gaps and niches that should be filled. MDF had to engage entrepreneurs with the right ideas, the right incentives, but who otherwise struggled for lack of support. In the process it also quickly realised that technical assistance, the typical tool of choice in the private sector engagement toolkit, would not be adequate. What was also needed was to develop business plans, investments in factory set up, machinery and working capital, investments in better bookkeeping to make enterprises more bankable and, above all, enable entrepreneurs to sustain over a longer period of time until the business had achieved that critical mass and control over operations that it should be able to grow and innovate on it own. Currently over half of MDF partnerships in Fiji are with ‘first of its kind’ business ventures or with the vanguard, that will drive growth in Fiji in the future.

In horticulture, MDF is active on two fronts – helping agro exporters grow and diversify by being able to lean on a better organised supply chain, and making the market for agricultural inputs work better so that farmers can produce better quality in demand crops to exports at a better price.  Maqere was the first agro exporter in Fiji to invest in a full time technical field agent  with the specific objective to help plan farmers what to grow, and teach them how to grow it, so that export demand and local supply add up.  South Pacific Elixirs (SPE) is the first company in Fiji (and worldwide!) to develop a patented formula for a relaxant and (medicinal) anti anxiety drink from local yagona roots   targeting market in the US, Australia and Europe.  Standard Concrete Industries.  is as the name suggests a construction company. Supported by MDF the company diversified to become  the first company in Fiji to produce agricultural lime (‘aglime’) from local lime stone,   thereby making ‘liming’ a feasible option for thousands of local farmers to reduce increasing soil acidity (which hampers yields).   Devesh Bharos Farms became the largest commercial nursery in Fiji   supplying a large variety of seedlings throughout the year to hundreds of farmers, enabling them to tap into demand from the export and tourism sector.

In tourism MDF is active on three front – enabling tourism to spread to less visited parts of the country (spreading opportunities along with it, creating employment in places with few alternatives); reducing the imports of food items for tourists by increasing the volume, quality and diversity of locally available produce; and increasing the number of ‘things to do and things to buy’ for tourist (again reducing imports, but also creating a more ‘authentic’ Fijian tourism experience). When MDF me  Adi Chocolates  he was making chocolate in his kitchen (literally!). Now he runs the first semi mechanised artisanal chocolate factory  on the island, buying cocoa from local farmers and suppling to many hotels and resorts. Sales have increased five times. In a similar vein, premium cut fish was always imported in Fiji. MDF supported an emerging company Southern Solutions  to increase its capacity to source from local fishermen, process, pack and store to become a first of its kind business selling to hotels and resorts. Since then, sales have leaped frogged ten times. In a similar vein, in tropical Fiji, all fruit juices served in hotels for tourists were thus far imported. By partnering with Western Dairy  MDF is supporting the launch the first fruit juice drink, “Fresh and Juicy”, to be made with local fruits.  Finally, despite its lush interior, Fiji was never considered a trekking destination, but  Talanoa Treks, Fiji’s first trekking company  saw it otherwise. With MDF support for community sets up, capacity building and promotion they have seen their clientele double and now a small, but growing group of new travellers are travelling to Fiji for the first time for trekking; around 80 households within the communities have reported getting benefit from such visits. Finally, access to finance is another documented constraint for many SMEs in Fiji. MDF has partnered with  ANZ Bank  to launch the first kind market based advisory services that will help connect interested small business to ANZ loan schemes with the help of independent financial advisors who will be paid, from the loan schemes itself.

These ventures are just few examples of how growth opportunities are being created with catalytic support from MDF. There are more such examples of such innovative partnerships. However, it must be appreciated that working with such emerging companies requires more support, more guidance and more ‘handholding’ from MDF. These companies typically operate with the owner/manager having to multi tasks at various levels. Maintaining strategic oversights and objectives at times becomes a ‘casualty’ in managing day to day operations. Hence MDF staff needs to make frequent field visits to interact with these partners to monitor, go over plans and make changes as and when necessary. MDF needs to work with partners and solve problems as they arise. At times these can be solved by reworking a plan or bringing in new equipment; but also at times the solution lies in MDF being patient, given the business a chance to digest its ‘growing pains’, and resume discussions when the business is in a better place and the partner is more comfortable to drive the process forward. More often than not, partners have come back saying that these visits and the advice provided by MDF staff were of equal importance, if not more important, than MDF’s financial support! However, there are times when MDF needs to make the call to cancel the partnership when it realises that pushing forward with the partnership will not be beneficial for the partner of MDF. These calls are not based on a formula set in stone – it is not a tick box exercise. It is about knowing sectors and knowing partners – knowing when to push, when to pause and when to pull out.

In this manner MDF has developed a healthy portfolio of partnerships in Fiji, which it hopes to expand in years to come. It has demonstrated that private sector engagement in small Pacific island economies works and can yield real results in terms of increases in investment, in economic activity, and in jobs and income earning opportunities available for the poor women and men who need these to improve their livelihoods.