The future for Timor-Leste: a big new Port in Tibar, a new airport, new bridges over the Comoro river in Dili, 4-lane highways, large scale electrification, the Oecussi Social Market Economy Zone, Suai Supply Base and Port facility, etc, etc.
On hearing of this development agenda it feels like we are
back in the days of the 1960s, when development was defined by multilateral
support for big infrastructure projects - dams, airports, etc - as these were
seen as the keys to development.
Many lessons were learned from that era, many failures
documented. Since then, and in the light
of these lessons, development moved much more towards broad-based poverty
alleviation, while still pursuing an agenda of economic growth. There is much more that could be said about
these lessons from history for what Timor-Leste faces now, but that is for
another time.
Here I want to focus on how large scale projects are
adopted. Any large project should only
proceed if a good economic and social case is made for it. The economic argument looks at projected costs
of the project, and then the long term projected benefits, and projects need to
have benefits that outweigh the costs.
Often this cost-benefit analysis is also used to rank possible projects
and determine priorities for spending scarce resources.
Imagine the challenges of accurately forecasting these costs
and benefits! Take the proposed new port
facility in Tibar, 10km to the west of Dili.
Consultants have been asked to project flows of containers in and out of
Dili to the Year 2045, presumably as a basis for the need to build a new port
facility. The projections are also used to inform the scale of the new facility.
I do have some issues with the projections that form the business case. Briefly,
there are two concerns: the projections rely on very optimistic forecasts of
growth in economic activity for the next 30+ years. With the decline in oil revenue that will
come over the next few years, growth in non-oil GDP will need to no longer rely
on the government-stimulated economic activity that derives from royalties on
the oil and gas revenue. Projecting
economic growth from the base of non-oil-revenue-driven economic activity, I
forsee substantially slower economic growth than the forecasts used in the
Tibar Port projections. Secondly, the
projections ignore balance of trade considerations. Currently, Imports in Timor-Leste comprise
more than 100% of non-oil GDP. This is
manageable now, because the foreign funds are raised via oil revenue. But this cannot be sustained, and import volumes
must fall as a % of GDP. None of this is
allowed for in the Tibar Port projections.
My best estimate is that the Tibar Port projections are
about quadruple what they should be. Not
just a little optimistic, but 4 times the realistic levels (I am happy to
provide details if you'd like to discuss further). Hmmm.
In my next post I will write about some academic research
into why costs are often underestimated and benefits overestimated in large
scale infrastructure projects.