For the first state visit of the Timor-Leste leader's term, President José Ramos-Horta was received by President Joko Widodo of Indonesia in July.Both advocated for the establishment of a cross-border economic zone and made proposals to strengthen economic ties.Because it enables both nations to test and develop novel policies in the effort to construct a high-performance economy, such a program has the potential to be ground-breaking.The successful development of advanced economies and the impressive catch-up trajectory of East and Southeast Asia are largely due to these policies.
When it comes to establishing the zone with the goal of fostering efficient economic growth in mind, Indonesia and Timor-Leste would both need to make and carry out significant strategic decisions.If Timor-Leste continues on this path, it may be able to learn from the industrialization of many Asian nations before it.
Significant investments in education, skill development, and the accumulation of knowledge and technology played a crucial role in Asia's successful economic development, as did an emphasis on fostering competent firms and workforce learning, which resulted in robust national production and innovation systems.From manufacturing enclaves to multi-activity, high-tech economic hubs that were fully integrated into the urban and economic environment, economic zones have been used at various stages of development.These grew in number and are still produced.
More than 1,000 of these special economic zones are in the Association of Southeast Asian Nations (ASEAN) block, according to UN policy research, accounting for approximately 75% of all special economic zones worldwide.According to reports from the University of Zurich, the United Nations Conference on Trade and Development, and related studies conducted by the Asian Development Bank, development zones are anticipated to boost GDP growth in Thailand by 5% annually.Around 200 economic zones in Malaysia are located in states that contribute 40.2% of the country's GDP and account for 60.5% of manufacturing output.Between 1988 and 2010, special economic zones near the coast and near trading partners in China contributed to a 12% permanent increase in GDP levels for more than 250 cities, and that percentage is expected to rise to 20% over time.
In light of the current economic environment, which includes slowing growth, high and persistent inflation, and elevated economic uncertainties, it is reasonable to anticipate that governments throughout the region will continue to open economic zones.According to the most recent World Economic Situation and Prospect briefing released by the United Nations in September, each of these factors has significant spillover effects in East and South Asia.
It is absolutely necessary for the cross-border area between Timor-Leste and Indonesia to achieve its industrial development goals by carefully planning out how it will create jobs, value-added exports, and social benefits.It will be crucial for the emerging economy of Timor-Leste that its zone policies focus on resolving critical issues like skill gaps, lack of coordination between businesses and training providers and/or supply chain partners, supply chain disruptions, and poor trade infrastructure. They will also need to steer meaningful economic growth and achieve specific economic and social goals in a way that makes development more sustainable and equitable.
A cross-border zone would be an essential pillar in building productive capacities and achieving domestic economy integration into global supply chains, particularly in developing market segments or niche markets for its young economy, given Timor-Leste's current stage of economic development and late entry into international value chains.Participation in global value chains would encourage the productive upgrading of the private sector and provide Timor-Leste with access to a large pool of cutting-edge technology, crucial skills, and capital.The nation must make use of its physical proximity to Indonesia and the markets in the region.By taking advantage of this economic proximity, cross-border businesses and services can make Timor-Leste more appealing to foreign investment, encourage trade and participation in regional value chains, and provide advantages over competitors.
We cannot deny that the cross-border zone approach can increase Timor-Leste and Indonesia's economic opportunities from a development perspective.There is evidence to suggest that a cross-border zone can play a crucial role in the development of global future cities in border regions that serve as economic development hubs, enhancing economies' outward orientation and integration into global supply chains.The zones have the potential to support world-class urban, social, and technological development and develop into an integrated strategy for the development of high-quality infrastructure for trade and other societal requirements.The Asian experience demonstrates that a number of other factors would eventually need to be developed in order to create and maintain distinct advantages across the border, despite the fact that an economic zone can assist in shaping an innovative and competitive border region in both countries.Digital technologies, investments in education, innovative clusters, effective regulation, a favorable investment climate, competent regulatory institutions, urban development, high-quality services, and other factors are among these.
Promoting a novel kind of cross-border zone provides the foundation for a different growth path, despite the fact that the economies of the neighboring countries are separated by an international boundary, with Timor-Leste, a sovereign nation, on the eastern side and the Indonesian province of East Nusa Tenggara on the western side.
Other distinct and strategic goals connected to the success of a potential new zone between the two nations may also benefit from economic considerations.As a result, the zone ought to necessitate novel forms of bilateral international policy coordination that policymakers would be required to confront across a variety of goals.It would be wise to approach the region as a crucial foundation for strengthening bilateral ties, as its advantages and disadvantages extend far beyond investment and trade.
Take into consideration the various interactions that take place between the two nations and must lead to mutual respect and trust.Conditions will emerge within the zone that have the potential to strengthen a harmonious relationship and closer political cooperation in support of legitimate foreign policy objectives that are becoming increasingly important for regional prosperity and stability.The result is a new economic partnership that has the potential to usher in a new era of friendly relations in which each nation works together and gains strength as a result.