From Survival to Scale: How Timor-Leste’s Small Businesses Can Compete in ASEAN

When Timor-Leste became the 11th member of ASEAN in October 2025, expectations rose that regional integration would unlock new economic opportunities. But a recent study by the Asian Development Bank (ADB), produced by its Economic Research and Development Impact Department in collaboration with Timor-Leste's Ministry of Commerce and Industry and TradeInvest, makes one thing clear: ASEAN membership alone will not transform the economy. The country's future growth depends on whether its small businesses are ready to scale up, compete, and create jobs.

Using a nationwide business mapping survey of more than 3,000 firms across all 13 municipalities, the study offers the most detailed picture yet of how micro, small, and medium-sized enterprises operate in Timor-Leste. These firms dominate the private sector, but most remain small, informal, and focused on survival rather than expansion.

A Private Sector Built on Survival

The survey reveals an economy driven by self-employment. More than half of businesses have no employees, and over 90 percent are microenterprises. Most operate in retail trade, food services, and small hospitality, with very limited activity in manufacturing or higher-value services. Digital tools are rarely used, and only a small number of firms export or import goods.

Outside the capital, Dili, conditions are even tougher. Firms in other municipalities are much less likely to increase sales, hire workers, or raise wages. Many businesses stay afloat but do not grow. Even older firms tend to remain static, showing that longevity often reflects stability rather than success.

Why Formal and Digital Firms Perform Better

Despite these challenges, the study identifies a clear group of better-performing businesses. Firms that are formally registered, use digital tools, or engage with international markets consistently outperform others.

Formalization matters more than paperwork. Registered firms are more likely to increase revenue, create jobs, pay higher wages, and maintain enough cash to survive economic shocks. The reason is access. Formal firms can benefit from tax incentives, bank loans, public procurement opportunities, export support, and digital infrastructure. Informal firms are largely excluded from these advantages.

Digitalization is another strong driver of growth. Firms that sell online or use e-commerce platforms earn more, hire more workers, and pay better wages than non-digital firms. These businesses are often younger and more open to new ideas, showing that technology helps firms reach new markets rather than just cut costs.

Global Links Create Stronger Businesses

The strongest performers are firms connected to international markets. Businesses involved in exports, imports, or global supply chains generate higher revenues, create more jobs, and are far more financially resilient than firms serving only the domestic market.

But their success depends heavily on policy conditions. Weak internet connectivity, slow government procedures, trade barriers, and limited access to modern finance quickly reduce their advantages. When digital infrastructure, advisory services, and flexible financing are available, internationalized firms grow faster and absorb shocks more easily. In an era of global uncertainty and rising trade tensions, these firms are better positioned to adapt.

Women Entrepreneurs Still Face Barriers

Women own a large share of businesses in Timor-Leste, yet women-led firms are less likely to create jobs or raise wages than those led by men. The study shows this gap is not about ability, but opportunity. Women-led firms have weaker access to finance, public contracts, and growth capital.

Targeted solutions can make a difference. Payroll subsidies, access to government procurement, credit guarantees, and digital financial services are shown to be especially effective in helping women-led businesses expand employment and improve wages.

A Call for Smarter MSME Policy

The study's main message is simple: not all small businesses need the same support. Blanket MSME programs will not deliver transformation. Instead, Timor-Leste needs a focused, evidence-based approach that rewards formalization, accelerates digital adoption, supports export-oriented firms, and removes barriers facing women entrepreneurs.

With ASEAN membership opening new markets and competition intensifying, the cost of inaction is rising. Timor-Leste has no shortage of entrepreneurs. What it needs now is a policy sharp enough to identify growth-ready firms, and bold enough to back them.