Australian Financial Review August 29, 2000

Hello Mister: meet Timor's fast-money men

By Tim Dodd, Dili

"When the UN pulls out, the whole system's going to crash," says Mr Kirk MacManus, the manager of Hello Mister, Dili's only Western-style supermarket, which is housed in a building that until recently was a burnt-out shell.

That gives its Australian owners a little over a year to recoup their $500,000 investment and rake in whatever windfall profits they can before East Timor's bubble economy collapses.

So long as the 2,000 or so foreigners - UN staff, aid workers and diplomats - remain in town, making money in Dili would seem easy. Most of the foreign contingent enjoy living allowances, on top of salary, of $US100 ($175) a day.

But there are major challenges for the frontier entrepreneurs who have flocked to this honey pot in the north.

"It's not as easy to do business as we thought it might me," says Mr MacManus, the 34-year-old Canadian who manages Hello Mister for its owner, catering company Catimor.

For one thing, there are no labour laws to deal with wage demands. Even though unemployment is very high, wildcat strikes are becoming increasingly common as the expectations of East Timorese rise and they are forced to deal with UN-induced high inflation.

"There's a lot of labour issues," says Mr MacManus. "They [the East Timorese] don't bargain. They just don't turn up one day."

Hello Mister employees about 50 local staff on a base rate of 20,000 Indonesian rupiah (about $4) a day, with performance-linked supplements. It sounds very little but it is more than double what an unskilled East Timorese earned before the UN arrived.

But disgruntled employees see the UN's pay scale, which awards base-grade local staff more than 30,000 rupiah a day, as the benchmark.

Then there is the problem of land title. Hello Mister has a temporary lease from the UN, which lasts until next April, but there is no security of tenure. Because departing Indonesians either stole or destroyed all records, there is no certainty of land title. The UN is now trying to sort out the land ownership mess and will set up a tribunal to decide the difficult cases.

Mr MacManus, and other business people, also complain about the 10 per cent sales tax, the alcohol tax and import and export taxes that the UN transitional government has brought in to help fund East Timor's $75 million budget for 2000-01. The UN recently started charging for electricity. Next there is likely to be income tax.

"You can't set a goal. New charges are thrown at you every day. You're supposed to have a business target but you can't," says Mr Victor Rustam, manager of Dili's two-month-old Harvey Norman store.

But these challenges appear somewhat tame to Hello Mister's Mr MacManus. He is a veteran of catering operations in two other UN peacekeeping areas - Somalia and Cambodia - where tax was the least of the problems.

In Somalia, he worked for Morris Catering - owned by Australian businessman David Morris - which was contracted by the UN to feed its peacekeepers. One of Mr Morris's sons was killed in 1993 after a Somali local was sacked for stealing a loaf of bread. Then in 1995 Mr Morris was held hostage after he failed to pay his Somali suppliers, which he blamed on the failure of the UN to meet its contractual payments to him. Several months later, Mr Morris was assassinated by a Somali gunman.

Hello Mister, through its owner, Catimor, is a direct heir of the Morris Catering operation. It was set up as a partly owned subsidiary of Morris to operate in East Timor - it also operates one of Dili's UN kitchens - and then sold to other Australian interests. When it changed hands, Mr MacManus stayed to notch up his third UN peacekeeping campaign.

Hello Mister is just one of dozens of small enterprises that have flocked to East Timor attracted by foreigners with fat wallets.

Many are providing accommodation in temporary hotels. When UN employees began to pour into Dili late last year, the only available beds were in a huge slab-sided barge still moored in the harbour called the Hotel Olympia. Also known as the love boat, the ship looks more like a boxed-in sheep carrier.

Brisbane lawyer Mr Mark Plunkett, another veteran of the UN's Cambodian venture where his company ran conflict management training, set up an onshore hotel, Paximus Lodge, in February.

The lodge, which is more like a mining camp, has 81 tiny rooms in demountable units, with toilets and showers in nearby modules. It cost Mr Plunkett and two partners $1.4 million to set up and they have to recover the outlay quickly.

"We've got to get that back before the conclusion of the election," he says, referring to the poll expected next August that will elect East Timor's first government. The election will bring the last major influx of foreigners and after that demand - at the current tariff of $115 a night - is sure to tail off. "There are not super profits," Mr Plunkett said.

Occupancy, which was at 100 per cent earlier this year, is already down sharply as other similar ventures open up. Demand has also fallen as UN staff and aid workers find more congenial accommodation in renovated houses rented from East Timorese.

For them, if they are lucky enough to own a dwelling that survived Indonesia's destructive exit last September, the rental market is a windfall. Homes rent for prices ranging from $US500, $US1,000 or even $US1,500 a month. This money, unlike that which goes to foreign ventures, is more likely to stay in the country.

But the shift by foreigners into houses has opened other commercial opportunities. Harvey Norman, part of the chain's Darwin franchise, has opened shop in Dili, offering home furnishings and electrical goods to tenants.

The market, says its manager, Mr Rustam, is UN staff who "move off the love boat into houses". It is a field of opportunity because, after the Indonesian army's looting rampage, houses don't come furnished.

But Harvey Norman is facing competition from the Jape family, East Timorese Chinese who, after fleeing East Timor 25 years ago, are now a dominant force in Darwin homeware retailing. They have franchises for Mitre 10 and Forty Winks among their string of stores.

They have returned to Dili - where some family members stayed right through Indonesia's rule - with a warehouse store selling furnishings, home appliances and hardware from a site on the edge of town. It is the only building owned by the Japes in Dili that was left intact by the militia.

The family has also set up a general store in one of the few renovated buildings in Dili's still devastated CBD. It carries a large range of Asian-sourced goods that are more in the price range of the East Timorese.

Manager Mr Tony Jape says his family's businesses are in Dili to stay. "The family has been here right through. This is our home and business and we will continue," he said.

Hello Mister and Harvey Norman also want to stay after the UN leaves. Both have plans to change stock lines to offer more to locals at cheaper prices.

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