The Report: Oman 2018
The effects of lower oil prices continue to be felt in Oman, with budget cuts and spending rationalisation still in evidence across the board. However, higher commodity prices in late 2017 and into early 2018 should provide a welcome boost to state revenues.
Country Profile
Located in the south-eastern quarter of the Arabian Peninsula, Oman is the only member of the GCC situated outside of the Gulf. Leveraging its strategic location, Oman has invested in infrastructure with the goal of becoming a global logistics centre. While the country is less hydrocarbons-rich than its GCC neighbours, diversification efforts are nonetheless a driving force. The sultanate’s long-term development strategy, Oman Vision 2020, emphasises diversification, privatisation and Omanisation. Logistics, tourism, mining, manufacturing and fisheries have all been identified as potential future economic drivers, and will be the focus of development under the next plan, Vision 2040. This chapter contains viewpoints from Sultan Qaboos bin Said Al Said; and Xi Jinping, President, People’s Republic of China.
Explore chapterEconomy
Oman’s economy benefits from large oil and gas reserves, including a sizeable new gas field that began production in late 2017. Located between Asia and Africa – and adjacent to major international shipping routes – the sultanate’s geographic location also makes it a natural regional logistics and manufacturing hub. The authorities are seeking to leverage such advantages in order to diversify the economy and reduce its reliance on hydrocarbons production, particularly in light of the fall in the price of oil over the 2014-15 period. The consequent decline in oil revenue negatively affected growth, as well as government accounts and finances. However, the authorities have so far been able to fund the deficit without difficulty through international borrowing. Furthermore, a partial oil price recovery in 2017 and 2018, as well as moves by the government to cut expenditure and boost revenue, are reducing immediate pressure on finances. This chapter contains an interview with Khalifa Al Barwani, CEO, National Centre for Statistics and Information.
Explore chapterBanking & IFS
Oman’s banking sector appears to have ridden out recent economic headwinds largely unscathed. While concerns over liquidity arose in the wake of the oil price slump due to the government’s status as an important depositor, the situation improved in 2017 as the Omani state borrowed from abroad to avoid withdrawing funds or pushing up funding costs through heavy local borrowing. The sector is top heavy, with the leading bank by assets much bigger than its nearest competitors, which has given rise to talk of consolidation. This has yet to happen, though, with plans for two institutions to join forces recently called off. However, the non-bank lending segment saw a merger in 2017. The burgeoning sharia-compliant banking industry, meanwhile, after encountering some growing pains from the outset, is expanding rapidly and moving towards sustained profitability. This chapter contains an interview with Tahir Salim Al Amri, Executive President, Central Bank of Oman; Abdul Razak Ali Issa, CEO, Bank Muscat; and Khalid Al Kayed, CEO, Bank Nizwa.
Explore chapterCapital Markets
The sultanate is home to a well-developed stock exchange, the Muscat Securities Market, which was founded in 1988. The equity market has seen a decline in initial public offering activity in recent years; however, it witnessed a resurgence in 2017 thanks to government-driven offerings, more of which are set to take place in 2018. On the debt side, there has been a recent uptick in issues and listings, while the sukuk (Islamic bond) market also appears to be developing. This chapter contains an interview with Abdulaziz Mohammed Al Balushi, Group CEO, Ominvest.
Explore chapterInsurance
The Omani insurance market has witnessed robust growth in recent years, which has helped gradually boost penetration rates. As in many countries, compulsory motor insurance has long been the leading branch in the sector, but previously underdeveloped segments, including life and health, are now expanding rapidly; the former has seen significant gains as foreign insurers expand their presence, while the latter is set to receive a further boost as the obligation for private companies to provide health coverage for their employees is enforced. Additionally, new regulations have been implemented for companies and brokers, which should contribute to confidence in the sector.
Explore chapterEnergy
The strong headwinds of 2017 in Oman’s oil and gas sector have spurred the authorities to develop new sources of revenue. Despite recovering to 2015 levels of $55 a barrel, the steep fall in prices that saw Omani crude fall from $103 per barrel in 2014 to $40 in 2016 has squeezed state finances and added urgency to diversification efforts. On the back of a drop in crude output – following an agreement with the Organisation of the Petroleum Exporting Countries (OPEC) – overall economic growth in Oman remained flat in 2017, at roughly 0.3%, its weakest performance since 2011. However forecasts suggest growth will recover to 2.8% over the course of 2018, as gas production – particularly at BP’s new Khazzan gas field – expands and the non-oil economy steadies. This chapter contains an interview with Yousuf Al Ojaili, President, BP Oman.
Explore chapterUtilities
The utilities industry in Oman is going through a transitional period in anticipation of major restructuring and renewal in the water and electricity segments. While large-scale retail competition in electricity is not yet feasible, changes in technology, such as the introduction of cost-reflective tariffs (CRT), are making distributed provision more cost-effective. The most significant development in the electricity sphere is the planned introduction of a spot market to allow generators without long-term contracts to sell power on a half-hourly basis at a market-clearing price. Meanwhile, in terms of water provision, the sultanate’s procurement agency has worked hard to bring considerable new capacity on-line across Oman’s five water zones to address supply shortages during peak demand periods in 2017, particularly in the Muscat region. Oman is also on the verge of a major shift towards renewable energy as the government rolls out regulations and projects to harness power supply from solar plants and wind farms. This chapter contains an interview with Tariq Ali Al Amri, CEO, be’ah; and Omar Al Wahaibi, CEO, Nama Group.
Explore chapterConstruction
Despite public investment cuts and a broad economic slowdown in the wake of lower oil prices, Oman’s construction sector continues to grow at a relatively brisk pace, bolstered by state-led diversification efforts, high income levels and relatively low labour costs. The building industry grew by a robust 10.4% in 2016, up markedly on the two previous years, according to the latest official full- year data, with sector investment staying buoyant at 5.5% growth. As the largest chunk of the non-oil economy, at roughly 45%, construction remains a pillar of government efforts to steer the country’s productive industries away from hydrocarbons under its medium-term ninth five-year plan, which covers the 2016-20 period, and its longer-term blueprint, Vision 2040.
Explore chapterReal Estate
Market pressures have continued to weigh on Oman’s real estate sector since oil prices fell from their historic highs, driving the sultanate to adjust to lower revenue by trimming budgets and paring back some investment. Growth in public payrolls and jobs – a key driver of real estate demand – slowed in 2016 as the government reduced spending by 7.5% to tackle a fiscal deficit surpassing 20% of GDP; weaker economic conditions have likewise constrained job creation in the private sector. This deceleration has put pressure on both demand and property prices. While residential rents in Muscat, normally a sector bellwether, were 20-25% below their 2014 peak in September 2017, there are hopes they are beginning to stabilise.
Explore chapterIndustry
Growth in Oman’s industrial and retail sectors has been affected by both commodity prices and weaker consumer sentiment, which have lowered spending and forced some companies in heavy industry to delay investment programmes. However, the impact of the costs borne by the sultanate’s manufacturers was offset somewhat in 2017 by the rise in exports to Qatar following the blockade of that country’s trade. The government is investing heavily in combatting hydrocarbons dependence and facilitating the development of a more diversified economic base. Manufacturing has been prioritised as one of the pillars of this strategy under the Tanfeedh programme for national economic diversification.
Explore chapterMining
Oman boasts an extensive and largely untapped mineral resource base that includes large deposits of metallic minerals, such as copper and chromite, and industrial minerals, namely limestone and marble. The country is the first GCC producer and exporter of ferrochrome, and produces large quantities of non-metallic minerals, including limestone, gypsum and marble, that support construction and infrastructure development projects around the world. Mining activities and the contribution of the sector to the economy are set to increase over the coming years, buoyed by government efforts to attract investment in mineral exploration, production, value addition and export activities from both foreign and local operators.
Explore chapterTransport & Logistics
Bolstered by steady investment from a government cognisant of its potential, Oman’s transport and logistics sector has continued to expand even as the impact of lower oil prices continues to be felt. The sector’s real growth rate registered at 1.1% in 2015 after rising 9.4% in 2014, giving it a value of OR1.7bn ($4.4bn), according to the latest available figures from Central Bank of Oman. It has been sustained by robust growth in passenger arrivals by air, and of cargo by land and sea. With a coastline of 2100 km at the mouth of the Gulf, and a history of friendly relations with its neighbours, Oman has a unique opportunity to become the logistics gateway to the GCC’s more than 50m consumers, as well as a key trans-shipment centre between Europe and Asia.
Explore chapterAgriculture & Fisheries
Targeted investment has seen Oman’s agriculture and fisheries sector make advances as the government seeks ways to sustain a growing population and foster a more diverse economy. According to the Ministry of Agriculture and Fisheries, in 2016 production rose by 4.3% for agriculture and 8.7% for fisheries to 1.87m and 280,000 tonnes, respectively. Production is estimated to increase further given ongoing state support in areas ranging from dairy and aquaculture, to livestock and produce. Although Oman is in a strategic location between the vast markets of Europe and Asia, it is constrained in the types of products it can easily make commercially viable due to its arid climate, soil salinity and water scarcity. Still, the sultanate forges ahead with development plans by leveraging technology to open up new pathways to growth and self-sufficiency. This chapter contains an interview with Fuad bin Jaafar bin Mohammed Al Sajwani, Minister of Agriculture and Fisheries Wealth.
Explore chapterICT
Developments in Oman’s telecoms sector in 2017 were centred on the announcement of a third mobile network operator licence and an increase in royalty rates from January 1, which led to a 35-40% drop in net profits that year for the two existing operators, Omantel and Ooredoo. With market penetration in the mobile sector at close to 150%, the sultanate’s third licence is expected to significantly tighten market competition. Meanwhile operators in Oman’s IT sector have recently made big strides forward, moving beyond infrastructure to develop applications and applied business solutions for increasingly sophisticated customers. The government has made it clear that ICT is a key priority in improving the standing of Omani businesses in the international arena, and in 2017 the Information Technology Authority was developing a 2030 Digital Oman Strategy (eOman) focused on developing IT skills, digital literacy and new technologies.
Explore chapterTourism
While the focus on preserving Oman’s natural surroundings and cultural traditions has allowed the sultanate to retain much of the spirit of historic Arabia, the arrival of modern infrastructure and an emphasis on new sectors like activity-based tourism and ecotourism suggest the country is also adapting to the needs of the modern global travel market. Oman has some of the most diverse offerings in the Gulf region, including several UNESCO World Heritage sites, contemporary urban centres, and natural and coastal areas, yet it continues to rely on a few specific destinations and times of the year. While the country welcomed a record number of visitors in 2015 and 2016, the ultimate goal of transforming it into a year-round destination that appeals to a broader set of travellers continues apace. With the addition of the Oman Convention and Exhibition Centre, infrastructure initiatives, new hotels and other flagship developments, the country is well on track. This chapter contains an interview with Ahmed bin Nasser Al Mahrizi, Minister of Tourism.
Explore chapterEducation & Training
Oman’s education sector has expanded rapidly since the 1970s, with the total number of schools in the sultanate rising from three in 1970 to 1725 in 2016. The sector is overseen by the Education Council, which was founded in 2012 to streamline all matters pertaining to education development in the country, and is composed of the country’s key education bodies, including the Ministry of Education and the Ministry of Higher Education. Although the Omani government has continued its rationalisation initiatives started in 2014, the education sector has remained largely insulated from major cutbacks. The reductions that have occurred are expected to open the way for greater private sector participation, with international interest fuelled by both Oman’s sizeable youth population, as well as the government’s continued focus on achieving a knowledge-based and diversified economy.
Explore chapterHealth
In the four decades after Sultan Qaboos bin Said Al Said assumed leadership in 1970, Oman made such strides in health care provision that the UN, in its “Human Development Report 2010”, declared it the most improved nation out of 135 countries. The sultanate is looking to breathe fresh momentum into the coming decades under its current long-term development plan, Health Vision 2050. Published in May 2014, just one month before the price of oil began to fall, the document laid out a roadmap for modernisation on an unprecedented scale, from building new specialised hospitals to digitising patient information systems. Perhaps most striking was its call for a major increase in the role of the private sector, which at the time made up a 10th of all health care provision.
Explore chapterTax
This chapter contains an outline of the tax framework within which local and international firms operate within Oman, including a look at the various models of business open to foreign investors and a breakdown of the new rules set out for Islamic financial transactions. This chapter contains an interview with Omar Al Sharif, Country Senior Partner Oman, PwC.
Explore chapterLegal Framework
This chapter contains an outline of the legal framework within which local and international firms operate in Oman, including a look at the work being done to improve it and a summary of the regulations governing key economic sectors. This chapter contains a viewpoint from Ben Ewing, Partner, CMS.
Explore chapterThe Guide
The guide contains listings of some of the leading hotels and resorts in Oman, as well as contacts for important for important government offices and services. It also contains useful tips and information for first-time or regular travellers.
Explore chapterTable of Contents
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Khamis bin Saif Al Jabri, Chairman, Oman Vision 2040 Implementation and Follow-up Unit
Tahir bin Salim Al Amri, Executive President, Central Bank of Oman (CBO)
Abdulsalam bin Mohammed Al Murshidi, President, Oman Investment Authority (OIA)
Ali bin Masoud Al Sunaidy, Chairman, Public Authority for Special Economic Zones and Free Zones (OPAZ)
Nasser Al Maqbali, CEO, Minerals Development Oman (MDO)
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