Interview : Ahmed Al Musalmi
How have recent sovereign downgrades affected the economy, particularly in terms of the cost of funds on international markets?
AHMED AL MUSALMI: The economy in general has shown a great deal of resilience, despite low oil prices. Empirically, sovereign ratings have multifaceted implications on the financial system, corporate earnings and investor sentiment. Downgrades would adversely impact the borrowing cost from international markets, which we have seen since 2015. Fortunately, Oman’s financial institutions and corporates maintain relatively low foreign exposure and the banking sector’s asset book is predominantly Omani rial-denominated, funded largely by domestic deposits, though interest rates in the domestic market have increased as well.
The government has taken corrective measures and appropriately instituted policy responses that have helped minimise the impact. Additionally, Oman has remained stable and secure, with infrastructure in place to establish an economic diversification agenda. For instance, the new terminal at Muscat International Airport, Port of Duqm and Duqm Special Economic Zone, Sohar Port, Port of Salalah, and the Oman Convention and Exhibition Centre are all strategically located and complemented with a wide network of roads and high-quality public services. This infrastructure is designed to advance the growth of a variety of sectors such as tourism, manufacturing, logistics, mining and fisheries as part of a macro plan to reduce dependence on oil and gas in accordance with Oman Vision 2020 and Vision 2040.
To what extent are global macro-investment patterns impacting the economy?
AL MUSALMI: Foreign direct investment has increased by 16% in the first half of 2018 compared to the same period in 2017. Naturally, growth and demographics in oil-importing economies, together with the geopolitical environment could potentially affect macro investment patterns. We are witnessing the global centre of economic activity shift to emerging markets, particularly to Asia and Africa. Emerging economies will be major contributors to global GDP growth, accounting for up to 60% over the next 10-15 years, driven by a massive expansion of the middle-class population.
Oman has capitalised on investments into seaports, airports and infrastructure, placing itself in a strategic role to facilitate trade and investment flows between Asia and Africa, feeding into the Oman Vision 2020 and Vision 2040 goal of becoming a regional logistics hub.
What scope is there for further consolidation within the financial services sector?
AL MUSALMI: There is significant potential for consolidation across various sectors, including the financial services industry. Lately, we have seen a wave of mergers and acquisitions activities in the local and regional markets, which is a good development as long as there are synergies and value creation for all key stakeholders. Bigger banks, for example, would have a much larger capacity to increase the penetration of the banking sector into the economy in a more significant fashion. The banking sector is sound and well regulated. Banks focus on enhancing customer experience and scale through technology. Digitalisation is a great opportunity to scale and enhance customer experience.
How can financing to small and medium-sized enterprises (SMEs) be increased?
AL MUSALMI: SMEs play a significant role in economic development by promoting inclusive and sustainable economic growth. Banks are mandated by the regulator to advance up to 5% of loans and advances to SMEs. The 5% constitutes approximately OR1bn ($2.6bn) in lending room from banks, apart from the finance companies and other established funds designed to support the development of SMEs. Therefore, there are abundant financial resources that can fund viable SME growth.
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