Oman: Local business sentiment exceeding market expectations
04 Apr 2017
The results of OBG’s Business Barometer: Oman CEO Survey have largely upended a few long-held beliefs that may come as a surprise, particularly in light of the current economic environment.
Whilst many economies in the region have seen significant volatility, with major spikes in GDP growth or inflation over the last 10 years, Oman has built a well-deserved reputation for more modest growth cycles. Broadly, this has stood the Sultanate in good stead: the peaks might not have been as high as some of its neighbours, but neither have been the lows.
With many forecasting that an era of lower oil prices is here to stay, Oman, like its GCC neighbours, is looking to accelerate economic reform. Indeed, the whole process has taken on added urgency as government revenues are down significantly.
As is typical of GCC economies, the Sultanate’s revenue is primarily derived from hydrocarbons. With the price of oil significantly reduced – and as I write it seems once again under pressure from rising US inventories – the government has cut costs and made some difficult decisions. Indeed, the country’s current five-year plan, which runs from 2016 to 2020, has been revised to reflect Oman’s new economic conditions and more moderate growth expectations.
To be clear, these cost-cutting measures are, in fact, all moves that will be music to the ears of bodies such as the IMF and should enable Oman’s economy to be on a more sustainable footing in the years ahead.
However, in the immediate term these reforms fall squarely in the “no pain, no gain” category. A couple of examples include wide-ranging cuts to fuel subsidies, as well as the benefits and perks public sector employees have traditionally enjoyed. These are just two of a whole host of revenue-saving measures.
As a whole, the broad cost-cutting exercise is expected to significantly reduce government outlays, and more cuts are expected in 2017.
It is against this undeniably strained backdrop that Oman’s business leaders are looking for growth. As we found in our GCC regional survey results OBG published in October, the long-held public perception that the private sector relies on government spending is quite wrong.
What the survey results in Oman show is that business leaders are broadly positive about the prevailing business conditions in the Sultanate over the next 12 months (58.6% positive, 6.9% very positive). This will be very welcome news for the authorities as they look to the private sector to contribute a much greater proportion of GDP growth going forward.
As governments around the world have found time and again in straitened times, the risk of cutting too hard and deep is that whatever growth does exist can be dampened or even extinguished.
This is particularly critical for Oman, and indeed other Gulf countries, as one of the key planks of economic reform is the introduction of a greater tax burden.
In 2016 the State Council and the Majlis Al Shura agreed to remove the OR30,000 tax-free ceiling for businesses operating in Oman and increase the corporate tax rate from 12% to 15%. Furthermore, GCC countries voted last year to implement VAT by 2018, and whilst each country is free to set the level at which this is levied, there will undeniably be an impact on businesses.
The results of OBG’s survey are therefore notable in that the tax environment is considered by 90% of respondents as either “competitive” or “very competitive”.
It will be interesting to see in 12 months’ time how business leaders feel. It is perhaps a welcome recognition that the existing status quo is not realistic, and higher levels of taxation may be necessary. That certainly seems to be the case with business people I speak to.
Therefore, our finding that nearly 60% of businesses were “likely” or “very likely” to make a significant capital investment is not so surprising. After all, it may well be that companies are considering investment at a time when the tax burden remains modest by global standards and interest rates continue to be low.
In conclusion, our survey results show that prevailing business sentiment in Oman is buoyant, even if sentiment outside the country is less jubilant.
OBG Business Barometer: Oman CEO Survey Copyright (c). All rights reserved.
This survey has been designed to assess business sentiment amongst business leaders (Chief Executives of equivalent) and their outlook for the next 12 months. Unlike many surveys, the OBG Business Barometer is conducted by OBG staff on a face-to-face basis, across the full range of industries, company sizes and functional specialties. The results are anonymous.
OBG Business Barometer is based on data from companies with revenue within the following parameters, among others:
- 100% of companies surveyed were private
- 100% of companies surveyed were based in Oman
- 27% of companies surveyed conduct business regionally or internationally
The data generated allows for analysis of sentiment within an individual country, as well as regionally and globally. Additionally, comparisons can be drawn between both individual countries and regionally. The results are presented statistically within infographics and discussed in articles written by OBG Managing Editors.
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