International institutions expect 2019 to be a somewhat difficult year for Oman’s economy – back in April the World Bank said it anticipated GDP expansion of 1.2% for the sultanate in 2019, while in July the IMF revised its 2019 growth forecast to 0.3%, down from the 1.1% it had originally forecast. These sluggish outlooks have their origins in the crash in oil prices from mid-2014, from which the country – and indeed the region – has still not fully recovered.
A rally in the price of oil in 2018 provided some respite, but as of mid-2019 persisting concerns related to the high level of public debt, private credit expansion and muted deposit growth have caused a drag on sentiment. Meanwhile, downgrades by the major credit rating agencies over the past year may mean the government has to contend with higher premiums on any sovereign bonds it issues as a means of servicing the budget deficit.
All of this was reflected upon in the most recent OBG Business Barometer: Oman CEO Survey, with sentiment decidedly more muted than in our last survey: 47% of the country’s cohort of business leaders say they are confident or very confident about the business conditions in the coming 12 months, down from 80% in the December 2018 survey.
Reforms contribute to the sultanate’s more positive medium-term outlook
However, I’m loathe to present an overly negative picture! Although far less than eight months ago, we cannot ignore the fact that almost the plurality of CEOs are still confident or very confident about the future, and indeed there are several bright spots to draw on.
The imposition of fiscal reforms in the shape of the so-called sin tax that came into effect in June and the value-added tax, which is now likely to be implemented in 2020, bode well for government efforts to broaden revenue streams, and feed into the government’s wider goals of economic sustainability and a reduced reliance on hydrocarbons revenues. The IMF has commended the implementation efforts of the Tanfeedh programme, and – in contrast to forecasts for this year – the fund and the World Bank have sketched very optimistic outlooks for 2020, both predicting growth rates of around 6% as initiatives associated with Tanfeedh begin to bear fruit.
Oman’s government has also been making efforts to improve ease of doing business in the country. Last July’s new royal decrees, which implemented new laws for public-private partnerships, foreign capital, privatisation and bankruptcy, in addition to April’s commercial companies law, are representative of these efforts. The new royal decrees will help local companies and also bolster confidence among foreign investors looking to do business in the sultanate. Indeed, over one-third of the respondents in the CEO survey said the efforts aimed at improving the ease of doing business are good.
Belt and Road Initiative accelerates development of transport infrastructure
For me, one of the more eye-catching findings of the survey is the ever-growing importance of China to Oman’s economy. After regional political volatility (64%), China demand growth represents the biggest external threat for the country’s business leaders (12%).
The relationship between Oman and China goes back several decades to when the two countries formerly established diplomatic ties in 1978; five years later Oman became the first Arab country to start exporting oil to China. The intervening years have seen this relationship deepen and evolve, with China procuring the majority – 77% – of the sultanate’s crude oil exports in 2017. Oman’s geographic location, meanwhile, has long lent the country a dominant strategic position in the region – a fact well underlined by its history as a maritime and trading hub. Today, China’s investments being made under its Belt and Road Initiative in the country are seeking to build on these strategic natural assets.
It is the Port of Duqm that perhaps best illustrates this ambition, with total Chinese investments of over $10bn set to transform the formerly remote fishing town into a major port and industrial city over the next decade, thereby establishing a key centre for Sino-Omani global trade and manufacturing.
Business leaders identify areas in need of reform
A sense of frustration when it comes to the sultanate’s labour policies is another of the more prominent findings of the most recent iteration of the survey. When asked which legislative areas were most in need of reform in order to boost growth, 59% of respondents cited the country’s labour law, with the extension earlier this year of 2018’s ban on hiring foreigners in certain positions no doubt feeding into this dissatisfaction.
Leadership and engineering were identified as the skills most in need by the economy – the latter despite the fact that as recently as 2017 it was reported that 4500 Omani engineers were unemployed. Here, the country’s labour laws, and in particular the strict imposition of Omanisation quotas, are again proving tricky to navigate for the country’s employers, although in this case the issue is compounded by the historic tendency of locals – in both Oman and across the region – to opt for public over private sector employment. This is a challenge with both economic and social considerations, and the authorities are well aware of the need to better align public sector compensation with that of the private sector if this tendency is to be successfully curbed.