An expected rise in consumer spending is set to benefit Oman’s retail sector throughout the last quarter of this year and into 2014, but the bulk of the benefits are likely to be felt in Muscat.
A decision by the Central Bank of Oman (CBO), announced on October 2, to lower the upper limit on the rate that banks can charge on personal loans is expected to boost consumer purchases. The reduction from 7% to 6% has been viewed as a pump-priming exercise, and one that it set to have a positive impact on the local retail industry.
Even without the CBO’s decision, there had already been a steady rise in the flow of credit, with lending to the private sector increasing by 8.8% in the first eight months of the year, almost half of which was accounted for by personal loans, according to a recent report from the Oman News Agency.
Recent survey shows increased confidence
This increased access to credit comes at a time when consumer sentiment is positive, as reflected in the latest regional survey conducted by job site Bayt.com and research firm YouGov. The survey, which covered Oman, as well as the rest of the Middle East and North Africa and was released in mid-September, found a solid rise in confidence among Omani consumers heading into the latter half of the year. Around 60% of respondents believe the Omani economy will improve in the following six months, with 43% saying the economy had made gains over the preceding semester.
Another positive for retailers is that 57% of Omanis who took part in the survey said they expected their personal financial position to improve in the coming six months. This higher level of affluence will likely translate into stronger consumer spending, with 27% planning to buy a computer sometime in the next six months, followed by furniture (26%) and high-end television sets (21%).
The results of the Bayt.com/YouGov survey were in line with a study conducted by credit card company MasterCard at the end of August, which found Omanis highly positive over the outlook for the economy and their own employment, income and quality of life prospects.
“The country is benefitting from positive developments in its hydrocarbons sector, and with steady growth forecast to continue, it is not surprising that Oman’s consumer confidence score is higher than the Middle East’s average,” Pankaj Kathuria, MasterCard’s area head for the Southern Gulf region, said.
Attractive market for global retailers
There is still plenty of room for expansion, according to international management consultancy AT Kearney, which ranked Oman 17 out of 30 countries in its 2013 Global Retail Development Index, the firm’s annual survey of the retail industry in developing nations, released in late September. While the Sultanate’s 2013 ranking is down from its debut entry the year before, where it came in at eighth, this drop is more a reflection of the increasing pace of development in other countries rather than any weakness on the part of the Omani retail sector.
In its 2012 report, AT Kearney said the Sultanate was showing progress as an attractive destination for global retailers, particularly specialty and luxury players. Markets such as Oman exhibit strong fundamentals that appeal to retailers targeting a concentration of wealth and seeking to be first movers in fast-growing markets, the report said. Increased state spending on infrastructure and higher incomes has boosted purchasing power, while rising numbers of expatriate workers and foreign tourists were also driving retail growth, the study concluded.
A year later those fundamentals have not changed, with the 2013 report saying Oman remains relatively stable, with steady economic and retail growth and strong consumer confidence.
Out of Muscat
However, despite an increasing number of international brands entering the domestic market, AT Kearney says Oman still represents an opportunity for retailers, and that the sector remains largely untapped.
“Outside the capital, Muscat, modern retail opportunities are limited, and traditional stores and souks remain very popular,” the report said.
This slower expansion of major retail outlets and chains in regions outside Muscat may change in coming years, as other cities across the country are growing rapidly, in part the result of the state’s development efforts. This broadening of the economic base will see a greater spread of disposable income and a rising demand for retail access.
With the increasing economic focus on coastal cities such as Duqm, Sohar and Salalah, as well as smaller urban centres, higher-end retailers and supermarket chains are expected to follow the money out of Muscat and into the regions in the years to come, tapping into the opportunities identified in the AT Kearney report.