Having maintained 47th place on the World Bank’s latest global survey regarding the ease of doing business, Oman has benefitted from the strong capitalisation of local banks and reforms making it easier to register property and connect to the energy supply. However, the report identifies that small and medium-sized enterprises (SMEs) could benefit from improved access to credit and further reforms to liberalise the business environment.
In its “Doing Business 2013” report, released on October 23, the World Bank assessed a total of 185 economies, with Oman placing well above the Middle East and North Africa (MENA) average of 98, and fifth among all Arab states.
The annual survey set out 10 separate criteria for the world’s economies: starting a business, dealing with construction permits, getting electricity, registering property, obtaining credit, protecting investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. Of the 10, Oman posted improvements in four categories, no change in one and slight falls in the remaining five.
In terms of starting a business, Oman has actually fallen back six places, though this has more to do with the fact that other countries have implemented reforms, making it easier to launch an enterprise, rather than the Sultanate making it more difficult. Indeed, over the past six years, Oman has reduced the number of steps necessary to start a business from 10 to five, while the number of days required to complete the necessary procedures has fallen from 35 to eight.
One area where Oman recorded a solid advance was in the ease of obtaining credit, climbing 14 rungs on the ladder to 83rd. This is a reflection of strong capitalisation of local banks and low interest rates set by the Central Bank of Oman, which has maintained its repo rate at just 1% since March. The reserve’s policy of keeping rates down has encouraged commercial banks to ease their own lending criteria, which in turn has had a positive flow into the private sector.
However, not every segment of the private sector is benefitting from this freer lending regime, with the IMF calling on Oman to do more to improve access to credit for SMEs. According to the IMF’s latest report on Oman, SMEs receive 2% of all bank loans granted. The fund said this was well below the rate in most other countries and called on the government to implement “new initiatives to encourage bank lending in this area”.
Oman also made gains in registering property, connecting to electricity and in resolving issues associated with insolvency. Apart from the lower ranking for starting a business, all other downward ratings were only by one or two places and reflected improvements by other countries, rather than any retrograde movement by Oman.
Though ranked just outside the top 25% globally, according to this latest World Bank report Muscat needs to do more it if is to achieve its goal of increasing the role of the private sector in the economy. The government has been boosting investments into economy facilitators, such as transport and logistics infrastructure, communications and education. Each of these sectors can provide value-added components and lift efficiency levels, which will promote economic activity. However, this progress will be hindered if red tape slows bureaucratic procedures that govern the establishment and operation of a private enterprise.
Of course, it is not just SMEs and local enterprises that would benefit from further reforms: a more liberalised business environment would also serve to attract overseas investors. With an easier and less costly route to set up operations, foreign firms may be more inclined to choose Oman as a point of investment.
While the Omani economy is forecast to expand by around 5% this year, a good deal of this growth will be driven by state spending, which is projected to be up 10% on 2011. This is in large part the result of the government’s capital works and investment programme, announced last year, having taken full effect this year. The continued promotion of a pro-business environment, and the investment that follows, should be able to match the effect of state spending and further economic expansion.