Oman diversifies economy as oil revenues shrink

Oman is a high-income country that has seen strong growth in economic output and exports in recent years. However, the economy is dominated by oil production, and the fall in international oil prices is putting pressure on GDP expansion as well as the sultanate’s fiscal and current account balances. In order to reduce the country’s exposure to oil markets as well as to pave the way for an eventual post-oil future, the government is pursuing a range of initiatives to diversify the economy, including major infrastructure investment and efforts to develop local small and medium-sized enterprises (SMEs).


GDP at current market prices stood at OR31.45bn ($81.4bn) in 2014, up 4.6% on 2013, according to data from the Central Bank of Oman (CBO). This was below the average growth rate of 11.4% achieved for the five-year period from 2010 to 2014, due to a fall in the price of oil in the second half of the year; the price of Brent crude dropped from $114 per barrel in mid-June 2014 to around $56 per barrel at the end of the year, though according to data from the National Centre for Statistics and Information (NCSI), the decline was less sharp as regards the price of Omani crude, which fell from a peak monthly average of $108 per barrel in August to $87 per barrel in December. In real terms, GDP at market prices grew by 2.9% in 2014, according to NCSI data.

Economic Composition

The sultanate remains an oil economy, with production of hydrocarbons accounting for 47.2% of GDP in 2014, down from 50.6% in 2013 as a result of falling prices. Of the total, crude oil production accounted for 43.8% of GDP while natural gas output contributed 3.4% to economic output. At an average daily output of 945,000 barrels, oil production levels in 2014 returned towards – and indeed more recently exceeded – a previous peak of 970,000 barrels per day (bpd) in 2000, having dropped to around 710,000 bpd by 2007. The rebound is thanks to enhanced oil recovery techniques and a number of new discoveries. The authorities aim to maintain production at close to 1m bpd in coming years.

The services sector dominated non-oil GDP, accounting for 40.7% of total economic activity, followed by industry with 18.1%, and agriculture and fishing with 1.3%, according to CBO data. Manufacturing was the largest component of industrial activities, with a GDP of OR3.15bn ($8.2bn) in 2014 – up 0.4% year-on-year (y-o-y) – followed by the construction sector with OR2.05bn ($5.3bn). The construction industry grew by 8.3% in 2014. Wholesale and retail trade was the largest individual non-government component of the services sector, contributing OR2.08bn ($5.4bn) to the economy (up 2% y-o-y), followed by transport, communications and storage with OR1.57bn ($4.1bn), up 7.2% on 2013 figures.

Growth Forecasts

The government’s budget for 2015 is based on growth of 5%, including non-oil growth of 5.5%. At the time of writing the IMF forecast that real GDP growth will increase to 4.4% in 2015, before moderating to 2.8% in 2016. Its 2015 growth projection is based on hydrocarbons GDP expanding at a rate of 4.2% and non-hydrocarbons GDP growing by 5%; the IMF also predicts non-oil GDP to expand by 5% in 2016 and at an average rate of 4.5% between 2017 and 2020, though it describes risk to this forecast as tilted to the downside.

However, such early predictions for growth in 2015, and for oil-based growth in particular, appear optimistic in light of the sultanate’s economic performance in the first quarter of the year, when GDP at current prices contracted by 14.2% y-o-y, according to the NCSI’s “Economic Review 2015, First Quarter”, published in July 2015. The contraction was driven by a fall of 36.8% in the value of oil output, due to lower international prices; according to NCSI data, the average price of Omani oil was down 41.5% y-o-y for the quarter, to an average of $62 per barrel. While oil production rose by 3.1% in terms of volume in the first seven months of the year, according to NCSI figures, to 206.7m barrels, of which 179.6m barrels was exported (up 4.5% on the same period in 2014), the average oil price for the period was down 43.1%, to $59.90 per barrel. By contrast, non-oil GDP expanded by 4.1% in the quarter, led by services sector growth of 6.6%. Agriculture also grew, by 5.3%, but industrial activity contracted by 2.4%, pulled down by an 18.2% fall in the value of the output of the basic chemical industry, which was likely linked to falling oil prices.

GNI Per Capital

The NCSI put gross national income (GNI) per capita at OR7327.70 ($19,000) in 2014, down from OR7483.10 ($19,400) the previous year. In dollar terms, the World Bank put GNI per capita calculated using the Atlas method at $16,870 in 2013 ( latest available data). In purchasing power parity terms, the World Bank put per capita GNI at $33,690 in 2013.


About 1.77m people were employed in the private sector in 2014, according to CBO data, of which 197,510 were Omani nationals and 1.57m, or 88.8%, were expatriates. In comparison, the public sector employed 232,983 people in 2014, up from 211,129 people the previous year. Employment ratios are reversed in government positions compared to the private sector, with some 86% of public sector employees Omani nationals.

According to the CBO, employment rose at an average rate of 12.7% between 2010 and 2014, though growth slowed to 3.4% in 2014, largely because of a fall in employment creation for expatriates. Public sector employment increased by 6.6% in the five years to 2013, and by 8.6% in 2013 itself, while average private sector growth between 2010 and 2014 stood at 12.7%, slowing to 3.4% in 2014. The unemployment rate stood at 11.75% in 2014, according to the NCSI.

Nearly half (44.8%) of Omani citizens were under the age of 20 as of mid-2014, according to NCSI figures – meaning that substantial numbers of Omanis will enter the workforce in the coming years. In order to boost the employment of nationals, the authorities have a policy of Omanisation, which involves the application of minimum quotas for employment of nationals that vary by sector and employment type.

Foreign Exchange & Reserves

The Omani rial is pegged to the dollar at $1:OR0.3849, a rate that has remained unchanged since 1986. In August 2015 Hamood Sangour Al Zadjali, executive president of the CBO, told media that the sultanate was committed to maintaining the peg, despite speculation that it could be dropped due to the impact of falling oil prices. The CBO held foreign assets worth OR6.28bn ($16.3bn) at the end of 2014, up 2.3% on 2013. As of July 2015 reserves had risen to OR7.39bn ($19.1bn).


Government revenues stood at OR14.1bn ($36.5bn) in 2014, up 1.4% from OR13.9bn ($36bn) in 2013 and 20.6% higher than those predicted by the 2014 budget, due to higher-than-forecast net oil revenues. Oil income accounted for the bulk of government income, with revenues of OR10.2bn ($26.4bn), down 2.2% on the figure from the previous year, while gas production contributed OR1.69bn ($4.4bn) to state coffers. Revenues have risen rapidly over the decade so far, having stood at OR7.92bn ($20.5bn) in 2010; the increase is mostly due to a near doubling in oil revenues, from OR5.47bn ($14.2bn) in 2010.

The government has been ramping up expenditure, with outlays having more than doubled from OR7.97bn ($20.6bn) in 2010, explained by factors such as rapid growth in the government’s wage bill, from OR833.1m ($2.2bn) in 2010 to OR1.51bn ($3.9bn) in 2014. The CBO put government expenditure at OR15.17bn ($39.3bn) in 2014, up 8.4% on 2013, giving a fiscal deficit of OR1.06bn ($2.7bn), which was financed by surpluses from previous years. As with revenues, expenditure was higher than planned in the 2014 budget, though by a smaller level of 12.4%.

Current expenditure accounted for OR9.6bn ($24.9bn) of outlays in 2014, having doubled from OR4.79bn ($12.4bn) in 2010, while investment expenditure stood at OR3.58bn ($9.3bn), up from OR2.6bn ($6.7bn) four years earlier. Most current expenditure was accounted for by defence and national security (OR4.2bn, $10.9bn) and spending on civil ministries (OR4.8bn, $12.4bn). Education was the biggest-ticket item within current spending on civil ministries, accounting for OR1.72bn ($4.5bn) of outlays, up 31.3% on 2013 figures, followed by health with OR691.7m ($1.8bn), up 33.8%, and general public services with OR614.3m ($1.6bn), up 11.8%.

Social security and welfare spending came next at OR593m ($1.5bn), up 5.8% on the 2013 figure but more than double outlays in 2010, following an increase from OR281.1m ($727.8m) that year to OR629m ($1.6bn) in 2011.

As regards investment expenditure, transport and communications accounted for the largest portion of civil development outlays in 2014 on OR859.3m ($2.2bn), followed by housing on OR656.9m ($1.7bn) and education on OR244m ($631.7m). The government is heavily stepping up investment in education infrastructure, raising outlays from OR101.7m ($263.3m) in 2010 and by 39% in 2014 alone.


Inflation remains under tight control, thanks in part to the rial’s dollar peg, which limits the potential for currency devaluations sparking rises in the price of imported goods. The general price index rose by 0.99% in 2014 and 1.1% in 2013. As regards 2015 figures, the consumer price index was up by 0.21% in the year to September, according to latest available data. The IMF forecasts that inflation for 2015 will stand at 0.4%, before rising to 2% in 2016.

Foreign Trade

Exports from Oman in 2014 were worth OR20.46bn ($53bn), down 5.7% on 2013 figures, in large part due to a 6% fall in the value of oil exports; this was in turn a result of price falls towards the end of the year. Hydrocarbons dominated exports, with crude oil sales standing at OR11.6bn ($30bn), while refined oil and liquefied natural gas exports contributed OR309.5m ($801.3m) and OR1.49bn ($3.9bn), respectively. Non-oil exports stood at OR4.13bn ($10.7bn), up 8.4% on 2013 figures and 68.5% on 2010 figures, with the rest accounted for by re-exports.

Mineral products were the largest category of non-oil exports in 2014, at OR1.26bn ($3.3bn), followed by chemical products (OR946m, $2.4bn), and metals and metal products (OR766m, $2bn).

China was the largest market by far for Omani exports, accounting for 44.1% of the total, followed by South Korea on 14.8% and Taiwan on 7.5%. The UAE was the largest destination for non-oil goods, accounting for 18.8% of the total, followed by Pakistan on 11.3% and Saudi Arabia on 10.6%.

The value of imports stood at OR11.9bn ($30.8bn), down 13% on 2013 and giving a trade surplus of OR8.57bn ($22.2bn), up 6.8% on the previous year. The largest category of imports in 2014 was vehicles and other transport equipment, which had grown by 8% on 2013 figures to OR2.57bn ($6.7bn). Next in line was electrical equipment, mechanical machinery and parts, at OR1.94bn ($5bn), followed by base metals and metal products on OR1.32bn ($3.4bn). The UAE was the largest source of imports, with 32.5% of the total, followed by Japan on 12.2% and China on 4.8%.

In the first four months of 2015, exports fell 32.9% on the same period the previous year, to OR4.54bn ($11.8bn). Oil and gas exports were down 36.5% while non-oil exports decreased by 20%, led by a 58.4% fall in mineral products and a 33.9% drop in plastic and rubber products, both of which were likely linked to the fall in oil prices and the impact of this on petrochemicals prices. Imports for the period declined by 3% y-o-y to OR3.6bn ($9.3bn), giving a trade surplus of approximately OR930m ($2.4bn), down from OR3.04bn ($7.9bn) in the first four months of 2014.

Current Account

The sultanate’s current account recorded a surplus of OR1.56bn ($4bn) in 2014, equivalent to 5% of GDP and down from OR2.02bn ($5.2bn) in 2013. The impact of the country’s large trade surplus on the current account balance is mitigated by deficits in services and income that respectively stood at OR2.75bn ($7.1bn) and OR1.46bn ($3.8bn) in 2014, as well current transfers (comprising expatriate workers’ remittances), which stood at OR3.96bn ($10.3bn), and capital and financial account deficits of OR50m ($129.5m) and OR739m ($1.9bn), respectively. The financial account was positive in 2013, though the CBO attributed this in part to a one-off event in the form of the merger between the sultanate’s sovereign wealth fund, the State General Reserve Fund (SGRF), and its Contingency Fund; the balance was negative in preceding years. In light of the fall in oil prices the current account balance is expected to turn negative in 2015, with the IMF forecasting a deficit of 14.8% of GDP.

Foreign Investment

Foreign investors require a local partner – usually taking at least a 30% stake in the local company – to establish a business in Oman or to operate via an agent, unless they are investing in a free zone or working on a government contract, in which case they can establish a local branch. Companies from the US are exempt from requirements to find a local partner under the US-Oman free trade agreement, which was implemented in 2009.

Foreign direct investment (FDI) inflows into Oman stood at $1.18bn in 2014, according to the UN Conference on Trade and Development, down from $1.63bn in 2013. FDI inflows were worth an annual average of $1.24bn between 2009 and 2014. According to latest available data from the NCSI, the oil and gas sector accounted for more such investment than any other in 2013, with 49% of the total, followed by the financial sector with 16.6% and manufacturing with 15.2%. No other sector accounted for more than 7% of FDI inflows. The UK was the largest foreign investor in the sultanate in 2013, accounting for 46% of the total. 90% of British FDI went to the hydrocarbons sector, where BP is active, among other firms. Next in line were the UAE with 17.6% and India with 4.2%.

Pankaj K Khimji, director of Omani conglomerate Khimji Ramdas, told OBG that increased investment inflows are needed to assure continued economic growth. “The lack of new companies and FDI coming to Oman will be very detrimental to sustaining the pace of development unless there is a fundamental change,” he said. Various initiatives are under way to achieve this, and the US State Department’s 2014 Investment Climate Statement for Oman describes the investment climate as improving.

A new draft foreign investment law is aimed at further boosting inflows from abroad. A first draft of the law, which was prepared with assistance from the World Bank, was presented to the Minister of Commerce and Industry in April 2015 and as of August the law was awaiting royal approval. While few details of the legislation have been made public, local press reports suggest it will address issues including incentives for foreign investors and requirements for some forms of investment to receive prior approval.

Sovereign Wealth Fund

The sultanate operates two sovereign wealth funds, the SGRF – which merged with the sultanate’s Contingency Fund in 2014 – and the Oman Investment Fund (OIF). As of early October 2015 the Sovereign Wealth Fund Institute put the SGRF’s assets at around $13bn and the OIF’s at $6bn. Both funds primarily invest abroad, and 58% of the SGRF’s investments by value are in what it describes as developed America and developed Europe. The fund claims to have achieved an average annual return on its assets of 7.5% between its establishment in 1980 and the end of 2013.

Development Strategy

The government’s strategy for economic growth is based around a series of five-year development plans, the eighth of which came to a close at the end of 2015. Key elements of the plan included plans to diversify the economy, the development of labour-intensive economic sectors to stimulate employment, and encouraging the growth of SMEs (see analysis). The plan in particular sought to develop the agriculture and fisheries sector to boost rural employment and national food security, as well as services segments including software development and tourism. Boosting employment and diversification remain key elements of the ninth plan, which will run from 2016 to 2020. The government has also been working towards the goals of a longer-term development plan created in 1995, Vision 2020, key elements of which also include economic diversification and developing the private sector, as well as the creation of a range of new industrial estates and investments in utilities and infrastructure.


An important measure taken under the framework of Vision 2020 was the privatisation of electricity generation. In the mid-1990s Oman became the first country in the region to allow private companies to establish generation and desalination plants. The sultanate then privatised some existing public facilities in the mid-2000s, and in 2013 the government announced another major drive to privatise stakes in around 65 state-owned firms.

The most recent major privatisation to have occurred was the government’s sale of a 19% stake in telecoms provider Omantel in early 2014, leaving it with a 51% share. More such deals are in the pipeline. In January 2015 the authorities announced that they had appointed a consortium of advisors to examine the possibility of privatising state electricity firm Electric Holding Company’s distribution arm, Muscat Electricity Distribution Company. Also in January Mohammed bin Hamad Al Rumhy, the minister of oil and gas, said the government was considering the sale of a 15-20% stake in state-owned refinery Oman Refineries and Petroleum Industries Company (ORPIC) and of shares in oil exploration and production company Abraj Energy Services. Musab Al Mahrouqi, CEO of ORPIC, said in September 2015 that while a timetable for the operation had yet to be established, plans to privatise a stake in the firm via an initial public offering were on track. In May 2015 media indicated the government intended to privatise stakes of other hydrocarbons businesses as well.

Investment Environment

Oman placed 66th out of 189 countries in the World Bank’s 2015 “Doing Business” rankings, down from 60th the previous year. The country’s highest ranking was in the “paying taxes” category, in which it placed 10th worldwide, and it also performed strongly as regards “registering property” with 19th place. Its lowest ranking was in the “enforcing contracts” category, in 130th place. The sultanate’s overall performance in the index was also brought down by its performances in the categories of “starting a business” (123rd place), “protecting minority investors” (122nd) and “getting credit” (116th). The World Economic Forum’s “Global Competitiveness Report 2015-16” ranked Oman as the 62nd most competitive country out of 140, with a score of 4.2 out of 7. It scored strongly for its macroeconomic environment (6 out of 7), while its lowest score was in the innovation category (3 out of 7).

Challenges for businesses in the sultanate cited by UK Trade and Investment include delayed payments by the government, the time it takes to establish a business, Omanisation quotas and difficulties in obtaining visas for expatriate employees. The authorities are taking measures to address some of these issues. In order to speed up the bureaucratic processes required to establish a new company, the Ministry of Commerce and Industry (MoCI) in December 2013 launched a new initiative called InvestEasy, which acts as an online one-stop shop providing businesses with access to all government e-services. As of August 2015, 14 government entities were integrated into the system, with plans to expand the list to more than 30 by the end of the year, and the initiative had launched 23 services for companies. These include an option available since June 2015 for firms to register commercially online, using a digital ID card to provide an electronic signature. As of August around 20% of registrations were taking place via the internet.

“The culture is not yet there for moving to an online-only registration model and not everyone has a digital ID card,” Buthaina Mohammed Saif Al Kindi, head of the commercial information section of the MoCI, told OBG, explaining that a variety of entities would continue to provide front-office services on behalf of the MoCI. Since the launch of the initiative the authorities have also removed licensing requirements for 170 business activities – previously all commercial activities were required to be licensed – and are seeking to expand the list. Companies should also be able to apply for licences online by mid-2016.

The initiative is increasing the transparency of the economy by allowing anyone to retrieve a digital certificate providing information about any given registered Omani company online. The authorities have also prepared a draft law on investor obligations that includes a requirement for companies to produce publicly available annual reports by submitting information through the InvestEasy portal, with varying levels of detail depending on the size of the company.


A development that may boost the prospects for trade and investment in the sultanate is the conclusion in July 2015 of an agreement resolving the dispute between Iran and the international community over Iran’s nuclear programme. Oman has good diplomatic ties with Iran, and it is hoped that it can leverage its ties to establish itself as a hub for anticipated increased levels of trade and investment in Iran once international sanctions are lifted.


While oil production is expected to stay roughly constant or to even increase slightly in coming years, GDP growth and broader economic development will clearly depend heavily on vagaries in the international oil price. A persistently low oil price will likely see the government move into a sustained period of deficit financing, pushing it to step up borrowing and/or slow spending growth or make outright cuts in some areas such as subsidies. However, the authorities also appear determined to continue investing in infrastructure and development projects to diversify the economy, which will help raise the economic contribution of non-hydrocarbons sectors and support growth even if prices remain subdued.

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The Report: Oman 2016

The Guide

Economy chapter from The Report: Oman 2016

Economy chapter from The Guide