Oman transport investments aimed at facilitating economic growth

 

Oman benefits from a strategic location on the south-eastern coast of the Arabian Peninsula, particularly for the movement of goods and people by sea and air. As a result, transport and logistics has been identified in Vision 2040 – the government’s national strategy – as one of five key areas in the sultanate’s efforts to diversify away from its dependence on hydrocarbons. Transport infrastructure is also critical to the success of other sectors and economic efficiency as a whole, and is therefore a major source of public funding. With an upgraded airport terminal opening in Muscat in 2018 and new multi-lane highways crossing the country, Oman has invested heavily in the sector in recent years. Meanwhile, the sultanate has also developed its ports, adding a number of new facilities to rival competitors in the region. These investments are likely to reap economic benefits for years to come, as well as support other priority sectors such as manufacturing, tourism and mining.

Oversight

The main government body responsible for the management of the sector is the Ministry of Transport (MoT). In early 2015 the ministry, which was then known as the Ministry of Transport and Communications, established the Oman Logistics Centre (OLC), which was tasked with overseeing the segment’s development. This led to the creation of the Oman Global Logistics Group in 2016, which was relaunched in 2017 under the name Asyad.

Asyad is responsible for maintaining ports, free zones and maritime services in Sohar, Duqm and Salalah, alongside a number of global operators. The organisation also manages the freight segment, which comprises Oman Rail Company, Oman Shipping Company and Oman Drydock Company, the latter of which is among the largest and most technologically advanced repair yards in the MENA region.

In addition, Asyad is tasked with the oversight of several major state-funded services in Oman, including public transport and maritime training. Another key national organisation in the transport sector is Oman Aviation Group (OAG), which was established in 2018 to bring all public investments in the aviation segment under the purview of one authority. The group includes Oman Air, Oman Airports and Oman Aviation Services. Oman Air is the national carrier, which flies to more than 50 destinations worldwide. Oman Aviation Services provides ground handling, cargo management, catering, dutyfree retail, hospitality and hotel services across nine locations. Meanwhile, Oman Airports is in charge of overseeing Muscat International Airport (MCT), as well as the country’s three regional airports located in Duqm, Salalah and Sohar. Under OAG, Oman Airports also manages Muscat Airport City, a mixed-use development located adjacent to the airport.

Sector Strategies

The MoT and OLC are tasked with implementing the sector’s long-term development plan, the Sultanate of Oman Logistics Strategy 2040. The strategy, which was developed in consultation with a team of 65 specialists from a range of sectors, was published in February 2015. Its main targets, to be met by 2040, include achieving a top-10 position in the World Bank’s Logistics Performance Index, creating 300,000 jobs in logistics services and reaching a GDP contribution of OR14bn ($36.4bn), which would make the sector the country’s second-largest economic contributor after hydrocarbons. The strategy has already seen results, and in 2018 the transport, storage and communications sector contributed OM1.7bn ($4.4bn) to the sultanate’s GDP, an increase of 14% since 2014.

Transport and logistics was also selected as a priority sector in the government’s ninth five-year plan for 2016-20. The strategy outlined Oman’s shortterm plans for economic diversification, which are being enacted through the National Programme for Enhancing Economic Diversification, known as Tanfeedh. Tanfeedh, which was launched in September 2016, is responsible for identifying the resources needed for diversification, as well as setting timeframes and key performance indicators (KPIs).

The following KPIs were assigned for 2020: increasing the number of logistics jobs from 67,469 to 100,000; raising OM2bn ($5.2m) in investment, which the sector is close to achieving; reducing average import clearance time for sea cargo from 7 days to 1.5 days; and increasing capacity at ports from 3.1m twenty-foot equivalent units (TEUs) to 7m TEUs. In order to meet these goals 14 initiatives were outlined across a range of areas, including one-stop clearance procedures, bonded warehousing facilities and improved land connections with neighbouring countries. “Tanfeedh has worked well to diversify the economy,” Michael Jorgensen, CEO of Oman Shipping Company, told OBG. “Specifically within the transport and logistics sector, the initiative is pushing for the upgrade of shipping fleets to increase non-oil operations, such as the transport of containers and dry cargo.”

Comparative Advantage

Oman’s strategic location and 2092-km coastline has provided the sultanate with a long-standing maritime history and a natural advantage for trade. Oman is situated near international shipping routes and benefits from being closer to the world’s sea traffic than other major ports in the region. Oman has also traditionally maintained good relations with other countries in the GCC, as well as with Iran, which gives the sultanate an additional advantage in building trade links.

The country is similarly well placed to compete in the air transport market, given that it is located along multiple international air routes. Furthermore, Oman is located at the centre of international cable networks, with several major landings of submarine cables passing through the sultanate. It benefits from data connections between Asia, Europe and North America. This gives Oman a competitive advantage in the communications segment, which is integral to supporting transport and logistics. Furthermore, the sultanate is investing heavily in road and rail infrastructure, which is expected to increase efficiency in other priority sectors such as mining, manufacturing, tourism and agriculture.

Ports & Free Zones

Oman’s extensive coastline, natural harbours and maritime expertise have made ports and shipping a key part of the sector’s continued development. The sultanate has three main ports in operation – Sohar, Salalah and Duqm. “The shipping industry is set for rapid growth as Oman increases its connectivity with the rest of the GCC,” Wasam Al Najjar, general manager of corporate planning at Oman Shipping, told OBG. “Dry bulk is particularly poised for expansion as mining continues to increase. Around 30m tonnes of dry bulk commodities are exported per year, and 14m tonnes are imported. There are also opportunities to develop the transportation of liquefied natural gas and oil products through the Port of Duqm.”

Sohar

Sohar Port and Freezone, situated in the north of Oman close to its border with the UAE, is a 300-sq-km deep water port capable of unloading large container ships. The port has general bulk and liquid bulk storage facilities, and offers a wide range of services including bunkering, marine supply, tug and towing, crew change, pilotage, ship supplies, fresh water deliveries, cargo handling and ship-toship transfer. The port largely serves four industries: metals, logistics, petrochemicals and food. In 2018 more than 3434 vessels passed through Sohar, and the port handles 1m tonnes of cargo each week.

The 45-sq-km free zone was established in 2002 and is located adjacent to Sohar Port. According to a report from Germany-headquartered logistics company DB Schenker, the free zone had attracted over $26m in investment as of January 2019. The zone houses 26 companies, including automotives traders, metal manufacturers and logistics firms. There are also a number of small and medium-sized enterprises (SMEs) operating from the zone across a growing range of industries, including power and water, petrochemicals, plastics, metals, fertilisers, minerals, food, vehicles and general cargo handling.

Salahlah

Salalah is a leading trans-shipment port, handling more than 5m TEUs per year. The port has facilities to process liquid bulk and mineral bulk, six container berths and an 18-metre draught. There is an adjacent free zone, managed by the Salalah Free Zone Company, which has attracted more than $5.1bn in industrial investment as of November 2019 across a range of sectors, including petrochemicals, materials processing, manufacturing, pharmaceuticals, logistics and distribution. According to local media, an estimated 210,000 new jobs will be created in the free zone between 2019 and 2022.

Duqm

The Port of Duqm is located near the centre of Oman’s south-east coast. With a 2.1-km quay, a large basin and a maximum draught of 19 metres, the port is able to berth the world’s largest ships. Duqm has facilities to process containers, liquid bulk, dry bulk and various other types of cargo. The port is linked to a 2000-sq-km special economic zone (SEZ), which was established in 2011 and is the largest SEZ in the Middle East. “Duqm is a unique greenfield project offering opportunities for many activities and industries,” Reggy Vermeulen, CEO of the Port of Duqm, told OBG. “Complementing its potential, logistics value chains are already established here, and we are seeing industries operating very efficiently while creating opportunities for the local labour force and SMEs.”

The SEZ is divided into eight main areas: the port, a dry dock, an oil refinery, a regional airport, an industrial complex, a residential and commercial area, a tourism area and a logistics services area. Around 1000 ha of land is dedicated to logistics at the Port of Duqm, of which 65 ha has been developed and 100 ha is under construction. The logistics zone benefits from its proximity to the commercial pier, which has helped attract investors to the area.

In May 2019 the Duqm SEZ Authority signed six agreements to upgrade infrastructure at the port, including the construction of new internal roads and a 14-km dual carriageway, and the levelling of 5.5 ha of land in the logistics zone. The SEZ offers a range of benefits for companies looking to establish themselves in Oman, such as: 100% foreign ownership on a freehold basis; tax exemptions for up to 30 years; no restrictions on expatriate employment; assistance with Customs procedures; and residence permits for employees. The port’s location also provides an additional incentive for companies.

“As the largest port development in Oman, Duqm could save one or two shipping days compared to Jebel Ali Port in Dubai and it also has links into Saudi Arabia,” Manish Jangir, finance manager at local logistics firm Majan Shipping, told OBG. “With strong potential for containers, oil, refined products and petrochemicals, it is likely that the Port of Duqm will continue to see high cargo volumes,” he added.

Khazaen

Located 60 km north of Muscat, Khazaen Economic City is a major logistics centre currently under development. The 51.6-sq-km area will contain an inland dry port, logistics facilities, warehousing, free zones with tax benefits, and commercial and residential areas. Khazaen is located within easy reach of Sohar Port and MCT, and has road links to the rest of the region, making it strategically positioned to become one of Oman’s busiest logistics hubs. In September 2019 a $24m contract for the first phase of the project was awarded to Oman’s largest construction firm, Galfar Engineering and Contracting. According to local media, the project is scheduled to take around 12 months, although as of November 2019 there had been no update on whether construction had begun.

Airports

There are four passenger airports in Oman, located in Muscat, Duqm, Salalah and Sohar. In March 2018 a new terminal building was opened at MCT, increasing the airport’s total capacity to around 20m passengers per year. The 580,000-sq-metre site has replaced the existing 44-year-old terminal as the centre for international flights. The older building has the potential to be used by low-cost airlines or for other purposes; however, this has yet to be finalised. The new terminal will cater to a growing number of passengers as Oman Air continues to expand.

Meanwhile, the total number of passengers passing through MCT has grown as a result of the new building. In the first quarter of 2019 the number of international flights increased by 2.1% year-on-year (y-o-y), from 25,789 to 26,334. International passengers totalled 3.7m in the first three months of 2019, up 9.4% y-o-y from 2018. According to the most recent full-year figures available from the Public Authority for Civil Aviation, total passenger traffic at MCT increased by 9% between 2017 and 2018, from 14.1m to reach approximately 15.4m. When it comes to shipping, the amount of cargo transported through MCT has also risen sharply in recent years, from 160,000 tonnes in 2016 to 203,000 tonnes in 2017 and 215,000 tonnes in 2018. Air cargo is a major part of OAG’s vision for future expansion, and its National Air Cargo Strategy aims to raise the amount of goods transported per year to 780,000 tonnes by 2030. With this target in mind, cargo-handling facilities were upgraded at MCT and Salalah International Airport in 2018. MCT now has the capacity to process 350,000 tonnes of cargo per year.

“OAG is looking to develop beyond a cargo terminal, adding facilities such as warehouses and supporting infrastructure, and improving polices and regulations,” S T Tan, CEO of Oman Air SATS Cargo, told OBG. “We need to capitalise on our location and Oman’s political neutrality to complement the regional cargo offerings in Doha and Dubai,” he said.

Salalah International Airport is the sultanate’s second-largest airport. A 65,638-sq-metre terminal building opened in November 2015, helping the airport to expand its passenger traffic by 78.4%, from 841,000 in 2014 to 1.5m in 2017. In 2018 the airport saw 1.4m passengers and 979 tonnes of freight. According to the National Centre for Statistics and Information (NCSI), the number of international flights from Salalah increased by 19.1% y-o-y in the first eight months of 2019, from 2799 to 3331.

Sohar Airport, which has operated domestic flights since 2014, became Oman’s third-largest international airport in 2017 following the launch of flights to Qatar and the UAE. A new terminal has been under construction since 2015, and will be able to handle 250,000 passengers and 50,000 tonnes of air freight annually when it is completed.

Updates

First opened in 2014, Duqm Airport has seen a consistent rise in passenger traffic in line with the development of the nearby port and free zone. A new 8660-sq-metre terminal began operations in September 2018, with an annual capacity of 500,000 passengers and the potential to expand to 2m passengers. Total traffic grew by 27% y-o-y in the first eight months of 2019, from 28,939 to 36,766.

A new airport is planned at Ras Al Hadd, near the city of Sur, which has been earmarked for development as an ecotourism destination. The road network, utilities, runway and apron have already been completed, but the final phase of construction is on hold until the region’s tourism facilities develop fully. At full capacity, the terminal is expected to be able to serve approximately 500,000 passengers per year.

A potential new airport in Musandam has also entered the early stages of development. The area already has a small airport located in Khasab, the capital of the governorate, from which Oman Air operates nine domestic flights per week. In July 2019 the Public Authority for Civil Aviation announced that the project had entered the second phase, which involves estimating the cost of the development and preparing a general outline of the airport.

Airlines

Oman Air is majority owned by the government and operated 55 flights to 27 countries from its primary hub in Muscat as of the end of 2019, including eight flights to European destinations, 11 to India and four to South-east Asia. In 2018 a number of new routes opened to Istanbul, Casablanca and Moscow, and in 2019 the carrier launched direct flights from Muscat to Athens and Alexandria. The airline is therefore on track to achieve its target of 60 destinations by 2022. However, these plans were partially disrupted by safety issues with the Boeing 737 Max aircraft model in 2019. As a result, Oman Air had five aircraft grounded and an additional three not delivered that were expected to be operating in 2019. “This has had a considerable impact on the airport retail sector,” Rishi Khimji, managing director of Ajit Khimji Group, a retail conglomerate that recently opened seven stores in MCT, told OBG. “If these aircraft had not been suspended, retail income to the airport would have been significantly higher.”

Nevertheless, in October 2019 Oman Air added five new European cities to its codeshare agreement with German national carrier Lufthansa, enabling passengers on Oman Air flights from Muscat to Munich or Frankfurt to connect to Amsterdam, Dublin, Helsinki, Oslo and Warsaw. The codeshare agreement with the German airline has been in place since 2017. These new routes will be a vital part of helping Oman Air achieve its target of 39m passengers per year by 2030, more than double the amount of traffic the sultanate’s airports currently experience. According to the NCSI, airports in Oman received 17.2m passengers throughout 2018.

Oman’s first low-cost airline, SalamAir, originally launched in 2017 and offered flights to 23 destinations in 2019. The carrier reached 1m passengers for the year in October 2018, and is expected to see a total of 1.3m passengers in 2019. The airline has the goal to carry 3m passengers in 2020. In November 2019 Mohamed Ahmed, CEO of SalamAir, told regional media that the airline expects to make a profit in 2020 and is looking to issue an initial public offering in the years ahead.

Roads

Oman has invested heavily in its road infrastructure over recent years. The first six phases of the 11-stage Batinah Expressway, a 256-km eightlane motorway connecting Muscat to Sohar and the country’s border with the UAE, were opened in December 2018, and work has since started on the remaining sections of the line. As such, in January 2019 the MoT awarded UAE-based construction company Ghantoot a $211m contract to build two linking roads and associated facilities as part of the seventh phase of the project. The development is expected to cost approximately $2.6m. Meanwhile, the $1.3bn Al Sharqiyah Expressway, a 365-km road linking Bidbid to Sur, is nearing completion.

According to local media in May 2019, the tunnels were 80% complete and electrical work was in progress, as was fire hazard control. Although the road was scheduled to open in mid-2019, Ahmed Al Futaisi, the minister of transport, issued a statement saying the road between Bidbid and Al Kamil would begin operations by the end of 2019. The new road will improve journey times from Muscat to the south-east coast, facilitating a popular tourist route.

Major projects awaiting construction include a new road to Saudi Arabia via the Empty Quarter desert. The current 1638-km route from Oman to Saudi Arabia passes through the UAE, requiring two border crossings and often taking up to 18 hours. The new route covers 680 km and will significantly reduce journey times. This will help improve trade between the two countries and other GCC nations, namely by reducing the cost of transporting goods between Oman and Saudi Arabia. This is a significant development given that 2m tonnes of cargo is transported between the two countries every year.

Rail

Oman has long been planning the development of a 2135-km national rail network linking mining areas, oil and gas developments and major ports to increase their export. Although the railway is expected to mainly be used for the transportation of freight, it would also be designed to be able to accommodate passengers. The project was initially planned to be part of the greater GCC rail network, but it has since been scaled down to a $11bn development with a longer timeline.

The section of the route that remains a priority is a mineral railway in Al Wusta, which will transport materials from the south-west of the country to processing facilities in Duqm, to then be transported overseas from the port. Furthermore, the route will assist with the transportation of equipment from Duqm to oilfields in the centre of the country, as well as the shipping of general consumer products from Duqm to south-west Oman.

Public Transport

Public transport in Oman is largely managed by Mwasalat, a government-owned company. The bus network forms the backbone of the sultanate’s urban transport system; Mwasalat operates bus services in Muscat, Salalah and Sohar, as well as inter-city services to Dubai. The number of buses in operation has increased considerably in the past decade, from 50 in 2008 to 250 in 2018, with plans to expand the network to 500 buses by 2040 as part of the MoT’s bus masterplan. However, obtaining funding is a challenge for the public transport segment, as the government has reduced its share of the budget allocated to these services in recent years. As a result, the number of buses operated by Mwasalat still stood at 250 in 2019.

Nevertheless, the government has continued to roll out new urban transport services. In March 2018 Mwasalat introduced a taxi service and accompanying mobile phone app. The service has already seen promising results – at the end of 2018 around 52,000 customers had registered through the app. In the first half of 2018 Mwasalat Taxi conducted some 100,000 trips, for an average of 600 trips per day. As a result of this success, the company reduced its fares on many routes starting from January 1, 2019. The MoT has introduced a series of reforms to modernise and improve taxi services in the sultanate, including making electronic meters compulsory in all vehicles as of January 2017. In addition, the ministry has also sought to reduce the total amount of unauthorised taxis, as part of an effort to more effectively regulate public transport in Muscat.

Outlook

The sector has seen major investment in recent years, which has helped to expand infrastructure and support the long-term growth of transport and logistics services. This is likely to continue as the sector remains a leading national priority and a central part of Oman’s overall economic diversification strategy. Therefore, provided there are no unforeseen constraints on the government budget, the outlook is largely positive. Nevertheless, if public funding is limited, the sultanate’s ongoing transition towards privatisation should help to successfully accelerate growth throughout the years to come.

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The Report: Oman 2020

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