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The Report: Oman 2016

Oman’s long history of political stability coupled with its favorable international trade agreements and special economic zones has ensured strong growth in economic output and exports in recent years. The fall in global prices is undoubtedly a concern for the sultanate, but the sustained focus on diversification schemes, as well as the country’s ongoing spending commitments on big-ticket projects should ensure steady growth moving forward.

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Sections

  • Country Profile
  • Economy
  • Banking
  • Capital Markets
  • Insurance
  • Energy
  • Utilities
  • Construction
  • Real Estate
  • Industry & Retail
  • Regions
  • Transport
  • Agriculture & Fisheries
  • Telecoms & IT
  • Tourism
  • Education & Training
  • Health
  • Tax
  • Legal Framework
  • The Guide

Country Profile

Oman, located on the south-eastern end of the Arabian Peninsula, is the only member of the GCC located outside the gulf. Leveraging its strategic location on the Strait of Hormuz, the government is ramping up infrastructure investment in line with the sultanate’s goal of establishing itself as a global logistics centre. Oman Vision 2020, the country’s long-term development plan, emphasizes the expansion of industry, greater private-sector participation in the economy and the further boosting of Omanisation rates across all sectors. Oman, with a population of 4.3m in 2015, has long been regarded as a bastion of peace and stability in the region, with the raft of economic, political and social reforms initiated by Sultan Qaboos since his accession in 1970 being instrumental in transforming the country into the modern state it is today. This chapter contains a viewpoint from Sultan Qaboos bin Said Al Said; and an interview with Shahin Mustafayev, Azerbaijani Minister of Economy and Industry.

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Economy

Oman’s GDP at current market prices stood at OR31.45bn ($81.4bn) in 2014, up 4.6% on 2013, according to the Central Bank of Oman. However, the drop in global oil prices has put significant pressure on Oman’s GDP expansion. To address this, and indeed to pave the way for a non-oil future, various diversification strategies have been put in place that aim to reduce the county’s reliance on hydrocarbons revenues and stimulate growth across the board. Large infrastructure investment is under way, with the development of Oman’s transport and logistics offerings a key target moving forward. The services sector meanwhile dominates non-oil GDP and comprised 40.7% of total economic activity in 2014. Looking ahead, the government is increasingly aiming to encourage greater private sector activity, with the privatization of various state-owned firms and support for SMEs being significant drivers in this regard. This chapter contains an interview with Sultan bin Salim Al Habsi, Secretary-General, Supreme Council for Planning; and Khalifa Al Barwani, CEO, National Centre for Statistics and Information.

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Banking

Oman’s stable and tightly regulated banking sector has continued to perform well in recent times. The expansion of the newly launched sharia-compliant segment, coupled with strong asset growth, has been central to the sector’s development. Indeed, the Central Bank of Oman has established a Sharia Supervisory Authority to help regulate the sharia-compliant segment while commercial banking assets have continued to expand, growing at a compound annual growth rate of approximately 12% between 2010 and 2014, well ahead of inflation. As the government ramps up its investment in infrastructure projects, project finance is seen as one of the most promising areas for lending growth. Boosting SME lending is also a priority for the economy, with the Central Bank of Oman introducing a requirement for all banks to allocate 5% of their total loan books to SMEs by 2016. This chapter contains an interview Hamood Sangour Al Zadjali, Executive President, Central Bank of Oman; and a roundtable discussion between AbdulRazak Ali Issa, CEO, Bank Muscat; Amin Al Husseini, CEO, Oman Arab Bank; and Lloyd Maddock, CEO, Ahlibank Oman.

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Capital Markets

Although performance has been subdued in 2015 compared to 2014, the market is set to be bolstered by various developments in the sector. Regulatory changes obliging insurance companies to list will add to the offerings pipeline, as should government plans to relax listings requirements. Meanwhile, with the country’s oil revenues down, the government has started to look elsewhere for means of deficit financing, with plans to issue a sharia-compliant bond under way. The country has also seen growing initial public offering (IPO) activity in recent years, spurred in part by regulatory requirements for foreign-backed electricity companies to conduct share offerings. This chapter contains an interview with Abdulaziz Mohammed Al Balushi, CEO, Ominvest.

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Insurance

Regulatory changes primarily aimed at encouraging consolidation within the insurance sector have recently been introduced by the Omani authorities. Low penetration levels indicate significant room for growth in the sector, with the life segment widely regarded as the most promising area for expansion. Motor coverage still remains the largest insurance line in the sultanate by premium value, taking a 40% market share in 2014, and while the segment continues to see strong growth, competition has driven down premium levels. Elsewhere, the takaful (Islamic insurance) segment continues to expand since its launch in 2014, with some industry players hopeful that the segment could reach as much as 20% of the insurance market in the medium term, which would be roughly in line with other GCC markets. This chapter contains a viewpoint from Sheikh Abdullah bin Al Salmi, Executive President, Capital Market Authority.

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Energy

Hydrocarbons play a vital role in the Omani economy, comprising almost 50% of GDP and accounting for a large majority of government revenues. In total the government budgeted $3.9bn of spending on investment in oil and gas for 2015, representing an increase of 9.35% on the $3.6bn budgeted for 2014. Although the drop in oil prices has put considerable pressure on government revenues, the price drop has also forced producers to optimize processes. Indeed, Oman has become a testing ground for some of the most advanced extraction techniques currently in use, not to mention a host for new investment in downstream industries. The same commitment to technology should soon see production of natural gas hit new records. This chapter contains an interview with Raoul Restucci, Managing Director, Petroleum Development Oman.

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Utilities

With Oman’s economic development plan focused on further industrial expansion, and with the sultanate’s population growing, Oman’s utilities sector is looking to keep pace with growing demand. Market reforms stretching back almost two decades have ensured the power sector is well positioned to deal with this higher demand, ramping up production in line with growth. Current priorities for the sector include completing an ambitious waste management investment program, encouraging the growth of renewable energy and further honing the regulatory environment. Indeed, a number of significant regulatory changes are set to come into effect over the next two years, foremost of which is the introduction of cost-reflective tariffs for large-scale, non-residential consumers, due to enter into force in January 2016. This chapter contains an interview with Qais Saud Al Zakwani, Executive Director, Authority for Electricity Regulation.

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Construction

Oman’s construction sector was worth an estimated $5.2bn in 2014, up from $4.9bn in 2013, and forecasts show that it will continue to grow rapidly, to $5.6bn in 2015 and $6.0bn in 2016. Although the drop in oil prices will likely curtail public spending in the sector if prices remain depressed, this has certainly not been the case so far. Indeed, the total value of projects planned and under construction in a range of sectors, including energy, manufacturing, transport and utilities, currently stands at $163.5bn – equivalent to twice Oman’s annual GDP. Meanwhile, demand from the private real estate sector is also driving growth, with developers engaged in projects ranging from grade-A office buildings to shopping malls and integrated tourism complexes. Moving forward, tighter resources will likely bring the benefits of PPPs into sharper focus, helping fuel wider private participation in the sector. This chapter contains an interview with Abdullah bin Nasser bin Abdullah Al Bakri, Minister of Manpower; and Fawzi Al Harrassy, Executive Director, Teejan Group.

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Real Estate

Oman’s real estate sector has continued to grow in recent years, and despite the fall in oil prices, demand, particularly from the private sector, has helped fan development. Projects that target niches, such as high-end offices, units in integrated tourism complexes, shopping malls and gated communities are flourishing. The residential leasing market saw five consecutive quarters of stability to the second quarter of 2015, as steadily rising demand matched new projects coming onto the market and the economy expanded at a steady pace. Meanwhile, Muscat’s retail mall market remains buoyant, and as of autumn 2015 all malls were at 100% capacity. This chapter contains an interview with Sheikh Salim bin Ahemd Al Ghazali, Chairman, Golden Group of Companies.

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Industry & Retail

For over two decades Oman’s industrial sector has been a key plank in the government’s economic diversification strategy, and the country’s non-petroleum sectors continued to see robust growth in 2014. Electricity and water supply grew by 8.6% to reach $973.5m, mining and quarrying expanded by 8.5% to $322.3m, and building and construction was up 8.3% to $5.4bn. Recent efforts to boost the manufacturing sector have included the creation of an in-country value scheme, specifically addressed towards the oil and gas industry, which aims to develop local content in servicing the energy sector. Meanwhile, Oman’s international reputation for stable growth is increasingly serving to draw in local, regional and international developers and brands. In 2014 the retail and wholesale segments of the service sector made up 6.6% of the country’s GDP. This chapter contains an interview with Gert Hoefman, CEO, Oman Cables Industry.

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Regions

In recognition of its varied physical, ethnic and cultural landscape, Oman has long been divided into regions, with the government and the sultan keen to achieve a much more equitable and sustainable economic balance between them. Oman’s current long-term development plan includes provisions targeting this goal, as well as plans focused on greater regional authority. Special economic zones (SEZs) are at the heart of this strategy. The city of Sohar is quickly becoming an entrepreneurial centre as it encourages SMEs to locate to its free zone in order to promote sustainable economic growth in the region. Meanwhile, further south, the Port of Duqm is at the heart of the SEZ being established in the sparsely populated central region that is home to Oman’s oil and gas industry. Further south still, the Salalah Free Zone is home to one of the world’s foremost trans-shipment hubs due to its strategic location between key East African, South Asian and Gulf routes. This chapter contains interviews with Yahya bin Said bin Abdullah Al Jabri, Chairman, Special Economic Zone Authority at Duqm; and Sheikh Aimen Al Hosni, CEO, Oman Airports Management Company.

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Transport

Oman’s public authorities are in the midst of a multi-billion-rial investment programme designed to expand and improve the country’s transport and logistics capacities across land, sea and air. Salalah, the country’s largest port, has recently shifted its focus towards import/export traffic, with a new 20-year master plan launched in 2011 aiming to establish multi-modal links at the port and boost logistics facilities at the nearby free-zone. Meanwhile, the government is currently working on completing the $3.9bn Batinah Expressway, which will be an extension of the Muscat Expressway and continue for 265 km to the UAE border, while the nine-segment national rail project is planned to cover a total of 2135 km at a cost of $15.5bn, with 1414 km under tender so far and $6bn already invested. Elsewhere, expansion works at Salalah Airport have been completed, with $765m invested in a new passenger terminal, air traffic control tower, ancillary buildings and connecting roads. This chapter contains an interview with Peter Young, Director, Oman Logistics Centre; and Abdulrahman Al Hatmi, Director, Oman Rail.

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Agriculture & Fisheries

Oman’s agriculture & fisheries sectors are slated for significant expansion in the years to come as authorities aim to build them up into major contributors to the economy, key employers and significant sources for export earnings. Oman’s Vision 2020 sets the target of raising the agricultural sector’s contribution to GDP to 3.1% by 2020, with annual growth topping 4.5%. It also intends to boost the fishing sector to around 2% of GDP by 2020, with growth of 5.6% per annum. Oman’s is a predominately dry climate, meaning the preservation and efficient use of water is a key priority. To this end, the ministry announced plans in July 2015 to introduce smart meters for projects requiring large amounts of water.

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Telecoms & IT

Oman offers a diverse as well as highly competitive telecoms sector, with two full-network operators and three virtual network operators catering to a market of 4m people. Despite this, however, the sector has continued to expand on the back of rising subscriptions and increasing mobile penetration rates. Growing market maturity has led to operators looking to boost take-up of mobile internet and value-added services in order to drive revenues, while targeting niches with innovative offers. Meanwhile, the IT segment is thriving, with a particular emphasis being placed on the support of SMEs. The Sas Programme, a notable example this, aims to support young entrepreneurs by providing technical and business training to IT startups.

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Tourism

2015 proved a record year for Oman’s tourist industry, with the number of incoming visitors topping those of previous years and wide media coverage promoting the country’s increasingly cemented status as a niche tourism destination. The preservation of the country’s natural surroundings and cultural traditions has allowed it to keep much of the spirit of “Old Arabia”, and indeed tourism has been deliberately kept at the high end, with marketing aimed at visitors who are interested in engaging with local culture, nature and history. Meanwhile, various developments look set to bolster the sector moving forward, with the ongoing expansion of Muscat International Airport a prime example. A new terminal is currently under construction which will boast an expected capacity of 12m passengers per annum, with further capacity to accommodate four times that number in the future. This chapter contains and interview with Ali Al Rasbi, Acting CEO, Omran.

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Education & Training

Successive five-year plans have seen Oman’s education system evolve rapidly, with highlights including the expansion of special education programs and the development of teacher-training colleges. In 2013 almost all children in the sultanate were enrolled in school while almost 98% of students completed primary school that year and 92% were enrolled in secondary school. Despite a drop in oil and gas revenues, the sultanate maintained its commitment to education spending in its 2015 budget, with the sector retaining a major share of state expenditure. This will enable a greater focus on both developing the physical infrastructure of the sector and improving the quality of its delivery. Meanwhile a national TVET strategy has been designed to address any mismatches between the requirements of the labor market and the skills and abilities of graduates.

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Health

Oman’s health care sector has undergone rapid development since 1970, with average life expectancy boosted to 76.6 years and the number of hospitals growing to 67 in 2014. The private sector has also witnessed expansion, with the authorities particularly encouraging its participation in the provision of care for lifestyle-related diseases. Health Vision 2050 is the sultanate’s long-term sector strategy and aims to support an “efficient and responsive” health system for a healthy and productive population. The government is also looking to reduce the need for citizens to travel abroad for specialty care, with greater investments taking place in specialty care hospitals, representing a cost-effective and efficient use of public spending. This chapter contains an interview with Dr Ahmed Bin Mohammed Bin Obaid Al Saidi, Minister of Health.

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Tax

This chapter contains an overview of the tax framework within which local and international investors operate in Oman, including an examination of the FTAs in place and how they are enabling more foreign investments, and a rundown of the proposed changes to the VAT laws currently under examination. This chapter contains an interview with Kenneth Macfarlane, Country Senior Partner, PwC.

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Legal Framework

This chapter contains an overview of the legal framework within which local and international investors operate in Oman, including a look at the business environment for foreign investors, the different types of corporate entity recognized in Oman and a rundown of the various incentives available for inward investment. This chapter contains a viewpoint from Paul Sheridan, Managing Partner, Dentons.

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The Guide

The guide contains listings of some of the leading hotels and resorts in Oman and contacts for important government offices and services. It also contains useful tips and information for first-time or regular business and leisure visitors alike.

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