The local capital markets are expected to play a major role in implementing Oman Vision 2040, a long-term blueprint for economic development. The sector is transforming the economy away from its traditional role in the past decades with a dependency on oil revenue, and in which the government played a key role in the economy as an investor, job creator and service provider. Oman’s capital markets aim to mobilise savings and direct them to the productive process and play a more active role in engaging the private sector in line with Vision 2040. Indeed, the country is moving towards a free market model where the private sector will likely take the lead.
New Structure
Oman’s capital markets are among the most well established in MENA in terms of organisational structure, governance and technical infrastructure. Royal Decree No. 5 of 2021 converted the Muscat Securities Market into a closed joint stock company under the name of the Muscat Stock Exchange, which reports to Oman Investment Authority (OIA). The OIA has helped to grow the securities market, as it owns a large variety of government-owned enterprises and aims to list some of them. The OIA in consultation with the CMA is also working to introduce new investment instruments to boost the stock exchange, as the entity strengthens ties with a network of global institutions that will play a key role in attracting investment.
Functionality
Access to finance and human capital is essential for economic development and steady growth. Capital markets accumulate private and public savings, and redirect these assets towards various investment channels. They provide liquidity to the sectors that require it to carry out their operations. Capital markets help to stimulate savings; finance economic activities; and increase the volume of investment, productivity and efficiency of resource allocation.
Several developments in recent years are expected to help boost growth in the local market. The new regulations adopted by the Capital Market Authority (CMA) aim to develop the legislative and supervisory structure related to capital markets. Elsewhere, existing public financial policies have strengthened the role of capital markets, as evidenced by the tax exemption on cash dividends. Moreover, there has been a shift in the domestic population’s awareness about the importance of saving and investment away from an orientation around consumption. This shift is expected to boost participation in capital markets, and increase demand for their products and services.
However, further efforts are required to make the necessary capital available for local development, and promote Oman as a promising investment gateway to the region and beyond. This would entail providing financing for development projects, creating public-private partnerships and offering investment opportunities to small investors. The market would also benefit from the launch of more financial instruments and innovative ways to access finance, such as a platform for crowdfunding and derivatives.
A large portion of capital in Oman is in stocks, bonds, sukuk (Islamic bonds) and fund units. It will be important to enhance the product mix in order to offer more investment opportunities for local and foreign investors. Additionally, continued efforts are needed to encourage international investment companies to open branches in Oman, especially in the value-added sectors identified in Vision 2040.
Legislation
The Privatisation Law – Decree No. 51 of 2019 – will support the economy by reducing its reliance on oil and gas, which comprises almost half of GDP. Privatisation of government assets will contribute to the country’s aim of diversifying the economy by freeing up liquid assets for other forms of investment. In line with this, in December 2019 Oman indicated plans to privatise the land and maritime transport sector over the following three years. Oman Shipping – which provides maritime transportation of crude oil, liquefied natural gas, chemicals and containers with a fleet of around 70 ships – was being prepared for privatisation as of February 2023. As part of the privatisation efforts, China State Grid acquired a 49% stake in Oman Electricity Transmission in 2019. Several other privatisations of electricity assets are expected to take place in 2023 and beyond.
Oman’s Securities Law, as promulgated by Royal Decree No. 46 of 2022, is designed to protect investors and other market participants. The law provides for a secure, transparent and efficient environment with multiple facilities and products, such as warehouse receipts, derivatives and futures; and measures to attract local and foreign capital. The law grants the CMA the power to regulate innovative financing, and oversight of technology and virtual investment applications including financial technology. Furthermore, the Securities Law supports special programmes and initiatives to finance small and medium-sized enterprises (SMEs), given their economic importance, and distinct financing needs and challenges. The law has granted CMA the task of licensing a stock exchange for SMEs. These initiatives have positive implications for all economic sectors, especially the banking and leasing segments, as they are the main providers of financing.
The Foreign Capital Investment Law, issued under Decree No. 50 of 2019, relaxed the rules and restrictions on foreign investment, streamlined the registration and licensing procedures for foreign investors, and aligned foreign investors’ rights and incentives with those given to local investors. The law complements the Privatisation Law by facilitating 100% foreign ownership in several sectors. Foreigners, as well as Omani and GCC nationals, can now establish single-person companies. The law grants incentives, privileges and guarantees that contribute to attracting foreign investment, and enhance the sultanate’s position as an investment destination capable of attracting foreign capital. It also aims to raise the sultanate’s ranking in global indicators relating to ease of business and economic diversification.
The Bankruptcy Law that came into effect in July 2020 introduced a new framework for bankruptcies in Oman. It introduced the concept of restructuring with the aim of helping businesses overcome the debt stage, reach a compromise with debtors, avoid bankruptcy and ensure business continuity. The law aims to ensure transparency for both local and foreign investors, and is expected to encourage more investment in Oman.
In August 2022 Oman’s Ministry of Finance announced that it had qualified 10 bidders to submit proposals to design, finance, construct and maintain 42 schools under the country’s first-ever public-private partnership (PPP) programme for the education sector following the announcement of the PPP Law in 2019. PPP real estate projects have also been announced in recent years. One of Oman’s primary economic and social development strategies to achieve its Vision 2040 goals is to boost partnerships between the public and private sectors, with PPPs essential to the sultanate’s economic liberalisation and structural reform plans.
Economic difficulties have increased the need for the more widespread use of these structures. Multiple projects are being developed using the PPP structure, such as the affordable housing project located in the coastal city of Barka that was launched in late 2018 and was under construction as of February 2023.
Taxation & General Regulations
Investment in the tourism sector is exempt from income tax for five years, with the possibility of a further five-year extension. Moreover, the Ministry of Commerce, Industry and Investment Promotion launched an Investor Residency Programme in September 2021 through which foreign investors and retirees can obtain long-term residency rights. Under the programme, five- and 10-year residency permits are available for foreign investors.
By lowering the barriers to entry for foreign direct investment (FDI), such as by streamlining residency mechanisms and privileges, the government is taking substantive steps towards creating a long-term investment base that can help improve the country’s fiscal position and achieve the goals outlined in Vision 2040. Additionally, the removal of restrictions on FDI in capital markets is a notable leap forward. Furthermore, the government’s new scheme, launched in March 2022, that allows foreigners to own properties outside integrated tourism complexes is expected to attract investment in real estate.
Prospects
These new laws are expected to support Oman’s economy by diversifying sources of revenue and attracting investment in multiple sectors, which is a key aim of Vision 2040. This will be greatly aided by the financing made free by the privatisation of government-owned assets to enable investment in other areas. Moreover, FDI is set to increase due to the easing of restrictions on 100% foreign ownership. Additionally, the new laws aim to create a conducive investment climate with multiple financial products and services, in line with efforts to attract local and foreign capital.
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