Manufacturing activity has undergone a significant expansion in Oman since the turn of the century, with further growth targeted in a number of strategically identified segments to boost self sufficiency and aid the economic diversification agenda. The Covid-19 pandemic demonstrated the importance of self-sufficiency, particularly in relation to food and medical supplies.
Industrial, free and special economic zones are facilitating private investment in manufacturing segments, particularly metals and petrochemicals. Incentives and concessions for entities operating within those areas – alongside new laws – are contributing to an increasingly attractive business environment. The government plans to drive industrial growth using Fourth Industrial Revolution (4IR) technologies, drawing the attention of regional and global players.
The retail segment has experienced growth in recent years thanks to a growing population, higher levels of disposable income, tourist arrivals and the emergence of segments such as e-commerce. Indeed, Oman Vision 2040, the sultanate’s long-term economic framework, envisages 11.7m tourists per year by 2040, up from 2.9m in 2022. With e-commerce sales expected to grow by more than 20% annually between 2022 and 2026, the regulatory system has kept pace, such as with the automatic licence approval service launched in April 2021.
Industrial Development
The manufacturing sector’s contribution to GDP increased from 0.8% in 1970 to 9% in 2021, reaching very close to the 10% GDP contribution rate envisaged in Oman Vision 2020, the sultanate’s previous development strategy. The country’s production base has evolved from industries based on textiles, clothing and apparel, to downstream hydrocarbons, petrochemicals, steel and aluminium manufacturing, which, according to a report released by the government in 2019, accounted for around 70% of all manufacturing output between 2001 and 2016. Despite this robust expansion and significant diversification, Oman’s economy remains vulnerable to oil price volatility. While the country’s manufacturing sector is a key driver of the national economy, it is smaller than some of its regional counterparts – a fact that suggests room for expansion and investment.
Structure & Oversight
The Ministry of Commerce, Industry and Investment Promotion (MCIIP) oversees industrial sector development. In its drive to establish Oman as a regional leader for manufacturing and trade, the MCIIP is collaborates with public and private sector stakeholders to formulate legislation and regulation designed to attract investment to the sector with a focus on growing exports.
Digitising the industry in terms of administrative and manufacturing processes is central to MCIIP’s strategy, and 90% of MCIIP services are now delivered online. Meanwhile, the Public Authority for Special Economic Zones and Free Zones (OPAZ) is responsible for managing and attracting investment to Oman’s three free zones and special economic zone. At the same time Public Establishment for Industrial Estates, also known as Madayn, operates and manages the country’s 10 industrial zones, and is supervised by OPAZ. The Oman Chamber of Commerce and Industry was established in 1973 and operates as a private organisation, promoting cohesion between public policy and commercial enterprises and activities.
In 2019 the government established OQ, which integrated the operations of government-owned, hydrocarbons-related companies: the Oman Oil Company and its upstream arm Oman Oil Company Exploration and Production, Oil Refineries and Petroleum Industries Company, the Oman Gas Company, Salalah Methanol Company, Salalah Liquefied Petroleum Gas, Oman Trading International, Oxea and OQ8. OQ has enabled the government to combine the strengths of its key upstream and downstream players, ensuring feedstock security and positively affecting cost competitiveness across industrial sectors. The company plays a key role in Omani manufacturing, particularly in relation to petrochemicals production. In November 2022 OQ’s assets were reported to have reached $31.6bn.
Legislative Framework
The government has been focusing its efforts on the manufacturing sector to generate employment opportunities and drive private investment growth. Some of the legislation relevant to investors relate to labour, public-private partnerships (PPPs) and foreign investment. The Labour Law covers issues such as employment of citizens, foreigners’ contracts, salaries, leave, working hours, the employment of females, industrial safety and hygiene, specific regulations for mining and quarrying, labour disputes and representative committees across 122 articles. One noteworthy point is that women are not allowed to work between the hours of 6.00pm to 6.00am. All other stipulations apply equally to male and female employees, while maternity rights are also enforced.
To create jobs and boost private sector development, the authorities introduced Omanisation, a policy to increase local representation in the workforce, with quotas set for each sector. The authorities have intensified Omanisation efforts in various sectors. For operators in the industry sector, the required Omanisation rate is 35%. However, companies operating in free zones, special economic zones or industrial zones enjoy relaxed rates between 10% and 15%, depending on the zone, among other factors.
Oman’s PPP Law came into effect in July 2019. Through the law, the government is inviting partnerships with private operators in infrastructure and public utilities projects deemed to carry significant economic and social benefits, with manufacturing and other industrial activities included in the targeted categories. Qualifying investors must submit feasibility studies to obtain approval from the Ministry of Finance. Entities established to carry out agreed-upon projects can be foreign-owned and must, in most cases, be joint stock ventures. Contracts can run for a maximum of 50 years.
The Foreign Capital Investment Law came into force in July 2020, replacing the 1994 law of the same name and significantly streamlining investment processes. Full foreign company ownership is permitted, except for in select restricted activities. Investors can apply online for opportunities offered by the public sector, and while the law stipulates that land is available to investors on long-term leaseholds, the government’s Economic Stimulus Plan, released in 2021, allows for foreign ownership of plots larger than 5000 sq metres.
Strategy
Oman’s Manufacturing Strategy 2040 is designed to aid the sultanate’s effort to achieve the goals of its long-term development strategy, Vision 2040. Through this vision the government is working to diversify the economy and reduce its traditional dependence on hydrocarbons revenue. The goals of the Manufacturing Strategy 2040 include diversifying and reinforcing the production base, establishing a presence in emerging global markets, and adopting 4IR technologies to boost productivity and efficiency. Fully leveraging Oman’s natural resources will be one of the critical elements in meeting these long-term goals.
Under Manufacturing Strategy 2040, 15 industries that use natural resources – including oil, gas, bauxite, iron, other minerals and agricultural commodities – are to be further developed. For example, the government is looking to strengthen the flat steel and glass industries, with the latter set to capitalise on growing demand for high-quality fragrance containers. In addition, capital-intensive structural metals production – which is to be harnessed to supply local shipbuilding enterprises – as well as electricity generation, distribution and control instruments manufacturing will be prioritised for advanced technology implementation.
Additionally, the MCIIP is targeting health- and environment-related production lines, which include pharmaceuticals, medical supplies, solar panels, and products derived from recycled industrial waste and by-products. Together, they accounted for 0.6% of total manufacturing value added in 2015. Manufacture for Wellbeing, part of Manufacturing Strategy 2040, served as the starting point of these efforts. The plan aims to promote diversification and innovation supported by high-tech development based on 4IR-related solutions.
“Oman’s industrial and manufacturing sectors are advancing rapidly, and there is significant opportunity for job creation and economic diversification away from hydrocarbons. The government has set ambitious plans and strategies for growth and development, and there is the understanding in the business community that they will turn this into action,” Sanjeev Awasthi, CEO of Al Seeb Technical Establishment, an Omani electronics distributor, told OBG.
Size & Performance
The impact of the disruption of global supply chains and restrictions on economic activities during the pandemic saw manufacturing output in Oman drop by 11.3% between 2019 and 2020, from OR3.2bn ($8.3bn) to OR2.8bn ($7.3bn), a dip that was mirrored in markets worldwide. Supported by recovery in oil prices and government’s economic stimulus measures, the sector rebounded steadily in 2021, ending the year with a contribution to GDP of OR3bn ($7.7bn), which represented growth of 4.5%.
According to the National Centre for Statistics and Information, chemicals accounted for around 44% of that figure, or OR1.3bn ($3.4bn), while the refined petroleum products segment was valued at OR159m ($413.2m), or approximately 5% of the total. Other manufacturing accounted for the remaining 51%, at OR1.5bn ($3.9bn). Of the three categories, refined petroleum products achieved the highest annual growth at around 20.7%, followed by chemicals production (16.8%) expansion, while other manufacturing (-5.7%). While the contraction among other manufacturing segments caused some concern in light of diversification efforts, it proved to be temporary. Indeed, the segment displayed growth of 27.5% during the first two quarters of 2022, while chemicals production and refined petroleum products grew by a less robust 2.7% and 1.8%, respectively. Overall manufacturing GDP saw growth of 15% over that period.
Zones & Investment
Oman is home to 10 industrial zones, three free zones and two special economic zones. Madayn announced in February 2022 that its existing zones, had attracted more than OR7bn ($18.2bn) in investment to date and that it aims to raise the number of industrial zones in the country to 40 by 2040. As of that month new industrial cities were under construction in Khasab, Ibri, Thumrait, Shinas and Al Mudhaibi, which, once complete, will bring the total number in the country to 15.
Madayn is actively seeking investment in five more zones planned for construction in the Musandam, Al Dhahirah, Al Sharqiyah North, Al Batinah North and Dhofar governorates as part of the 10th five-year development plan for 2021-25. Incentive packages will be implemented to harness each zone’s unique features and strengths, attract the required levels of financing from the private sector. That approach was adopted in the zones overseen by OPAZ and Madayn, which offer a range of incentives, including long corporate tax holidays, low capital requirements, tax exemptions on profits and dividends, Customs and duties exemptions on both imports and exports, restriction-free capital repatriation and relaxed Omanisation quotas.
In October 2022 Madayn announced that it facilitated the signing of 13 handling contracts valued at OR2m ($5.2m) between Oman India Fertiliser Company, Oman Liquefied Natural Gas, local power supplier Phoenix Power and a group of local small and medium-sized enterprises (SMEs) in Sur Industrial Estate. The contracts will see the SMEs carry out logistics and support services, with Madayn working to expand the scope of such initiatives as it improve linkages between its zones’ larger enterprises and SMEs.
Meanwhile, in November 2022 the MCIIP signed a memorandum of understanding with Brazilian mining giant Vale, OPAZ, and the National Programme for Investment and Export Development to create an industrial mega-centre in Oman. The venture aims to establish manufacturing value chains in line with environmental sustainability principles, aiding Oman’s drive to reach net-zero carbon emissions by 2050.
Advancing the Workforce
The size of Oman’s total workforce decreased between 2019 and 2020 from approximately 2.2m to 1.9m. In February 2022 local media reported that Madayn’s industrial zones accounted for 63% of Oman’s industrial workforce and 8% of the total national workforce, with the industrial zones’ Omanisation rate at 38%. The manufacturing sector’s capacity for direct and indirect job creation is central to the government’s Omanisation drive. Therefore, significant resources are being directed towards the industrial and manufacturing sectors to create the necessary training infrastructure.
In January 2022 Madayn established the Industrial Innovation Academy in Knowledge Oasis Muscat. Through the academy, Madayn intends to explore value-added opportunities for those in its industrial zones, developing, incubating and commercialising resources to enhance local content. The academy will effectively operate as Madayn’s manufacturing innovation and training arm. It will feature six programmes that will conduct in-depth studies on connection, supply, development, sustainability, innovation and Omanisation to facilitate progress towards development strategy goals by boosting Omanisation, promoting local content, improving linkages between local enterprises and government tenders, strengthening SMEs’ position in local supply chains, finding solutions for challenges faced by underperforming Omani factories and boosting innovation throughout industrial processes.
Strengthening Value Chains
In May 2022 OQ, Madayn and the Industrial Innovation Academy signed a memorandum of understanding to establish a new plastics park in Sohar Industrial Estate, with plastics conversion a vital feature of the venture. The initiative will open investment opportunities in raw material supply, additive manufacturing, recycling and testing, while also facilitating job creation. OQ will be a supplier of raw materials for the park’s targeted product range, which is set to include sustainable packaging, textiles and furniture as it caters to the construction, health care and agriculture sectors. The park will be instrumental in the government’s bid to develop its downstream polymers industry, featuring necessary training facilities and specialist modules that will be added to relevant higher education curricula.
International Collaboration
Manufacturing Strategy 2040 and Education Strategy 2040 are designed to bolster synergies between the two sectors as advanced manufacturing processes demand an increasingly diverse and sophisticated industrial skill base. In September 2017 Sohar University teamed with UK-based Advanced Manufacturing Research Centre to establish a sister facility in Oman. The facility, named Intaj Sohar, and its manufacturing incubator commenced operations in June 2022. The development phases prior to Intaj Sohar’s launch saw Sohar University collaborate with additional UK-based research centres, such as the Polymer Processing Research Centre of Queen’s University Belfast; the University of Manchester’s Department of Mechanical, Aerospace, and Civil Engineering; and Coventry University’s Institute for Advanced Manufacturing and Engineering.
Intaj Sohar aims to become a leader in research, development and innovation by creating linkages with private sector operators. The first phase of the programme will focus on advanced manufacturing, and is expected to add significant value to downstream aluminium, steel, composites and polymers industries. The second phase will involve attracting private investment to create an advanced technologies centre in Sohar.
Petrochemicals
Oman’s petrochemicals capacities are undergoing significant expansion and are set to be a key driver of the country’s economic diversification efforts. Recent upgrades to gas production capacity are being harnessed to propel downstream industries. OQ is investing heavily in the segment: in 2021 it launched an 880,000 tonne per annum (tpa) polyethylene plant at its new Liwa Plastics Industrial Complex (LPIC), the first of its kind in Oman. Meanwhile, LPIC’s 300, 000-tpa polypropylene plant, launched in December 2021, almost doubled the national polypropylene production capacity, joining a 340,000-tpa plant already in operation in Sohar Refinery.
LPIC quadrupled Oman’s polymer production capacity to over 1.5m tpa, and produces around 70 oxo intermediates and derivatives for various applications across industrial sectors. It has helped OQ maximise the potential of its liquefied natural gas production arm to produce higher-value petrochemicals and finished products. In addition, OQ and Kuwait Petroleum International have partnered to construct the 230,000 barrel-per-day Duqm Refinery. The project broke ground in 2019 and was 87% complete by October 2022, with commissioning expected in early 2023. The construction of a 1.6m-tpa OQ8 petrochemical centre to complement Duqm Refinery was put on hold for further assessment due to the impact of the pandemic on the global industrial and economic landscape.
Elsewhere, Madayn announced in August 2022 that Al Ghaith for Chemical Industries – an arm of UAEbased Al Ghaith Industries – agreed to establish an OR40m ($104m) 60,000 sq-metre chemicals plant in Sur Industrial City. The facility which is expected to commence operations early 2024, will utilise advanced chlor alkali technologies, and supply Oman’s oil and gas, petrochemicals and water treatment enterprises with basic chemicals and raw materials.
Steel
In 2015 the country imported 1m tonnes of steel. By 2020 its domestic production had expanded to a level that allowed the export of 1.5m tonnes, making it a net exporter of steel. This shows that the drive to establish self-sufficiency is bearing fruit.
Industrial group Jindal Shadeed Iron and Steel operates Oman’s largest integrated steel mill out of Sohar Port. After having invested around $1.2bn since launching its operations in Oman in 2010, in 2021 the company reported that its output accounted for 1.5% of GDP. The mill has the capacity to produce 1.8m tonnes of direct reduction iron, 2.4m tonnes of steel and 1.4m tonnes of reinforced bars per year, and it is home to the GCC’s only vacuum degassing facility. This has enabled the firm to expand in downstream industries such as automotive parts manufacturing.
In December 2022 Jindal Shadeed announced that it would invest $3bn in a 5m-tpa green steel mill in the Duqm Special Economic Zone that will be powered by renewable hydrogen. “Decarbonisation is a key agenda globally, and the steel industry is one of the highest carbon-emitting industries in the world,” Harssha Shetty, CEO of Jindal Shadeed Iron & Steel, told OBG. “Reducing emissions requires large and continuous investments in improving existing equipment and machinery. Innovation and employee training are other essential aspects in minimising a steel company’s carbon footprint.” Green steel is designated as such because of its decarbonised production processes. The company estimated that the mill will create an annual value addition of $800m, further boosting automotive parts production, with the wind energy and consumer durables industries, among the other segments, set to benefit. Moreover, the initiative aligns with the priorities of Vision 2040 to use alternative energy.
“Much of the country’s demand for steel in terms of its infrastructure needs – for ports, airports, roads and bridges – are met with domestic production. Looking to the future, one untapped opportunity for growth will be in railway development,” Ghassan Musabbeh, managing partner at Muscat Steel Industries, told OBG. This is especially true given the upcoming construction of the GCC Railway Project (see Transport chapter).
Aluminium
Aluminium production reached 397,000 tonnes in 2020, representing an annual expansion of around 1.5%. Sohar Aluminium Company is the sultanate’s sole smelter and therefore accounts for the whole of national production. Around 60% of the company’s production is sold as hot metal to local downstream manufacturers, which, in turn, export their finished products to European and US markets. The remaining 40% of output is exported as ingots and sows to Japan and South-east Asian markets. In addition, Sohar Aluminium Company is of significant benefit to the government’s In-Country Value scheme, a plan to boost the oil and gas industry’s contribution to socio-economic development. Local SMEs and suppliers accounted for 59% of company spending and procurement in 2020, while in the same year its Omanisation rate stood at 77%, one of the highest in the country.
Sanvira Carbon, an Oman-based calcined petroleum coke (CPC) producer that operates out of Sohar Freezone and is a supplier of CPC to Sohar Aluminium and BP Europa, is looking into expanding its footprint into the Qatari and Saudi aluminium smelter markets. The move is designed to further boost and diversify exports, and strengthen the sultanate’s aluminium-related value chains.
Vehicles & Auto Parts
In line with the growing global focus on electric vehicles (EVs), the government announced plans to manufacture the first domestically produced electric car. To help meet this goal, in November 2021 Omani car manufacturing company, Mays Motors, announced that it had secured its first major investment deal with the Oman Technology Fund. The automobile complies with international standards and has a carbon fibre body. As of February 2022 bookings for 100 vehicles had been made, with the company expected to produce 300 cars as part of its first batch. A total of 600 cars will be built during the first five years of operation.
Also in 2021, local media reported that international vehicle manufacturers such as BMW, Toyota, Hyundai, Ford and Chrysler sourced brake units from the local firm Dunes Oman, which operates out of the Salalah Free Zone. As of 2021 Dunes’ annual production capacity stood at 36,000 tonnes, and the company expects this figure to rise in line with increasing demand.
Moreover, in June 2022 Karwa Motors, a joint venture between the Oman Investment Authority and Qatar’s Mowasalat launched Oman’s first bus manufacturing operation in a 568,000-sq-metre factory in the Duqm Special Economic Zone. The facility can produce 700 buses per year, with two new lines – intercity coaches and city buses – added to production in 2022. Karwa Motors’ expansion plans include components production, truck production and the export of buses, either in finished form or for in-country assembly, to the US and Europe. The company also plans to continue research into electric bus manufacturing.
Indeed, the broader EV market is set to undergo significant expansion over the medium and long term due to the transition away from petroleum-powered road transportation. In preparation, in December 2022 the MCIIP collaborated with Audi and Oman-based Premium Motors to hold a workshop on the future of EV, with an assessment of Oman’s EV infrastructure preparedness among the topics covered. Expansion of related infrastructure could provide significant opportunities for parts and component production, as well as the creation of new value chains, in the coming years.
Retail Environment
By capitalising on its growing population, higher levels of disposable income and tourism-related infrastructure projects, Oman is attracting investment into its retail and hospitality industries, turning them into increasingly meaningful contributors to GDP and employment. The first Omanisation laws in 1994 set a target of 20% for the wholesale and retail trade sector. This commitment was strengthened by the Ministry of Labour’s Ministerial Decision No. 8 of 2021, which restricted certain professions in shopping malls and supermarkets to Omani nationals as of July 20, 2021.
With rising oil prices helping lower Oman’s fiscal deficit, the government is moving forward with a plan to catalyse $7.8bn in tourism investment, with the goal being to attract 11.7m annual visitors by 2040. The expansion of the tourism industry is expected to have a positive impact on demand for retail and hospitality from overseas visitors. Combined with the streamlining of business procedures, Oman has facilitated the entry of international brands and the development of an entertainment and leisure industry, increasing its retail competitiveness. While brick-and-mortar retail continues to be favoured in Oman, the industry is expected to gradually adopt an omnichannel business model to satisfy evolving consumer preferences, deliver a superior experience and capitalise on the e-commerce boom.
Retail Structure & Oversight
As the industry’s principal regulator, the MCIIP is responsible for overseeing various aspects of Oman’s retail sector, including consumer protection practices, pricing regulations and licensing requirements. The ministry monitors and enforces compliance with retail laws and regulations to ensure market fairness and transparency, while providing support and guidance to retailers through various initiatives. In April 2021 the MCIIP launched an automatic licence approval service for more than 1500 economic activities – roughly 88% of all categories in the market – including wholesale and retail trade, improving the sector’s business environment.
Established in April 2011, the Public Authority for Consumer Protection (PACP), which is under the MCIIP’s jurisdiction, is tasked with enforcing consumer protection laws, investigating complaints and promoting consumer awareness. The PACP has intensified its inspection campaigns in recent years to ensure that retailers have correct prices and do not take advantage of consumers in inflationary environments.
Size & Performance
Despite pandemic-related disruptions, Oman’s retail industry has surpassed its pre-2020 growth levels, as omnichannel retail experiences have proliferated and tourism has recovered. Considering the growth projections for population and GDP per capita – which are forecast to expand at compound annual growth rates (CAGRs) of 3.2% and 1.9%, respectively, between 2022 and 2026 – and the fact that the number of tourists was up 348% to 2.9m in 2022 compared to 2021, demand for retail is expected to rise. This will build on the 4.2% growth reported in the sector in 2022. Oman’s retail industry sales are forecast to grow at a CAGR of 6.1% between 2022 and 2026, surpassing the projected growth rate of 5.7% for the GCC, according to a November 2022 report by Dubai investment bank Alpen Capital.
Shopping
Although the Omani retail landscape is dominated by standalone store units, larger formats such as malls and shopping centres are gaining widespread popularity. The demand for these types of shopping centres has been driven largely by a younger and brand-savvy local consumer base that is seeking new lifestyle experiences, as well as by the growing number of overseas visitors. The latest addition to Oman’s growing portfolio is the Dubai-based Majid Al Futtaim Group’s Mall of Oman, which was officially inaugurated in February 2023. Majid Al Futtaim Group has invested OR705m ($1.8bn) in Oman through its portfolio of shopping malls, mixed-use communities, lifestyle stores, Carrefour supermarkets and, most recently, the sultanate’s first Ikea.
E-Commerce
The GCC offers fertile ground for the digital transformation of the retail sector, as it boasts globally competitive rates of smartphone penetration and 5G adoption. Because of how consumer trends shifted during the pandemic, e-commerce adoption has increased substantially, with online sales expected to grow by over 20% annually between 2022 and 2026, jumping from a market value of $2.2bn in 2020 to $6.5bn in 2026, according to Japan-based market research firm Shibuya Data Count.
In tandem with the emergence of new online marketplaces and digital payment options, Oman’s regulatory framework is evolving. Online commerce is now subject to value-added tax, and as of March 2023 influencers and online businesses need to acquire a licence in order to promote or market products.
Outlook
There is a clear appreciation from the authorities of the potential benefits that manufacturing and retail – equipped with advanced technologies and processes, and emboldened by supportive government investment policies – can deliver to the economy and workforce. After several years of fluctuating growth, recent endeavours in these areas are set to provide a springboard for sustained and robust expansion.
In industry, multiple high-value production lines, along with their supporting infrastructure, have been added to national capacity in recent years. Similar developments are taking place across the GCC, and the abundant natural and financial resources therein could be harnessed through additional regional partnerships and joint ventures, delivering a significant positive economic impact and establishing the GCC as a centre for advanced manufacturing.
In retail, the emergence of omnichannel retail platforms and the establishment of diverse mall offerings are expected to help stimulate and meet demand from the growing domestic population, which is seeking new lifestyle experiences, and the rising number of tourists.
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