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Message: Oman: year in review 2011

OBG COLUMN -
By Oliver Cornock, Regional Editor -


With forecasts predicting solid economic growth in 2011 and a political system that remained stable in spite of unrest rocking much of the Middle East, Oman looks set to see increased investor interest in the coming years.


GDP reached RO 22.2 billion ($57.67 billion) in 2010, amounting to a 23.44 per cent increase over the 2009 figure. This was particularly encouraging going into 2011, showing the Sultanate had recovered from the 22.6 per cent year-on-year loss it suffered in 2009. The trend is set to continue, with forecasts from October predicting 5.6 per cent growth for 2011.


The Sultanate has also been successful in attracting foreign direct investment (FDI) in recent years. According to the Omani government’s “Foreign Investment Report 2005-09”, FDI increased from RO1.59 billion ($4.13 billion) in 2005 to RO 5.06bn ($13.14 billion) in 2009, the latest year for which government information is available.
Oman’s economy has long been dependent on hydrocarbons, and activities in that sector accounted for 46.45 per cent of GDP in 2010. However, economic diversification was the focus in 2011. The government has acknowledged the need to continue moving towards a knowledge-based, service-oriented economy.


The eighth five-year development plan, which serves as an economic blueprint for the 2011-15 period, was introduced in January of last year. Given the country’s relatively young population — 22 per cent of Omanis are between the ages of 15 and 24 — the plan places significant focus on employing locals, particularly in the private sector.
Omanis made up 16 per cent of the private-sector workforce in 2010, an issue the government hopes to address by promoting education and training initiatives, as well as through the development of small and medium-sized enterprises.


The government has also been pushing an Omanisation policy, which maintains that Omanis must account for a set minimum percentage of employees in a company on a sector by sector basis. In 2011 the government raised the minimums for companies in the insurance sector from 45 per cent to 65 per cent, and for finance institutions from 75 per cent to 80 per cent. These requirements must be met by the end of 2012.
The eighth five-year plan also emphasises developing several non-hydrocarbons sectors, including industry, tourism and agriculture. Indeed, industry expansion — particularly in the metals segment — has been a highlight of 2011. Oman has a strong record as an exporter of minerals and quarried goods.


It significantly increased its output in the segment throughout the last decade, having produced $29.8 million worth of mined and quarried goods in 2008, according to a UN Economic and Social Commission for Western Asia report from March 2011. Aluminium mining and production has been an especially important development.
Sohar Aluminium, which became the Sultanate’s first aluminium producer when it began operations in 2008, also announced plans in 2011 for a $3bn upgrade to its facilities. The company saw several successes during 2011: it produced its millionth tonne of aluminium in August and in November hosted more than 400 guests at the Arab Aluminium Conference (ARABAL), the most significant annual event for the region’s aluminium producers.


Jindal Steel & Power, the Indian firm that purchased Shadeed Iron & Steel, hit the ground running in 2011 after its new direct reduction unit came online in December 2010, three months ahead of schedule. With a capacity of 1.5 million tonnes per annum (tpa), the unit produces hot briquetted iron and hot direct reduced iron. The firm was still on a roll in August, when it announced it had raised $475 million to implement a two-part expansion of the Jindal Shadeed Iron & Steel Plant in Sohar.
Further successes were seen in the banking sector, with His Majesty Sultan Qaboos issuing a decree in early May allowing for the establishment of Islamic financial institutions in the country. As the Sultanate had been the only Gulf country without Islamic banks, many financial institutions were eagerly awaiting the chance to offer sharia-compliant services.


With RO 150 million ($388.6 million) in capital, Bank Nizwa will be Oman’s first fully fledged Islamic bank, expected to open in early 2012. Additionally, Bank Al Izz, which is currently a lender under formation, was awarded a licence in August to operate as an Islamic bank. Ali Hamdan al Raisi, the vice-president of the central bank, said that month it could be several years until the bank becomes operational.


Further expansion is forecast in other sectors, with tourism a particular area of focus. Revenue in the sector is expected to increase by more than 70 per cent over the coming decade, to $7.5 billion, up from an expected $4.4 billion in 2011, according to the World Travel & Tourism Council.


With Muscat chosen as the Arab Tourism Capital for 2012 by the Arab Tourism Ministers Council, it is likely the sector will show a further revenue boost in the coming year, particularly given its relative stability in a time of regional unrest.


While growth has been targeted — and is expected — in many sectors, the government will still face certain difficulties in the coming years, and its efforts may be hampered by ongoing political unrest. Encouraging greater numbers of Omanis toward the private sector for work continues to pose a challenge, as could inflation, which reached 5.3 per cent in August.


The latter problem, however, is being addressed by the central bank through several measures and the IMF predicts inflation will sink to 3.3 per cent in 2012. In spite of these challenges, Oman has laid out a solid economic plan for the coming years and will likely continue to attract FDI with its increasingly favourable business environment and economic resilience.


Oxford Business Group (OBG) is a global publishing, research and consultancy firm, which publishes economic and political intelligence on the markets of the Middle East, Africa and Asia. Through its range of print and online products, OBG offers comprehensive and accurate analysis of political, macroeconomic and sectoral developments, including banking, capital markets, insurance, energy, transport, industry and telecoms.

Oringally published Thu. January 12, 2012

Link: http://main.omanobserver.om/node/78951

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