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Oman - NEWS BRIEFINGS
Oman | 05.09.2008
Although rising inflation and a weak US dollar have spurred some regional economies such as Kuwait's to drop their dollar peg, the Central Bank of Oman (CBO) has made moves to squash speculation of a revaluation of the Omani rial.

Oman

The Report: Oman 2008 Oman is beginning to see returns from its economic diversification policies under the Vision 2020 plan. In particular the construction and service industries are performing well, and foreign direct investment (FDI) is being courted, successfully, as never before. Economic growth, buoyed by rising crude oil prices, was strong in 2007. Banking enjoyed particular success while tourism looks set to boom. To meet this coming demand, the government is investing heavily in infrastructure projects. As the country continues to increase its international profile, managing its relations with the US and Iran will be one of the challenges for next year.

ISBN: 1-90202339-89-4
ISSN (Online): 1757-3033
ISSN (Print): 1757-3025

TABLE OF CONTENTS

COUNTRY PROFILE

This section provides a quick overview of some facts about the country, its population, language, natural resources, geography, climate, education system and history.

POLITICS

Despite the devastation wrought by cyclone Gonu, which killed 50 people, caused about $4m in damage and forced the evacuation of thousands, Oman experienced strong economic growth in 2007, with rising crude oil prices offsetting the cyclone's effects and diversification efforts reaping dividends. Transport infrastructure is being improved, with the announcement of three new airports in 2007, while Vogue magazine declared Oman its tourism destination of the year for 2008. All of this has been made possible by the stable political climate engendered by Sultan Qaboos bin Said. The sultanate continues its Omanisation strategy, designed to reduce its reliance on foreign labour, while the country is a leader in the Arab world when it comes to environmental concerns and women's rights. Meanwhile, military upgrades have made it a force to be reckoned with. Internationally the country has continued to plough a course of consensus rather than confrontation, although Oman was conspicuously absent from US President George W Bush's itinerary for his Middle East tour in early 2008. Many believe this was due to Oman's friendly relations with Iran, and indeed balancing relations with Iran and the US remains one of Oman's main challenges.

This chapter includes viewpoints from Sultan Qaboos bin Said Al Said and Shri Kamal Nath, Indian Minister of Commerce and Industry; as well as an interview with Benita Ferrero-Walder, EU Commissioner, External Relations and European Neighbourhood Policy.

THE ECONOMY

The government's Vision 2020 economic blueprint, launched in 1996, is based on the principle that the Omani economy must diversify. Its oil revenues are not as bounteous as some of its neighbours and production has been dropping since 2001. Nonetheless the windfall from the high oil prices of recent years has provided the sultanate with ample resources to fund its diversification efforts, and it is now prepared to compete with global players in manufacturing and services. Meanwhile Oman is taking advantage of its fortuitous geographical location at the mouth of the Gulf and is investing massively in its two ports, Sohar and Salalah. These efforts appear to be paying off, with the IMF estimating that Oman's economy grew by around 6% in 2007. The government has announced its plans to privatise all remaining state-owned power and water companies by 2009, while foreign ownership policies are being liberalised. Oman has reiterated its commitment to the dollar peg, despite a major short-term challenge in reining in inflation, which stood at 6% in 2007. Outwardly, Oman is enjoying some eastern promise, with more than 70% of Omani exports heading to Asia in 2006.

This section includes an interview with Ahmed bin Abdel-Nabi Al Makki, Minister of National Economy; as well as viewpoints from Kimberly Wiehl, Secretary-General, Berne Union; and Azzan Al Busaidy, CEO, International Research Foundation.

BANKING

Oman's banks recorded a solid year in 2007, with assets rising 35.3% to $25.48bn and deposits increasing by 32.5% to reach $16.12bn. Indeed Omani banks face an enviable task in meeting the needs of a thriving economy and a young and growing population. Four local banks - BankMuscat, Oman International Bank, National Bank of Oman and Bank Dhofar - dominate, accounting for 78% of commercial banking assets and 75% of total branches. In 2007, Bank Sohar became the first new local bank in Oman since 1990. Foreign players are also moving in on the act, with Qatar National Bank, for example, opening its first branch in Muscat in late December 2007. Competition looks set to heat up, with banks having to improve customer services and acquire new skill sets to compete in an increasingly frenetic market, while staff training and retention is a priority. Local banks are looking outwards to strengthen their muscle with, for example, BankMuscat opening a branch in Riyadh.

This chapter includes viewpoints from Hamoud Sangour Al Zadjali, Executive President, Central Bank of Oman; and Paul-Henri Pruvost and Mohamed Damak, Credit Analysts, Standard & Poor's.

CAPITAL MARKETS

The Muscat Securities Market (MSM) may be the region's smallest bourse, but it has earned a solid reputation among investors for its high standards of corporate governance and regulatory oversight, along with a history of strong returns. In 2006 it reported gains of 14.5%, the highest return in the Gulf Cooperation Council (GCC). Oman's Capital Market Authority (CMA) took steps in 2007 to rationalise the marketplace, and in 2008 it plans to roll out a new product: exchange-traded funds, a security that tracks an index. Meanwhile it is hoped that the success of Bank Sohar and Galfar Engineering and Contracting's initial public offerings (IPOs) in 2007 will encourage more companies to go public, thus energising the MSM. To the future, one goal is the introduction of online trading, simply a question of brokerage houses getting the necessary programmes up and running on their websites.

This chapter provides interviews with Ahmad Saleh Al Marhoon, Director-General, Muscat Securities Market; and Hans Erlings, CEO, Galfar Engineering and Contracting; while Ritesh Jesrani, Senior Financial Analyst, Al Madina Investment, offers a viewpoint. Al Madina Investment provides share analysis of the following companies: National Bank of Oman, Bank Muscat, Al Maha Petroleum Products, Oman Telecommunications, Oman Chlorine and Raysut Cement.

INSURANCE

Oman's insurance industry responded quickly and capably to the demands placed upon it by the arrival of cyclone Gonu on June 4, 2007, positioning insurance as a necessity rather than a luxury in many people's minds and showing that insurance companies can be trustworthy and fair-minded. Many companies put adverts in newspapers reassuring customers that their claims would be paid within 31 days, even if their policies had been lost in the chaos. The Capital Market Authority, which has regulated the industry since 2004, issued a licence to Vision Insurance in late 2007, raising the number of national companies to 11, and the number of foreign players is also set to rise as the CMA lifted a 28-year-old moratorium on issuing new licences to foreign companies in 2007. Indeed, new megaprojects are going to keep the industry busy, with everything from infrastructure to power plants requiring insurance.

This chapter includes interviews with Yahya bin Said Abdullah Al Jabri, Executive President, Capital Market Authority; and Murtadha Al Jamalani, Board Member and Secretary, Oman Insurance Association.

TRANSPORT & LOGISTICS

Oman has long been an important shipping port due to its strategic position at the mouth of the Gulf, and it is currently riding on the crest of a wave as Salalah and Sohar ports and their respective industrial estates and free zones attract private investment and forge ahead with development and expansion plans. Salalah and Sohar market themselves on the savings in cost and time that they offer over rival ports in the Gulf. Taking to the skies, the big news was Oman's decision to withdraw from Gulf Air, with Oman Air's expansion plans set to fill the gap left in the schedule as a result of Gulf Air's reduction in flights. Indeed, its passenger numbers flew over the 1m mark in 2006 and skyrocketed to 1.5m in 2007. The majority of new road projects are centred on Oman's capital city, Muscat, which is becoming increasingly stultified by traffic congestion. To this end, the $1.4bn Southern Expressway will reroute much of the traffic to the capital's perimeter.

This chapter includes an interview with Marc Gijsbrechts, Middle East Area CEO, Maersk.

ENERGY

Petroleum is the lifeblood of the Omani economy, accounting for over 50% of GDP, 80% of government revenues and nearly 80% of exports. There are problems however - overcoming some complex geology, for one, and concerns that reserves could run dry within the next two decades. Privatisation has been widely embraced as a counter to this, and indeed there is cause for optimism. Shell and Total have significant stakes in Petroleum Development Oman (PDO), the country's largest oil company, and an abundance of exploration and drilling projects are being undertaken by PDO itself and by the numerous companies that have entered the market in the past three years. The natural gas sector is exciting interest, with new entrants BP and BG Group. To keep on pumping, Oman must stop the brain-drain effect, with many of its most talented personnel being attracted abroad, and will need to be able to compete with the bigger players when it comes to buying rigs and other equipment. It is also investigating the potential of alternative energy sources, such as coal and renewable energy.

This chapter includes interviews with John Malcom, Managing Director, Petroleum Development Oman; and Frank Chapman, Chief Executive, BG Group.

TOURISM

Oman is Vogue magazine's pick destination for 2008, lauded for its stunning scenery and friendly people; proof, were it needed, that the sultanate's tourism sector is flourishing. Although the industry contributed just 2% to GDP in 2006, according to the World Tourism Council, the sector is one of the government's main components of its diversification policy. Foreign visitor numbers have topped the 1m mark consistently over the past three years and reached 1.3m in 2006. This is in part down to the government's new visitor-friendly strategy, meaning that tourists from over 60 countries can now receive visas on arrival. This is all part of the sultanate's aim for tourism to account for 3% of GDP within the next decade, and for 80% of the sector's workers to be Omani by the end of the same period. Construction is taking place at a rapid pace, with, at last count, 22 projects under development from top-end spectaculars, such as Blue City, a $15bn residential project with 16 hotels, and The Wave, an $800m resort stretching along 7.3 km of beachfront west of Muscat, to the development of more low-key attractions, such as the $5m the government has spent introducing floodlighting and walkways to light up the icicles and rock formations of the Hoota Caves. Infrastructure is also being improved, with the announcement of three new airports in 2007, and Seeb International Airport set to expand its capacity to 12m by 2010. Marketing is seen as vital, with the tourism promotion board being provided a $30m budget to promote Oman's attractions overseas.

This chapter includes interviews with Ziyad M Al Zubair, Zubair Corporation; and Samih Sawiris, Chairman, Orascom Hotels and Development.

CONSTRUCTION & REAL ESTATE

The total value of construction projects, both private and public sector, underway in Oman at the start of 2007 stood at $25bn to $30bn, and the industry accounted for one-third of Oman's GDP at the close of June 2007. Even the destruction inflicted by cyclone Gonu was not enough to knock the industry off course. Indeed the lessons learned as the government and private sector repaired the damage and reinforced current buildings will make future projects stronger. Megaprojects such as the residential/tourism Blue City and The Wave complexes are keeping builders busy, while as part of its Vision 2020 project the government is investing in infrastructure, for example the 54-km Southern Expressway being constructed to reduce traffic congestion in Muscat. In line with this frenzy of activity, materials prices are high, a situation that looks set to continue as industry data predicts a 10% expansion in cement usage through 2010. The real estate market is booming, in part due to 2006 law allowing non-GCC citizens to own apartments in designated developments, while in the retail environment demand for large-scale shopping centres has ensured that around 68,000 sq metres of space were under various stages of development at the close of 2007. Commercial projects are being pushed out of the central business district due to congestion and are moving to new business parks complete with a full host of support services.

This chapter includes a guide to the top 15 projects grabbing the headlines in Oman, as well as an interview with Nasser H Al Ansari, Board Member, Qatari Diar Real Estate Investment Company.

TELECOMS & IT

In 2001 there were around 15 mobile phones per 100 people in Oman; by the end of 2007 that number had risen to nearly 95, providing some measure of just how quickly the Omani telecoms market is growing. Competition is thriving, as the penetration rate grows - it rose by nearly 38% to 2.5m mobile subscribers in 2007. New entrant Nawras has helped the push forward, injecting a shot of dynamism into the market. It is not the only success story however, and Omantel, the owner of Oman Mobile, made a 40% jump in profits in 2007, and is the sultanate's only internet provider. To the future, the Telecommunications Regulatory Agency (TRA) looks set to welcome a second fixed-line provider to challenge Omantel's monopoly in this area. The government is pushing Oman's information and communications technology (ICT) sector as part of its diversification strategy, developing several initiatives to drive forward the creation of a knowledge-based economy in Oman. Internet penetration rates are low and only 12% of the nation's citizens use the internet. To shake things up a bit, the telecommunications regulatory authority (TRA) has announced the opening up of a series of licenses for internet service providers (ISPs). To the future, the government is working to address the skills shortage in the ICT industry and to push forward with its Omanisation policy through increased higher education in the field.

This chapter includes an interview with Mohammed Al Maskari, Director-General, Knowledge Oasis Muscat.

INDUSTRY & RETAIL

Diversification is the current buzzword in the sultanate and industrial exports are seen as one of the prime routes to achieving this goal. Sultan Qaboos Bin Said Al Said has commented, "The industrial sector shall become the major source of national income." His ambitions seem to be bearing fruit, and the Omani manufacturing industry has grown at a faster clip than the overall economy, increasing by 33% and accounting for 10% of the sultanate's GDP in 2006. The refining of petroleum and liquefied natural gas (LNG) account for the lion's share of the sector's income, followed by chemicals, non-metallic mineral products and the food processing industry. The country's six industrial estates, managed by the Public Establishment for Industrial Estates (PEIE), have been lauded as vital in pushing industrial growth in recent years, while industrial projects are incentivised through tax relief. To the future, major developments in Sohar and Salalah should bring benefits, while the government is looking at methods of improving the skill set of the Omani workforce and increasing private sector participation to help drive the competitiveness of non-oil exports.

Consumerism could provide some retail therapy for Oman's diversification efforts, as the sector continues to grow. Indeed, consumer spending grew from $9.52bn in 2003 to $14.74bn in 2006, a 55% increase, fuelled by the 15% pay rise to government employees in 2006. Muscat City Centre mall is becoming increasingly popular after an expansion project completed in 2007 and several new malls are in construction, along with along with hybrid tourism projects featuring retail space, such as the $1.6bn Journey of Light project. Just five companies - Emke Group, Al Safeer, Spinneys, Al Jadeeda Stores and Carrefour - currently account for 27% of all retail activity, with their market share expected to rise to 50% by 2012, according to Planet Retail. Rising inflation is a concern, with skyrocketing prices for basic goods and supplies causing the government to request that retailers refrain from increasing prices.

This chapter includes an interview with Maqbool bin Ali Sultan, Minister of Commerce & Industry; and Nicholas Barakat, CEO, Octal.

SOHAR

Sohar is also becoming a major port of call. The newly developed industrial port should be firmly on the maps of many present-day sailors. A massive project that started in 1999, the port has been built from scratch and includes a refinery and a number of large-scale petrochemicals and metals plants, with total capital investment anticipated to total more than $12bn. It is already attracting investment: indeed, the first polypropylene plant in Oman commenced operations there at a cost of $300m at the end of 2006. The area is also home to the Sohar Industrial Estate, which currently plays host to 50 operational firms and has attracted investment of $3.38bn, while a neighbouring free trade zone is also set to start up.

This chapter includes an interview with Hans Smits, President & CEO, Port of Rotterdam, Deputy Chairman, Sohar Industrial Port Company.

SALAHAH

Salalah is in the Dhofar region in the south of Oman and lies 1000km south of Muscat. The modern-day port is creating quite a reputation for itself, built as it is on a natural deep-water coastline with the express purpose of placing Oman on the global shipping map. Indeed, it is currently the only port between Europe and Singapore that can accommodate the largest class of container vessels. The Port of Salalah handled 2.4m twenty-foot equivalent units (TEUs) and 1300 vessels in 2006, with throughput rising by 17.2% between January and September 2007 and capacity anticipated to increase to 4.5m TEUs in 2008. The Raysut Industrial Estate, Six kilometres down the road, is reaping the benefits of this, with 27 active firms employing over 800 people. The Salalah Free Zone (SFZ), where investors can organise licences, permits and visas in a one-stop shop, alongside a host of other tax and rental incentives, is being set up around the port.

MEDIA & ADVERTISING

The evolution of the Omani media from state control to a free press is happening at a cautious but steady pace. Three new private radio stations have entered the broadcasting fray and the first independent audit of a print publication (leading weekly newspaper The Week) has taken place. The Omani Journalist Association (OJA) celebrated its first birthday in March 2007. Oman is currently home to around two dozen magazines and numerous daily and weekly newspapers, the medium of choice for the country's advertising industry, while the television market looks set to be turned on by the recently begun Ministry of Information upgrade of Oman TV, yielding four new television studios. Meanwhile the government is investing in internet infrastructure, which should increase penetration rates and boost interest in the medium, especially among young people. In terms of the advertising industry, overall ad spend looks set to carry on its upward trajectory, particularly in the financial services, retail and real estate sectors. The ad industry is also increasingly using the internet and multimedia campaigns as a means of spreading its message to young people.

HEALTH & EDUCATION

Over the past 30 years, thanks to the country's first five-year health plan, implemented in 1976, key health indicators in Oman have improved across the board. Life expectancy, for example, has increased by over 50%, from 49.3 years in 1970 to 74.3 years in 2006. Increasingly, as increased life spans and rising costs place pressure on the state's coffers, it is seeking increased private sector involvement. "Omanisation" levels in the healthcare sector have reached an encouraging 67%, thanks, in part, to Ministry of Health training programmes. To the future, the introduction of compulsory insurance for certain segments of the population, such as expatriate workers, looks to be a strong possibility.

Just as within the field of health, indices in education are encouraging. Since the implementation of the first five-year plan for education in 1976, the number of public schools has risen from 261 to 1056. There are now over 1200 educational institutions throughout Oman while adult literacy stands at 75%. The first class of students to pass through the government's reformed basic system of free compulsory education are graduating at the same time as the Ministry of Higher Education and the Oman Accreditation Council make the sector more accountable for its results.

This chapter includes an interview with Dr Ali Moosa, Minister of Health; while Rawya bint Saud Al Busaidi, Minister of Higher Education, offers a viewpoint.

THE BUSINESS GUIDE

Complied in conjunction with PricewaterhouseCoopers, this section offers advice for the foreign investor in Oman on how to run a business in line with the sultanate's financial practices, looking in particular at taxation issues. Al Alawi, Mansoor Jamal & Co assist in explaining the legislative climate in Oman as it affects foreign investors, looking in particular at the issues surrounding mergers and acquisitions.

THE GUIDE

This section takes a look at Oman's rich and proud history and includes details of Oman's top hotels, government and other listings, including health. A section of useful tips for visitors, featuring topics such as currency, visas, language, communications, dress, business hours and electricity, is also included.

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