MUSCAT -- For any economy, investment is an important factor, that too, foreign direct investment (FDI).
In developing countries, especially those with limited revenues or which are caught up in debts, there is a great need to attract foreign investment. This often brings along foreign expertise as well. Even countries with relatively high levels of income and who wish to further develop their economic base -- whether it is for the development of the country's infrastructure, communications and telecommunications systems, the tourism and hospitality industry, mining, natural resources exploitation, fisheries, mega-projects, commercial and or any other associated concerns, they need to attract investment.
For these types of high cost developments that can amount to billions of dollars, the risk is often shared between foreign and domestic investors. In the Sultanate too, foreign investment -- whether from within the region or from further afield -- is seen as a very important, if not critical, factor for further growth of the nation. In interviews with experts in the field, the Observer sought to find out more about the significance of FDI in Oman. Faris al Farsi, PAIPED Director General for Investment Promotion: "The Public Authority for Investment Promotion and Export Development (PAIPED) is a government organisation assigned to the responsibility of facilitating the economic growth of Oman.
Through the implementation of a series of engagement strategies, PAIPED brings together Omani businesses and public sector decision makers with international importers and investors while providing key sector and sub-sector market research and business intelligence. "When attracting foreign direct investments (FDIs) to Oman, PAIPED, provides a basket of services to investors, which includes sharing information on Oman's investment climate, laws, procedures and sector specific market assessments that are tailored to the investor's needs.
We also review project proposals and advise investors on appropriate entry strategies, as well as identify and design ideal visit programmes and matchmaking meetings. "Over the past 43 years, Oman has been able to build a business competitive edge and be recognised as a favourable destination for foreign direct investments, setting itself apart from its neighbours. We at PAIPED are therefore dedicated to ensure that the characteristics that distinguish Oman's business environment are communicated to the world and thereby attracting the world to us."
In response to how PAIPED (formerly known as OCIPED) has been accredited with being successful in promoting and encouraging investment into the country, he gave the following example: "PAIPED, as an organisation, has been operational for the past sixteen years with a string of successes under its belt. In 2011, we played a key role in the establishment of Al Tamman Indsil Ferro Chrome LLC, a joint venture between Indsl Group, India and Muscat Overseas. Through our matchmaking meetings, we were able to bring together the investor (Indsl Group) with the ideal local partner (Muscat Overseas) and the result is a two-unit Ferro Chrome Smelter at a total investment of approximately $ 85 million.
Regarding barriers, obstacles facing Omani business people seeking investment and local and foreign investors seeking to invest here, he noted, "Any investor does not come to the decision of setting up their business outside their home-base easily, as there are many variables to consider and assess. "Based on our interaction with investors from around the world we have found that their concerns vary depending on the sector in question. Investors looking to establish an industrial plant in Oman are more concerned with the available infrastructure and logistics, as well as workforce demographic and clearance procedures, while a retailer would look at tax laws and property rights for example.
The same applies for Omani investors who are looking to establish their presence in international markets."
He detailed the advantages investors have in investing in Oman and the popular investments they go for: "Overall, Oman enjoys a stable, secure and predictable investment climate. The Sultanate has put a lot of effort in ensuring that there is respect for free markets and property rights, rule of law, access to capital, good healthcare and educational institutions, availability of a professional and specialised workforce and easy access to global markets, through a world-class infrastructure network coupled with its strategic geographic location outside the Strait of Hormuz.
"Other opportunities that better leverage Oman for investors include the free trade agreements entered by the Sultanate, given the fact that corporate profits are taxed at a flat rate of 12 per cent, and that the first $78,000 is tax free. Also, in the case of special free-trade zones, that there is up to a ten year holiday on taxation.
"In 2009, PAIPED developed a 5-year Investment Promotion Strategy for Oman, which identified 9 priority sectors and 25 target markets for attracting investment with the greatest potential. These sectors include tourism, information and communication technology, financial services, marine, professional services, automotive, chemicals and pharmaceutical, as well as metals and plastics. The Strategy has since then undergone several evaluations to assess its progress and development.
"The selection of these priority sectors were based on various internal and external factors, including an assessment of activities regarding economic and investment performance, as well global and regional trends; the suitability of activities for attracting investment; Oman's competitive strengths; compatibility with trade and investment agreements; and opportunities and synergy with the strategic development goals of Oman." The Chairman of the Investment Promotion Committee, Oman Chamber of Commerce and Industry (OCCI), Ahmed bin Saleh Baabood: "The Government of Oman is keen to promote investment in various sectors which have the potential to grow.
"The setting up of business is relatively easier here, with a sound economy and a stable government, solid infrastructure, supportive laws and incentives. The Country operates on free market principles with no restrictions for repatriation of capital or profit, with low tax in certain sectors and no personal income tax. All these together make it attractive. "The Government has further empowered the Public Authority for Investment Promotion and Export Development to attract more investment, while OCCI hosts all investor delegations into the Sultanate of Oman and provides them the right information and connections to make their investment objectives successful.
"Most often, OCCI is the first point of contact for visiting investors into the country. It works closely with various government organisations such as Ministry of Commerce, PAIPED, various Industrial Estates managed by PEIE, Free Zone and IT Park to maximise the potential. "OCCI also hosts business people meets, provides information to the companies of various visiting delegations, and holds seminars and networking gatherings. We work closely with Embassies and Trade Promotion Bodies and supply them with the information and connections required. And we have our own investment committee, which works on strategy and accomplishment of goals."
In relation to barriers for investment in Oman and how the situation can be improved, he noted, "Although OCCI and other organisations visit international fairs and meetings to promote the country's potential, I feel there needs to be more investment awareness. We need to attend more events where investors get together and market our business prospects more aggressively."
Concerning the need for added safeguards and further encouragement and promotion for potential investors to invest here, he said, "We need to be careful in attracting the right type of investment, which will help our people and country and this is an essential first step. Attending investor forums and actively marketing the country's potential in various industries and sectors can assist in making a greater impact."
In a recently held 3-day brainstorming session on attracting investment into the MENA region, His Highness Sayyid Faisal bin Turki al Said, Director General of Marketing and Media, PAIPED, addressed the issue by noting: "In many of our countries, policy-makers are concerned with FDI inflows. Inflows that are considered the additional resources needed to improve our economic performance. Inflows that can increase our output and productivity, stimulate the development and dispersion of technology, create jobs, raise the skills and know-how of our workforce and drive innovation and entrepreneurship.
"From a GCC perspective, and between 2002 and 2010, FDI -- both through regular channels as well as foreign stock investments -- increased dramatically, at a pace that rivaled other developing, transition and emerging economies. While FDI into the GCC constitutes a relatively small portion of global FDI flows, FDI inflows and FDI as a percentage of GDP indicate that the GCC has strong locational determinants, making its markets an attractive option for foreign investors.
"Given the current global economic crisis, recent UNCTAD data reveals FDI inflows into the GCC decreased in 2011 by 35 percent - from approximately $39 billion in 2010 to $25 billion in 2011. However, unofficial sources indicate that countries in the region have seen increases and projections for future FDI levels as positive.
"One of the primary factors behind the upsurge in FDI inflows has been the removal of legal and regulatory barriers. State-led reforms -- initiated in some GCC states as far back as the 1980's, but systematically adopted by all GCC states around 2000 -- have opened the door to FDI in the region.
"Overall, GCC governments have instituted changes to the legal and economic structures governing FDI.
Today, we are a much more open market than we were 10 years ago. We are less regulated and more business friendly. It goes without saying that many challenges remain. However, the rapid increase in FDI inflows into the GCC can be attributed in part to the legal and institutional changes adopted by GCC governments over the past 15 years.
"On a broader note, the full impact of the global financial crisis is being felt in every part of the MENA region, and of course investment projects will feel the effect. But what is clear, and this is why we are here today, is that global competition for FDI will only intensify.
"The economic downturn has only slowed it hasn't stopped the rise of the world's emerging economies. Indeed, supply chains continue to redefine the world's business landscape, and the shift to low-carbon is revolutionising our markets, how we do business, what we produce and how we supply - all of this is changing. This is a massive challenge, but also an opportunity.
"In the face of that change, the MENA region will need to work even harder to attract FDI. And we must be committed to doing everything we can to make the region the destination of choice for innovative businesses to set-up and grow. We need to do all we can as a region to build on our collective strengths and develop the new capabilities essential to our future success.
"It is obvious that no successful company makes the move to invest overseas lightly. It is an expensive and long-term decision. In this regard, we must continue to address the issues I have mentioned and develop the strengths and capabilities that can make us a location of choice for FDI now and in the future.
"It is these investments, whether they are Scania, Vale, Vivendi, Hyundai, SAP, Kraft Foods, Oracle, or other companies that have made a base in our region, that offer us a platform for growth, employment and innovation. And by creating the right business environment we can secure the continued prosperity for the people of the MENA region.
While Pierre Guislain, Director of the World Bank Group's Investment Climate Department, noted, "Business opportunities are being lost in MENA countries because of the continued dominant presence of the public sector in the economy and a public image worsened by the recent unrest in many countries of the region.
"Repairing investor perceptions of risk with effective reforms and good business information is vital. Implementing simple, low-cost, practices to facilitate investment can play a key role in helping economies in the region.
© Oman Daily Observer 2013
