The once isolated country has come out of hiding in a blaze of industrial and tourism development that has found expression in two eye-catching construction projects.
As Oman's oil wells are expected to run dry by 2025, the Sultanate has set out on a course of economic diversification and liberalization. The aim is to become less dependent on oil, while creating employment for the Sultanate's young and growing population. Aided by a favorable investment climate, construction is booming - from steel and aluminum factories to luxury tourist resorts and hotels.
Oman, tucked way in its forgotten corner of the Arabian Peninsula, kept to a traditional way of life. That changed in 1964 when oil was discovered, and modernization followed with the arrival of the current ruler, Sultan Qabous bin Said, who staged the 1970 bloodless coup against his father, Sultan Said. The latter had proved too reluctant to embrace change, at least in the opinion of his son. It was oil that bankrolled the first wave of development, with an emphasis on education, healthcare and security.
At the 2005 level of production of about 635,000 barrels a day, however, all the oil will be gone in 20 years. Thus Sultan and Sultanate have embarked on an ambitious program to turn Oman into a regional production and trading hub, while putting the country firmly on the tourism map.
"Currently, the most eye-catching developments taking place in Oman are probably giant real estate and tourist projects such as The Wave and Blue City," said C.K. Khanna, the general manager of Bagwan Engineering Company (BEC). "To us however, real growth and opportunities lie mainly in the industrial sector and in further developing the country's infrastructure, which includes roads, ports and airports."
BEC is one of Oman's leading construction firms. In a joint venture with a Spanish firm it constructed a 120 MW natural gas power plant in Sur, a town 150 km south of Muscat. The country is shifting increasingly to exploiting its estimated 40 trillion cubic feet of gas reserves. In the industrial city of Sohar, BEC is constructing a seawater pumping station and a fertilizer plant. Altogether about $10 billion has been invested in aluminum smelters, fuel refineries, steel mills and fertilizer factories in the northern city.
Paying dividends. A GCC member, Oman has signed the WTO treaty and a free trade agreement with the United States. Hope is that increased production, further liberalization and free trade will lead to more business opportunities and employment. Oman's population of 2.3 million is growing at more than 3 percent a year. Unemployment officially stands at 15 percent. So far, diversification seems to have produced results, as non-oil revenues have in recent years tripled to about $4.2 billion in 2005.
Naturally, the diversification effort has been paid for mainly by oil revenue. Oman experienced a GDP growth rate of 14 percent and 21 percent in 2004 and 2005 respectively. The 2005 budget was based on a conservative price of $23 a barrel, while the price averaged $43, which enabled the state to increase government spending and reduce the country's foreign debt yet still maintain a healthy cash surplus.
Oman's diversification is not just about trade and manufacturing. The country has been promoting its thousands of kilometers of unspoilt coastline and little-known hinterland. "We are aiming for high-end, not mass, tourism," said Razan Darwish, of the Omani Ministry of Tourism. So far, the strategy seems to be working. According to Ministry of Tourism figures, the number of foreign nationals entering the country increased from 1.1 million in 2001 to 1.8 million in 2005. Most foreigners, apart from those from the GCC, come from Europe, especially Britain, Germany and Scandinavia.
"We never dared dream that the campaign would bear fruit to the extent that this year we are effectively facing an accommodation shortage," said Darwish. Many hotels expect occupancy rates of 80 percent or more in the upcoming high season, but there are only about two-dozen four- and five-star hotels, most of them in Muscat and Dhofar. The tourist high season runs from October to May except in the country's southern tip, where tourists arrive year round. Dhofar province is a climatological exception; it receives the summer monsoon and its inviting greenery has become a popular travel drawcard, not least to Gulf Arabs.
Oman's growing popularity and shortage of hotel space has propelled a boom in hotel construction. Last year the Shangri La Resort, comprising three hotels with more than 600 rooms, opened its doors in a secluded bay just east of Muscat, while Dubai's Jumeirah Group is currently constructing a resort, also consisting of three hotels, in a bay further to the east. In Muscat several new hotels are to be built.
Oman cheaper. Apart from hotels, several mixed residential-tourist resorts are being constructed. The first of its kind is the Muscat Golf and Country Club. The resort, to be completed by the end of 2007, will consist of some 130 villas and 100 apartments.
According to Christopher Steel, of Hamptons International brokers in Oman, nearly all of the golf club's residences have been sold. The large five-bedroom villas fetched $450,000. Sixty percent of the buyers are foreign, mostly Europeans. Earlier this year, Oman passed a law that allows foreigners other than GCC nationals to own property in the tourist developments. It is widely believed the law was passed with an eye on the Muscat Golf and Country Club and the envisaged developments that have followed such as The Wave and The Blue City.
According to Steel, there is a market for top-end residential property, as prices in Oman are relatively low compared with other Gulf states and Europe. He says demand from Europeans looking for a second home or vacation home is strong. "Compared to Southern France or Cyprus," Steel said, "Oman is much cheaper. Yes, it is hot, but apart from summer, it is comfortably hot. Also, it's stable, safe and very hospitable. It is not for nothing that many tourists do not visit Oman just once, but return every year."
Visitors to Oman will notice that the country differs from its GCC neighbors; most notably, there are hardly any high rises. Despite its rapid expansion, Muscat is mainly a city of villas and three- or four-story apartment blocks. It is said that Sultan Qabous so detested a 15-story hotel built in the mid-1970s that he issued a decree banning tall buildings. Consequently, Oman's capital city Muscat, which increased from 50,000 inhabitants in 1985 to 550,000 today, stretches for 50 kilometers along the shore.
New development is carefully regulated to curb speculation. A property can be sold only after at least 40 percent of its value has been paid, and there is a limit on the number an individual or company can buy. The idea is to avoid ghost cities whose property is owned but unlived in.
Workplace shift. Omanization, a program of drawing nationals into the economy, forms an additional plank of modernization. The government obliges companies to employ Omanis according to a set ratio which differs between sectors. The workforce of construction companies, for example, should be a minimum of 25 percent Omani, increasing by 2.5 percent a year, while fast food restaurant employees must be at least 60 percent Omani. Although employers say they do their best to employ and train Omanis, they point to constraints about which they can do nothing.
"The problem is not so much that most of them [Omanis] are not skilled, for we are willing to train them," said the general manager of a major construction company. "The main problem is a certain attitude and mentality. Most Omanis want to work, but in a managerial position, and in an office, not on a construction site."
What's more, an Omani employee costs almost double that of a skilled Asian, an amount which is set to increase when the Omani minimum wage is raised, to between $400 and $500 a month. Omanization, difficult though it may be, should be contrasted with that of Libya, according to Tajamal Iqbal Jami, who works for Yahia Construction. He said the Libyan government demands contractors employ as many local as foreign workers, and companies are obliged to raise the number of local employees each year for as long as the project lasts.
Peter Speetjens
© Arabies Trends 2006
