|23 November, 2019

Oman’s economy well set on road to non-oil future

The oil sector contributed about 35% of the GDP, while the non-oil sectors provided the remaining 65%

Image used for illustrative purpose. Aerial view of Muscat, Oman traffic.

Image used for illustrative purpose. Aerial view of Muscat, Oman traffic.

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Muscat: Minister of Commerce and Industry, and the Deputy Chairman of the Supreme Council for Planning HE Dr Ali bin Masoud Al Sunaidi, has said that Oman’s Gross Domestic Product (GDP) at current prices had crossed OMR30 billion by the end of 2018.

In an exclusive interview with Times and Shabiba FM, the minister said: “In 1999, the GDP was about OMR4.5 billion, where the contribution of oil activities was OMR2.15 billion, while the non-oil contribution was OMR2.5 billion. In 2005, the GDP was OMR11.9 billion and for the first time the contribution of the non-oil sectors jumped to OMR5.7 billion, and from 2010 to 2018, the GDP increased from OMR21.9 billion to about OMR30.5 billion.

“Last year OMR20.6 billion came from non-oil activities and OMR11 billion came from oil-based activities. Non-oil activities increased from about OMR2.5 billion in 1998 to OMR20.6 billion in 2018, within a span of 20 years. We hope that in the coming years, the contribution of non-oil activities will double again, which is what has happened during the last 20 years.”

The minister explained that the oil sector contributed about 35 per cent of the GDP, while the non-oil sectors provided the remaining 65 per cent.

The most precious product of the Sultanate during the past few years has of course been oil and gas. Therefore, the contribution of oil and gas to the GDP is about 30 to 35 per cent. Previously, this contribution stood at about 50 per cent.

“This does not mean that we are satisfied, and that the oil sector will continue to remain in this state. The oil and gas sector will have price challenges in the future, and what we rely on now are the sectors of industry, tourism, mining, fisheries, logistics, services and e-commerce,” he added.

The oil crisis

Dr Ali bin Masoud Al Sunaidi explained that the previous dip in oil prices did have a significant impact on the Omani economy. “The oil crisis had a significant impact in 2014. At the end of 2014 and early 2015, we saw a decline in oil’s contribution to the GDP, which dropped from OMR31 billion to OMR26.5 billion in 2015, and this for us was a significant dip. The government had no solution but to continue to borrow so that it could complete major projects such as roads, airports, ports and other such undertakings.”

He added, however, that other sectors had contributed to help the GDP reach OMR30.5 billion by the end of 2018, pointing out that the construction sector - especially during the past three years - was the most affected, but this sector had shown signs of stability during the first half of 2019, and was not expected to incur significant losses.

“The construction sector was affected because it relied on government funding through government projects that are nearing completion by the end of the current five-year plan,” said Al Sunaidi.

“The construction sector has a close relationship with the real estate sector, and a major corrective movement occurred in the real estate sector in the form of decline in rents from commercial and real estate activities. International companies looking for warehouses and offices are now looking at Oman as a favoured place to set up operations. The sector that was not affected by the oil crisis is the commercial sector, as well as activities involving hotels and restaurants,” he went on to say.

“We have noticed the stability and continued growth of these sectors over the last three years.”

The minister pointed out that the recent oil crisis is different from that which took place in 2008 and 1998. While the world was affected by the first downturn, the latter led to a global liquidity problem. The current crisis is impacting the oil-producing countries.

Economic diversification

Dr Al Sunaidi, however, said that the government’s economic diversification is not a “reaction” to the current economic conditions, adding that this was a programme that the authorities had been working on for a long time.

“You cannot build a giant city the size of Duqm with just a reaction,” he said. “The Sultanate’s decision to establish an integrated city over an area of 2,000 square kilometres and 60 kilometres of Duqm’s beaches was not a short-term one. The decision to establish the Sohar Industrial Zone and its nearby free zone, the Salalah Port and Raysut Industrial Zone, the expansion of the Muscat International Airport and the Salalah International Airport, and the construction of an airport in Sohar were not a reaction but part of the 2020 plan.”

To further highlight this, the Minister of Commerce and Industry pointed out that when compared to the GDP in 1999, which stood at only OMR4.5 billion, Oman’s GDP had reached OMR30 billion by the end of 2018, of which oil only contributed 35 per cent, an indication that economic diversification plans had indeed been in place for a long time.

“The behaviour and reaction of all countries, as a result of this great decline in oil prices, didn’t take into account that the oil sector would not recover in a short time, as compared to previous occasions,” said the minister. “In addition, the alternative sources of energy have become cheaper, if you were to look at solar and wind energy. There are many modern technologies that help harness this energy. A third factor is China’s low growth and the unfavourable trade situation between China and America, and between America and Europe,” he went on to add.

“Exports have not been allowed to expand to aid the recovery of the oil sector. Therefore, now our role is to improve the use of the economic zones in Sohar, Salalah and Duqm, and to expand the businesses that are owned and managed by young Omanis.”

Discussing the Sultanate’s position in international reports that were previously published, as well as the global rankings of the country, Al Sunaidi said that there were two important reports to which the government paid close attention, as they had been compiled by skilled and competent teams.

“In the latest World Bank report, the Sultanate jumped 10 places and achieved a ranking of 68 out of 190 countries monitored by the World Bank,” he explained.

“The Sultanate ranks 47th globally in terms of providing building permits, but there are six institutions that must approve these permits and more work needs to be done to reduce the steps in order to receive such a permit. But we are ranked 144th out of 190 countries in terms of access to credit in the current financial circumstances. Therefore, this has put pressure on us, but if we can jump to 30th or 40th rank – and we will continue to progress – the pressure will ease if we jump 10 places.”

“The Sultanate of Oman increased its ranking in the World Economic Forum’s 2018 report, where it reached 47th place. In 2019, we are ranked 53rd out of 140 countries. This is unsatisfactory for us, but when we look at the reasons that led to this, we find that our financial ranking dropped from 60 to 139. This indicator is due to the state of credit and borrowing experienced by the Sultanate. In contrast, we are free of terrorism; we are the first in the world in terms of the low rate of inflation; we are the sixth in the world in terms of the low impact of organised crime on our actions; and we are the seventh in the world in the efficiency of the legal framework in the settlement of disputes and long-term planning. We have made it easy to invest as it works now through a very large system linked to eight parties, even though we have 75 organisations that deal with this. With the completion of the entire investment framework, all of these parties must provide their facilities through the Invest Easy programme.

Public debt bill

Regarding the Sultanate’s public debt, the Minister of Commerce and Industry said that Oman’s public debt is divided into two parts. “The first part is the development budget as the Sultanate continued to spend OMR1.2 billion annually during, as part of its development plans, in addition to what is spent by government companies, while there are still invoices for other obligations needed by the state, including salaries, and subsidies that are still ongoing. In addition, there are some services that the Sultanate did away with, while the real cost of all economic and social programmes must be taken into account,” he went on to say.

“There are many suggestions provided by the International Monetary Fund (IMF), but the Sultanate selects only those from them that it feels will help the nation, not all of the suggestions,” added Al Sunaidi.

“The IMF looks at the financial details without partiality, but when we talk about economic policy, we have to take into account the financial side of things, as well as other issues. Oil-producing countries rely heavily on government spending, and if government spending is lessened, it will quickly affect the growth of the economy.

“The latest trends involve partnerships that are made possible internationally due to recent economic laws that get rid of the idea of the government being the sole financier to give way to innovative financing means to replace the government’s role in building and financing a lot of projects, especially in the service sector,” said the minister.

Industrial sector

Regarding the industrial sector, Ali Al Sunaidi said: “The industrial sector contributed more than OMR5.5 billion to the GDP by the end of 2018, with its contribution being more than the GDP of the oil, and non-oil sectors as a whole, with it being OMR4.5 billion 20 years ago. It is one of the five important sectors that the government relies on during the current and the next five-year plan, but the industrial sector is subject to many problems and hardships because the countries of the world have begun to adopt a protectionist approach.

“There are two problems faced by the industrial sector in any country in the region,” he said. “The first is the protectionist approach and non-compliance with the WTO decisions. Therefore, these industries face great problems when exporting to countries that have adopted protectionism as their method. The other concern is the use of dumping as a pricing policy. We started to see this behaviour from Asian countries when it came to us and the other GCC countries, and the GCC countries took some decisions to protect their industries for one or two years.

“Unfortunately, we are now seeing groups of countries – such as the Arab countries and the Gulf States – whose factories have begun to use price dumping for each others products. There are factories from one country that sell their products in other countries after lowering their prices by 20 per cent, and this is what we refer to as dumping,” explained the minister. “Now in Oman, we are looking for a way to protect our factories from this dumping because of its long-term damage and the acquisition of a high percentage of the market by these factories.

“We call on the Omani consumer to realise that his purchase of the Omani product will create direct jobs within the factory and create indirect jobs outside it,” he said. “Many countries are importing Omani products and we need to sell in these markets at very competitive prices in order to acquire stakes in their market.”

Talking about industrial diversification, Ali Al Sunaidi said, “The Sultanate has been able to make leaps in the petrochemical industry and is expanding in this sector. The Octal Company in Salalah, for example, is producing goods for prestigious companies in New York. This industry is based on the value added to other products in the country.”

As for food industries, His Excellency said, “Food industries for us are strategic and the Sultanate’s orientation now is to expand significantly its food industries such as meat, dates, dairy and others. Production is often costly but beneficial to provide minimum food security and dairy is a very important example of this. The quality of our products gives it an additional advantage through which we can sell more volumes of products in many markets such as Ethiopia, Kenya and Tanzania. The Sultanate is among those countries that are very strict in its specifications and standards, as well as its veterinary and agricultural quarantine practices. Oman does good work in the industrial sector, and our Omani consumers appreciate and value locally made products.”

4th Industrial Revolution

His Excellency reviewed a number of innovative projects for Omani youth of both genders. He stressed that what would happen to the Omani economy over the next 20 years will be different from the experiences of the past because there are now several aspiring young Omanis who are currently working on innovative projects that they own.

An entrepreneurial environment started from the time a meeting was held at Saih Al Shamkhat in Bahla, where the setting up of the Omani Development Bank was approved, with projects such as Intilaaqah and Riyada being established later. In addition, there were changes in the country’s laws and special provisions for SMEs in the form of exceptions to certain rules, and the provision of financial benefits, provided their CEO is a full-time Omani employee. The government also works to provide incubators and accelerators to help these businesses.

When it came to the cumulative growth of SMEs registered, in 2015, there were 18,597 establishments, while in 2019 there were 41,926 enterprises, in which about 11,000 people were working full-time, in addition to 4,100 permanent Omani staff at these SMEs.

“Remote working and working online is coming up, and what we need is a law that regulates this,” said Al Sunaidi. “There are currently discussions between the Ministry of Commerce and Industry, the Ministry of Manpower and the Public Authority for Social Insurance. We have taken the experience of Morocco and this is now being studied by Riyada, so that it can be applied in the Sultanate to protect those who spend their hours working online. There are days – particularly during Eid and other holidays – on which we have Ministry of Commerce and Industry employees working online.”

“In the future, our skills will be the foundation of all our work,” he said. “This is why the Sultanate has decided to spend two years as part of a global system led by the World Economic Forum titled “Future Skills”. We do not want to be far from what will happen in the world, and we must not be afraid of the changes in the future, but we must be concerned if we don’t do anything to adapt to these changes. Therefore, the Sultanate has chosen to be part of this important programme and we will publish the results of our work next January. Institutions must retrain their employees to do work that will be required in the future, because they will lose their previous jobs.”

Economic Laws

His Excellency said that the Public-Private Partnership Law, the Privatisation Law, the Foreign Capital Investment Law and the Bankruptcy Law would all bring radical changes to the Sultanate. The Foreign Capital Investment Law will not make it obligatory for investors to have the OMR150,000 required in his company’s account to set up a business in the Sultanate.

“This opens the door for all who wish to establish a business in the Sultanate to come here easily,” explained Al Sunaidi. “What these laws will do is protect some of the licences that will be reserved only for Omanis. There will be a list of these activities that will be determined by the Council of Ministers and will change when needed and allow foreign investors to come to the Sultanate without a broker. The Foreign Capital Investment Law requires a feasibility study which confirms that the investor is keen and capable for the project he will be undertaking, and that licences are granted because he is serious in starting this project.

“This gives the investor some preferential treatment and allows him to use that land which has been allocated to his business, which will see him capable of using the land for the long-term, and will involve the registration of some assets in his company,” added the minister. “This is a very important law that will be subject to control during the first years of its implementation to ensure that those who are affected by the law can adjust to it, much like the other laws that have been previously brought in.

“The bankruptcy law will lessen the risks because if the trader believes that his business has not succeeded, after many years of operation, he now has the ability to get rid of that business through the bankruptcy law, provided that he has declared bankruptcy for genuine reasons, and not just so that he can evade taxes or avoid paying the debts he owes to others,” said Al Sunaidi.

On the partnership and privatisation law, the minister said: “Previously there was privatisation in the country, and there was a partnership between the government and the private sector, but it was based on separate laws, namely the telecommunications law or the electricity law, or through an advertising agreement. This new law will protect the rights of government agencies and investors. The consumer is also protected by a clear and explicit law that makes you deal with the State and not one of its institutions.”

He pointed out that the next five-year plan would not stop investments in the Sultanate’s resources in the oil and gas sector, with more investment planned, as he added, “if the market is in need of such services, projects will not stop just because government funding does not exist.

The funding instead will come from local and international institutions, where the Investment Law protects international institutions and the Partnership and Privatisation Law protects local and international institutions in their dealings with government institutions. “The laws will begin to take effect before the start of the tenth five-year plan in 2021, where we have an opportunity in 2020 to make sure that these laws and regulations are sound enough to launch the next five-year plan,” said the minister.

The Tenth Five-Year Plan

His Excellency said that the concerned teams had started work on the tenth five-year plan in collaboration with many of the government institutions that had allocated two or three individuals each, and with Omani youth seconded from local and international private institutions.

He pointed out that the next five-year plan would not rely solely on the availability of government funding, but will take into account the aspects of innovative financing and thus will use the laws and allocated to projects a large share of non-governmental funding. He said, “The five-year plan took into account the many governorates and it will create the kind of acceleration required among the governorates because it depends on the outputs as needed for Oman’s Future Vision 2040, which was done at the governorate level and depends on urban planning strategies.”

Thus, each governorate in the Sultanate and each minister will have to determine the projects of the ministry in that governorate, and mention those that need government support. Government subsidies may not be provided in the initial investment, but will also involve paying the difference between the return provided by that project and the cost that can be paid by the citizen. This form of payment will be different from the practices employed in the past, and will reflect a change from that mode of operation.

“The privatisation and expansion of some government facilities such as sewage plants will be accelerated,” said Al Sunaidi. “The next five-year plan will talk about the transfer and management of certain facilities by the private sector and the investment required therein. These are just a few features of this plan, which will be announced next year after being approved by the Council of Ministers. It is derived from Vision 2040 and takes into account the results of the urban strategy.”

The minister stressed that the Sultanate had been able to gradually complete infrastructure projects through the optimal use of its financial resources from the oil and gas sector. “Oil and gas still finances 70 per cent of our needs. Although the GDP comes from the non-oil sector, the revenue that serves us comes from oil and gas. In the next phase, any money we get must go to large projects and pay the debt that the State had to borrow during the current five-year plan to meet its obligations in some projects. While we are a developing country, how could we provide services such as electricity and water during all these years if they were not part of the Sultanate’s plan?”

He said, “One of the many things that impressed the United Nations about the Sultanate, is that in 1970, the average life expectancy was about 58 years and in 2018 the Sultanate had an expectancy of 78 years. This was a result of the development of infrastructure and the Sultanate’s wise policy of non-entry into conflicts and wars. From His Majesty the Sultan came the need to spread hospitals throughout the Sultanate, improve public hygiene across municipalities, bring education, clean water and electricity into each house, while the GDP doubled between 1998 and 2018. It did not come from a vacuum of nothingness, but as a result of the activation of the five-year plans over the past years.”

“We hope to achieve more than that which the state budget expects to be supported by non-oil sectors, but we must see exemptions granted in income tax, customs and fee exemptions, as other productive sectors did not pay royalties and did not pay the fair price of electricity over the years. Not long ago, our factories paid 70 cents per million BTUs and now they have gradually started paying $3 and $4 gradually. In previous years, the price of gas was much higher than $70 and there were countries that charged $15 for it, but we stayed at $3. These subsidies should stay because the industry sector is estimated to contribute OMR5.5 billion in 2018 and this balance is required.

“The next five-year plan has many challenges because the competition has become intense and the global economic situation over the next two or three years is unclear,” explained Ali Al Sunaidi.

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