September 14, 2018
In Oman, oil has been the main component of the economy since the country started commercial production in 1967. Yet, Oman’s oil revenues are at a modest quantity. In fact, Oman’s Undersecretary for the Ministry of Oil and Gas, HE Salem Nasser Al Aufi, announced in March 2017 that the country only had enough reserves for the following 15 years. The sultanate remains an oil economy, with production of hydrocarbons accounting for 47.2% of GDP in 2014, down from 50.6% in 2013 due to falling prices. As far as the total GDP is concerned, crude oil production accounted for 43.8% of it while natural gas output contributed by 3.4% to the overall economic output. Given this level of dependence on oil and the fact that oil resources are finite, Oman’s authorities are prioritizing economic diversification and seek alternative sources of revenue.
Last year, the overall economy shrank by 0.3%, due in large part to low oil prices and Oman’s production cuts in a bid to shore up the prices. IMF delivered a blunt report to Oman in a statement issued on April 19, instructing the officials to follow through substantial reforms to get the economy on track. According to the report, although Oman has managed to bring down budget deficit from 21% of GDP to 12.8% last year, the country is still grappling with spending over-runs and tax revenue under-performance. Recent developments in the non-hydrocarbon sector and the regulatory framework governing the free economic zones are positive indicators for interested US companies and the private sector in Oman.
The non-hydrocarbon sectors
The non-hydrocarbon sector has been growing steadily over the past ten years. While the growth was situated at 2.6% in 2016, in 2017 it surged to 3.7%, according to the Central Bank of Oman. Contributing to non-oil GDP growth were activities related to services sector. Oman has put in place an official policy of diversifying the economy away from hydrocarbons as part of its Vision 2020 policy called the National Program for Enhancing Economic Diversification (Tanfeedh, in Arabic). This program aims to bolster economic activities in five key sectors: manufacturing, tourism, logistics, fisheries, and mining. For example, airport revenues increased by 42% in 2017 as opposed to the previous year jumping from OMR49.1 to OMR69.7. Moreover, revenues obtained from ports went up by 37.5%. The vision 2020 aims to increase the industrial (manufacturing) sector’s share of the economy to 15% by 2020. As a result, billions of dollars are being invested in gas-based industries such as Sohar Aluminum Smelter.
Furthermore, free economic zones are of an immense importance in the country for manufacturing and trade. Oman has three free zones and one special economic zone. There is the Al Mazunah Free Zone, which is located in the south west of Oman on the Oman-Yemen border. Second, the Knowledge Oasis Muscat is a technology park located beside the Muscat Airport. It is a public-private partnership nurturing knowledge-based businesses. Third, Salalah Free Zone is located in Salalah and enjoys access to European, Asian, and Australian markets. Three clusters of sectors are represented in this free zone: Chemical and Material Processing, Manufacturing and Assembly, Logistics and Distribution with the certainty of significantly reducing their total landed costs. Finally, the Special Economic Zone in Duqm (SEZAD), established in 2011, is the biggest special economic zone in the Middle East region. The area is divided into 8 main areas that include the port, the ship dry dock, the oil refinery, the regional airport, the heavy – medium and light industries complex, the residential –commercial and tourism area in addition to logistic services area.
Oman remains a welcoming environment for FDI in MENA, and US companies can experience sustainable success in Oman with the understanding that a tailored risk management strategy remains a priority.