Global experts and local business leaders say Oman’s economy is bouncing back to better times. Alvin Thomas shares with international experts and local business leaders the facts and figures that bring on the new wave of cheer.
Sitting solid at the 75th spot – and nestled between Luxembourg and Myanmar – Oman may be considered as a country gradually developing its resources and Gross Domestic Product (GDP) over a period of time. It’s a safe bet according to many – neither too developed nor underdeveloped – and this was the case when the Sultanate was placed in the list of countries by economists at the International Monetary Fund (IMF) in 2016.
But what one tends to forget is that our country was one of the many hit by the oil slump of 2014, which saw global oil prices dip below US$30 (RO11.55). This affected the Middle East drastically, with many countries cutting down on their expenditures and others putting large-scale projects on hold.
This was especially a problem for Oman, a country that has often been touted as the ‘world’s largest non-OPEC oil producer in the Middle East’.
Slumping oil prices and a global crisis put Oman on the back foot, forcing the government to introduce several reforms, ranging from cutting out subsidies on electricity for businesses to increasing fuel prices.
This begs us to ask the question: Did the GCC bubble burst?
To answer this very question, we contact several experts on the subject, and they all say the same thing: “Things are slowly but steadily starting to shape up” to set in motion the first phase of the country’s ‘economic bounceback’.
Today, oil prices are stabilising – with the Oman crude selling at roughly US$50 (RO19.25) a barrel – and this has brought a wind of change along with it. There are more cars on the road, many cranes are towering across the landscape and several new projects are being signed than before.
This has also triggered a wave of optimism across several sectors in Oman, thereby sparking a change in the forecast of growth and development of the GDP and, subsequently, the financial situation of the nation.
But to understand what affects the GDP, we must first learn what the term denotes.
Gross domestic product represents a country’s economy. The GDP is the total value of everything – all the goods – produced by all the people and companies operating within the country.
It doesn’t matter if they are expats, citizens or foreign investments; if they are located within the country’s boundaries, the government counts their production as the GDP.
In line with that, reports of SMEs (small and medium-sized enterprises) doubling its contribution to the GDP by 2020 also broke the news. This means companies in Oman would be increasing its contribution by up to 30 per cent in the next three years.
During an interview with the local daily Oman Observer, Khalid Safi al Haraibi, acting CEO of the Public Authority for the Development of SMEs (Riyada), said: “On the back of increasing investments and generation of more jobs, the GDP, which was only 15 per cent in 2014, will more than double.”
While it may seem like a far stretch, we must note that SMEs have already contributed 23 per cent to Oman’s GDP by the beginning of 2017, as per Al Haraibi.
John Joseph, an Indian expat who co-owns a petroleum engineering firm in the Sultanate, says: “Small and medium-scale enterprises are coming of age in Oman. There was a time when most people were shying away from starting up businesses; but that is not the case now. Young Omanis want to dip their toes in the water and see if there are fishes there.
“But one has to realise that setting up a business in this current market scenario is risky. It requires in-depth planning, backing by the employees and also a good leader [owner].
“One reason why most SMEs fail to establish themselves here is due to the stronghold of bigger players in the market.”
But John believes that the mindset is slowly being wiped off.
“That is why you can see the increase in the amount of contributions to the GDP by SMEs. I am sure that it will also strengthen the country’s economy slowly,” he adds.
“The reason for the increase is simple: more SMEs are coming up and more valued goods are being produced. It’s the basic graph of demand and supply, except we’re not sure when we will hit an asymptote,” adds John Joseph.
John’s statement stands true today as Al Haraibi revealed that more than 500 well-dedicated startups registered themselves as SMEs in recent years. Also impressive is the launch of new investment funds that are aimed to provide these SMEs with a solid backing.
Despite that, however, oil and gas entrepreneur Qais al Khonji believes that SMEs are far from singlehandedly improving Oman’s economy.
“We should move to being industrial,” he says.
“The more we produce and export, the further our GDP would jump. I know it’s easier said than done, but if we have a strategy to move towards that direction, it would improve the nation’s GDP.”
Like Qais states, it’s not just the SMEs and new businesses that are having a strong impact on the GDP. Oman is on a mission to develop the tourism sector and transform it to the forefront of leisure and adventure activities in the Middle East.
For instance, Salalah’s first water park – Hawana Aqua Park – is expected to open its doors by the end of this year.
The park can reportedly handle 500 people a day and will feature attractions such as water slides, leisure pools for guests, toddlers’ pool, pool-front cabins, swimming pools, wave pools, a main tower and much more.
Aside from that, the Nizwa Fort is also due to undergo a complete renovation as it aims to become a “world-class tourist destination”.
These are only two among several other projects that are being undertaken to keep up with the changing face of Oman.
Recently, a meeting was held by the steering committee of the tourism sector for regularising adventure tourism in the Sultanate. The team reportedly reviewed the progress on adventure tourism in the Sultanate.
The team will furthermore develop and publish a manual on wadi adventure tourism.
Just last month, the Sultanate announced its biggest change in its visa rule in over three years that lowered the salary limit of an expatriate to bring his or her family to the Sultanate to RO300. Previously an expat had to earn a minimum salary of RO600 to apply for a family visa.
“This was a great move to keep the remittances within the country,” said Melissa Joan, an economist based in Oman, in an earlier interview with Y.
“I personally think this is a smart move. It’s something that should have happened three or four years ago but better late than never.
“This means that the people will spend their money within Oman. This should aid in strengthening our economy and also broaden the prospects of our growth annually.
“Until now, men and women working here had been sending their hard-earned money back to their hometowns in the Philippines, India, Pakistan, etc. But with their families here, I think they would have to increase their local spending, thereby reducing the flux of remittances outside Oman,” she told us.
In another surprise move, the Royal Oman Police (ROP) announced that Indians, Russians and Chinese would be exempted from requiring a sponsor to visit the country.
Later in the week, it then added 25 more countries – Azerbaijan, Armenia, Albania, Uzbekistan, Iran, Panama, Bhutan, Bosnia, Peru, Belarus, Turkmenistan, Maldives, Georgia, Honduras, Salvador, Tajikistan, Guatemala, Vietnam, Kyrgyzstan, Kazakhstan, Cuba, Costa Rica, Laos, Mexico and Nicaragua – to the list.
In 2016, the government approved the National Strategy for Tourism 2040, which aims to bring about a 6 per cent rise in the contribution of tourism to the GDP, and bring in five million visitors to the nation by 2040 – a two-fold increase in the number of people that currently visit Oman.
All of this means that Oman’s economy is expected to stage a “smart recovery” in the coming years.
And as per the revelations made by Dr Khalfan Mohammed Al Barwani, vice president, Financial Services and Operations, at the Central Bank of Oman (CBO), the growth in Oman’s GDP is expected to hit four per cent – according to the growth prediction by the IMF – next year. This was revealed during a panel discussion organised by international mass media company, Thomson Reuters, recently.
He also thanked the “economic diversification and prudent policies” of the government for this positive forecast.
Dr Khalfan was quoted as saying: “In 2017, we are seeing a little dip in terms of economic growth due to two reasons – a fall in oil production since Oman agreed to cut output along with OPEC and non-OPEC producers, and a decline in government spending.”
You only come to terms with the latter when you realise that the government has cut a staggering 6.1 per cent of its total spending in the first seven months (January to July) of this year when compared with the period of 2016.
While the news of a recovering economy may come as a pleasant surprise to the residents of Oman, several people are feeling the pinch in the advent of increased fuel prices and reduced subsidies.
Today, people are shelling out as much as 205 baisas (M95) and 186 baisas (M91) for a litre of petrol, and 211 baisas for a litre of diesel fuel.
But, businesses are taking the heat, as companies must now pay off unsubsidised electricity bills and higher fees for procuring new visas for their expat recruits.
This has also resulted in a decline in the budget deficit, according to the CBO. The deficit as registered by the CBO stood at RO2.6 billion in the end of July this year compared with RO4 billion in the same period of last year.
The statistics also tell that the total expenditure in the first eight months of this year stood at RO8.1 billion while the total revenues stood at RO5.4 billion.
But what does all this translate to the common woman and man?
“Those cuttings have only resulted in a tougher life for the normal consumers. I think the government should focus on attracting foreign investments as well as building specialised cities and, above all, focus on creating new jobs,” says Qais.
Financial analyst Bennett, however, believes that Oman is trying to lever itself from the “darker” times, and that the decline in the deficit is the signalling of “better times”.
“Once the funds start flowing in and the budget deficit is cut down further – by the next year or so – we can forecast that things will begin to settle down. This means that the fuel prices would stop fluctuating and the inflation would be even lower than what it is now.”
The inflation rate in Oman last month stood at 1.6 per cent – one of the lowest in the region. The major cause of the inflation was a 3.45 per cent rise in furnishings, household equipment and routine household maintenance groups.
“Still, the rate of buildings that are going up is quite high. Quite a lot of landlords have constructed new buildings with the hopes of finding more tenants. But as more expats leave the country, that hopes go into jeopardy.
“I know that the word on the street is that the young Omanis will fill in the gaps, but I don’t think that would be the case. Most of them would prefer to live with their families, or in economical flats, if they are within the city.
This – as per Bennett – is the reason for a drop in rents paid by tenants across various parts of Oman.
“Supply is currently trumping demand. And this will be the case until we have more young Omanis making a switch to the city limits with their families, or more expats fill in the flats that are left unoccupied,” he tells Y.
There are rumours that flats in the central business district (CBD) are now sealing deals for 50 per cent of its original value. Although, this can be attributed to the strategic shift of the National Bank of Oman (NBO) and the Bank Muscat (BM) to new offices, and in different locations.
But there is no better time to sign a house contract in the CBD than now, says Phillip M, an Indian expat working in the area.
“We had to move to Wadi Al Kabir last year because the rent in CBD was too high. But now, I am seriously considering breaking my contract and moving there.
“The houses that were going for RO500 and RO550are now going for RO375,” he points out.
On the other hand, retail outlets are optimistic about the forecast for the next fiscal year.
“Once the oil price stabilises, people will be paying marginally lesser for household commodities and other goods and services. Of course, this is in a scenario wherein the Value-Added Tax (VAT) isn’t implemented,” Bennett says.
“The tax system will definitely drive in funds to the government, thereby helping cap or stop a hemorrhage in the deficit.
“But it will also adversely affect the lifestyle of the people. If the taxes are raised even higher on the food and beverages, then people will most likely avoid dining out or reduce their spending on eating out, and so on. Certain luxury goods will also be priced higher; we should wait and see what happens,” he adds.
Another prospect for Oman’s economy is the growth in foreign investment. Chinese firms have already committed to a US$10 billion investment in Duqm, while a Kuwait-based firm is investing in the Duqm Refinery.
“So far the only real indicator is the oil prices. Yes, there is a slight increase but it gives us nothing major to say. We won’t see the figures of oil prices touching US$100 for the next eight to 10 years,” Qais exclaims.
“But, in general, I’m very positive about the economy. As I stated earlier, the oil prices will take a while to recover, and I wish diversification would have taken place at good times rather than the bad times. Nevertheless, we should always be positive and look forward to a brighter economy in the coming few years,” the entrepreneur adds.