Is This The Right Time To Start Your Own Business In Oman?

22 Dec 2018
POSTED BY Y Magazine

The spirit of enterprise shows no sign of slowing down for young Omanis. However, red tape and economic realities can curtail the dreams of aspiring entrepreneurs. Here, Team Y takes a look at the reality of running your own company in the Sultanate.

The dream of setting up a business and watching it flourish is still alive for many Omanis.

From companies that produce eco-friendly bags to factories that supply equipment to petroleum firms, or cafes
and restaurants    the spirit of enterprise is all around.

And with a dream to succeed and willingness to work hard, it is the youth of Oman that are leading the way.

Opting for the harsh but hugely rewarding entrepreneurial route, they are ditching their jobs and opting for self-employment in the hope of better lives.

But why shouldn’t they? From as early as the 1960s, when the oil started flowing in, the purses of young entrepreneurs were filled with new money that otherwise would have found its way to foreign companies investing in trade and oil exploration.

The Sultanate gradually turned into a hub for startups – and by the early 2010s gained the nickname, “startup nation”.

The scope for success was huge if effort was put in – as has been told to us by those who quit jobs to set up their own companies. In doing so they are a part of Oman’s small- and medium-sized enterprise community or simply known as an SME.

What is an SME?, an Information and Technology (IT) website, defines an SME as a term for segmenting businesses and other organisations that are somewhere between the “small office-home office” (SOHO) size and the larger enterprise.

The European Union (EU), for instance, has defined an SME as a legally independent company with no more than 500 employees. Though, in Oman – as per Riyada, the public authority for small and medium enterprises development – an SME can be divided into three segments:

1) Micro: a company with one to five workers and earning an annual turnover of less than RO100,000.

2) Small: a company with six to 25 workers and earning an annual turnover between RO100,000 and RO500,000.

3) Medium: a company with 26 to 99 workers and earning an annual turnover RO500,000 and RO3,000,000.

While several have succeeded in setting up their own business, even more have crashed into debt. But the underlying fact is that SMEs are the backbone of the Sultanate’s economy.

From rags to riches: The story of an Omani businessman

Businessman Rashid al Barwani, the owner of the Rashid Steel and Metal Works, still remembers the day he opened his fabrication plant in 1988.

Today, he lives in a two-storey villa and is chauffeured around in a Rolls Royce – and his story is inspiring.

He tells: “My story is simple: I knocked and my knocks were answered. But, on paper, there’s more to success than what meets
the eye.

Photo for illustration purposes only

“In 1983, I set up my first company: a garage. Not only did this fail but it also put me in debt. Who would have thought that Japanese and German cars would be so reliable? So, in two years, I closed down the shop and fled town in the fear of being attacked by investors.”

Rashid had just lost RO22,000 – a huge amount even by today’s standards.

But, he didn’t give up. Over the following three years, not only would he borrow money from his uncle to start up his own steel import company, he would also repay the lenders and his uncle.

“It started as a small steel import company, wherein we would bring in steel from India and China. Then, I slowly increased services, and by 2000, I could begin fabrication services for various industries including the top petroleum companies.

“Success didn’t come overnight. It took years before anyone would trust me again and even more time for my services to be recognised. I remember how I would have to catch a ride from one of the truck drivers going to Port Sultan Qaboos from Seeb just to go and sign papers or collect a consignment.

Also Read: The Future of Oman’s Economy

“Life was difficult back then but as you can see, hard work does pay off.”

“Today’s generation may question this, arguing – as my kids today do – how life was much easier back then and how competitive the market currently is, disallowing any form of startup to flourish.

“The reality is that entrepreneurship both then and now has its own challenges – it’s only up to you to stand out from the rest and make a name for yourself and the company.

“I can understand my sons’ frustrations as to how competition has led to an oversaturation of supply that furthermore leads to companies crumbling over time but at the end of the day; it’s the survival of the fittest.”

Challenges faced by entrepreneurs

Rashid makes a strong case, as we learn from our source (who wishes to remain unnamed) at Riyada that there are nearly 32,000 SMEs currently registered, while those operational in Oman could stand anywhere between 120,000 and 150,000.

His statement tallies with the latest National Centre for Statistics and Information (NCSI) statistics, which shows that the number of SMEs currently stands at 32,441 – the highest ever recorded in the country. This also means currently 90 per cent of all firms in the country are SMEs.

Photo for illustration purposes only

While this shows progression, it by no means is comparable to countries in the European Union (EU) such as Italy, which has an overwhelming 99.9 per cent of SMEs against other larger enterprises and which account for a staggering 3.8million or 81 per cent of the workforce.

The numbers aren’t limited to the West either, with countries like India and China showing nearly 42.5m and 34.37m registered SMEs, respectively.

The Riyada official states: “Oman is definitely on the right track when it comes to development in the private sector. We all know how prevalent the government sector in the country is, with much of the local workforce opting to work there.

“This mindset is slowly changing and more people are slowly shifting to the private sector, which is really where Oman’s SMEs lie. The shift is very slow, and to be very frank, people prefer to come to us to start up their own company than, say, ask us for support in procuring a job.

Are more Omanis are opting for the entrepreneurial route?

Photo for illustration purposes only

“No,” the official exclaims. “The numbers of SMEs are bound to rise, even if the economy isn’t suited for starting a company – it’s a general fact. Where we’re a bit disappointed is in the numbers. We don’t think enough Omanis believe in setting up companies now.”

Whether you blame it on the 2015 oil crisis or the general lack of opportunities, fewer Omanis are now taking the plunge and making the decision to start their own firm. In truth, by the end of January 2018, only 606 SMEs had registered themselves with the government.

This was furthermore reflective of the numbers between August 2017 and 2018 that showed a drop of 39.2 per cent in newly-registered SMEs.

All of these statistics come to us despite extensive efforts undertaken by the government in conjunction with private firms. For instance, the Oman Development Bank offers loans of up to RO1m at an interest rate of up to 3 per cent, while other institutions such as Bank Muscat, National Bank of Oman (NBO), and several others also offer loans.

Additionally, Oman’s SME Development Fund (SMEF) had allocated a total of RO14.5mn in 2018, as opposed to the RO12.5mn it offered in loans for aspiring Omani businessmen to fund SMEs. This raises its total investment to RO33mn since it was introduced in 2014.

Larger government companies have also jumped on the bandwagon, offering up sizeable chunks of tenders exclusively to SMEs. Haya Water, for instance, awarded more than RO1mn in terms of closed tenders and an additional half a million Omani Rials to SMEs in 2017.

Despite all this, SMEs in Oman remain low when compared with its neighbours in the GCC. Little wonder then that these small- and medium-scale industries only contribute a little over 15 per cent to the nation’s overall GDP (Gross Domestic Product) – a far cry from the 50 and 60 per cent that economies in the EU usually clocks.

All further questions to the Riyada official is met with silence, so we broached the topic with SME owners across Oman.

The difficulties of setting up a business in Oman

Aisha al Barwani, a life coach and the owner of a health clinic in Oman says: “There are several reasons as to why Omanis are shying away from setting up companies, and the most prominent reason is the difficulty in setting it all up.

“There’s a general lack of clarity in the steps involved and a considerable red tape that completely bottles in anyone’s progress in setting up a company. I was made to wait for nearly six months for the loan to be approved and by then I didn’t need the money anymore; I’d borrowed enough to cover my capital expenses from my family.

“But, not everyone has the liberty to do that. So, they may have to shelve their plans until they feel the time is right again or when the loan is sanctioned.

“Aside from that, there’s the expat visa ban and Omanisation that can scare Omanis from staring up. Think about this: if you’re planning to start a company with a set number of local and expat workers in your mind, and if the government bans that profession, you’re left with voids of skilled workers that you probably cannot fill, and even if you can, it would be at a much higher cost.”

This is a concern shared by entrepreneur Adnan Gabol al Balushi, a restaurateur and the owner of Oman’s first marine watch company.

Adnan Gabol al Balushi

He says: “Even though there’s plenty of support from the government in procuring loans, the procedures and the time factor between processes are too long – and that’s what raises the red flag with most ambitious Omanis. They want things done quickly, not over a span of six or 10 months.

“Moreover, the Omanisation rule – which we do support – can affect smaller companies, especially restaurants. For instance, if someone were to hire an Indian or a Pakistani waiter, they could be paid RO120 monthly, but instead, they’re now pushing for Omanis to be hired – and that can cost RO350 per person for a month.

“Not only does this drive the costs up, it erases any margins they would have kept for profits. Also, we had been made aware of the possibility of a rule by the Municipality that restaurants would be charged RO100 per chair placed outside the restaurant premises.

“Thankfully, this didn’t pan out or the law has been put on hold. But it’s laws like this that scare people into staying away from setting up their own companies.”

A top economist and professor from one of the leading universities in Oman, Andrew Powell, says there’s more to the general dip in interest to set up companies than what meets the eye.

He says: “The greatest problem that we can point out from the studies we’ve conducted is the failure rate among SMEs in Oman. While we’re not at the liberty to reveal the local statistics, we can point at the international rates. And according to a research conducted by statisticians in financial firm, Fundera, nearly 20 per cent of SMEs shut down in the first year, 30 per cent in the second year, and a staggering 50 per cent of them shut down by the fifth year.

“Does all that sound a bit concerning to you?” he asks. “Well, the harsh reality is that more companies bloom every season but are left to rot if the owner fails to find profit in the company or faces stiff challenges from other counterparts.

“They fail to realise that the company is like a baby: it needs to be fed properly, which in this case means, must be constantly nourished with fresh ideas and services in the first six to 10 months of its existence. More importantly, it must be allowed to grow past the initial five years.

“While most government institutions offer interest-free loans for as long as 10 years, other private companies may charge a nominal interest rate. And if the company isn’t even breaking even after covering the operational and loan amounts, it can put stress on the firm.

“This is why there’s a large number of cases of employees being unpaid in SMEs in Oman. It’s very upsetting to see and the future still looks a bit bleak since the nation’s demand isn’t rising as expected.

“A business works on the model of demand and supply. It’s a cycle that needs to be smooth enough to be efficient. But, in a country wherein the population isn’t increasing and the numbers of SMEs are, where would the demand come from?

It’s simple mathematics, he says “There needs to be people to avail your services. And as the country closes its doors on certain professions, it also shuts the door on increasing the country’s population.”

Steps taken to help ambitious Omanis

Negatives aside, however, Oman is taking strong steps to ensure that the future of SMEs is secure. In July, this year, the SMEF provided entrepreneurship training to more than 30,000 students in a bid to encourage and possibly enlighten the future generation about setting up their own businesses within the country.

Even the oil and gas industry got in on the act, with the ‘Ta’sis’ initiative launched by the Oman Society for Petroleum Services (OPAL) and with the support of the SMEF offering 10 aspiring Omani entrepreneurs – from a list of 350 Omani oilfield workers – an opportunity to set in motion the process of setting up their very own companies.

In an interview with Y, motivational speaker, IT business owner and a former member of SMEF, Sami al Zadjali, says: “There’s a lot of unconstructive talk going around Oman’s SME sector right now – and it has everything to do with how the youth of the country are demotivated to start their own firm.

Photo for illustration purposes only

“I’ve come across several young men and women who have wanted to start their own firm but have been asked not to by their peers. While, it may be with their best interests in mind, we need to realise that everyone needs a ground to start on.

“Yes, that doesn’t mean you can simply go and start your own restaurant or engineering firm. Conduct an in-depth research and play it clever; use your best instincts and the expertise from those around you to conduct a SWOT analysis (strength, weakness, opportunity, threat) before you begin.

“Your business idea can mean your greatest achievement or your darkest doom – so it’s always wise to choose your stream wisely. One month of analysis can trump a decade of debt, and a team of well-paid and satisfied employees will be more productive than those paid lower than what they’re worth.

“Most importantly, however, at no stage should you look back and say that you made the wrong decision. If you’ve stepped into what could possibly be your riskiest gamble, play it until you’re done with your cards or leave it  early on with your head held high.”

“And, who knows, if you play all those cards right, your SME of today could turn into the multi-national company of tomorrow.”

10 reasons why startups fail in Oman

1) Growing too fast:  While growth is desirable, overexpansion is a serious error. Wanting to be the first to market with a new product, taking on added overhead, or trying to prove to anxious investors that you’re growing can all spur you to overextend your business financially. Set realistic goals and expand only as needs dictate.

2) Failing to track your finances: Look at businesses that fail and you’ll find that many of them took on too much debt. Learn to pay strict attention to your finances, and keep careful records of all money coming in and going out.

3) Overspending: Many new entrepreneurs burn through their startup capital before their cash flow is positive. This often happens because of misconceptions about how business operates. If you’re just starting out, seek out seasoned veterans you can turn to for advice before making big expenditures.

4) Lack of reserve capital: Be prepared for unexpected increases in the costs of things like utilities, materials, and labour. Make sure you keep enough reserve cash to carry you through tough times and seasonal slowdowns.

5) Poor choice of location: Don’t let a cheap lease tempt you into choosing the wrong location. Consider competition (how many similar businesses are located nearby?) and accessibility (is the area well served by freeways, public transportation, and foot traffic?).

6) Poor execution: Poor customer service and overall employee incompetence will quickly sink your business. Make sure your employees place a premium on customer service. Develop systems and processes for how tasks should be accomplished, and create internal controls to monitor them.

7) An inadequate business plan: A well thought-out business plan forces you to think about the future and the challenges you’ll face. It also forces you to consider your financial needs, your marketing and management plans, your competition, and your overall strategy.

8) Failing to change with the times: The ability to recognise opportunities and be flexible enough to adapt is crucial to surviving and thriving. Learn how to wear multiple hats, respond nimbly, and develop new areas of expertise.

9) Ineffective marketing: Customers can’t do business with you if they don’t know you’re there. It doesn’t cost a lot to advertise and promote your business through online marketing, social media, email, local search, and more.

10) Underestimating the competition: Customer loyalty doesn’t just happen — you must earn it. Watch your competition and stay one step ahead of them. If you don’t take care of your customers, your competition will.

Source for Top 10:

Share this

Public Reviews and Comments