IBDE

Oman, or officially the Sultanate of Oman, is the oldest independent state in the Arab world. As with other Gulf nations, oil is the foundation of Oman’s middle-income economy. In 2009, the global financial crisis slowed Oman’s economic growth to 1.1 per cent; however rigorous development and diversification processes have seen it recover to 4.1% in 2010. According to international indices, Oman is one of the most developed and stable countries in the region. Considering the current political unrest surrounding the country (particularly in Bahrain, Iran and Yemen), the head of state and government, Sultan Qaboos bin Said Al Said still enjoys relative widespread support. Indeed, earlier this year, in Oman’s capital Muscat, peaceful protestors marched against corruption and low wages, whilst continuing to show support for the Sultan. Qaboos’ response to increase the minimum wage was well received. Oman is a member of the World Trade Organisation and the Gulf Cooperation Council.

Geography and Demographics

Oman is situated on the southeast coast of the Arabian Peninsula. It is bordered by the United Arab Emirates on the northwest, Saudi Arabia on the west and Yemen on the southwest. At the mouth of the Gulf, Oman occupies a strategically important position. Indeed its exclave, the Musandum Peninsula, adjacent to the Strait of Hormuz, is a crucial transit point for world crude oil. Oman has a population of just under 3 million, comprised of predominately Arab, Baluchi and South Asian ethnicities. According to Economic Trends in the Middle East and North Africa (MENA) area, Oman is experiencing the second highest rate of growth of young people aged between 15 and 24 in the MENA region.

Exports and Imports

While the country’s most significant export is its oil, compared to its neighbours, Oman is a relatively modest producer. In 2008 its oil exports reached just over 590,000 bbl/day. Other exports include metals, textiles and fish. The country’s major export markets are China, South Korea, Japan and the UAE. Its major supply markets are the UAE, Japan and the US, importing manufactured goods, machinery and transport equipment, food and livestock.

Macroeconomic Stability

The IMF estimates Oman’s real GDP to have grown by 4.7% in 2010, and expects it to continue to grow by a further 4.7% in 2011. Inflation (consumer prices) is estimated to have increased by 4.4% in 2010 and is expected to increase by another 3.5% in 2011. Over the last decade, the government has reduced public debt, relative to GDP, from around 39% in 1998 to below 8% in 2009.

In an attempt to move away from a dependence on oil - specifically, to reduce the oil sector’s contribution to GDP to 9% by 2020 - Oman’s government has been pursuing a series of development plans since the 1970s, which focus on economic diversification, industrialisation and privatisation. “Vision 2020” aims to, amongst other things, broaden the private sector; diversify the economic base and sources of national income; and advance both the skills and employment prospects of the Omani workforce.

Indeed, the government has invested in the establishment of three fishing harbours, a sports centre and a new airport in Sohar. It is also looking to increase the number of hotel rooms nationwide from 11,000 to 18,000 - and the number of tourists from 1.5 million in 2009 to 2.2 million by 2015 - in a bid to increase the tourism sector’s contribution to GDP from 2.9% in 2009 to 3.5% in 2015

Ironically, improved oil recovery techniques will see an estimated rise of 4% in Oman’s crude oil production this year, affording the government greater resources to invest in these non-oil sectors.

Labour and Omanisation

Oman is one of the only countries in the GCC whose local workforce is significantly larger than that of its expatriate base. This is partly because, and certainly sustained by, the government’s commitment to Omanisation. Omanisation is the campaign to upgrade the skill sets of Omani locals and both nationalise the labour force and reduce the dependence on skilled expatriates. Companies who comply with the stipulated Omanisation targets are awarded preferential treatment by the Ministry of National Economy. This process has seen the number of private and public sector jobs filled by Omani nationals steadily increase since its inception in the 1980s and will certainly go some way to making use of Oman’s growing youth bulge.

Trade

In the 1990s, Oman liberalised its markets in an attempt to accede to the WTO and, in 2000, gained membership. As a member of the GCC and the Greater Arab Free-Trade Area (GAFTA), Oman shares a free-trade zone with a significant number of Middle East and North African countries. In 2009, a free trade agreement between Oman and the US took effect, eliminating trade barriers and fostering safer foreign direct investment. Outside of these agreements there are no import tariffs on essential goods such as gold, silver, certain agricultural and food products and relatively low tariffs of around 5% on virtually all other goods.

Tax System

In line with its liberalised market, and in an effort to promote foreign investment, the Omani tax regime is both pragmatic and moderate. Currently in Oman, there is no tax on personal income. There is also no tax on foreign investment ventures for the first five years. Omani mixed public joint stock companies qualify for reduced tax on business income if 51% of the share capital is held by Omani nationals.

Advantages for Investors

·         One of the most developed and stable countries in the region

·         Strategic location at the mouth of the Gulf

·         Importance of the Musandum Peninsula for crude oil trade

·         Second highest rate of growth of young people in the MENA region

·         Rise in crude oil production

·         Rise in economic diversification – greater opportunities in privatisation, particularly tourism

·         Preferential treatment for companies who meet Omanisation targets

·         No or low import tariffs for certain goods

·         No personal income tax, no tax on foreign investment for the first five years, reduced tax on mixed entity business income with 51% Omani ownership