Oman creates a gateway to shipping in the Gulf

19 September 2008
Oman has been investing heavily in building world-class ports with industrial estates as well promoting international trade in a bid to attract investors, boost exports and diversify the economy.

The two pillars of Oman's economic diversification, as set out in Sultan Qaboos' Vision 2020 programme, are tourism and industry.

To realise its industrial goals, Muscat has been ploughing millions of dollars into building world-class ports with sizeable industrial estates. It has also been taking clear steps to facilitate international trade.

Sultan Qaboos recently said, "The industrial sector shall become the major source of national income." Industrial exports are seen as one of the prime routes to achieving this goal.

Oman already has extensive trade ties with Asia; Asia was actually the final destination of more than 70 per cent of Omani exports in 2006. In the same year, it signed the US-Oman Free Trade Agreement which began in January 2007, removing tariffs and encouraging investment.

These diversification efforts have been paying off: in 2007, total non-oil exports recorded a robust growth of 58.9 per cent, over and above the 32.1 per cent recorded in 2006.

With a coastline that stretches 1,700 kilometres and its strategic location as one of the world's busiest trade routes, Oman is poised to capitalise on its location by developing its ports.

The historic port of Sohar in Oman's northwest is helping the sultanate realise its goal of becoming an important trans-shipment hub on the global shipping route, as well as playing a key role in economic diversification.

The port, established in 2002 through an equal joint partnership between the government of Oman and the Port of Rotterdam, has attracted more than $13bn in investment and is expected to provide direct and indirect employment to 8,000 and 32,000 people respectively.

"The port's current container handling capacity is 1 million TEUs [20 foot equivalent units] a year," says Jan Meijer, chief executive officer (CEO) of Sohar Industrial Port Company (SIPC). "But we are currently undergoing a third phase to the port's expansion which will be completed in December this year."

This expansion will result in the number of berths increasing from 12 to 22. The port has also started developing 23-metre drafts due for completion in 2010, making it the only port to offer these in the region.

Meanwhile, the Sohar Industrial Zone (SIZ) at the port is now the main hub of Oman's industrial activity, with multinationals such as Dow Chemicals, Hutchison Port Holdings and Larsen & Toubro basing their Omani operations there.

The government has worked hard to liberalise foreign ownership to help attract overseas investment. Oman's Foreign Capital Investment law permits 70 per cent foreign ownership in companies and FDI enterprises are eligible for five-year tax breaks that can be extended by up to 10 years.

"SIZ has also been instrumental in kickstarting the growth of Oman's burgeoning downstream activities," says Meijer. "Only a few years back, Oman could boast very little in the way of a petrochemicals industry."

Today SIZ has a number of world-scale plants churning out a diverse array of petrochemicals products from gasoline, fuel oil, naptha and LPG to methanol and polypropylene - all of which are helping to add value to the country's hydrocarbons wealth.

Greater trade levels will be facilitated by the launch of the 4,300 hectare Sohar Special Economic Zone towards the end of 2008.

Complementing Sohar is the port of Salalah. It was established in November 1998 and is south of Sohar on Oman's Indian Ocean coast. Ranking among the world's top 20 largest container terminals, it has been highly successful in establishing itself as a leading transshipment centre and it is also undergoing expansion to increase its capacity from 2.4 million to four million TEUs a year at a cost of $356m.

Like Sohar, it is facilitating the growth of industry at its Raysut Industrial Estate and the Salalah Free Zone is also now under way. "The ongoing expansions taking place at the ports attest to their commercial success," says Meijer.

The $1,819m Duqm Port and Drydock complex is set to become another major port. The development incorporates a new port with two dry docks and a shipbuilding yard close to the $10bn Duqm new town real estate development, as well as a crude oil export terminal, downstream industrial area and a free trade zone.

"In establishing this network of ports, Oman is putting in place the infrastructure needed to become an international logistics hub that can meet the needs of the global transport industry," says Meijer.

As is invariably the case in the region, Oman's main competition will come from Dubai, which has already attracted many multinationals to its terminals through its free zones' tax incentives and state-of-the-art infrastructure.

However, Oman's strategic location at the mouth of the Straits of Hormuz and the associated savings in cost and time give it a clear advantage over rival ports in the region.

"Oman is pursuing the growth of its shipping industry very aggressively," says one Western diplomat. "Many now believe it has the potential to surpass both Bahrain and Dubai and become the gateway to shipping for the Gulf."

The government's drive to modernise the country's infrastructure has also helped transform Oman's real estate landscape.

A crucial milestone in this progress was the introduction in February 2006 of a freehold ownership law for integrated tourism developments, clearing the way for expatriates and foreign nationals to own real estate.

Launched in 2005, the $20bn Blue City (Al-Madina A'Zarqa in Arabic), was the first such development to offer full freehold property. It caused a major change in the real estate market considering that, once completed in 2025, the city will be home to 250,000 people.

Dubbed a 'micro-economy', it is one of the region's largest urbanisation programmes and has done for Oman what the Burj al-Arab did for Dubai: confirm its presence on the global real estate map. But it has been difficult.

Legal disputes over the ownership of the parent company are ongoing and a recent management shake-up included the appointment in June of Richard Russell - the new CEO of Blue City Company 1 - who is charged with overseeing the development of the first phase, to include 5,171 apartments and 382 villas.

Up until now, Blue City Company 1 has consistently fallen short of revenue targets because of a delay caused by a master plan redesign originally drawn up by Foster and Partners.

At its latest count, total revenue was $31m, far short of its 7 August target of $101m.

These slow sales led ratings agency Fitch to place approximately $526m of the debt raised as part of a $925m bond, issued by Bear Stearns in 2006 for the first phase of the project, on a "rating watch negative" last month.

But Russell remains upbeat. "We are about to release 200 golf-course villas, which I believe will get snapped up. I have every confidence in Blue City and initial discussions are now taking place for the balance of the phases."

A total of 3,200 new units are set to hit the market over the next few months. The project is one of the most important growth engines in helping Oman diversify its economy and generate employment for its growing young population. The first phase alone is expected to create 7,000 direct jobs and 25,000 indirect jobs.

Another project reaping the benefits of the freehold law is the $2bn The Wave project, established in 2002.

"Buyers of the first set of houses that were sold two years ago are going to start moving in over the next few months," says Nick Smith, CEO of The Wave. That makes it the first freehold real estate development to become operational in Oman.

"We've sold nearly 900 properties," says Smith, "We're running at approximately 50 per cent Omani buyers and 50 per cent other nationalities, of whom 15 per cent are British and 14 per cent Indian." Such figures are a further reminder of Oman's strong bilateral relationships with both countries.

Over the next five years, the Vision 2020 plan will see no less than 24 major integrated tourism and residential developments come to fruition.

Spearheading this growth is Omran, a government-owned company representing the Ministry of Tourism and responsible for developing more than ten resort projects with a value in excess of $10bn - all due to be completed within the next five years.

Six of these projects involve joint ventures with leading regional developers including Sama Dubai - the international development and investment arm of Dubai Holding, Jordan's Saraya and Qatari Diar.

In cultivating the growth of its industrial, real estate and tourism sectors, the government has wisely targeted joint venture partnerships that are able to provide the level of expertise that the Omanis have yet to acquire, and help it achieve its 2020 goals on time.

With analysts predicting the value of demand for real estate will top $20.8bn by 2010, the incredible pace of Oman's real estate market shows no signs of slowing down. Industry reports indicate that the average price per square metre for residential land in Oman rose by 253 per cent, from $38 in 2005 to $135 in 2007.

The tourism and real estate sector will be boosted by the construction of six new airports under way in Sohar, Al-Duqm, Ras al-Had, Adam, Haima and Shaleem. These airports will help boost tourism in these locations.

Meanwhile, expansion work on Muscat International Airport will see its capacity increased from its current five million passengers to 12 million by 2011. Further expansions planned in three subsequent phases will ultimately increase the airport's capacity to 48 million passengers by 2050.

"Vision 2020 has not only helped provide Oman's tourist industry with an infrastructure that will be fully integrated when complete, but the long-term development strategy has also helped create a vital and vibrant commercial sector for the country that will carry us well into the 21st century," says Salim Bin Adey al-Mamari, Oman's Director-General of Tourism Promotion.

Today the combined value of projects either planned or under way in the sultanate is $55.4bn and the business environment cultivated by the Omani government is ensuring that foreign investment is being successfully attracted, as never before.

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