Oman looks to the future with confidence

13 January 2011

The sultanate of Oman has approved a five-year plan that will lay the foundations for long-term non-oil growth. Infrastructure is a priority

The shops and restaurants around Qurum beach were buzzing in early January as Muscat’s residents basked in the sun and enjoyed the view. The palm trees rustled gently in the Indian Ocean breeze. It could have been the Caribbean.

Muscat is the loveliest of the GCC’s capital cities. Its unique character is becoming increasingly precious. Rapid development has irrevocably changed the face of most big Arabian cities, but it has been gracefully accommodated by Oman’s capital. Framed by the Hajjar range’s sombre tones, the city extends more than 20 kilometres along the coast and into the valleys that penetrate the mountains, but no high-rise blocks have been allowed. Every home and apartment block is pleasingly painted white. Muscat looks wonderful. You cannot help loving it.

Oman’s advance has been steady rather than spectacular and its economy was dealt three blows in the past 10 years. Oil exports started in 1967 and production peaked in June 2000 at 850,000 barrels a day (b/d). It then started falling despite efforts to remedy declining pressure in the sultanate’s reservoirs. Lower output forced Shell, which owns 34 per cent of Petroleum Development Oman (PDO), to revise its estimate of the amount of oil left.

In 2005, crude oil production was down to 600,000 b/d. The impact on Oman’s economy was offset by the oil price rise since 2003, but the long-term prognosis was alarming. The country’s development relies on dependably constant oil production.

The weather was the second blow. Parts of Oman’s coast were hit but only modestly damaged by the tsunami that swept the Indian Ocean at the end of 2004. Cyclone Gonu – the second-most severe hurricane in Oman’s history – killed more than 100 people and left tens of thousands homeless in June 2007. Significant but more modest was damage was done by hurricanes in 2009 and 2010.

The third shock was the precipitate decline in oil prices between July 2008 and the end of that year. It threw the current account and budget into deficit and gross domestic product (GDP) in 2009 was down 24 per cent. Ever prudent, Oman’s plans were trimmed and deferred. There was no property smash on the scale other GCC countries experienced.

The news since 2009 has been more positive. Oil prices are now approaching $100 a barrel. An enhanced oil recovery programme and heavy investment has restored crude oil production to about 900,000 b/d. GDP in 2010 is estimated to have returned to its 2008 level. Government finances are stable and sustainable.

The confidence these developments has inspired are reflected in the 2010 budget, which calls for higher public spending, and particularly in the eighth five-year plan, which was approved by Sultan Qaboos on 1 January. The document calls for a substantially-higher capital investment and the priority is infrastructure. Most eye-catching are transport projects including a new airport, a huge expansion of Duqm port on the coast between Muscat and Salalah and an Oman extension of the GCC railway, which is due to start in 2017.

The transport infrastructure plans confirm Oman’s longstanding commitment to developing an effective communications network linking the populous northern Batinah region with Dhofar and Salalah in the south. What is new in the eighth plan is the extent to which Oman is acting to integrate with other GCC economies. The sultanate is signalling that its future is as a central part of the booming Gulf region.

It is also evidence that the GCC as a whole recognises the growing strategic importance of Oman’s location. It occupies most of Arabia’s south-east coast and provides a secure outlet and entry point for oil, material and people that avoids the Strait of Hormuz. With the deadlock about Iran’s nuclear plans set to continue indefinitely, the GCC wants to protect itself against the possibility of a blockage in the channel through which about 20 million b/d of crude oil will be delivered to the world by 2030. Oman is part of a vital long-term risk management plan for the whole region.

More mundane matters are preoccupying the Oman business community. Many forecast double-digit sales growth in 2011 and some say 20 per cent expansion is possible. It means the sultanate this year will be one of the Middle East’s leading hotspots. The buzz around Qurum this New Year is due to more than the weather.

Oman’s on the move again, this time as a regional leader.

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