OMAN has a full agenda and an attentive audience, keen to see action on projects and ideas that have been the talk of Muscat for more than three years. Major gas projects, the privatisation of utilities and an influx of foreign investment are all eagerly awaited. Bankers, businessmen and government officials agree that the time for talking is over and real results should start to flow from the various initiatives.
‘If anything, we should have moved in this direction sooner,’ says Commerce & Industry Minister Maqbool Ali Sultan. ‘But now things are definitely going the right way.’ The official enthusiasm is echoed in the private sector, which is expected to play a leading role in Oman’s efforts to develop the new strategy, but it comes with a qualification.
‘There is a determination within the government,’ one banker says. ‘But it is imperative that there are concrete moves this year.’
Oman’s next 25 years of development will be different from the first 25 years of Sultan Qaboos’ rule, which was celebrated in style last year. The authorities are offering a different vision for the future, designed to correct some of the imbalances that have emerged. The economy is over-reliant on revenues from oil production, which are no longer sufficient to meet the government’s budgetary needs. In recent years deficits have been covered through a combination of dipping into reserves and carefully managed international borrowing.
The fifth five-year plan, which runs from 1996-2000, sets out a strategy for eliminating the deficit, rebuilding reserves and reducing the role of the state in the economy. The government hopes to contain recurrent spending and slash capital expenditure by mobilising private investment in sectors, such as industry and infrastructure, that were formerly the preserve of the state.
The new approach involves the private sector in export-oriented gas-based projects. Leading the field is the Oman LNG scheme, which is set to get the final go ahead in September. Other private sector industrial proposals include fertiliser and petrochemical plants, and an aluminium smelter. These energy-intensive schemes will all tap newly developed gas reserves that will be piped to coastal sites from the central gas fields by Petroleum Development Oman.
Utilities are also to be privatised. Building on the experience gained from the Manah private power project the government says that similar schemes in Salalah and Barqa are to go ahead within one year. Wastewater management will also be privatised in Salalah and Muscat. The final structure of these schemes is still being defined. but the goveminent is inclined towards a wholesale transfer into the private sector, reducing its own role to that of a regulator.
The government has already had some success in developing export-oriented industries. Non-oil exports and re-exports have grown by an average of 30 per cent a year since 1990 and accounted for nearly 24 per cent of total exports in 1994. Policies to promote this sector include exemptions from customs duties on raw materials, soft loans and the provision of sites on industrial estates.
Yet, the sweeping scope of the strategy for diversifying and restructuring the economy has raised doubts about the private sector’s ability to support the burden it is expected to carry. ‘The government doesn’t seem to have added up the cost,’ says a western diplomat in Muscat. Estimates of the required investment over the next five years run as high as $20,000 million, which is more than one-anda-half times gross domestic product. If such sums are to be generated, private investors will be looking for attractive incentives.
‘The government is conscious that it needs to improve the investment climate,’ says the diplomat. The authorities are responsive to investor requirements, but are reluctant to provide guarantees for private infrastructure projects, which could compromise their marketability.
Corporate taxation is another area of contention, with the current regime discriminating against companies with foreign shareholders. ‘Taxation is high and dogged by uncertainty. The tax law is extremely complicated – there has to be reform.’ the diplomat says.
The government is keen to address the anomaly. ‘As a first step we are looking at publicly listed companies – the idea is to regard all stock holding companies as if they are Omani companies,’ says Sultan, who hopes to announce a reform by mid-year.
Investors are also seeking simplification of what they see as a muddle of regulations governing foreign ownership. At present foreign investment in a company over 49 per cent is permitted at the discretion of the Commerce & Industry Minister, who is advised by the Committee for Foreign Capital lnvestment
‘The criteria are simple,’ says Sultan. ‘Up to 65 per cent foreign investment will be allowed on large-scale projects that contribute to the national economy.’ Even 100 per cent foreign investment in a company is permitted with the approval of the Development Council for projects with capital of not less than RO 500,000 ($1.3 million).
Bankers and brokers also want to see direct portfolio investment on the local stock exchange opened to foreign investors. Change is expected but there is little sense of urgency. ‘Opening up the stock market would be another step in Oman’s new direction, but will come at a later stage.’ says a broker on the Muscat Securities Market.
The government recognises the need to pull in foreign investors, but is equally anx ious to attract the right kind. ‘Foreign investment is not acceptable at any price,’ says Development Affairs Minister Mohammed Yousef. ‘Foreign investment is required to bring in management skills, and to develop Oman’s economy. It is not a vehicle for short-term gains.’
The domestic financial sector is gearing up to bear its share of the burden of generating investment funds. Commercial banks are obliged to meet the Cooke ratio of 8 per cent for capital adequacy and the Central Bank of Oman (CBO) hopes to raise this to 12 per cent by the end of 1998. ‘Omani banks are poised for bigger challenges and bigger rewards. They need large amounts of working capital and they need to be competitive,’ says CBO President Hamoud Sangour.
Local contractors take a realistic view of their place in the scheme of things. Most are too small to participate independently on the large-scale gas and infra-structure projects and will have to club together and join international consortia to win work. But hopes are high that the LNG project will have a multiplier effect and stimulate activity across the whole economy.
Once the key LNG project gets the go-ahead some of the other downstream, gas-based projects could follow. Equally, if the government can negotiate its way through the complex private infrastructure proposals and create the right investment climate, foreign firms could come flocking. ‘Oman has a lot going for it, a good strategic location, political and economic stability, and rich natural resources.’ says one businessman. Oman’s many admirers are already familiar with its attractions, but it will need more than natural assets to realise its current set of ambitious goals.
Exchange rate $1 = RO 0.385