Tourism revenue targets on track in Oman

16 April 2010

The sultanate of Oman has faired better than many of its neighbours across the region in the wake of the financial crisis and, despite some setbacks, its tourism sector is hitting its targets early

The global recession of 2009 hit the tourism sector throughout the world, as the credit crunch forced people to cut back on international travel. And Oman was no exception.

In numbers

  • 20 per cent - The drop in visitors to Oman in 2009 compared with 2008
  • 50 per cent - Average hotel occupancy rate in 2009
  • $1.3bn - Value of contract for construction work at Muscat International airport

Source: MEED

The number of visitors to the sultanate last year was down 20 per cent on 2008, falling from 1.2 million to 934,019.

In a year that saw 23 new hotels opening in Oman, hotel guest numbers decreased to 1.3 million in 2009, from 1.7 million the year before, and occupancy rates dropped to 50 per cent as a result. According to the Ministry of Tourism, the combined revenues for hotels in the sultanate last year were OR19.7m ($15.2m) lower than 2008.

Project delays

The recession hit just as Oman was in the midst of a massive tourism development programme as part of its Vision 2020 plan for economic diversification. The plan sets a target for the tourism sector to contribute 3 per cent of the country’s total gross domestic product (GDP) by 2020.

But the financial problems of 2009 have derailed some of the largest tourist developments in the sultanate.

The $15-20bn Blue City integrated tourism development outside Muscat was seen as Oman’s answer to the booming real estate markets of Dubai and the other Gulf states.

The first phase was planned to cover an area of 2.8 square kilometres and provide residences for 16,000 people.

However, the development has suffered from delays and numerous obstacles from the outset, and the project is currently on hold. Disputes over ownership, combined with the global financial crisis, meant early sales did not meet targets set out in the original bond documents.

Last month, investors in the project received letters from Al-Sawadi Investment and Tourism Company, the owners of the project, asking them to vote on the dissolution of the company.

“The project is on hold just now, but we don’t know how long for, or when work is going to restart,” says a contractor who has been involved with the project.

Blue City is not the only integrated tourism development in the sultanate to suffer from the effects of the recession.

Another large-scale tourism development, the $1.7bn Salam-Yiti tourism project, located just south of Muscat, is also on hold. Sama Dubai, a subsidiary of troubled Dubai Holding and a partner in the joint venture with the Oman government, has been plagued by financial problems and has been forced to suspend most of its projects indefinitely.

But despite the current economic climate and the problems faced by the developers of these two projects, Oman still has plenty of reasons to feel optimistic about its expanding tourism industry - not least because the sector has hit its GDP contribution target 10 years early, according to the state-run Oman Tourism Development Company (Omran).

Omran was set up in 2005 with a mandate to develop the facilities and infrastructure necessary to expand the country’s tourism industry.

Muscat International Airport
YearTotal PassengersTotal Civil Aircraft Movements
Source: Oman Airports Management Company 

“Clearly, 2009 was a year of great difficulties for the global economy and the sultanate is not immune from the economic conditions,” Omran chief executive officer (CEO), Wael al-Lawati, tells MEED. “However, the growth of the sultanate’s economy, particularly the tourism sector is vital.”

An even larger GDP target for the sector will be announced next year. “A new target will be established by the government for the next five year plan, starting in 2011, as the 3 per cent has already been achieved,” says Al-Lawati.

Omran is currently involved, either as a partner or independently, in a number of tourism projects in the country. With the exception of Salam-Yiti, all are ongoing in various stages of design or development.

However, the tourism body is currently focusing its attention on developing facilities for the Second Asian Beach Games, which are to be held in December in Musannah, near Muscat. More than 10,000 athletes, officials and media representatives from 45 countries are expected to gather for the event, where athletes will compete in 11 beach sports.

Key opportunity

The 1 million-square-metre site will comprise sports arenas, villages to house up to 3,000 athletes and grandstands to accommodate up to 5,000 spectators, as well as hotels, restaurants and other recreational facilities.

“Sixty-six per cent of the overall construction work has been completed, and the site remains well on track for handover to the organising committee in November 2010,” says Al-Lawati. The event is seen as a key opportunity for Oman to showcase its tourism sector to the world.

Omran is a partner in several joint venture tourism developments.

Muriya Tourism Development Company was set up in 2006 as a 70:30 joint venture of Egypt’s Orascom Development Holding, the majority shareholder, and Omran.

Muriya is developing four tourism projects in Oman, including the Jebel Sifah and Salalah Beach integrated tourism resorts.

Jebel Sifah, located about 45 kilometres from Muscat, is planned to cover an area of 6.2 million sq m and will contain four hotels, 500 apartments, 450 villas, a marina, golf course and other leisure facilities. Muriya hopes to open the first hotel and deliver some of the residential units to customers by the end of 2010.

“We were quite lucky because for us the global financial problems last year were an opportunity rather than a crisis,” says Cyril Piaia, CEO of Muriya.
The firm was able to sell most of its units off-plan in late 2007 before the global crisis really impacted property prices and the real estate market.
“Not only that, but the price of raw materials dropped and so our costs were cheaper,” he adds.

Another large-scale integrated tourism project in the sultanate, The Wave, is being developed through a joint venture of UAE-based Majid al-Futtaim and the Oman government.

This $3bn scheme, located on the coast at Muscat, covers an area of 2.2 million square metres, and includes 4,000 residential properties, four hotels, a marina and retail facilities.

“There has been no construction work put on hold and the development is progressing on schedule,” says Michael Lenarduzzi, CEO of The Wave. “In March, we put a 168 residences and town houses to the market, and have already sold about 90 per cent of those.”

Some 300 residents have already moved into the development, and this figure is expected to double by the end of the year.

Piaia and Lenarduzzi both point to the cautious approach of the Central Bank during the boom years, and the long-term planning of the government, as key reasons why many tourism project developers in Oman have managed to come through the financial crisis relatively unscathed.

“Oman was criticised during the boom years for being too conservative, but now it is in a better situation than many countries,” says Piaia. “The local bank is very strong.”

The collapse of the real estate market worldwide, which was particularly felt in neighbouring Dubai, raised concerns with developers throughout the region about the increased cost of financing for real estate projects. However, the sultanate’s Finance Ministry assured Omran that funding for developing the tourism sector would be available when required, says Al-Lawati.

Developers have also pointed to the Vision 2020 plan as a reason why some of Oman’s tourism developments have been able to weather the financial crisis.

“The 2020 Vision plan is very good. Oman has been careful to chart a steady course and not get too far ahead of itself,” says Lenarduzzi. “While the region has definitely been impacted by the financial downturn, Oman has been fairly steady. It tends not to work to small cycles, but works to a long-term goal,” he adds.

The country has also been aided by its unique natural beauty, which makes it stands out among its GCC neighbours as a popular tourism destination.
To facilitate the growth of tourism sector, the government has also directed significant investment to improving and expanding the country’s transport infrastructure.

Work has begun on the first phase of the expansion and modernisation of Muscat International airport, which will increase its capacity to 12 million passengers by 2014. Last year, some 4.6 million passengers passed through the airport.

Infrastructure investment

Greece’s Consolidated Contractors International Company and Turkey’s TAV were awarded a OR500m ($1.3bn) construction contract for work on the airport in May 2009. The deal involves building a runway, taxiway system, aprons, roads, utility buildings and other civil works.

In the south, Salalah airport is also to undergo development and expansion. This will lead to a capacity of 1 million passengers by 2013 - double the number of passengers who used the airport in 2009.

There are also plans for three new airports at Ras al-Hadd, Duqm, and Sohar. The expansion of Oman’s airport network is viewed by the government as essential to the growth of the country’s tourism industry.

The airport expansion plans have been carried out alongside the transition of Oman Air into an international carrier. The launch of non-stop flights to Munich, Frankfurt and Paris from Muscat in the final quarter of 2009 has led to an increase in passenger arrivals of 78 per cent from Germany and 84 per cent from France.

The government is also actively trying to increase the number of tourists visiting Oman arriving by sea. In 2009, the recently expanded Port Sultan Qaboos passenger cruise ship terminal, in Muscat, achieved a 22 per cent increase in cruise-ship arrivals to 185 vessels, from 2008. Passenger arrivals to Oman by cruise ship are expected to exceed 350,000 in 2010.

The global recession had a significant, yet unavoidable, impact on Oman’s tourism industry. But the government’s commitment to developing the sector and its continued investment in tourism projects and infrastructure will enable the sector to rebound. Already, the expansion of state-run Oman Air is paying off, with about 57,000 more travellers from Europe visiting the sultanate in 2009 than the previous year.

Analysts are forecasting an upturn in the international tourism market this year, with worldwide tourist arrivals set to increase by 3-4 per cent. With the industry already having reached its GDP target set for 2020, Oman’s tourism market will be one to watch in the coming years.

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