Oman - Market OverviewOman - Market Overview
The United States and the Sultanate of Oman share a strong bilateral relationship based on a joint commitment to the security, stability, and prosperity of the region. Oman is a member of the Gulf Cooperation Council (GCC), which includes Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, and Bahrain. The government of Oman is a monarchy with a population of approximately 4.6 million (including about 2.0 million expatriates), ruled by Sultan Qaboos bin Said Al-Said since 1970. Sultan Qaboos has transformed Oman from a feudal-like state of subsistence farmers and fishermen with a total of six kilometers of paved road into a nation with modern infrastructure and continuing economic and social investments.
Oman is a middle-income country with an economy based primarily on hydrocarbon resources. Crude oil and natural gas accounted for about 73 percent of the government's revenue in 2017. Oman witnessed an increase in nominal GDP by an estimated 8.7 percent in 2017, but the IMF estimates that real GDP contracted by 0.3 percent. The financial system remains stable and has a low non-performing loan ratio. Liquidity conditions tightened in 2016, but eased up in 2017. The banking sector is top heavy, with the leading bank by assets much bigger than its nearest competitors, which has given rise to talk of consolidation.
Lower global oil prices from 2014 to 2017 weakened Oman’s fiscal situation, current account balance, and foreign reserves. Oman also faces continuing pressure on its state budget due to relatively expensive subsidies, expenditures, and job creation initiatives. The government is projecting a three billion Omani rial (OMR) fiscal deficit in 2018, equivalent to 10 percent of its GDP. To cover the deficit the government has largely relied upon borrowing, particularly bonds issued on international debt markets. Oman issued $5 billion worth of bonds in 2017 and $6.5 billion in bonds in early 2018, its largest issuance ever. However, the market perception of risk associated with Oman’s bonds has increased over the past three years, which will likely increase the cost of borrowing.
To reduce the size of the deficit, in early 2017, the Ministry of Finance implemented an increase in the corporate tax rate from 12 percent to 15 percent and eliminated several tax exemptions. The Ministry of Finance also announced its intention to introduce a value-added tax (VAT) and new excise taxes, in concert with the Gulf Cooperation Council (GCC). The timeframe for implementation of these taxes has not been announced, but it is widely expected that the VAT will be implemented sometime in 2019. The government is also planning to raise funds to reduce the deficit by divesting stakes in as many as 11 state-owned firms via initial public offerings (IPO). The government intended to hold IPOs for the firms on various timelines during the course of 2018, but it is not clear whether this effort will remain on schedule.
The decline in the oil price has underscored the need to accelerate economic diversification and to increase the role of the private sector. The government is working to diversify the Omani economy by encouraging foreign investment, implementing a robust strategy for small and medium enterprise (SME) development, conceiving anti-trust regulations, boosting industrialization, building modern infrastructure, and expanding privatization. Oman seeks foreign investment, especially in the industrial, food processing, logistics, information technology, tourism, healthcare, fisheries, and higher education sectors. The Government of Oman has set a goal of 81 percent of GDP by 2020 for the non-oil sector, with the private sector representing 91 percent of the economy by that year. ‘Tanfeedh,’ a national initiative for economic diversification, and its Implementation Support and Follow-up Unit (ISFU) has reported on projects that the government deems vital for its development plans.
To diversify its economy, Oman is revamping its ports infrastructure from Muscat to Duqm, Sohar and Salalah, to adapt them for tourism, but more importantly, to increase industrial production and exports and to exploit the country’s strategic location to create a hub for international shipping. Oman has allocated 10 billion U.S. dollars (USD) to the Duqm Economic Free Zone and is seeking another USD 10 billion in foreign investment by 2022. The Chinese state-run company Oman Wanfang has already pledged $ 370 million for roads, utilities and other infrastructure, and Chinese investors would also develop an automobile assembly plant and a one-gigawatt solar power generation facility. A joint venture agreement has been reached between Oman Oil Company, the government’s investment arm in the oil and gas sector and energy related projects, and Kuwait Petroleum International (KPI) to build the Duqm Refinery and Petrochemical Industries Company (DRPIC).
According to the National Centre of Statistics and Information, foreign direct investment (FDI) in the Sultanate at the end of 2017 exceeded OMR 9.34 billion (USD 24 billion). Sector wise, the oil and gas exploration attracted foreign investment of more than OMR 5 billion, while financial intermediation secured FDI of OMR 1.41 billion. The United Kingdom tops the list of investors in Oman, with a foreign direct investment of OMR 4.45 billion, followed by the UAE at OMR 1 billion, and Kuwait at OMR 416.5 million in foreign investment.
Oman acceded to the World Trade Organization in 2000, is a member of the Agreement on Trade-Related Aspects of Intellectual Property (TRIPS), and a Free Trade Agreement (FTA) with the United States went into force in 2009. The lack of market competition due to the prevalence of family-owned and parastatal oligarchies has resulted in inflated price levels for its mainly imported food and consumer products.
According to the U.S. Census Bureau, in 2017, total U.S. exports to Oman increased 10 percent, to USD 1.99 billion. U.S. imports of Omani goods decreased 5 percent to USD 1.06 billion in 2017. Both Oman and the United States seek an expanded trade relationship and are working to leverage the FTA to that effect. The U.S.-Oman FTA removed most customs duties; the remainder will be phased out by2019, ten years after the FTA came into effect.