Discusses key economic indicators and trade statistics, which countries are dominant in the market, the U.S. market share, the political situation if relevant, the top reasons why U.S. companies should consider exporting to this country, and other issues that affect trade, e.g. terrorism, currency devaluations, trade agreements, etc.
Last Published: 8/2/2017

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 regional actor as a member of the Arab League as well as 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 4.586 million (including about 2.1 million expatriates), ruled by Sultan Qaboos bin Said Al Said since 1970. During his nearly fifty years as Oman’s leader, Sultan Qaboos has transformed with the assistance of foreign investors a nation of subsistence farmers and fishermen with a total of six kilometers of paved road into a thriving state with modern infrastructure and continuing economic and social investment.
 
Oman is a middle-income country with an economy based primarily on limited overall hydrocarbon resources, notwithstanding a few significant recent gas finds. Oil and gas accounted for about 70.3% of the government's revenue as of November 2016. The drop in oil price starting in the fall of 2014 has weakened Oman’s budget, trade surpluses, and foreign reserves. Increased subsidies and expenditures since 2011 associated with the “Arab Spring” and job creation initiatives are weighing heavily on the budget. Oman has witnessed a decline in nominal GDP by an estimated 5.1% in 2016. The financial system remains stable  and has a low non-performing loan ratio. Liquidity conditions tightened in 2016, but initial indications suggest that liquidity has begun increasing in 2017.
 
Oman faces continuing pressure on its state budget due to the depressed oil prices. On May 12, 2017 Standard & Poor’s (S&P) lowered Oman’s rating to BB+ from BBB−, with a negative outlook, saying the country’s external buffers have weakened and are insufficient to mitigate the risk from volatile oil-driven export revenues. As of May 18, 2017, the other two major ratings agencies had higher assessments of Oman than S&P. Moody's Investors Service rates the country Baa1 with a stable outlook, three notches above S&P, while Fitch Ratings has a BBB rating with a stable outlook, two notches above.

The Omani government’s 2017 budget projects a deficit of OMR 3 billion ($7.8 billion), which represents over 25% of total projected expenditures.  To cover its deficits, Oman has turned to borrowing on both the local and international markets. Oman borrowed approximately $10 billion in 2016, and has borrowed $5 billion so far in 2017. The government has announced plans to borrow at least $5.6 billion more in 2017, though it will likely face increasing costs of financing due to Standard and Poor’s downgrade of Omani sovereign debt to junk status.

To reduce the size of the deficit, the Ministry of Finance has implemented an increase in the corporate tax rate from 12% to 15%, 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 is widely expected in 2018. The government is also planning to divest stakes in as many as 11 state-owned firms via initial public offerings (IPOs)
 
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 (GoO) has set a goal of 81% of GDP by 2020 for the non-oil sector, with the private sector representing 91% of the economy by that year. ‘Tanfeedh,’ a national initiative for economic diversification, is in the process of unveiling projects that the government deems vital for its 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 to the Duqm Economic Free Zone and is seeking another $10bn 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 1-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).

Oman maintains ties with Iran and is hoping to leverage those ties to establish itself as a hub for trade and investment into Iran, once full sanctions are lifted. Plans with Tehran include a 124-mile-long undersea gas pipeline, leading from Iran to Oman, and an Iranian auto manufacturing plant in Duqm.
 
The banking industry is tightly regulated and regarded as stable, although the economic downturn could see a slowdown in lending over the coming years. The financial system in Oman had faced a stress on bank liquidity last year, following withdrawal of deposits by state-owned enterprises and debt issues in the domestic market, although analysts estimate that the liquidity is set to improve, on the back of recovering oil prices and international issuances.

 In 2013, the Central Bank of Oman (CBO) issued regulations instructing banks to target 5% of their lending portfolios to SMEs. (Banks traditionally lent only about 2% of total credit to SME’s due to the relatively high risk, and required start-ups to demonstrate 200% collateral.)

According to the National Centre of Statistics and Information, foreign direct investment (FDI) in the Sultanate at the end of third quarter of 2016 exceeded OMR 7.02 billion (USD 18 billion). Sector wise, the oil and gas exploration attracted foreign investment of more than OMR 3.02 billion, while financial intermediation secured FDI of OMR 1.39 billion. The United Kingdom tops the list of investors in Oman, with a foreign direct investment of OMR 2.797 billion, followed by the UAE at OMR 924.8 million and Kuwait at OMR 396.1 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 parasternal oligarchies has resulted in inflated price levels for its mainly imported food and consumer products.
 
In 2016, total exports to Oman decreased 24.4 percent, to $1.78 billion. U.S. imports of Omani goods increased 22.22 percent to $1.11 billion in 2016. 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 over the next few years.

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Oman Trade Development and Promotion