Oman being a member of the GCC has always maintained a low profile when it comes to investments and developments. As with the other GCC countries, Oman has mainly depended on the income from oil, which accounts to around 50% of GDP directly and over 70% of government receipts and export earnings. MOHSIN SHAIK SEHU MOHAMED writes.
However, in recent years, the slump in oil prices has affected Oman deeply. The country reported a deficit of OMR4.5 billion (US$11.65 billion) in 2015 and is expecting a deficit of OMR3.3 billion (US$8.55 billion) in 2016. Many drastic measures have been implemented by the government when announcing Budget 2016, with spending and subsidies in many areas trimmed to face these challenges.
What needs to be done
The country which was once rated ‘A’ by S&P has been downgraded to ‘BBB’ as of March 2016. Eyebrows were raised as to why Oman seemingly did not diversify their economy during these trying times but in actual fact, the country has already planned for diversification through its Oman Vision 2020. Basically, Vision 2020 covers the following:
- Economic and financial stability
- Reshaping the role of the government in the economy and broadening private sector participation
- Diversifying the economic base and sources of national income
- Globalization of the Omani economy, and
- Upgrading the skills of the Omani workforce and developing human resources.
As such, there are many key areas besides oil that can generate revenue for Oman. Projects such as the development of industrial estates in Sohar, Sur, Salalah, Nizwa and Buraimi will create more job opportunities. The Duqm region, for example, is one of the latest industrial areas that will be developed and transformed into a major economic area which will unlock the potential of growth opportunities. In Duqm itself, there will be a dry dock, a fishery harbor, hotels and resorts, a natural gas supply, the Duqm airport, a refinery complex and power and water generation and distribution.
Due to these industrial zones, Oman has also started to build a rail network that is expected to link major ports and free-zone areas such as Sohar, Salalah and Duqm with a wider GCC network.
As the country is currently diversifying, there are a lot of investment opportunities that can be identified. Sectors like tourism, health care, retail, education, logistics and transportation are key areas of development.
In the current climate, there are a lot of opportunities for investment that can be done via Islamic private equity. Investors will be able to find opportunities in greenfield companies, mid-sized companies or small companies that have growth potential. Opportunities will arise in the SME sector. The Omani government recently established the Public Authority for Small and Medium Enterprise Development (PASMED), an independent body created to encourage young entrepreneurs and to provide support in terms of technical, financial, training, marketing and management aspects in all necessary fields to aid these enterprises. Many SMEs from various sectors are in need of financial injection and these companies are to be nurtured so that they can later be listed on the Muscat Securities Market as an exit route for investors.
The way forward
Islamic private equity is an avenue to be tapped by investors locally and internationally. There have been discussions on allowing foreign investors to have an ownership of up to 70% which will have more of an appeal and encourage them to invest in Oman.
Oman has much to offer when it comes to investments and the following are some examples:
- a stable political environment and well-developed, high-income human capital
- a stable fiscal profile underpinned by conservative and very low debt levels
- a favorable business environment, strategic location and strong ties with GCC member countries
- a well-developed banking sector coupled with a vigilant central bank, and
- a contained inflation rate despite being a fast-growing economy.
As shown by the aforementioned examples, Oman will be a good destination when it comes to Islamic private equity transactions. With deals in the pipeline and a robust regulatory framework, it will soon not have to depend on its oil income as the main driver of the country’s revenue.