Good Omens

Good Omens

Economies are shaped by what they have to offer the world. For years, the hydrocarbon sector has been Oman’s primary export and source of revenue thanks to its deep reserves and well-established infrastructure, but the government has recognized the need for new diversification. In searching for new opportunities for economic growth, government leaders realized that the Sultanate itself had considerable untapped tourism potential; its location, long history, and links to neighboring countries make it a natural fit for the luxury and cruise markets. In recent years, high levels of investment in Oman’s real estate and logistical sectors has boosted the market, generating double-digit growth and new opportunities. To build upon the development sector, Omani officials have seized upon integrated tourism complexes (ITCs) as a way to open the sector up to foreign visitors, and several major ITC projects on the way should keep the sector on a growth track for the years to come.

There is widespread global agreement that Oman holds tremendous potential for tourism industry growth; the World Travel and Tourism Council named the Sultanate ninth on its 2017 list ranking global growth potential, citing the importance of the industry to the government’s diversification plans and the expected increase in volume from pending infrastructure projects. Today, the tourism sector is of moderate size, directly contributing just over USD2.1 billion to the Omani economy in 2016, equal to 3.2% of total GDP. The sector supported more than 150,000 direct and indirect jobs and represented more than USD700 million in investment. Due to the volume of investment, though, the World Travel and Tourism Council expects the sector’s contribution to GDP to rise by an impressive 8.1% in 2017 thanks to a 10.5% rise in investment. In the medium term this is only expected to continue, with analysts expecting tourism-generated revenue to more than double by 2027.
The reason for optimism stems from a series of major projects initiated by the government and funded with a combination of public and private financing. The Omani government’s 2016 announcement of its goal to attract more than 5 million international visitors a year by 2040 came with a USD35-billion set of concrete investment plans to construct the infrastructure needed to handle that capacity. More than USD770 million in projects are already underway; two of the most significant include the expansions of Muscat International Airport, which has added a new passenger terminal to raise capacity to 12 million passengers per year, and Salalah International Airport, which has increased capacity to 1 million passengers per year. These airport projects have also included new runways able to accommodate larger aircraft and, for Muscat International, long-term expansion capability that will allow the airport to expand capacity to 48 million passengers through three future phases of expansion.

The growth in the luxury sector is part of the Sultanate’s deliberate plan to become a niche tourism destination by taking advantage of the adventure activities provided by its natural resources and high-end shopping. Marketing has focused on high-end GCC, Indian, and European travelers, and the Sultanate has already begun to reap the rewards of their increased presence in these markets. The first quarter of 2017 saw 1.3 million foreign visitors arrive, with just under half coming from the GCC, with India and Britain forming the second and third-largest group of arrivals at 13.5% and 4.8% of all visitors, respectively. The continued development of the sector is being counted upon to bring positive externalities in the form of jobs, international connections, real estate development, and cultural cachet—a tall order, but one that looks well within reach due to the Omani government’s commitment to growth.

A feature unique to the Omani tourism and real estate sector is its ITCs: designated development zones that are the only areas where foreign nationals from outside the GCC are legally permitted to own land. ITCs include both residential and commercial projects on their grounds, which are usually located in key commercial zones in major urban centers. Since their inception, ITCs have been popular with foreign investors eager to own land in the Sultanate and acquire the permanent residency visa that comes with it, and have grown to become central to the continued growth of the tourism and real estate sectors. Foreign visitors have responded positively to the economic and tourism benefits of ITC clusters, which can offer a wide variety of attractions within a convenient area. In response to demand, the Omani government has taken steps to push new ITC development. In August 2017, the Omani government announced plans to construct more than 5,000 homes across five new ITC projects across the country. This represents an investment of more than USD10 billion, the Sultanate’s largest bet yet on the strength of ITCs as a permanent draw for tourism development.

The size and scope of ITCs has made them a needed source of growth for the construction and real estate industries, and the Omani government is currently debating how best to fully use them to incorporate international investment into the Sultanate’s economy. ITC sites have been one of the few sectors that have seen rising rents due to high demand from both foreigners and Omani citizens, due to recognition of the central role ITCs are expected to occupy at the center of new Omani urban centers. Aware of the demand for property from non-native Omani residents, the Ministry of Housing proposed new regulations in early 2017 that would allow non-citizens to own property outside of ITCs, arguing that doing so would stimulate demand for the high-end residential sector that has seen sluggish growth since the fall in oil prices. These proposed changes include granting citizenship to foreigners who make significant investments in ITC developments, which allows the country to turn the tourism investment into a more stable long-term source of economic growth. There is concern that removing such regulations could push out local buyers and leave the market overly vulnerable to international shifts, but industry leaders believe the ITC boom will result in positive externalities for the wider Omani real estate sector. The challenge for the Omani government will be balancing the desire for foreign investment with the interests of domestic buyers eager to build wealth via the housing market. œ–