Focus: New FDI Law

New Possibilities

Mar. 16, 2018

The coming arrival of new FDI regulations that allow for more foreign investment should give Oman's private sector a boost, relieving pressure on the government and creating new economic activity.

Attracting foreign investment is a major part of Oman's drive for a more diversified economy. During the reign of Sultan Qaboos bin Said, the Omani government served as the main driver of investment, using its ample oil revenues to fund high levels of public spending across all levels of the economy. This strategy worked well while oil prices rose steadily for most of the past two decades, funding robust social services that have helped to dramatically increase the average Omani's level of education and standard of living.

The past few years have brought a dramatic shift, however, and the Sultanate is well aware that its previous levels of government spending are no longer sustainable. Plummeting oil prices have led to deficits and forced the Omani government to cut spending. To continue to meet investment needs, the Sultanate has begun to look elsewhere, reforming foreign investment laws and beginning the process of setting up a system that can stand on its own without government support.
Oman's previous FDI laws were fairly restrictive, placing limits on the amount foreign investors could own. But they have gradually been softening in recent years. Foreign investors are permitted to own up to 70% of an LLC, and although the Sultanate does not screen foreign investors, the Ministry of Commerce and industry (MoCI) has established a comprehensive approval process that can be slow at times. In recent years, the privatization of electric and telecommunications utilities has provided foreign investors with new opportunities to obtain full ownership; as these services have been opened up to the private sector, the Omani government has let foreign firms bid for full control in an effort to spur competition.
The easiest path for foreign investors has been the recent development of free zones. These industrial areas come with special incentives for foreign investment, including easily available land, full foreign ownership, exemptions from corporate and personal income taxes, and the elimination of restrictions on capital levels. The Omani government's goal with these zones was to create clusters of industry that took advantage of the Sultanate's ideal logistical location to generate new economic activity. Thus far, these free zones have been successful; Sohar, for example, has attracted more than half a billion USD in investment from more than a dozen foreign companies.

Now the Sultanate is ready to take the next step and make a bolder move to open up industries to foreign investment. New laws have been under consideration since at least 2013, but late 2016 and early 2017 saw the most concrete steps yet toward changing the investment environment. The government took as its primary goal bringing Oman's regulatory environment up to par with international standards for foreign investment, working in collaboration with the World Bank to meet its obligations as part of the World Trade Organization and other international organizations. Some of the most significant changes expected to come as part of the new FDI law are allowing foreign investors to fully own Omani-based companies and removing the minimum capital requirement for starting a business. The Omani government is also expected to develop new arbitration processes for foreign investors that comply with international standards.

The new law is still working its way through governmental processes, but early drafts have been met with approval from investors and business leaders. The MoCI undersecretary announced in September 2017 that the agency finalized the law and sent it to the Ministry of Legal Affairs for refinement, which has it on track to be passed in early 2018. FDI has already been trending up in recent years, with more than OMR7.4 billion coming into the Sultanate in 2016, an increase of almost USD1 billion over 2015. With the impending arrival of the new FDI law, both public and private parties anticipate that figure to grow significantly, giving Oman the economic boost needed to continue the gains of the past few decades.