GROWING THE PIE

Oman 2015 | INDUSTRY & MINING | REVIEW: INDUSTRY

Oman's industrial sector is currently experiencing a period of slow growth.

The need for economic diversification was an important pillar of Oman's Vision 2020 created back in 1995 when oil accounted for 38.2% of the Sultanate's GDP. Fast forward to 2014, and while the clock is ticking on the depletion of the Sultanate's oil reserves, the hydrocarbons sector now accounts for 49.4% of Oman's GDP as of 1Q2014. The goal is to get this figure down to 19% by 2020, meaning that the non-oil and gas sectors of the economy, namely agriculture, other industry, and services, would need to be contributing a hefty 81% to GDP by that date. Currently agriculture only accounts for 1%, services are on the rise at 34.6%, and non-petroleum related industry stands at 15%. Within the industrial sector, manufacturing and mining combined currently account for 6% of GDP, indicating that significant diversification and growth are still required if the manufacturing segment is to play a meaningful role in the Sultanate's future economic mix.

Currently, the main industrial manufacturing activities in Oman include petrochemical derivatives such as plastics, polypropylene, and polystyrene, aluminum processing such as cables and rolled aluminum products, and the manufacturing of steel piping. One example is Muscat-based Gulf Plastic Industries Company SAOG, which manufactures packaging products such as flexible intermediate bulk containers (FIBC), polypropylene woven sacks, down to polystyrene cups and bowls. TMK Gulf International Pipe Industry (TMK GIPI) began operations in 2007 and is the first manufacturer of high-pressure steel line pipes and casing pipes in Oman. It is also the first mill in the MENA region to manufacture high-pressure 24-inch electric resistance welded (ERW) steel pipes. TMK GIPI's operations are located in the Sohar Industrial Area where the company has invested $110 million in their plant with an annual production capacity of more than 200,000 tons per annum. In June 2014 TMK GIPI won a new contract to supply over 20,000 tons of casing pipes to Petroleum Development Oman (PDO) for use in well operations (all data from TMK GIPI's own website). Arabian Industries with facilities based in both Rusayl and Sohar is another example from Oman's heavy industry sector. The company manufactures products such as process and pressure vessels, and storage tanks and silos. Its clients include PDO, the Oman Electricity and Transmission Company (OETC), British Petroleum (BP), and Sohar Aluminium.

Other manufacturing activities in-country include the production of abrasives by Oman Abrasives LLC, and batteries by Reem Batteries & Appliances, which produces over 200 types of batteries at its Omani plant with 90% going to export markets in 55 countries around the world. The Sultanate also manufactures detergents. The National Detergent Company exports 60% of its production to the GCC market. Additional products such as glass storage jars (Majan Glass Company SAOG), ceramics (Al Maha Ceramics), edible oils (Areej Vegetable Oils & Derivatives Company), beverages (Oman Refreshment Company), perfume (Oman Perfumery LLC), textiles and leather, and wood products are also all currently produced in the Sultanate.

Unfortunately in terms of productivity, in 1Q2014 Oman's manufacturing output declined by 1.4%. This meant the industrial sector as a whole, worth OMR1.13 billion in 1Q2014, grew at the lower rate of 1.2% compared to the same period of 2013, according to the latest government statistics.

THE EXPORT-IMPORT PICTURE

In terms of exports of industrial products from Oman, chemical product exports were up 3.7% in 1Q2014 over the same period in 2013. Furthermore, plastic and rubber product exports were up a significant 41.3% over this same period. Oman's high technology exports as a percentage of its total manufactured exports have seen a slight rise in recent years, up to 3.4% in 2012 from a low of 0.3% in 2005-2006 and 2009. This level is, however, nowhere near the 14.1% and 14.7% reached in 1989 and 1990, respectively. High-tech exports refers to those products with a high R&D component, such as products in the fields of aerospace, computers, pharmaceuticals, scientific instruments, and electrical machinery. Overall, according to the latest government figures, non-oil merchandise exports of Omani origin rose by 5.9% between 2012 and 2013. Over the same period, merchandise imports into Oman rose by a sizable 22.1%.

FRAMEWORK, INFRASTRUCTURE, AND THE REMAINING BARRIERS TO INDUSTRIAL GROWTH

No doubt, over recent years Oman has worked hard on its framework and infrastructure to encourage industrial development, as well as both local and foreign direct investment. In November 2000, the Sultanate joined the World Trade Organization (WTO), which gave its manufacturers greater access to international export markets. Further, the Oman Development Bank (ODB), established by the government in 1997 to provide loans to SMEs in business sectors other than the petroleum industry, increased its lending ceiling in 2006. The maximum amount per loan rose from OMR165,000 to OMR1 million. This facility provides an important source of funding for industrial start-ups and expanding businesses that private banks would traditionally consider too risky to lend to. That same year, Oman signed the US-Oman Free Trade Agreement (OFTA). This came into effect on January 1, 2009, in theory opening up a significant new market to Omani goods that meet US trading standards.

In its 2013 Annual Report published in June 2014, The Central Bank of Oman (CBO) stated – “Oman has also been focusing to attract foreign investment in industries would could use local raw materials, employ Omanis, and promote traditional industries." This is all well and good in principle, but finding sufficient numbers of qualified, affordable locals to work in the sector is an enduring problem for industry. This was found to be the case both in 2003 and when a similar survey of manufacturers was carried out in 2011. The industry response was that there was still not a sufficient supply of skilled and willing Omani workers. In short, Omanization is an enduring sticking point for industrial growth (2003 survey by Gulf Research Center and Tyler McWilliam's 2011 research paper Made in Oman: Promoting Manufacturing and Export in the Sultanate of Oman). Having said that, today the Oman Aluminium Rolling Company is one example of a 100% Omani funded company that has managed to overcome its skills shortage through intensive investment in staff training and development. The company's CEO, Ron Marchbanks, explained their approach to TBY ; “We hired a group of young men, mostly directly out of school, and put them through a year-and-a-half of training—at a cost of $2.5 million—in everything from the basics of how to work… safety, and a degree of technical education." As a result the Oman Aluminium Rolling Company has achieved a 74% Omanization rate.

Another positive note is that there are several significant transport infrastructure projects at the moment that will help improve the cargo services available to support Oman's industries over the short and medium term. The first is the shift of all cargo, container, vehicle carrier, and project materials vessel activities from Muscat to Sohar Port that occurred on September 1, 2014. The move is designed to help industrial development and link up with future rail network projects. Gert Hoefman, CEO of Oman Cables Industry (OCI), a major player in the GCC cable manufacturing industry, told TBY that, “The container terminal move from Muscat to Sohar, where the facilities are much more modern, is an example of the importance of modern infrastructure." The on-going Duqm Port development will also add to Oman's land-sea transport links over the coming years. And the Gulf Railway project is a significant development on a regional scale. The planned 2,000 kilometers of rail network between six of the Gulf states should reduce freight costs and shipment times for manufacturers within the GCC market once it is up and running, which is estimated to be in 2018. This should give heart to the industry.