RECIPE FOR SUCCESS

Oman 2015 | ECONOMY | VIP INTERVIEW

TBY talks to HE Mohammad ibn Al-Zubair, Advisor to His Majesty the Sultan for Economic Planning Affairs, on economic diversification, Omanization, and SMEs.

How would you rate Oman's economic performance in 2013?

Oman experienced stable GDP growth in 2013 supported by both an increase in oil production and a rise in government expenditure. According to the latest data published by the National Centre for Statistics and Information, nominal GDP grew 3% in 2013. The share of oil sector GDP was about 44% and non-oil GDP 56%. While Oman crude oil prices dropped from $109.60 in 2012 to $105.50 per barrel in 2013, oil production increased 2.3% to 343.8 million barrels per day (bbl/d) in 2013. Actual government spending in 2013 is estimated to be slightly above OMR16 billion, or 23% above the estimated spending, of which 63% is recurrent expenditure amounting to OMR10.08 billion (50% of the recurrent expenditure is allocated to civil ministries). The increase in government expenditure, compared with 2012 actual expenditure of OMR13 billion, reflects in part the government's focus areas on social development, including job creation for about 56,000 Omanis and increased spending on education and healthcare. In addition, government expenditure during 2013 focused on supporting the SME sector, increasing local and foreign investment in the private sector and initiating new industrial zones.

Oman's economy is expected to grow by 5% in 2014. What factors are determining and supporting this achievement?

On the basis of a World Bank report warning of an oil crunch in 2015, the Supreme Committee for Planning predicts that international oil prices will rise in 2014 and increased oil prices, hence income, have always had a positive impact on GDP growth. More importantly, fiscal expansion will maintain economic growth. In 2014, the government will increase its investment expenditure on development projects and maintain the current levels of public debt. In addition, the current emphasis on social development by giving priority to job creation in the private and public sector and increased spending on education, training, and healthcare will have a positive impact on output growth. The first Financial Stability Report (FSR) released by the Central Bank of Oman (CBO) in May 2013 expects that Oman's economic growth momentum will continue to be strong “driven primarily by public sector activities, backed essentially by domestic demand, characterized by an improved diversification of the economy, and reflected in the decline in the excess contribution of the petroleum sector to GDP growth vis-à-vis the non-petroleum sector, while the overall growth process is expected to be sustainable moving forward."

“Oman's FDI inflow has experienced steady growth since 2004."

What role does the in-country value (ICV) strategy play in achieving the goals of diversification in Oman?

The ICV strategy is a partnership between the government and companies that operate in the oil and gas sector. The strategy is to increase total the spending of firms for the benefit of business growth and human resource development, and induce output growth in the country. The government will give tender award preference to firms that are highly Omanized and to firms that have a clear Omanization program in place. The strategy will develop Omani managers and professionals for higher technical and managerial levels in the private sector.

How is the Sultanate improving its attractiveness for FDI?

Oman's FDI inflow has experienced steady growth since 2004. This increase in FDI is the result of a healthy macroeconomic environment and stable institutional framework including property law. The government allows up to 100% full ownership and investment in key strategic sectors including the oil sector. Furthermore, the government has been promoting competition in major economic sectors such as infrastructure, energy, and manufacturing. Government efforts are paying off. The country's competitiveness has been increasing. According to Ernst & Young's 2012 attractiveness survey, Oman ranked as the 32nd most competitive country in the world. According to the study, in 2011, Oman enjoyed an increase of 66% in project numbers, an 89% increase in capital investment, and a 17% increase in new jobs.

How is the government promoting and enabling environment for SMEs?

SMEs employ more than half of the workforce in many countries. Furthermore, SMEs breed creativity, innovation, and stimulate economic growth. The government has been working very hard to promote the role of SMEs in the economy and in view of the importance of SMEs, the Public Authority for SME Development superseded the department of SMEs at the Ministry of Trade and Commerce. A royal decree initiated the Authority in 2013 with the goal of developing, planning, coordinating, and promoting the role of SMEs. In addition, it aims to enable SMEs to access credit and resources available at government and non-government agencies, promote the culture of entrepreneurship and self-employment among the youth and young people, strengthen the role of SMEs in the provision of sustainable employment opportunities, breed and foster initiatives and their implementation, management, and development, increase and promote the competitiveness of existing SMEs, and boost the capacity of SMEs to add value to the national economy, contribute to economic diversification, and support innovation and the use of modern technologies. Besides the current interest-free loans available to SMEs, the government is embarking on several steps to promote the role of SMEs, including a yearly award for the most successful SME and another award for the best supportive government and private institution for SMEs. There are also dedicated spaces for business administration centers and business incubators in all of the Sultanate governorates supported by both the government and the private sector, while the government will provide agricultural, industrial, and commercial land for SMEs on lease bases. Also, 10% of government procurement will be carried out through SMEs and large firms are required to dedicate 10% of the value of a government-awarded tender to SMEs. Government employees are additionally trained on how to serve the private sector, including SMEs. This includes education and awareness programs for staff and related government departments on issues such as the importance of the speedy handling of requests and permit issuance. Government employees who are also SMEs owners are also allowed one year paid leave to run and manage their businesses. A review of current commercial laws is also underway in order to simplify further requirements and procedures and create a business friendly environment for SMEs. In short, the government aims to create the best and most attractive environment for business owners, especially SMEs.

What are the government's priorities for 2015?

One of the current and ongoing priorities for the government is infrastructure deployment. About 50% of the eighth Five-Year Development Plan (2011-2015) has been used to maintain and overhaul roads, ports, and airports with an object to link all three modes of transport (air, land, and sea). This will include a number of airports, roads, bridges, and national railway networks being developed over the coming years. Developing a modern infrastructure and integrated logistics and transport network is an essential part of Oman's economy diversification strategy. In addition, this will increase the speed of diversification away from petroleum sector activities. This would expand the sources of growth, create employment opportunities for nationals in the private sector, and induce further development of agriculture, manufacturing, and services. Another priority of the government is education. During 2010, 2011, and 2012, education expenditure reached 4.6% of GDP and 13% of the 2013 budget. This ratio will be maintained throughout 2014 and 2015.

What is your outlook for Oman's economy in the medium term?

The outlook for growth remains positive. Downside risk includes creating job opportunities for the increasing number of young Omani job seekers. According to the population statistics of 2012, the broad base of the pyramid population mean that those under 29 years old are the majority of the population (68% of the population) and, therefore, Oman is one of the countries that has what is known as a youth bulge, where the majority of the population are young people. In addition, the Supreme Committee of Planning predicts that, by 2040, the population in Oman will be around 5.4 million, of which about 33% will be non-Omani, while the number of Omani job seekers will be around 1.2 million in 2040. Economic growth will be largely driven by the hydrocarbon sector with an increasing share for manufacturing industries such as petrochemicals, aluminum smelting, fertilizers, and other resource-based industries.

© The Business Year - August 2014