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Oman 2016 | DIPLOMACY | YEAR IN REVIEW

A perfect storm of low oil prices and an over exposure to China has proved challenging. Yet long-term investment and a series of new infrastructure projects are combining to make 2016 a turnaround year.

Diversification has been a buzzword at cabinet sessions across emerging economies for years, but with oil prices now in the doldrums and looking likely to stay there, countries like Oman need to turn dreams into realities. And while much work has already been done, more is needed in terms of education and skills development if the industrial matrix is to generate the kind of added value it needs to compete with hydrocarbons on exports. To put things in perspective, a quick look at data from the Observatory of Economic Complexity tells us that crude petroleum accounts for a mind-blowing 57% of exports in 2014, followed by petroleum gas on 7% and refined petroleum on 2%. Aside from refined goods, Oman also exports lesser quantities of fertilizers, an area where it is able to add value downstream. Yet casting an eye over Oman's top export destinations does nothing to inspire confidence, with China sitting top on 43%, followed by fellow Asian giants such as Japan (14%), South Korea (11%), and Singapore (5%). And with China facing darker days in the wake of yuan devaluation, alternative buyers may have to be found to ensure long-term sales. It is not all doom and gloom, however, with data suggesting that efforts to diversify the economy so far have not been in vain; the non-hydrocarbon sector accounts for over one-third of GDP as of 2014, according to data from the Central Bank of Oman (CBO), with mining, power generation, and construction all playing a role in the sector's 3.8% growth over the year. Manufacturing accounts for over half of the non-hydrocarbon sector, yet growth was modest at just 0.4% yearly.

FDI has also graced many a government memo in recent years, a reality that has only intensified in the face of falling oil revenues. One initiative worth highlighting is the recent decision to open up home ownership to foreigners, a move that it is hoped will provide a shot in the arm to the property sector. Elsewhere, and the authorities are also working on a revision of the foreign investment law, along with a streamlining of corporate governance and mergers and acquisitions guidelines. These efforts could go some way to turning around the country's fortunes, with FDI inflows having fallen from $1.6 billion in 2013 to $1.2 billion in 2014, reflecting a wider trend across the GCC. Also having realized the significance of the private sector, as well as having a highly skilled national workforce, a plan is underway to boost the number of non-government jobs, which currently stands at less than 60% (compared to 85% in the US). It also aims to continue with the process of Omanization, a scheme aimed at replacing outgoing expatriate workers with local talent and filling new vacancies with young, go-getting Omanis.

Other significant developments over the year include the opening of the new Salalah Airport in June 2015. Its ribbon cut at the beginning of summer, the new facility resulted in a huge increase of incoming visitors to the popular tourist hub, up 171% between June 21st and July 25th compared to the previous year. Elsewhere, and the government is keen to kick start a new era of mining in the country, with the Public Authority for Mining (PAM) celebrating the completion of its first year of operations in 2015. PAM has completed the drafting of a new mining law, which is currently in the process of endorsement. Summing up the government's new attitude to investment in the sector is Hilal Al Busaidi, CEO of PAM, who told TBY that, “we are very open toward foreign investors and we welcome their technical experience and skills.”

Oman also scored a diplomatic victory in 2015, taking a key role in the Iran nuclear negotiations and thus not only earning global kudos, but also ensuring Iran as a long-term trade partner. The most significant development of the year in terms of politics, however, was the return of His Majesty Sultan Qaboos bin Said from Germany, where he was receiving medical care. The markets rallied on the news, safe in the knowledge that continuity—and the stability it brings—was assured.

Moving forward, and Oman has much to be optimistic about, although there are some challenges on the horizon. The authorities likely have one eye on the US Federal Reserve, which is expected to raise its interest rates in the coming months, sparking devaluation and sell offs in emerging markets like Oman. Over exposure to Asian markets is also likely to keep exporters awake at night, while the low price of oil will continue to be a concern for the state coffers. Having said that, Oman is proud of its public investment program and is encouraged by the fruits of its diversification efforts. Now painted as a bastion of stability in a turbulent region, and sheltered from the decadent over development of some of its Gulf neighbors, Oman might just have what it takes to reach the light at the end of the tunnel if it can leverage its young, tech-savvy population to boost added value across a diverse number of sectors.