ACCOUNTING

Oman 2020 | ECONOMY | B2B

In spite of 2020 headwinds, Oman is setting itself up for success with the implementation of laws and initiatives encouraging foreign investment.

Ahmed Al Esry
AHMED AL ESRY
Managing Partner
EY - Oman
Kenneth McFarlane
KENNETH MCFARLANE
Partner
KPMG Oman

Where does the Omani economy currently stand, and how does the current macroeconomic environment impact the challenges facing your clients?
AHMED AL ESRY Oman's 2020 budget is based on crude oil price of USD58 per barrel. 2020 started well with the average oil price at about USD64 in the first quarter. Unfortunately, the outbreak of COVID-19 and the oil price war is having a significant impact on the global economy, with crude oil prices dipping to unseen lows. The full extent of the impact of these twin pressures on the global economy is still uncertain. However, the initial projections of 3% growth for the global economy in 2020 prior to the pandemic and the oil price war are unlikely to be achieved. Liquidity is expected to be tight, and organizations will focus on cashflow management. We are likely to see cost optimizations and project deferrals should the situation persist.

KENNETH MCFARLANE In broad terms, Oman's economy is not likely to undergo peaks or troughs, and although the post-2014 low oil price environment was challenging, the economy did not witness a steep depression, continuing to grow in a steady fashion throughout 2019. Although the public sector has a large involvement in the whole spectrum of economic activity, the contribution by the private sector is growing, creating opportunities for tech businesses and SMEs. At the same time, the market is undergoing a generational change with regard to family businesses, as many of the original founders are either passing away or becoming quite elderly. Some of the second or third generations are not that interested in the family business, while others are energized to take their family business to the next level. These generations are highly educated people who are motivated to prove themselves and are open to innovation and business transformation.

What should Oman leverage on to attract investments, and what industries are set to benefit the most from these conditions?
AAE The government has taken a number of steps to improve the investment atmosphere in the country. A new Foreign Capital Investment Law is in place with the primary objective of attracting foreign investment. The new law lifts significant restrictions and allows for 100% foreign ownership. In addition, the Public Private Partnership Law aims to encourage private-sector participation in the economy, thereby reducing the financial burden on the government. Other regulations issued in order to attract foreign investment include privatization and bankruptcy laws. The government is also investing in technology through the automation of services in the form of e-governance. The ease of doing business is one of the KPIs in Vision 2040, with an ambition of being in the top 10 countries globally. With regards to local investors, the Ministry of Commerce and Industry is expected to release a negative list for which foreign investment shall be restricted. In addition, Oman is striving for strategic investors including investment in areas currently funded by the government in order to address budgetary imbalances. In view of this, there should not be significant impact on local investors as a result of the government's initiative to attract foreign investment.

KF Political and economic stability are some of the crucial factors that investors should look at when considering deploying capital in a foreign market, and Oman checks both boxes. These conditions position the country as an ideal destination for long-term financing projects, although some sectors, such as logistics, can immediately reap economic benefits if supported appropriately by the government. If the country can continue to leverage its diplomatic, neutral stance, it can strengthen its position as a safe haven in a region that features widespread instability. Moreover, the road from Ibri to Saudi Arabia is likely to reshape the regional logistics traffic. For investors who seek exposure to the region, Oman should be an attractive proposition, and the appetite will keep growing as the Sultanate strives to streamline procedures then by making it easier to do business and generate further economic growth.