Economy on threshold of major diversification

When His Majesty Sultan Qaboos Bin Said assumed power in 1970, he embarked on his vision of putting the Sultanate on a progressive path of making the country economically stable. He left the doors open for other countries to join hands with the local government in constructing Oman into a nation that would stride comfortably into the 21st century.
In his zeal for economic development and modernization, he launched a programme to built and expand the country's almost non-existent infrastructure. As the 70s rolled on, the country achieved substantial progress in developing physical and social infrastructure. New roads, a new deepwater port, an international airport, electricity-generating plants, schools, hospitals and low-cost housing were built from money that came exclusively from oil receipts.

Studies reveal that prior to the Sultan's initiatives agriculture accounted for 75 per cent of the gross domestic product (GDP). By contrast, industry (including petroleum), increased from 8 per cent of GDP in 1960 to 59 per cent in 1985, manufacturing increased from 1 per cent to 3 per cent and services from 18 per cent to 38 per cent in the same period.

As a result, in the early 90s, the economy was dominated by the petroleum and the services sectors. The government soon increased funding for sectors based on renewable natural resources that can provide sustainable economic growth. The government also concentrated on agriculture and fishing sectors, encouraged tourism and constructed light industrial parks with the objective of exporting consumer goods to the Gulf Cooperation Council (GCC).
Over the past three decades, Omani citizens have been enjoying good living standards. Given the limited oil reserves, Oman's future will have to depend on non-oil sectors in the years ahead. The other sources of income, mainly agriculture and local industries, are meagre and account for less than 1 per cent of the country's exports.

Agriculture, often sustenance in character, revolves mainly around the production of dates, grain and vegetables. As less than 1 per cent of the country was under cultivation in the early days, food had to be largely imported. The government now plans to improve the scope of agriculture as well as industries in a bid to bolster its economy on all fronts.

Oil production is extracted and processed by Petroleum Development Oman, which is owned by the government (60 per cent) and Shell Oman (34 per cent) and other oil companies. The phases of economic development were: a period of rapid expansion between 1970 and 1986; economic retrenchment and rationalization between 1986 and 1989 as a result of the 1985-86 oil price collapse; and a period of stabilized growth since 1990.

Despite its economic growth and rapid structural changes, the Sultanate has not kept pace with its neighbours. The main reasons are the late discovery of oil, financial constraints and politics. It was, however, the commercial production and export of oil that provided the government with increased revenue and, the government, in turn, increased public expenditure which helped improve people's standard of living.

By the latter half of the 80s, Oman transformed itself as being one of poorest Arab countries to middle-income country. Per capita income rose from US $360 in 1970 to US $3140 in 1980 and to US $7000 in 1991, according to statistical surveys.

The government has currently undertaken many development projects to modernize the economy, further improve the standard of living and become a more active player in the global marketplace. Oman became a member of the World Trade Organization (WTO) in October 2000, and continues to amend its financial and commercial practices to conform to international standards. Official sources say that Oman is pursuing free trade agreements with a number of key trading partners, internationally with nations such as the United States of America, and regionally with GCC members.

Increases in agriculture output, especially fish production, can be best achieved with the application of modern technology. The Muscat capital area has both an international airport at Seeb and a deepwater port at Mina Qaboos. The large-scale modern container port at Salalah, capital of the Dhofar Governorate, continues to operate at near-capacity levels while port expansion is underway at Port Sultan Qaboos and a large industrial and container port is under construction in Sohar.

Large industrial projects being built are an 80,000 barrels per day (b/d) oil refinery, a large petrochemical complex, fertilizer and methanol plants, an aluminum smelter, and two cement factories. Industrial zones at Rusayl, Sohar, and several other locations showcase the country's modest light industries, while marble, limestone and gypsum are considered commercially viable propositions for the future.

Oman's major goal is to diversify the economy away from oil by the year 2020, years before the country's oil reserves are estimated to run out. The government's plan, Vision 2020””, shows signs of success as foreign and local investment in Oman's non-oil sector is increasing
According to many economic estimates, oil prices are expected to stay at their current high level until the end of 2006. Economic analysts say that the expected fall in international oil prices will be the biggest factor in slowing down Oman's economic growth rate in 2007.

The long-term effects of the forecasted decline in oil prices is expected to effect Oman from low to moderate intensity because Oman, by then, would have already gone ahead with its diversification plan to reduce its dependency on oil.

The contribution of trade sector to the GDP is expected to get further boost by 2007 because of the government's privatization and modernization of Oman's ports and their management.

It is also forecasted that, by 2007, gas exports will increase their share of contribution to the GDP to 8 per cent from the current 6 per cent, as there will be increased foreign investment in this sector. Furthermore, Oman's ability to export gas will be boosted this year when the construction of the train for transporting liquid natural gas (LNG) is expected to be completed.

The seventh five-year plan, begun in 2006, is designed to reduce Oman's dependence on oil as well as on expatriate labour. The government projects will also substantially increase spending on industry and tourism projects with a view to generate income diversification, creation of jobs for Omanis in the private sector and large-scale development of the country's interiors.
The government offers soft loans to encourage private building of new industrial estates in population centers outside the nation's capital. Efforts are on to liberalise rules to encourage more foreign investments.
To intensify Oman's participation in the global economy, Ministry of Foreign Affairs officials visited many foreign countries and returned with a spate of esteemed agreements.

In June 2006, Oman and Morocco signed a Memorandum of Understanding (MoU) to forge closer ties and set up a political consultation committee. The agreement was inked as part of an official visit to Rabat by Omani Foreign Minister Yousef Bin Alawi Bin Abdullah.

The foreign minister met with many Moroccan dignitaries, including Prime Minister Idriss Jettou, Minister of Foreign Affairs and Co-operation Mohammed ben Issa, the co-signer of the MoU, and External Trade Minister Mustapha al-Machahouri. Both Oman and Morocco have recently signed free trade agreements with the US to help spur their burgeoning economies.

Minister of National Economy Ahmed bin Abdulnabi Macki visited Turkey to sign an anti-double taxation treaty with Turkish Finance Minister Kemal Unakitan. Macki, who led a delegation to the 13th meeting of the GCC ministerial committee for planning and development, held in the UAE, held discussions with his counterparts on making further economic integration with the rest of the six-nation bloc.

Also in June, Macki went on official visits to Japan and South Korea. As deputy chairman of the Financial Affairs and Energy Resources Council and Chairman of the Board of the Oman Shipping Company (OSC), he hosted a banquet in Japan to celebrate the addition of the LNG carrier Ibri to OSC's fleet.

Macki's South Korea trip also focused on ways to further collaboration between the Omani government and South Korean investment companies. Officials from the Ministries of Finance and National Economy, OSC and Oman Oil Company and other hydrocarbon firms traveled with the minister.
Foreign companies are said to showing keen interest in coming to Oman. It remains to be seen if the Sultanate will forge formidable links with countries that seek to sustain a long-lasting economic relation with Oman or if the Sultanate will be selective in choosing its new trade partners.