For the Gulf Co-operation Council (GCC) countries, the moment of reckoning is at hand. The six oil-rich states whose very names conjure images of glittering buildings and wealthy sheiks – Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain and Oman, all of whom have enjoyed spending sprees over the past few years – can no longer afford to rely on petroleum exports for their economic and political stability.

Record low global oil prices have seen the GCC countries lose $340bn in government revenue over the course of 2015 according to the IMF, and forecasts for 2016 are even more gloomy. Oman and Bahrain, ranked fifth and sixth, respectively, out of the GCC countries in terms of GDP size, suffered a downgrade by Moody’s ratings agency in March. With relatively low foreign exchange reserves, a budget deficit of 16% of GDP and an ageing leader, the sultanate of Oman does not have time to wait for a solution. Its leadership has begun to mobilise in an effort formulate a strategy of economic diversification that it hopes will keep the country afloat. 

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On March 23 and 24, the government of Oman, in collaboration with the private sector, hosted the 2016 Oman Economic Forum in the capital city of Muscat. The overarching theme of the conference – Oman: a bridge between Asia and the GCC – sought to underline Oman’s potential as a centre for trade, transport and logistics with access to rapidly growing regional markets. It also focused on the sectors the government plans to develop as part of its ninth five-year plan toward faster economic diversification: tourism, mining, fisheries, logistics and transport.

Alternative exports

Economic diversification away from hydrocarbons appears to play an important role in Oman’s survival. Oil accounts for roughly 80% of state revenue and 60% of exports, and in 2015 the country's revenue loss totalled $14bn.

“To cope with these challenges, the government’s primary objective is to emphasise establishing non-oil export projects and infrastructure programmes to increase productivity and create more jobs for the Omani labour force,” said Sultan bin Salim al Habsi, secretary-general for the Supreme Council for Planning, in an interview with Oxford Business Group last year. “We want to move toward an export-oriented economy offering high value-added, technologically advanced content, as well as provide employment and establish a much larger private sector.”

The necessary decline in Omani government expenditure could provide a significant opportunity for local and foreign private investors. Ithraa, Oman’s national investment and export promotion agency, recently identified the priority sectors for attracting investment to be education, healthcare, tourism, fisheries, the chemical industry, food processing, logistics, minerals and metals, machinery manufacturing and waste management. The country's ports and airports are also set for rapid development and expansion with the help of private and public investment, all working towards Oman's aim of becoming a logistics hub for the region.

Further goals in the five-year plan include increasing private-public partnerships, maintaining a real GDP growth of 3%, and establishing a qualified Omani labour pool through training, education and the fostering of youth entrepreneurship. Already, Oman dedicates about 10% of government spending to education.

Vision 2020

“Competition for attracting investment among countries is severe, with several countries offering tax incentives to make [themselves] investor friendly,” said Sayyid Faisal bin Turki al Said, Ithraa’s director of marketing and media, at the forum. He noted that as well as offering tax incentives, these countries offer highly skilled talent pools and tech parks to attract international investment. 

“Improving the ease of doing business is our top priority,” Ali bin Masoud al Sunaidy, Oman's minister of commerce and industry, told fDi during the forum, highlighting the investment legislation the country is developing to relax controls on FDI and the setting up of a one-stop portal for investment services. This is all part of Vision 2020, the long-term economic strategy outlined by the Omani government to reduce reliance on hydrocarbons and broaden the country's revenue base. First announced in 1995, the plan is on target to expand the private sector, upgrade the Omani workforce and globalise its economy.

“This [situation] has allowed us to think slightly differently,” said Al Sunaidy. “Now you’re starting to see the initiatives of the private-public partnerships, which we need to increase to chase growth. This situation has allowed us to privatise faster.” In terms of business friendliness, Oman also offers 100% repatriation of capital and profits, 70% foreign ownership in most sectors, and 100% ownership in its many free zones. 

Free zone growth

“This whole project is a beautiful example of the diversification strategy of Oman,” says Andre Toet, CEO of Sohar Port and Free Zone, describing the zone. “Our first ship came in 2004. Now we have more than 2600 ships and 51 million tonnes of goods. We have had $26bn in investments in the free zone and port in 12 years.”

The port and free zone’s recently expanded highways and airport offer improved sea-road-air cargo connections, and its location outside the Strait of Hormuz makes Sohar a plausible transshipment centre between East and West and a stepping-off point to fast-growing Middle Eastern and African markets, particularly Iran, whose recent opening up to the global economy presents huge commercial potential. “We have three strategic pillars: steel metal, hydrocarbons and logistics,” says Mr Toet. “We are focusing this year on trying to become a hub in the food sector as well, not just for Oman and the GCC but also for Iran.”

A new feature on the SEZ landscape in Oman, the 1745-square-kilometre Special Economic Zone Authority at Duqm (Sezad) also hopes to play an important role in the country’s economic evolution. “Duqm free zone can lead for diversification because it is more of an integrated zone rather than focusing on one specific sector,” said Sezad chairman Yahya Said al Jabri. “We’ve built the port, airport, dry dock and some hotels; the government has focused mainly on infrastructure to leave the rest for the private sector.”

About 45% of the area has been developed, with the rest earmarked for future expansion. Aiming to leverage its 60 kilometres of coast as a tourist as well as residential destination, the zone is expecting a Crown Plaza hotel, a Park Inn, an international school and an estimated 67,000 permanent residents by 2020. 

Sunshine sultanate

Tourism in Oman is on the up, and the sultanate aims to attract 12 million visitors a year by 2020. The country is highly attractive to tourists, offering rich culture, year-round sunshine and diverse topography ranging from lush oases and beaches to deserts and dramatic cliffs. The Ministry of Tourism is seeking investment in a number of projects, including an environmental tourist camp, an adventure tourism centre, four three-star hotels and the $8bn Mina Sultan Qaboos waterfront project planned by Oman’s tourism development company Omran.

The long-term Oman Tourism Strategy 2015-2040 includes an estimated total investment target of $35bn including infrastructure costs. In 2014, the tourism sector accounted for about 40,000 Omani jobs and 2.6% of GDP.

As one of the smaller GCC countries both in terms of GDP and population, Oman hopes to boost its profile internationally as a place to both do business as well as to travel and enjoy – another plank in its policy of diversification. “When people first come to Oman, they tell me it is a hidden gem,” says Mr Toet. “I want to get rid of the word ‘hidden’.”