Oman – often overshadowed by its brasher, more higher profile neighbour the United Arab Emirates – is upping its efforts to be taken seriously as an investment destination, a move that appears to be paying off.
According to the United Nations Conference on Trade and Development (Unctad), Oman more than doubled its incoming foreign direct investment in 2012, going from $739m in 2011 to $1.5bn.
It would seem that future FDI flows in the country are likely to continue on this trajectory, thanks largely to the ambitious Duqm project, which will see a sleepy patch of coastline 450 kilometres south of capital city Muscat transformed into a major industrial hub with a port, dry dock, airport, refinery, industrial zone, fisheries harbour and tourism area. The $1.5bn dry dock, managed by South Korea's Daewoo Shipbuilding & Marine Engineering, is the second biggest in the Middle East, and began operations in June last year.
The next part of the project to come on-stream will be the refinery, scheduled for 2018, and there is talk of a pipeline being developed through Saudi Arabia’s Empty Quarter out to the Red Sea.
The Duqm project is lofty, as is the target of creating a town around it for 100,000 people by 2050, but the thinking appears strategically sound, and it is hoped that the development will see Oman challenge the investments currently enjoyed by the UAE. Its location on the coast of the Arabian Sea means that ships destined for or coming from any non-Gulf countries will be able to save one and a half days on those using the ports of Dubai.
Christopher Pike of BLI consultancy, who has been working as an adviser to Oman’s government, says that although the Duqm project was initially financed by public money, private investment will soon follow. “Within two years we will start to see the cluster effect as companies move in to support the key developments. These big projects act like a honeypot for investment,” he says.
However, the size of Oman’s population, about 3 million, could hold back some of Oman’s ambitions, first because industrial production will need to focus on exports due to low domestic demand, and second because of the government’s 'Omanisation' policy that demands local-hire quotas.
By Gulf Co-operation Council (GCC) country standards, Oman’s expatriate population is relatively low – about 30% according to the 2010 census – though this number is reported to have risen significantly in recent years. Some investors complain that 'Omanistion', while having some positive effects, poses challenges for companies finding suitably qualified and experienced staff.
Another big area of potential FDI for Oman is tourism. Beachfront and desert resorts attract mostly high-end European and American tourists, as well as wealthy families from the GCC countries, and although the sector only currently accounts for 2.4% of GDP, HE Maitha al Mahrouqi, undersecretary of Oman's ministry of tourism, announced in June a plan to increase this figure to 3% by 2020.
Economic diversification is central to government policy as the country seeks to lessen its dependence on oil and gas, and thus make itself less vulnerable to price shocks. However, as long as commodity prices are high, Oman's economy is likely to flourish. It enjoyed 8.3% GDP growth in 2012, according to the government, and the forecast for 2013 is 5% growth.
A sea of stability
Despite its highly autocratic government, ruled over for 42 years by Sultan Qaboos bin Said, Oman enjoys strong relations with the US and the UK. It also maintains a cordial diplomatic relationship with Iran, based on historical ties between the two countries.
Since 2011, there have been some Arab-Spring style protests on the streets of Oman, and questions linger about the sultan’s succession plans, but few feel this poses a threat to the country’s stability or puts its investment attractiveness at risk.
The country is ranked 47th in the World Bank’s 2013 Doing Business survey, third in the Middle East behind Saudi Arabia and the UAE, but well ahead of the regional average positioning of 98.
In May, Unctad lauded Oman's Public Authority for Investment Promotion and Export Development – which promises investors one-stop-shop solutions with generous tax incentives and no capital flight restrictions – for its “efforts to connect Omani businesses to international markets”. The UAE's sleepy neighbour seems to have woken up.