Oman's membership of the Word Trade Organisation gives it access to world markets, but just how well it will capitalise on its WTO links depends on the ability of its trading firms and industries to ride what will expectedly be even more intense competition.
Oman retains some freedom to protect locally manufactured goods, as current duty rates for a large number of products are lower than the entitled level. In areas where the current duty is higher than that, the Sultanate has been allowed a transitional period of at least five years during which its companies can raise their competitive ability. The full impact from WTO entry will take time to show. Right now, though, signals from Oman are mixed. Non-oil industrial exports were 23 per cent higher at $643 million in 2000 than they were in the previous year. The industrial sector's annual growth of 5.23 per cent during the fifth five-year development plan of 1996-2000 was lower than the 8.7 per cent targeted. Several companies once thought to be promising have turned sick, the origins of their condition going well before the Sultanate was admitted into the world trade body, and several banks have seen their profits slide, mainly because of unwise lending.
But there have also been instances where manufacturing concerns have succeeded in effecting quick turnarounds after suffering a slump in their fortunes. An example is Oman National Dairy Products Company, which quickly changed gears as a reaction to losses in 1999 and undertook a restructuring that saw key changes in marketing and new products introduced. To the more than 50 companies listed as sick, the government has recommended mergers, provided contacts they could use for starting the recovery process or arranged an infusion of funds, notwithstanding that many of the companies rendered ill had been the recipients of soft government loans in the first place.
Many see the setbacks in some sections of industry as a blessing in disguise, as lessons can be learned. Two areas have received attention, one being the need to have competent, industry-focused directors on the board and the other to have a proper perception of risk control. At least one company went under in recent years because management resorted to having larger inventories than could be accommodated in the market.
Avoiding risks altogether runs contrary to the business-enterprise spirit. The Ajay Group calculated the risks and decided they were worth taking when it acquired the assets of the Oman Copper Industries company, which had folded up. The new owners have plans to not only manufacture items similar to what the liquidated company was producing but also to introduce a value-added range. It has a picture of the markets it can access as well as a fine track record and competent staff to realise aspirations. Such entrepreneurial spirit infuses hope in Omani industry. Then there's the matter of government nurture. Muscat is revising its laws to open up the country even wider to let in those investors who so far had fought shy of venturing in. Industries such as tourism telecommunications, insurance and banking are expected to see injections of foreign investments they were hitherto not used to. The Development Council has signalled it will change laws to allow 100 per cent foreign ownership in certain areas of the financial services sector. Foreign investors can hope to have a stake of up to 70 per cent in domestic ventures with a capital of not less than RO150,000 rather than the 49 per cent they were earlier allowed. This should draw in more overseas investors and keep the wheels of industry moving faster. As part of the steps to boost investor confidence, Oman has taken strong steps to heal the ills at the Muscat Securities Market and measures to control commercial bank lending.
A shot-in-the-arm for the investment-enlarging initiative was the announcement that Standard and Poor's was upgrading Oman's credit rating from BBB minus to BBB. While doing so, the agency expressed faith that the Omani government would continue to pursue prudent fiscal policies as seen in the 2001-2005 fiscal budget. It expected the government to show a surplus this year against deficits forecast in the budget, which was just what happened.
Months after the upgrade was announced, the government suggested that the chances of balancing the budget this year were bright if oil prices maintained their plus $20 per barrel level. Indeed, a surplus was realised for the first five months of the year against a projected deficit of $823 million.
Giving a pat on the back, the agency said Muscat was doing a fine job by utilising the budget to stabilise the economy through cautious spending. But it would have to address some tough areas, namely an increasing population that has to be economically productive and the skills shortage.
The sixth five-year development plan (2001-2005) will lay additional emphasis on privatisation, free trade zones, productivity, foreign investment and human resources development to meet the challenges of globalisation. The plan targets 4.5 per cent growth in the industrial sector and 11 per cent in industrial exports. Some impressive infrastructure has been put in place in recent years, which should facilitate fulfilment of the new targets. The Sohar industrial estate is preparing to host major industries including a $500 million private sector fertiliser plant which the Bahwan Group is promoting. Currently it is the only investor but has left the door open for others to join it. A planned $969 million public sector Indo-Oman fertiliser plant has witnessed serious delays, partly due to a plunge in fertiliser prices in the world market some time ago. The Indian government hopes to take a final decision on starting the project before the end of this year. An ambitious free trade zone is being developed in Salalah to take advantage of the potentially significant Salalah Port, most of whose cargo now is transhipment. Work is in progress to lay gas pipelines from Saih Nihayda in Central Oman to Sohar and Salalah. The free trade zone at Al Mazyonah on the border with Yemen enables Omani businessmen to capitalise on markets in Yemen and Africa. Oman LNG has lived up to its expectations and is looking at another expansion. The country's first steel billeting plant has gone on stream with the capacity to produce 90,000 tonnes per year of billets of mild, carbon or alloy steel, some of which will be exported to destinations within and outside the region including the Indian subcontinent. In another example of diversification away from dependence on oil resources, a pharmaceutical company has been established in northern Oman and another one is under construction in Salalah.
There seems to be tremendous energy to set up new industries or expand existing ones, but the hard bit is to determine whether they will work and then to find the right combination of luck, market conditions and competence to bring them to fruition.
