Oman’s oil sector continues to be the mainstay of the economy, a situation Muscat is keen to change largely because of the volatile nature of oil prices but also because of growing concerns about the productivity of its ageing oilfields.

Muscat reported that income from oil exports dropped in 2002, the development lending more urgency to its diversification efforts. Liquefied natural gas, for the time being, is Oman’s best opportunity for veering the economy away from dependence on oil. But proposed projects in other areas could facilitate the process and bring greater balance to the income sheet.

The Ministry of National Economy reported gains in various fields. Figures it released show that exports and re-exports of products other than oil and gas expanded from RO843.4 million ($2.19 billion) in 2001 to RO988.3 million in 2002 and registered RO349.5 million for the period from January 1 to May 30.

The Oman LNG plant commenced exports only three years ago, but growing worldwide demand could ensure that its production will find markets. The plant is proceeding with another expansion to raise output to 10 million tonnes per annum (mtpa) from 6.6mtpa. It is expected that liquefied natural gas will generate as much as $24 billion to the Omani economy over the coming 25 years.

A $969-million Oman-India fertiliser plant is under implementation and projects planned include another fertiliser project promoted by a prominent Omani business house, a methanol plant, a ferrochrome plant and an aluminium smelter.

Investments are also going into natural gas pipelines to Sohar and Salalah, which will facilitate development of Oman’s downstream projects. Tourism has also been identified as an area of promise. The intention is to raise the non-oil sector’s share of the GDP to 66.9 per cent in 2005 from 54.1 per cent in 2000. 

Gulf states have seen a surge in oil income from price hikes in the wake of the political situation in the region.  Oil from Iraq will someday begin to flow to its potential, and additional capacity could come in from new and older fields in the world. Muscat is conscious of that possible scenario and feels that now, more than ever, is the time to develop multiple sources of income.

According to the Ministry of National Economy, export earnings from both oil and glass slipped in 2002 from the previous year, oil declining from RO2.96 billion to RO2.89 billion and gas from RO451.3 million to RO410.7 million. Exports in the first five months of this year were RO1.28 billion for oil and RO213.9 million for gas.

Categories in the non-energy sector that did well in exports or re-exports were textiles; food, beverages and tobacco; electrical equipment; live animals and animal products, and transport equipment. Export income from transport equipment jumped from RO241.7 million to RO320 million, electrical equipment from RO82.7 million to RO95.8 million, textiles from RO54.4 million to RO64.7 million and live animals and animal products from RO40.5 million to RO54 million.   Food, beverages and tobacco contributed significantly at RO168.7 million, registering a marginal increase of less than RO1 million over the previous year.

Oman will need greater injection of foreign investments, particularly for setting up larger and potentially higher-earning plants driven by the latest technologies to stay competitive and make sizeable profits.
According to the Director-General of Industry, Dr Hamad Hashim Al Dahab, total investment in industry climbed from RO47.4 million in 2001 to RO51.3 million in 2002 but foreign investment moved from RO16.7 million to RO14.25 million.

Recent changes in the tax law could encourage GCC investors to consider local companies in which to put their funds. Companies which have GCC ownership of more than 70 per cent will now be required to pay a 12 per cent tax rate on taxable profits in excess of RO30,000, while companies with more than 70 per cent non-GCC ownership will pay tax at the old rates with a maximum level of 30 per cent.

The diversification programme is going hand in hand with privatisation and with legislation to attract more overseas investments, including the large funds available in the region itself. Muscat is divesting its shares in promising companies, hoping enterprising businessmen within the country and abroad will come in and develop them on the lines of a market economy.

One example is Maha Petroleum Products Marketing Company where the government is selling its 65 per cent stake. Some of its shares will go to an Abu Dhabi company, which holds 35 per cent of the stake, while the major portion will be sold to the general public and other parties.

In recent moves Oman sold part of its shareholding in Oman Cement Company and Oman Flour Mills.
“Oman, as a matter of fact, is a pioneer in privatisation efforts in the region,” a spokesman for the Ministry of National Economy said. “In order to better manage the privatisation process and ensure its success, it issued in 1996 a law to lay down regulations and set out policy on privatisation. A new law is under preparation and is expected to be enacted soon.”

Key sectors in which privatisation has occurred include electricity and telecommunications. Electricity projects such as the power stations in Manah, Al Kamil and Barka and the Salalah power system have private ownership.

The government is unbundling the power sector and setting up independent companies on a commercial basis. The process of restructuring includes establishing new companies such as the Electricity Holding Company, Al Rusayl Power Company, Al Ghubrah Power and Desalination Company and the Wadi Al Jizi Power Company.
Government undertakings that will be commercialised as a step towards privatisation include the postal services and the Oman National Transport Company

The General Telecommunications Organisation, one of the pillars of the government sector, was transformed into a commercial company. The management of Seeb International Airport in Muscat and Salalah Airport was awarded to the Airport Management Company.

 The management and development of Salalah and Sohar ports have also been awarded to the private sector. A master plan is underway for the privatisation of the water sector. Says the spokesman: “The government is dealing with the commercialisation of activities in the state sector while dealing with privatisation of state assets to ensure a smooth transition.”