Oman has become a preferred destination for businesses looking to expand their horizons and build their branch network. The country’s improving infrastructure, ease of doing business and environment of untapped opportunities have attracted a range of investors, business owners and entrepreneurs. In the following feature, we shed light on the fundamental areas surrounding the economic development of this burgeoning market.
Oman’s increasing focus on creating a diversified economy with lesser reliance on oil and its ongoing efforts to improve the overall ease of doing business have significantly strengthened its presence within the global landscape. Add the country’s favourable location and well-developed logistics infrastructure into the mix and you have one of the most attractive markets in the region.
However, the recent plunge in oil price has added pressure on the country’s policy makers to introduce reforms and fast-track diversification. With oil and associated products accounting for roughly 50 per cent of the country’s GDP and 77 per cent of the government revenues, the pressure for immediate action is mounting. This is probably when the country’s leadership is likely to revisit its powerful strategic document Vision 2020, which outlines policies aligned with such economic development. The document highlights three primary objectives:
- Fuel growth in key sectors such as manufacturing, tourism and logistics. The country’s upcoming US$13 billion railway is a classic example of a project that will help the economy steer in this direction.
- Foster the development of the SME sector by introducing key initiatives focusing on their productivity and profitability.
- Hone the skills of young talent by providing training and education to create a strong workforce.
A large part of the onus to meet these objectives lies on the most prolific segment of the Omani economy – the SMEs! Like most of its counterparts in the Middle East, Oman has a thriving SME sector, which is the lifeblood of the economy, employing about 40 per cent of the workforce. Given the significant role that SMEs play in economic growth, the government has been leading several initiatives to create opportunities and boost productivity of this sector. But, to fully maximise the benefits of these opportunities, it is important to fully understand the dynamics of this burgeoning market.
Doing business in Oman
So, as a relatively new player in Oman or as a well-established SME looking to widen your horizons by entering into Oman, what are the key factors to bear in mind? We explore some of the fundamental market forces and trends…
- Growth across manufacturing, tourism & logistics
By focusing on the development of these three sectors, Oman is clearly playing to its strengths. For instance, Oman’s geographical advantages give it a significant competitive edge when it comes to shipping routes. The Sultanate has turned this into a strategic advantage with the introduction of ports such as the Port of Duqm and Port of Salalah and Port of Sohar. These fast-growing ports have become hot-spots for commercial and industrial activity – attracting businesses from all around the world. With serious investment across different networks such as rail, road and sea, growth within this sector looks more than promising.
Another key area that Oman is also looking to expand into is the lucrative meetings, incentives, conferences and exhibitions (MICE) industry. In fact, the construction of the Oman Convention & Exhibition Centre is currently underway and the Centre is due to open near Seeb International Airport in 2016.
- Harnessing the power of Public Private Partnerships (PPPs)
Public Private Partnerships are becoming the driving force behind the success of SMEs because they are synonymous to knowledge exchange. They allow SMEs to benefit from tendering opportunities and work alongside larger firms to gain added exposure and expertise. In addition, to gain these contracts, SMEs need to meet certain prerequisites, which encourage them to raise operating standards and apply international best practices. Of course, PPPs also open doors to large public investments allowing SMEs to supercharge growth and undergo rapid expansion. This also works in favour of the overall economy as it encourages private sector investments into government-led projects, i.e. incentivising the private sector.
- Government-led initiatives
Several governmental reforms have helped improve the overall business climate in Oman and attract regional and global investors to setup businesses within the country. For instance, the Omani government had introduced an online business registration portal for businesses to speed up the process. This proved to be extremely beneficial – creating a streamlined procedure to register and understand all legal requirements.
One of the most prominent programmes for SME development is led by the Ministry of Manpower and is called Sanad.
- The power of a skilled workforce
An excerpt from EY’s report Doing Business in Oman explains: “Business operations in Oman, have in recent years, been staffed with skilled workers from abroad. The need to obtain workers with certain specialised skills from other countries continues. However, the government has taken considerable measures to equip Omani nationals with skills to gradually replace expatriate workers, employment of foreign nationals in certain positions and professions is prohibited. The government has established a register for the national workforce. No organisation may employ an applicant unless the applicant is registered with the National Workforce Register. All employers are required to report new employees for registration within the stipulated period.”
On the other hand, a report by Euler Hermes pointed out: “A policy of Omanisation is followed; this aims to boost job prospects for the local workforce at the expense of expatriate labour. However, such a strategy can lead to an increase in business costs, weakening in labour productivity and act as a deterrent to some inward investment, although not to a marked degree.”
Understanding the challenges
- Working in a climate of lower oil prices
Being associated with the vulnerability of global energy markets is a key risk. A recent report by Moody’s – the renowned ratings agency – suggests that the low oil prices will have far more significant impact on the Omani economy over GCC peers such as Kuwait, Qatar, UAE and Saudi Arabia. This will require further strengthening of government initiatives to fuel growth in the SME sector and encourage diversification. This will also see strong measures being taken to drive privatisation – increasing the vital role played by the private sector in the country’s economy. This will lead to the privatisation of key projects in areas such as infrastructure, power and telecommunications.
- Access to credit
This is of course an ongoing challenge for the SME sector. World Bank Group’s Doing Business 2015 Report places Oman on 126 for ease of getting credit in a ranking of 189 economies. To facilitate funding for the sector, the government has launched incubators – one of the prominent ones being Al Rafd Fund, which is tasked with the remit to allocate 10 per cent of public projects tenders to SMEs. That’s not all, 10 per cent of procurement by large contractors of governmental projects will also be sourced from SMEs.
Rushika Bhatia Editor
Rushika Bhatia is one of the region’s leading commentators on business and current affairs issues. She is the Editor of SME Advisor magazine - the flagship title of CPI Business. She is passionate about infographics – with special emphasis on data, research and statistics. Rushika has a Bachelor’s Degree from Indiana University, USA and is also CIMA qualified.