Muscat- Decypha: Similar to its neighbouring countries, Oman has seen a sharp fall in oil revenues, most recently, the sultanate saw a 3.4% drop in the first quarter of 2017, as announced by the National Centre for Statistics and Information (NCSI). Revenues of oil companies have reportedly fallen as well by 13.6% in 2016.
Following the footsteps of other GCC countries, the Omani economy is adopting structural reforms since mid-2014 to overcome lowering international oil prices, including fuel subsidy reforms, introducing water tariffs and drafting a new labour law with benefits to foreigners, according to the International Monetary Fund.
The reforms come after calls by Omani investors to reduce “unnecessary expenditures” and ease business procedures. Nevertheless, GCC economist, Nasser Saidi, told Times of Oman in January that reducing spending is not enough, “adjustments should involve re-orientation of spending towards productivity enhancing spending, public-private partnership and privatisation measures to provide incentives for the private sector to invest in complementing government investments,” he said.
A new foreign investment law is being prepared by the Ministry of Commerce and Industry (MoCI), in collaboration with the World Bank, and it is said to allow expatriates to start a business with 100 % of ownership and no minimum capital required.
Targeting providing investors with an open market, the law is in the third and final stage, and it is expected to attract investments who are hesitant about injecting money in the Omani market due to the condition of having a local partner in their commercial and legal operations, Managing Partner at Ernst and Young Muscat told the Times of Oman in January.
The new law would also address settling investment disputes through international arbitration, offering no restrictions on remittances, debt, profits, capital and interest, Central Bank of Oman stated in April.
FDI Influx and Performance in Oman
Despite slow oil sector investment in 2016, which have pushed real GDP growth in Oman to 2.5 %, down from 5.7 % in the prior year, foreign direct investment (FD) in the Sultanate is still deemed the highest in comparison with other sectors.
In Q3-16, the latest data provided by Oman’s National Centre for Statistics and Information (NCSI) in March, FDI recorded OMR7.02 billion; where more than OMR 3.02 billion was attracted by the oil and gas exploration sector.
Meanwhile, investment in financial intermediation was OMR1.39 billion, manufacturing sector was OMR 986.4 million and real estate sector was OMR6 22.2 million, in addition to around OMR999.2 million in other sectors.
Listing by country, the United Kingdom was the largest FDI source, standing at OMR2.797 billion, followed by OMR924.8 million by the UAE, OMR396.1 million by Kuwait, OMR314.8 million by Qatar, OMR302.6million by Bahrain and OMR298.9 million by India, OMR230.6 million by Netherlands and OMR178.2 million by Switzerland.
Generally, Oman is weighing on economic diversification to save its economy, creating a room for investments in other sectors, such as fisheries and tourism, which are expected to drive higher growth rates in 2018, according to World Bank’s GCC economic outlook issued in April.
Foreign Ownership and Investment Requirements
As the new investment law is still underway, foreign companies in Muscat are currently allowed to hold 70 % of company ownership. This percentage is subject to increase if the company is a limited liability one (LLC), where profit ratio differs according to the capital contribution.
On the minimum capital required, an investment handbook prepared by Oman’s inward investment and export development agency and KPMG, said that for foreign-owned LLC is OMR 150,000, while for Omanis and GCC locals it is OMR 20,000.
A 100 % of foreign ownership is also allowed in Oman through economic zones and industrial estates, which enjoy some tax and duty exemptions, said the report published in September 2016.
Challenges
Low crude prices have negatively affected Oman’s foreign reserves, urging Standard & Poor’s (S&P) to cut Oman’s credit rating in May by one notch to BB+ from BBB- with a negative outlook.
With expectations of a further downgrade, investment in the oil-exporting country has become under threat especially that the Sultanate financial and hydrocarbon reserves are much lower than neighbouring Gulf countries, according to Arab News.
“The negative outlook reflects the potential for Oman’s income level to weaken and for its fiscal and external positions to deteriorate,” S&P confirmed.
Current credit rating of Oman is Baa1 with a stable outlook by Moody’s Investors Service, and rating with a stable outlook by Fitch Ratings. Nevertheless, an April report by Bank of America Merrill Lynch (BofA) highlighted a more positive about FDI forecasts in Oman than S&P. “Development of a huge industrial zone at Duqm, on the country’s southern coast, is soon likely to attract sizeable investment,” BoFA stated, according to Arab News.
Other challenges in Oman were a point of concern for potential investors. The small population number was deemed unattractive on non-existence of high-value consumers, according to a report by US Export Agency in February.
Bureaucratic measures, restrictions on permits for foreign workers and women and property ownership were listed as challenges standing in front of US investors in Oman.
“Capital projects and infrastructure expansions are being greatly impacted by slowdowns and deferrals of government spending as a result of the sustained lower oil prices and the industry is witnessing a significant number of challenges due to shrinking budgets,” the report said.
While the sultanate has proven its efforts to address investors’ needs and concerns, mainly regarding registration and natural gas to fuel new projects. Proving itself as a better opportunity against some its more luring neighbours maybe pending the resolution of many of the state’s challenges.
By Doaa Farid
