After a few difficult years, the Omani economy appears to be heading in the right direction. GDP contracted by 0.9 per cent in 2017 and is projected to grow by a modest 1.9 per cent this year, according to the IMF, but the Washington-based organisation has pencilled in a 5 per cent expansion next year.
The International Monetary Fund has delivered a blunt message to the Omani government, following its latest review of the economy. In a statement issued on 19 April, following a 13-day visit to Muscat, an IMF team led by Stéphane Roudet advised Muscat that it needs to make “substantial” reforms if it is to get its economy onto the right track.
Rare public protests broke out in the capital Muscat and a number of other towns and cities, including Salalah and Sur, in late January, as young Omanis expressed their frustration with the difficulty of finding a job. Unemployment continues to be one of the country’s greatest economic challenges, and one of its biggest political headaches too.
Like other regional markets, Oman’s construction sector was affected by the global financial crisis in 2008/09. Contract awards fell in 2009 and several large schemes were put on hold.
The Oman economy is in a weaker position than most other GCC countries, but it does have the potential to diversify away from its historical dependence on oil and gas. Sometimes though, the authorities seem to make the task more difficult for themselves.
Low oil prices have put Oman’s government under pressure, while regional political turmoil could make life even more uncomfortable. A new economic model is called for, but can the leaders in Muscat find one quickly enough?
As other neighbours seek to isolate Qatar, Oman lets vital supplies get through
A new marketing strategy aims to boost the number of visitors
There are ports, fishing harbours and fuel terminals up and down the length of the Omani coast – from Khasab, on the Musandam peninsula in the north, to Salalah in the far southwest. In terms of economic activity, however, only a few of these facilities are really significant. They include the container ports of Sohar, Duqm and Salalah, each of which has a special economic zone attached to it, as well as the oil terminal of Mina al-Fahal and the liquefied natural gas (LNG) berth at Qalhat.
The fortunes of some of these ports have been slightly mixed in recent years. After growing steadily in the first decade of the millennium, container volumes have shown some volatility since 2010.
According to data from the Washington-based World Bank, there was a fall in the overall number of 20-foot equivalent units (TEUs) handled by Omani ports in 2011, followed by a recovery in 2012 and then another dip in 2013.
There are some reasons to suppose that the future should see further growth, given a combination of the country’s geographic position and regional political issues – most notably, the recent deal to ease international sanctions against Iran. Oman could prove attractive both for international companies wanting a jumping-off point into Iran and for Iranian companies looking for a route to international markets.
In particular, the Port of Sohar lies just 400 kilometres across the Gulf of Oman from the Iranian port of Chabahar, which makes it well placed to deal with the potential upswing once trading conditions with the Islamic Republic ease.
Other ports could also benefit and Iranian investors were among those in a delegation that visited the Duqm Special Economic Zone in November.
“The geographic positioning of Oman and its prior ties with Iran mean it would stand to gain from increased trading activity,” says one Gulf-based analyst. “Oman and its ports could accrue enormous economic benefits.”
The Port of Sohar is also well placed for any international firms that would rather avoid the time and cost of passing through the Strait of Hormuz into the Gulf. In the longer term, the planned GCC railway, which is expected to be linked to the Port of Sohar, could offer a viable overland route from Sohar into the UAE and the rest of the region.
Oman International Container Terminal (OICT), which operates the Sohar container facility, is preparing for further growth with plans to invest $120m in expanding capacity. The aim, according to Hutchison Port Holdings, which is part of the OICT joint venture, is to increase annual throughput from 800,000 TEUs to as much as 6 million TEUs.
Work is ongoing on a third terminal, Terminal C, at the site, and construction of Terminal D could get under way in 2019.
At the other end of the country, the Port of Salalah is well placed as a trans-shipment hub for goods travelling between Asia, Europe and east Africa. A series of projects are planned and under way there to upgrade and expand the facilities.
The government has signed a memorandum of understanding with the Salalah Port Services Company to construct and operate three more deep-water container berths at the port, which will take the total to nine berths with a combined length of 3,555 metres.
Bids for the consultancy services contract on the $525m project are due to be submitted by late October, according to MEED Projects, which tracks project activity around the region. The general cargo terminal at Salalah is also due to be revamped at a cost of some $200m.
Elsewhere in the country, the Ministry of Transport is planning to invest $400m to develop the smaller port of Shinas, north of Sohar, with new warehousing and industrial facilities. An award for the main contract was expected in June 2016, although as yet no tender has been issued.
At Sultan Qaboos Port in Muscat, meanwhile, the authorities are pressing ahead with plans to gradually transform the site into a leisure and cruise shipping facility. Since August 2014, all commercial activities have been moved to Sohar, including container and general cargo ships, roll-on/roll-off ferries and others. An award on the $50m project to convert the port is expected in June 2016. The work will include constructing new berths for cruise ships and ferries, as well as a marina, hotel, shops and restaurants, and should be completed by the end of 2019.
While the extent of the plans seem to bode well for the Omani ports and shipping sector, there may yet be difficulties ahead, given the way low oil prices are leading to a sharp deterioration in public finances. According to UK-based bank HSBC, hydrocarbons account for 48 per cent of overall GDP and 95 per cent of government revenues, and the lender says it expects the government to cut spending if prices do not recover.
That could spell trouble for some of the plans to expand and improve the country’s ports. Some port projects have previously been placed on hold before being revived, including the plan for three new berths at Salalah, which was held up from 2011 until earlier this year. Further fiscal pressures could see similar events unfolding there or at other ports.
An area of budget the government appears reluctant to cut is defence spending, which could be good news for the new naval base the Ministry of Defence is building for the Royal Navy of Oman close to the town of Mirbat, some 80km east of Salalah. The first package, worth $50m, was awarded in August to Oman Company for Building & Contracting, covering residential buildings and associated facilities. Bids were submitted for a second package, worth an estimated $200m, in July and are under evaluation. This second contract includes the construction of a jetty, breakwaters, ramps, a pontoon and other facilities.
In addition, the Ministry of Agriculture & Fisheries is also developing the facilities at a series of fishing harbours around the coast, including at Barka, Nabur, Mussanah and Quariyat, with the projects costing between $30m and $50m each. Work on all of these is already under way and so they are unlikely to be affected by any belt-tightening by the government. However, bidding is still ongoing for a slightly larger project to build a new fishing harbour at Duqm, costing an estimated $100m, with an award due by the end of the year.
If the government can maintain its investment ambitions, then the expansions planned for the sultanate’s ports and fisheries will be to the long-term benefit of the country, as they should help it diversify its exports. “Oman’s economy would benefit from rising exports if they help to diversify the export mix away from oil, which is about 65 per cent of total goods exports,” says Steffen Dyck, a senior analyst at US ratings agency Moody’s Investors Service.
A new marketing strategy aims to boost the number of visitors to the Sultanate.
Oman has more to offer tourists in terms of scenery, heritage and adventure sports than most Gulf countries. Yet its tourism market is a rather underdeveloped one. According to the World Travel & Tourism Council (WTTC), the tourism sector contributed some RO765m ($2bn) to the economy in 2014, equivalent to about 2.6 per cent of total GDP. That marked a decline from RO983m and 3 per cent of GDP in the organisation’s report for the previous year.
Compared with other countries in the region there is clearly some ground to make up. Oman falls below the regional average on most measures, including the contribution that the travel and tourism industry makes to GDP, as well as in terms of employment, capital investment and exports.
There are some moves to turn things around. In February, the Ministry of Tourism appointed Spanish firm THR Innovative Tourism Advisors to prepare a new tourism strategy for the country. Due to be released in the near future, the plan will set out the country’s ambitions for the development of its tourism industry between now and 2040, with a series of short-, medium- and long-term goals.
This is just the latest in a series of tourism strategies that Oman has developed in recent years. A priority action plan for tourism was set out in 2000 and since then there have been several marketing plans. The decision to develop a new strategy suggests that these previous plans have not worked out too well, or at least that some fresh thinking is required.
THR, which has previously worked with tourism authorities in countries such as Croatia, Portugal and Peru, does at least have good ground to build on. Oman has four sites included on the Unesco World Heritage list, including the Banu Nebhan fort at Bahla, and a 5,000-year-old archaeological site at Bat. A further eight are on the tentative list, which means Oman could nominate them for inclusion in the full list in the future.
In all, there are at least 26 major castles and forts open to the public around the country, along with six large museums, including the Frankincense Land Museum in Salalah and the Natural History Museum in Muscat, as well as the Royal Opera House, which was opened in Muscat in 2012.
The country’s heritage has not always been well looked after. Bahla fort was on the Unesco endangered list from 1988 to 2004 because of development plans that put the integrity of the site at risk. Those plans were rethought, but in 2007 the country suffered the embarrassment of having its Arabian Oryx sanctuary removed from the World Heritage list after Muscat decided to reduce the protected area by 90 per cent. It was the first time Unesco had taken such a drastic step.
These days, the authorities in Muscat appear more intent on developing rather than damaging the country’s tourism potential and the Ministry of Tourism is trying to develop more sites. In August, for example, it launched a competition to develop the cave system of Majlis al-Jinn at Quriyat, some 100 kilometres southeast from Muscat, as a site for adventure tourism. The bid deadline is 29 February 2016.
The opportunity for sports and adventure tourism is one of the country’s key attributes, from hiking in the mountains to diving around the Musandam peninsula. Other areas likely to garner further attention in the tourism strategy range from eco-tourism to cruise ships.
However, there are some doubts about the ability of the government to continue with all of its development plans in the light of the lower revenues it is receiving from reduced oil prices. In late September, London-based Capital Economics warned that Oman was facing a period of fiscal consolidation and predicted economic growth of no more than 1.5 per cent for 2016-17. Other observers take a similar view.
“In terms of capital expenditure, we think the story is similar to elsewhere in the region, where ongoing projects will continue but new projects are going to be put on hold,” says Paul Gamble, director at the UK/US Fitch Ratings, of the Omani government’s spending plans.
What that will mean for major tourism projects remains to be seen, but the Ministry of Tourism has been trying to develop the market for private financial and other support. In April, it signed memorandums of understanding with the Al-Raffd Fund and the Public Authority for Small & Medium Enterprises Development to provide training and advice to small-to-medium-sized enterprises (SMEs) involved in the tourism industry.
It followed that up in May with a series of agreements with local banks, including Oman Development Bank, Bank Muscat, Oman Arab Bank and the National Bank of Oman, which was also designed to support local SMEs.
Local lenders have proved willing to support some large projects too. In September, the local Saraya Bandar Jissah announced that it had secured a $275m loan to help with the development of its $600m tourist resort in the northeast of the country. Bank Muscat and Bank Dhofar provided the financing.
The first phase of Saraya Bandar Jissah scheme is made up of three residential zones as well as two hotels from the Dubai-based Jumeirah Group. There are now more than a dozen such resorts constructed or planned around Oman. Known as integrated tourism complexes, they often appear to be as much real estate developments as tourist projects, with laws allowing foreigners to buy freehold properties at these sites a key element.
In a similar vein, the local Al-Jazeera International and Australia’s XSite announced in May that they were forming a joint venture to develop a mixed-use scheme in Duqm. The Duqm Beach Touristic Resort will cost $500m and cover 0.5 square km in the Special Economic Zone. The project is expected to be completed in five years and will provide up to 1,000 jobs by 2020.
Although these are sizeable schemes, they pale in comparison to some others. To the north of the capital, the Omagine project will include a theme park, an exhibition space, an open-air amphitheatre, hotels and other facilities. The 1-square-km site is being developed by a consortium including US-listed Omagine, Athens-headquartered Consolidated Contractors Company and the office of Royal Court Affairs.
Even more extensive is the Hay al-Irfan urban development, which will lead to the remodelling of a 7.4 square km section of central Muscat with new business, residential, retail and tourist facilities. It is being managed by the state-owned Oman Tourism Development Company (Omran). The UK’s Allies & Morrison was appointed in January to draw up the masterplan.
Omran has stakes in many hotels around the country and often acts as a joint-venture partner alongside international developers. It is also working with Qatari Diar, for example, on the Ras al-Hadd eco-tourism project, which will include 700 hotel rooms and a wildlife park.
The conference market is another area Omran is keen to develop. In January, the company awarded the construction contract for a 300-room Crowne Plaza hotel at the Oman Conference & Exhibition Centre to India’s Larsen & Toubro. It is one of several hotels in the pipeline, with a total capacity of 1,000 hotel rooms planned for the site.
For the convention centre itself, Omran awarded the third package of work to Indian contractor Shapoorji Pallonji & Co for RO85m in February. The contract includes the main 3,100-seat auditorium, as well as a second 450-seat auditorium, two ballrooms, a food court, meeting rooms, roads and car parks. It is the largest of 10 construction packages for the convention centre. The project is due for completion in 2017.
Omran says the conference centre will contribute up to RO230m to the wider economy by 2030 and generate between 15,000 and 30,000 jobs. If true, that will mark a significant rise in the contribution the tourism sector makes to the local jobs market. According to the WTTC, the tourism sector employs some 44,500 people directly, accounting for 2.8 per cent of total employment, and a further 46,100 indirectly.
For all the investment pouring into the sector, tourism numbers remain limited. The total number of inbound tourists in the first half of this year was 1.14 million, according to the National Centre for Statistics & Information (NCSI). Visitors from the rest of the GCC make up the largest share of the tourism market, accounting for 367,542 of the total. The next most important source market is India with 131,341 tourists, followed by the UK with 76,520 and Germany with 61,729.
The WTTC says Oman was ranked 88th in the world in 2014 in terms of the size of its tourism industry, and 148th in terms of the contribution tourism makes to the economy. International visitors spent some $1.9bn in the country last year, compared with $5.5bn in the likes of Jordan.
There are some heady growth forecasts for the next decade, however. The WTTC reckons that tourism and travel will contribute RO1.8bn to the economy by 2024, or 3.9 per cent of GDP.
For that to happen, the developments under way will need to attract a lot of visitors. Hotels alone are unlikely to be enough. Data from the NCSI shows that average hotel occupancy rates have been less than 50 per cent in recent years. A lot will ride on the success of the marketing strategy that the country is about to launch.