Up until the 1970s, Oman’s economy was largely based on agriculture. The advent of oil extraction and production caused a paradigm shift in the country’s finances, raising GDP growth to unprecedented levels and pivoting the economy towards the hydrocarbons sector.
Today, however, another paradigm shift is necessary if Oman is to ensure sustainable economic growth.
Production has been steadied in the last few years but Oman’s oil reserves are gradually shrinking. The government has laid out a plan to reduce the hydrocarbon sector’s contribution to GDP from its current level of about 47 per cent to just 9 per cent by 2020 and in doing so, it aims to generate more jobs in a wider variety of sectors for the rising numbers of young Omanis entering the labour force. The latter has the dual purpose of increasing the level of “Omanisation” and lowering the dependence on expat workers.
SMEs are being centred as one of the key drivers of diversification. Under the recommendation of the Central Bank of Oman, many of the country’s banks are making SMEs’ access to financing more achievable than ever before. The National Bank of Oman (NBO) and Ahli Bank, for example, have active programmes in place for lending to SMEs.
According to the CEO of NBO, Salaam Said Al Shaksy, the bank is also “looking at making equity investments in medium-sized companies with excellent prospects.”
“A lot more can be unleashed from the SME sector in terms of value creation,” he adds. Despite having created a supportive environment for their growth, the government cannot single-handedly boost SME productivity and success. Therefore, the private sector is also doing its part by lending its expertise to up-and-coming entrepreneurs.
Oman’s industrial estates and free zones offer investors attractive incentives and can serve as an ideal base to access larger markets
Tourism and the services industry are the main economic areas the government would like to expand in its economic diversification plan
The Zubair Corporation is one such company. Managing Director Khalid M. Al Zubair says: “As a country, we have to build sufficient incubators, venture capital venues and robust mentoring programmes and I see that large and established corporations can play a valuable role in this sphere.”
One of Oman’s original private sector pioneers that developed business lines essential to the country’s growth, The Zubair Corporation has established the Zubair Small Enterprises Centre where a team of professionals liaise with and
offer advisory services to SMEs and business entrepreneurs and hold management training sessions.
“Not every company [in the holding] can afford the best level of HR, communications, IT, etc., but as a group we can share the expertise between companies and add value within our own core. This formula we can replicate with SMEs,” adds Mr Al Zubair.
The Zubair Corporation has demonstrated the need for flexibility and diversification. What began as a trading company in 1967 is now a holding with activities in energy and logistics, engineering and construction, ICT, real estate and hospitality, financial services and manufacturing. “As time elapsed, we became more and more in tune with what the country needs in services and products and hence moved into areas based on Oman’s key needs and priorities,” explains the CEO.
This was how The Zubair Corporation ended up opening the Shangri-La’s Barr Al Jissah Resort & Spa in 2005. Tourism was a virtually untapped sector at the time and is now proving to be a key piece in the government’s economic diversification scheme.
One of the biggest employers in the country, The Zubair Corporation was founded by Khalid Al Zubair’s father, Mohammad Al Zubair, and today remains a family run enterprise. The managing director feels that this quality lends the corporation strong roots in the community.
“Long-term stability and continuity means that responsible outlook is embedded in our business model,” he says. “A commitment to the community can also raise morale within the company and meet the needs of employees, especially those in the younger generation who wish to work for successful companies that have broader goals than simply the pursuit of business success.”
As for the government’s “Omanisation” and job creation plan, training is, of course, a key component, yet Omani schools are in some ways still behind schedule in teaching the necessary skills for today’s market. Thus, some companies are taking matters into their own hands and providing in-house training.
Areej Vegetable Oil & Derivatives (AVOD), for example, is one regionally important player that has opened its own internal training centre.
“We are already 60 per cent ‘Omanised’, which is about double the industry average,” says Prem Maker, Executive Director. “If we are to progress further we need to replace the other 40 per cent who hold very technical jobs and because training for these trades is not available in the open market, we have to provide the training – both in the classroom and on the job.”
AVOD is a vertically integrated company that processes raw untreated oils it sources from around the world, manufactures all packaging components and, ultimately, distributes its own products.
The National Bank of Oman, has also opened its own academy to train people. “Our CSR strategy is supporting the youth and developing their capabilities,” says Mr Shaksy. “We have developed our own people; Omani people are on our director’s board. We’ve sent people over to business schools in other countries to prepare them to confront challenges.”
As economic diversification can be expedited through greater foreign participation and investment, the Omani Government is keen to welcome global investors, as Hamood Sangour Al Zadjali, Executive President of the Central Bank of Oman points out. “Oman provides a number of incentives in the free trade zones among which are 100 per cent foreign ownership, no custom duties on import and export of goods, no taxes levied on profits or dividends on businesses operating in these zones,” he says.
“The Public Authority for Investment Promotion & Export Development (PAIPED) as well as the One Stop Shop (OSS) at the Ministry of Commerce and Industry are both dedicated to facilitating and attracting investments.”
Oman’s capital markets are yet another way business can grow, providing, as they do, means to raise funds for new projects and growth. Sheikh Abdullah Salem Al Salmi, Executive President of the Capital Markets Authority highlights that his country’s markets are “sound and fair”, which is more important than being large and fast-growing. “We look for the long run,” he says. “To give an example, in 2002 we became the first country to introduce corporate governance in the region. We are trying to build solid bases for our future development.”
Incentives are also available in this area. According to the Director General of Muscat Securities Market (MSM), Ahmed Saleh Al Marhoon, the MSM was perhaps “the only exchange allowing foreign investors without restriction in the region, with no tax on capital gains and no restriction on cash movements. We don’t have any sort of hindrance on foreign investments.”
Oman’s sound stock exchange is complemented by a solid financial sector, a secure macroeconomic environment, a free market system and political stability – factors that the Central Bank’s Al Zadjali says are responsible for Oman’s emergence as an attractive destination.