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OMAN: Tradition of smart planning to boost economic diversification

Article - November 21, 2014

While the hydrocarbon industry remains as a strong backbone to the Omani economy, the sultanate is promoting other sectors and industries as well as bolstering the education system to prepare young Omanis for a future characterized by a larger private sector and more diversified economic base.


There’s a revolution under way in the Middle East, and it’s not characterized by mass demonstrations, upheaval and government overthrows. It’s in the Sultanate of Oman, and has been going on quietly for decades. Under the leadership of His Majesty Sultan Qaboos bin Said al Said, the Gulf nation is steadily reinventing itself and, slowly but surely, moving its economy away from dependence on oil to one that generates income and jobs in fields ranging from tourism and industry to mining, farming, and more.

Unlike most of its neighbors – the exception is Saudi Arabia – Oman has a long tradition of economic planning. H.M. Sultan Qaboos and his government launched the first five-year plan for development in 1976.

That plan was driven by the knowledge that Oman’s oil reserves are neither infinite nor the biggest in the region. In fact, Oman is a minnow in oil terms. It sits on proven reserves of an estimated 5.5 billion barrels, or around 0.4% of global oil reserves, and experts have predicted Oman’s wells will run dry in less than 20 years.

The sultanate reached peak oil production of around 960,000 barrels per day (bpd) in 2001, before falling to a low of 710,000 bpd in 2007. By harnessing enhanced oil recovery techniques and because of new discoveries, Oman has bumped production back up to nearly 960,000 bpd, where the government is hoping to sustain it for the next five years.

Yet that does not mean it is backing away from its long-term plan to move away from oil.

Economic diversification away from oil has been at the heart of Oman’s series of five-year plans since they were started in the 1970s. Under the first plan, the government invested heavily in projects to develop industry, mining, farming and fishing. Oman is now in its eighth five-year plan, which is part of a broader strategy called Vision 2020 to build a more diverse, sustainable economy that creates jobs for Omanis.

The plan aims, by the year 2020, to boost private sector activity and educate Oman’s workforce so that they have the skills to fill the jobs that are created. Education levels and skill sets in Oman are low at present, and many jobs are filled by foreign labor.

But under Vision 2020 and the plan that will succeed it – Vision 2040 – Oman is revamping its education system to focus on science, technology, engineering and mathematics. The aim is to prepare Oman’s large youth population to take on the jobs that H.M. Sultan Qaboos’ visionary plans will create, and to give employers the skilled local workforce they need.

In a report for the London School of Economics, Martin Hvidt, an associate professor at the University of Southern Denmark’s Center for Contemporary Middle East Studies, summarized Vision 2020 as aiming to bring “diversification, industrialization, privatization and increased integration into the global economy” to Oman, “in order to achieve the long-term aim of a productive and diversified economy.”

Among its goals are reducing the oil sector’s contribution to GDP to 9% by 2020 from its current share of 40%. The plan also aims to increase natural gas’ contribution to GDP from 1.5% in 1995 to 10% when Vision 2020 reaches its final year. With an estimated 34.6 trillion cubic feet of proven gas reserves, that’s well within the realm of possibility.

H.M. Sultan Qaboos’ government is also seeking to boost tourism, education, information technology, mining and other sectors to break the economic dependence on oil.

On the tourism front, the government is touting Oman’s diverse geography and unexpected beauty. The third-largest country on the Arabian Peninsula offers unusual landscapes for the Middle East, with fjords and sometimes snow-capped mountains punctuating desert vistas. Overlooking the Persian Gulf, Gulf of Oman and the Arabian Sea, Oman also offers unspoilt beaches, and its capital, Muscat, combines cosmopolitan charm with Middle Eastern traditions.

Attracting foreign investors is key to Oman’s diversification drive, and in that light, the sultanate has been easing the rules on foreign property ownership and foreign-owned businesses. Since 2006, foreigners have been allowed to buy freehold property in certain parts of Oman, and the laws of the investor’s country of origin dictates who inherits that property.

Furthermore, property owners and their immediate family are given residency in Oman. Oman also allows some businesses to be 100% foreign-owned, if the investment is deemed to be in the interest of the country. Most businesses can only be 70% foreign-owned, however.

Developing the sultanate’s infrastructure is another key element in Vision 2020. According to Mr. Hvidt, more than half of total spending in the current five-year plan, which runs until 2015, is earmarked for the construction and modernization of airports, roads and other transportation means. Another 26% is allocated to developing seaports, water supply systems and housing. International consortia, mainly from Europe and Asia, have qualified to bid on a project to build a 1,400-mile-long high-speed rail network, the first phase of which is expected to be operational in 2018.

Oman has already seen some success in cutting its dependence on petroleum.

Oil’s share of total export revenues have dropped from 90% to about 65% since 1990, French bank BNP Paribas reported last year. That compares favorably to four other member states of the Gulf Cooperation Council – Bahrain, Saudi Arabia, Qatar and Kuwait – where there have been no major changes in 20 years in oil export revenues.

BNP Paribas also praised Oman for the “spectacular” leap in contributions from the non-oil sector to GDP since 1990. In Gulf countries as a whole, the non-oil sector’s share of GDP grew from 54% in 1990 to 72% in 2010, while in Oman, it rose by 10 percentage points more – from 43% to 71% – in the same period. A spectacular rise, indeed.