Omani Sultan Haitham bin Tarik al Said, who assumed the sultancy in January 2020, has led a whole of government effort to reform Oman’s economy to attract foreign direct investment (FDI). This effort has built on an overhaul of Oman’s business and investment framework that included, most notably, updates in 2019 to Oman’s Commercial Companies Law, Foreign Capital Investment Law, Privatization Law, Public-Private Partnership Law, and Bankruptcy Law. Under Sultan Haitham’s leadership, Oman is now in the process of developing further advantages for foreign investors, including a program of tax and fee incentives, permissions to invest in several new industries in the economy, expanded land use, increased access to capital, and labor and employment incentives for qualifying companies. These reforms seek to improve Oman’s investment climate and are in line with Oman’s Vision 2040 development plan. The success of Oman’s reform effort will depend on Oman’s ability to open up key sectors to private sector competition and foreign investment, minimize bureaucratic red tape, pay off its overdue bills, balance its desire for “Omanization” with the realities of training and restructuring its work force, and translate its promises of economic reform into increased FDI flows and job creation.
Oman’s location on the Persian Gulf and the Indian Ocean, at the crossroads of the Arabian Peninsula, East Africa, and South Asia, and in proximity to shipping lanes carrying a significant share of the world’s maritime commercial traffic and access to larger regional markets, is an attractive feature for potential foreign investors. Some of Oman’s most promising development projects and investment opportunities involve its ports and free zones, most notably in Duqm, where the government envisions a 2,000 square-kilometer free trade zone and logistics hub. Because of its “friends of all, enemies of none” foreign policy, Oman does not face the external security challenges of its neighbors. Because of its domestic policy of peaceful coexistence, political instability among its diverse population is practically nonexistent.
Oman has taken numerous recent measures to promote investment. In August 2020, it created the Public Authority for Special Economic Zones and Free Zones (OPAZ) to oversee and facilitate investment into the Special Economic Zone at Duqm, Almazuna Free Zone, Salalah Free Zone, Sohar Free Zone. In 2019, it promulgated five laws to promote investment: the Public-Private Partnership Law; the Foreign Capital Investment Law (FCIL); the Privatization Law; the Bankruptcy Law; and the Commercial Companies Law. The FCIL, which came into force January 1, 2020, holds particular promise for removing minimum-share capital requirements and limits on the amount of foreign ownership in an Omani company. Under the U.S.-Oman Free Trade Agreement (FTA), U.S. businesses and investors already have the right to 100 percent ownership.
Oman’s overall financial situation continues to suffer from the COVID-19 pandemic, the collapse of global oil prices, and the resulting oversupply. The situation has highlighted Oman’s oil dependence, chronic fiscal vulnerabilities, and its inability to significantly diversify its economy. While the government took steps to curb spending in 2020, revenue losses outpaced expenditure cuts and the deficit ballooned $2 billion beyond projections. Oman’s wealth will continue to rely on oil and gas revenues, despite diversification efforts. Overall, Oman is facing worsening financial conditions and rising financial obligations, which could continue to restrict the government’s ability to invest in needed growth to address a worsening employment situation. Its debt to GDP ratio reached 81 percent by the end of 2020, compared to 60 percent in 2019.
Sultan Haitham has recognized these challenges and is seeking to address them. In the first year of his reign, he succeeded in cutting at least $4.7 billion from Oman’s bloated government budget and filled his cabinet with technocrats who are united the goal of in righting Oman’s faltering economy, with an emphasis on FDI. As part of Oman’s government revenue diversification efforts, the government instituted a Value-Added Tax of 5 percent for the majority of purchases of goods and services April 16 and implemented long overdue subsidy reforms January 1; in addition, the Tax Authority is planning a personal income tax on high-income individuals for next year.
The top complaints of businesses often relate to requirements to hire and retain Omani national employees and a heavy-handed application of “Omanization” quotas. Payment delays to companies are also a problem across various sectors. Smaller companies without in-country experience or a regional presence face considerable bureaucratic obstacles conducting business here. Beginning in 2020, the government also temporarily ceased the issuance of most new contracts and purchases as a move to curb expenditures.
The government also needs to undertake more fundamental reforms for investment such as making its tender system transparent, modifying its labor laws to provide companies with workforce flexibility to address manpower redundancies, increasing access to credit, and speeding up approvals for new businesses to truly open up Oman to foreign investment.
|TI Corruption Perceptions Index||2020||49 of 179||http://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report||2019||68 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2020||84 of 131||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, stock positions)||2018||USD 1,624||https://apps.bea.gov/international/factsheet/|
|World Bank GNI per capita||2019||USD 14, 110||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|