‘Hypermarkets should take measures to cut costs’

In OER’s last issue, the cover story on retail industry showcased the challenges faced by the retailers and consumers. The Minister of Commerce and Industry, HE Maqbool bin Ali Sultan, addresses those issues in an exclusive interview with Sunil Singh

What is driving the retail sector boom in Oman?
The wholesale and retail trade in Oman grew very strongly by 19.2 per cent in 2006, the highest-ever recorded growth. The reason behind this was the strong growth in all sectors of the economy, higher per capita income, increased salary levels of both private and public sector employees, among others, which increased the purchasing power of the people.

How much foreign direct investment (FDI) is allowed in the retail sector in Oman?
In Oman, 100 per cent FDI is allowed in large hypermarkets on a case-by-case basis.

How is the retail industry contributing to Omanisation?
A recent survey of three major hypermarket chains in Oman indicates that the total direct employment in these three chains was around 3,300, of which more than 50 per cent were Omanis. The Omanisation level will be increased progressively. The hypermarkets also generate more indirect employment opportunities for nationals in other related supporting services, such as transportation, warehousing, packing, etc.

In what ways will the coming of hypermarkets and malls impact the small retailers in Oman?
The hypermarkets, which provide centralised shopping facilities for all family requirements, have also brought in centralised purchasing, warehousing, bulk-breaking and retailing techniques to the country. These concepts were non-existent in Oman till a few years back.
Hypermarkets also can offer better quality and variety of products at competitive prices to their customers. Small retailers should now take steps to improve their quality of services and product range availability to satisfy customer needs and also withstand competition.

Is inflation a drag on the retail boom in Oman?
Integration of the Omani economy with the world economy allows faster transmission of global inflation through costlier imports. Therefore, Oman alone cannot fully contain current moderate inflationary pressures, specially at a time when all sectors of the country’s economy are growing. Also, as the dollar is depreciating against other regional currencies, imports from Europe, India and other Asian countries are becoming expensive. When the economy grows, demand and the purchasing power of people also improve accordingly. Therefore, there is no reason to believe that the current level of moderate inflation rate prevailing in Oman will adversely affect the retail sector growth.

Is the growth of real estate influencing the retail sector in terms of rents, etc?
There is no evidence that there is any relation between higher rents and retail sector growth. As it has been observed, the year 2006 witnessed an overall increase in rents but the year also recorded the highest-ever growth in the wholesale and retail sector. Therefore, higher rents have not affected retail sector growth.

The recent fall of Omani rial due to the depreciation of US dollar has escalated the cost of imports, which in turn has caused inflationary trends. What do you think should be the pricing strategy of hypermarkets to counter the inflationary trends?
Inflationary pressures are mainly due to the country’s dependence on imports from Europe, India, and other Asian countries for essential consumer items. The currencies of these countries have become stronger and therefore imports have become more expensive. Moreover, the freight cost has also gone up internationally due to the escalating fuel prices. However, the government is taking every step to ensure that the traders don’t take any undue advantage of the situation. The hypermarkets should take prudent measures to cut the cost of retailing, wherever possible, and also try to reduce margins to lower the burden on their customers.

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