Port expansion, ahoy!
As the Sultanate focuses on building up its export-oriented manufacturing base and its potential as a logistics hub, all the ports have a central role to play in Oman’s diversification

By Oliver Cornock
Regional Editor,
Oxford Business Group





Expansion is underway at a frenetic pace at all Oman’s ports as theSultanate focuses on developing its export industry and logistics centres. With other Gulf countries also building up port capacity as well as looking to develop their industrial bases, Oman is looking to play to its strengths to reap the benefits of the investments it is making.

Oman’s three main freight ports are Mina Sultan Qaboos (‘mina’ means port in Arabic) in Muscat, and the ports of Salalah and Sohar, all of which handle a broad range of cargo. Mina Sultan Qaboos is the veteran of the pack, and the smallest of the three, with a capacity of 300,000 twenty foot equivalent units (TEUs). While it is being extended, given its role as the capital’s port and the expected increase in demand as trade volumes and non-oil exports in particular grow, Salalah and Sohar too have come into the limelight recently.

Sohar’s port, which opened in April 2004, has been the subject of investments worth some US$14 billion. It forms the core of the Sohar Industrial Port Zone (SIPZ), which includes a free zone for the manufacture of goods for export to those countries with which Oman has free trade agreements (FTAs), including the
United States.

The largest port is Salalah’s, which is soon to get bigger still. A memorandum of understanding (MOU) was signed in June between the port authorities and the government for the harbour’s extension from a capacity of around 2.5 to 9 million TEU.

A fourth port, at Shinas in the north of Oman in the Batinah region, is also likely to be expanded with the government inviting bids for a feasibility study on the project in April. The expanded port is intended to complement the growth of copper ore mining in the region. With global commodity prices on a high, Oman is looking to reap the benefits of its non-oil resources. Other industries too will be fostered in a proposed special economic zone.

Manufacturing bases
All the ports have a central role to play in Oman’s diversification, as the Sultanate focuses on building up its export-oriented manufacturing base and its potential as a logistics hub. Rapid progress has already being made, with a series of important deals sealed in the past few weeks.

Sohar has a growing a reputation as an aluminium production centre, with its “metals cluster”. At the end of May, Mumbai-based Zoom Developers announced that it would be setting up an aluminium plant near the port, which could dovetail with another Indian firm’s plan to establish a Special Economic Zone (SEZ). Meanwhile, in March, an aluminium bar plant established by Austria’s Salzburger Aluminium in partnership with Takamul Investments commenced production.These are but the most recent developments at Sohar, which has been such a success that the government is tripling the size of the SIPZ to 6000 hectares.

UAE-based submarine cable firm E-Marine PJSC announced in June that it would be setting up a new cable depot and office centre in Salalah Port, to serve West and South Asia, Africa and the Arabian Peninsula. The size of the investment is not known, but it is significant that an important high-tech firm from one of Oman’s neighbours should choose to set up a major base in the Sultanate, from where it will be able to dispatch vessels to maintain and lay cables over a large area. With the Indian Ocean rim surrounded by fast-growing economies and increasing demands for telecommunication technology, the opportunities for firms such as E-Marine are considerable.

Furthermore, Oman’s burgeoning transhipment sector, which has benefited from the Sultanate’s location and strong trade ties with a diverse range of countries, is likely to develop hand-in-hand with the country’s ports.

While these deals are indicative of firms voting with their feet for Oman’s port cities, other countries in the Gulf are also expanding their port capacities rapidly, with similar aims of becoming export and logistics centres.

The UAE, for example, is developing a new port, Khalifa Ali, between Jebel Ali and Abu Dhabi to supplement and partly replace the existing Mina Zayed, which is hemmed in by the city of Abu Dhabi. Khalifa Port, expected to be completed in 2010, will naturally be the centrepiece of its own industrial zone, the KPIZ, which will offer tax and development incentives. Mubadala, the Abu Dhabi government’s investment arm, is involved in the establishment of what is set to be the world’s largest aluminium smelter in the zone.

Elsewhere in the UAE, Dubai is expanding its own Jebel Ali Port, which is also fast becoming an industrial centre, and is expected to reach a capacity of 15 million TEU this year (the Khalifa port will be of similar size). Jebel Ali is also the site of the emirate’s new airport, which could become the world’s largest, offering the intermodal connectivity that is so prized in the logistics industry. Oman’s largest airport development is taking place in Muscat, some distance from the two biggest ports, though a sea terminal at Salalah’s growing airport is also taking shape.

Locational Advantage
Oman’s biggest competitive advantage is its geographical location - vessels can reach it without going round the notoriously treacherous Strait of Hormuz. While the UAE also has direct access to the Arabian Sea through the Emirate of Fujairah, its main ports – including Jebel Ali – are still located on the other side of the Strait.


The Strait is not only very narrow, but also extremely busy and geopolitically a hotspot. At one point only 34km separates the Arabian Peninsula and Iran. Some 30 per cent of the word’s crude oil supply passes through it annually. Military vessels patrolling the waters only add to what is already a congested shipping lane. In January 2007, a Japanese tanker collided with a submerged American submarine, and earlier this year a stand-off occurred between US warships and Iranian navy motorboats, heightening tensions.

The ports of Oman, therefore, allow ships access to the Arabian Peninsula without adding the extra two days travelling time required to negotiate the Strait of Hormuz, and without incurring the expensive insurance charges that ships passing through it have to pay.

As Omar Bin Kalban, Managing Director and CEO of E-marine PJSC explained: “This strategic location [of Salalah] helps reduce the sailing time and allows E-Marine to reach the farthest point in the region, quickly.” He added that it would also allow his firm to service clients in “the Western Indian Ocean, East Africa and the Red Sea”.

Regional competition
Of course, other ports in the region will also point to the accidental benefits of their own geography; Saudi Arabia is perhaps most notable with its west coast ports which give direct access to the Arabian peninsula, are in easy reach of the massive African market and also straddle the major shipping lines of the Red Sea. Importantly they entirely bypass the Hormuz issue, though they are much further away from the south-east of the peninsula. Ports such as Dubai’s Jebel Ali are betting on their advantages outweighing the cost of navigating Hormuz. These include direct access to their domestic markets, tax incentives and huge investments in industry and logistics capacity.

The Sultanate, with more modest oil reserves, which are more expensive to extract, is unlikely to have the resources to make investments on quite the scale of its neighbours. Therefore Oman plans to play to its strengths. While the Sultanate is indeed developing a strong industrial sector, that it hopes will drive its economy in the future, the relatively small population means that it is unlikely to become a global manufacturing giant – the ports will need more than exports to fill their projected capacity. This could involve developing its internal transport infrastructure to improve connectivity to other Gulf states, as well as easing customs procedures at the borders to boost the country’s potential as an entry point for imports to southern Arabia. The proposed extension of a railway line from Sohar to the industrial centre of Al Duqm, and a motorway from Barka through Sohar to the border with the UAE are two particularly significant projects.

With open access to the ocean, an extremely stable political climate and an excellent business environment, the Sultanate has a combination of competitive advantages that very few countries in the Indian Ocean Rim can offer. With the infrastructure expansion already underway, Oman can now focus on continuing to open up trade and further develop the regulatory framework to press home its geographical advantage.
 

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