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Obstacles: Perception vs reality
There are few countries which can
match the strides taken by Oman on social and economic
indicators. This has propelled the Sultanate into a high income
country in a short span. But the World Bank’s “Doing Business
index” which tracks the ease of doing business across 183
economies ranks Oman below the GCC average. OER speaks to a
cross section of industry leaders to delve into the obstacles
facing businesses in Oman. Visvas Paul D Karra reports with
Mayank Singh
In an “EESE” (enabling environment for sustainable enterprises)
Assessment for the Sultanate of Oman, the International Labour
Office (ILO) has found that 70 per cent of firms believe that
Oman’s regulatory environment makes it difficult for small
businesses to compete with large businesses. This discovery was
made during a survey conducted by the ILO among 150 respondents
from a cross section of the industry including company owners,
CEOs, directors and general managers of private sector firms.
The survey focused on policy areas such as entrepreneurship;
culture; competition; enabling legal and regulatory environment;
good governance; information and communications technology;
education, training and lifelong learning/skills and education;
adequate social dialogue/social protection and work force
relations. One of the important themes which also emerged in
this ILO survey is that young Omanis do not start a business
precisely because of the difficulty in doing business in Oman.
So clearly there are a number of issues and challenges being
faced by businesses in the country.
One of the most obvious challenges is the lack of clear
information. For example, most Omani investors or entrepreneurs
are not aware of the classification of what could constitute a
small business. No doubt, statistics are available in the
Directorate General of SME Development about Small and Medium
Enterprises (SMEs). For the record’s sake, there are around
121,000 SMEs operating in Oman constituting more than 90 per
cent of the economic activity and around 20 per cent of the GDP.
Mainly, the projects of these enterprises are in the wholesale,
retail and foodstuffs sectors which represent 41 per cent of the
total projects, while the industrial and contracting projects
represent 17 per cent and 31 per cent respectively.
“From a policy perspective, while the importance of private
sector development and entrepreneurship (read SME development)
are acknowledged in the eighth five-year plan (2011-2015), there
is no separate policy framework drawn up for promoting
entrepreneurship culture or SMEs in Oman. Action on this should
be a priority,” says the ILO in its EESE Assessment.
The same sentiment has been echoed by a well known consultancy
firm which prepared an executive summary for the directorate
general for the development of small and medium enterprises,
Ministry of Commerce and Industry (MoCI). The report summarises
that there is a lack of an SME policy framework and national
strategy which is coupled with the fact that the existing policy
framework is not conducive to SMEs. Due to this, there is
minimal coordination and alignment of SME programmes leading to
a stunted growth of this vital cog of the economy.
Ground realities
According to Qais Al Khonji, director, Al Khonji Group, SMEs are
the backbone of any economy and contribute a lion’s share of the
revenues generated, but in Oman there are quite a few obstacles
which are hampering SMEs from performing at an optimal level.
And even though the government has been trying its level best to
minimise the obstacles and help SMEs to flourish, Qais believes
that more can be done.
Qais points out one challenge which SMEs in general face is
marketing of new products. Any SME company which starts
operations needs help in creating awareness about its products
or services. But this is not easy especially in a market like
Oman.
“Marketing is the biggest challenge that any small businesses
face and we require more marketing support for a better kick
off,” says Qais. And this support can come from any quarter. It
could be as simple as family and friends promoting your product.
For example, friends and family members could buy an SME product
or make use of a service and spread the news around through the
word of mouth.
The other notable obstacle and a macro-economic factor which
works against SME growth and development is the prevailing
market conditions in the Sultanate, underlines Qais. Since Oman
is a very small market it is a tough challenge to garner the
requisite numbers in terms of buyers. Further, most Omani people
are more inclined towards saving money and spend only where
necessary. In such a situation, buying luxury products or
services is very minimal. So it is really tough for upcoming
SMEs or fledgling companies to penetrate the market without
hand-holding by the government or any other competent body.
Hassan Mohammed Juma, managing director and founder of Mohammed
Juma Sultan Co, says when you begin a business many people look
at you with skepticism and little respect. Today the situation
may be better but seven years ago, the concept of
entrepreneurship was not flourishing. Being an entrepreneur at
that time meant that you could catch hold of an expatriate and
give him your license and take RO500 from him as returns at the
end of every month. That was how you ran a business, says
Hassan.
Starting problems
According to the ILO assessment, poorly designed regulations
and unnecessary bureaucratic burdens on business put limitations
on enterprise start-ups and can lead to informality. In some
areas, Oman has progressively improved the business environment
through greater liberalisation and measures aimed at reducing
regulatory burdens. It has primarily focused on reducing costs
and time required for starting a business and on simplifying tax
procedures.
But it seems these measures are not enough. “There are many
challenges that face SMEs and one of the main challenges or
obstacles would be to start the business itself,” says Khaula
Hamoud Al Harthy, executive director, Lima Contracting and
Trading. Citing her own example, Khaula says, “If I were to take
myself as an example, although I have been working in our
company which is a small and medium enterprise (a family
business) and have been involved in it for the past 8 years, I
would still face many challenges if I had to start a new
business of my own. Some of those are lack of experience,
guidance from the right authorities, and lack of enough skilled
manpower in the chosen field of business. So most of the
challenges come up when you want to start a business.
Adds Khaula, “Since many people don’t know how to start a
business, to compound the complications, we don’t have a
properly activated one-stop-shop which would help us to start a
business. I think there is a communication problem between the
citizen’s expectations and the government initiatives, which
unfortunately has discouraged a number of people from setting up
new businesses. I do believe that things would change for the
better in the coming future since the government has realised
the importance of SMEs and their impact on our national economy,
therefore their plan would be to support existing SMEs and
encourage new ones to come up.”
Regulatory lacunae
Hassan says that that one of the big challenges for SMEs in
some cases is the non-compliance with the system, be it by the
people or the government staff. Everyone follows their own
judgments, creates hurdles for business. For example, a
government employee may be giving clearance for certain imported
products with his own understanding of the regulation. But the
next person who comes after him refuses to give a clearance for
the same product. We try to object but then we later realise
that the earlier person was actually at fault for not following
the system and using only his judgment.
“Another obstacle is the lack of accountability among the
service providers, be it in the private sector or government. I
believe that all large service providers should have KPIs for
their employees. If an employee receives 100 applications for
processing per day, and if he or she complains of being
overloaded, then what is the benchmark for this overload? Are
you overloaded because last night you were watching a football
match and today morning you don’t feel like working or is there
any other reason?”, adds Hassan.
The subject of Omanisation continues to be the pinprick and pet
grievance for most of the organisations, but another regulatory
problem boils down to understanding the requirements of a
business for the right manpower and in the required numbers. If
someone is running a B2B business, they can have a small
premises as a representative office and don’t need as much space
as that of a bank because most of the staff are out in the
market doing business. A number of times such an organisation is
refused to be given the required number of labour clearances
because it has a small premises. The regulators should
understand the nature of the business and how much staff they
require, Hassan adds.
Basically, the whole SME sector is still in a nascent stage
although it is supposed to be the backbone of the economy. Both
the Oman Chamber of Commerce and Industry (OCCI) as well as MoCI
are involved in developing the SME sector, says Khaula who is a
member of the SME department of the OCCI which has just been
founded. “Right now we are working on some kind of a definition
for the SMEs which would help us to move forward. The
committee’s main goals are to help out SMEs in getting the
financial support, get the government to support the SMEs
through simplifying the process of setting up a business, to
raise awareness of the importance of SMEs within our society,
and to encourage the setting up of more SMEs,” Khaula adds.
Education and entrepreneurship
One of the areas in which the government should focus their
energies is educating the youth of the country to become
entrepreneurs. This move, while seemingly aimed at the
grassroots will provide the much needed impetus for bringing
about a shift of culture from being ‘sleeping partners’ in
expatriate-driven SMEs to active contributors to the economy of
the country.
Qais suggests that the government represented by both the
Ministry of Education and the Ministry of Higher Education has
to take an initiative to introduce entrepreneurship courses in
grades 11 and 12. He further feels that the ministry of higher
education should adopt a new concept of establishing an
entrepreneurship academy to foster and inculcate the values of
becoming an entrepreneur.
Oman has a wide range of separate initiatives to provide
entrepreneurs with necessary skills and help them with
financing, yet these often seem supply-driven and lack cohesion,
says the ILO survey which suggests that there is a positive view
of entrepreneurship from young people (41 per cent sharing this
view). However, a large sample of enterprises surveyed (43 per
cent) believe that only a small minority of young people have
the right skills to successfully run a business. Education is
where the whole culture shift has to spring from.
On this front, MoCI has taken a number of steps to stir up
entrepreneurial traits in Omani youth by promoting
entrepreneurial clubs in schools and colleges. Says Salah bin
Hilal Al Maawali, Director General, SME Department at MoCI, “we
have been working with many stakeholders concerned with SMEs to
develop a strategy for SME sector. Presently, the DG of SME
department, set up in 2007, has been providing training support
to the existing and potential entrepreneurs of SMEs through
structured programmes. The directorate-general conducted around
76 training programmes covering a wide range of topics including
marketing, finance and general management. Many entrepreneurs
and academicians participated in these training programmes.”
In order to bring awareness about the support services available
for the SMEs, the directorate-general has prepared a compendium
called, “Directory of Services for SMEs in Oman”. This provides
detailed information of the various programmes and services
offered by different government and private sector agencies in
the Sultanate including the funding options available from the
major financial institutions.
Government perspective
From the government’s point of view, it has identified two
main obstacles for the growth of SMEs. The first obstacle is the
expatriate entrepreneurs who are running a large number of small
and medium enterprises. Salah has disclosed that in a study
conducted by the ministry, it has been found out that 60 per
cent of the 1.3 million expatriates in Oman are owners of
businesses under the sleeping partner tactic. These are the
people who don’t implement new technology or new systems and
don’t provide proper services or employment to local talent
since they are too expensive by way of salaries.
On the other hand, you have Omani graduates from schools,
colleges and universities in the age bracket of 18-26, who would
like to start their own business. But they don’t have patience,
or an understanding of the nature of business, and they don’t
have the knowledge of technology and still want to make money as
fast as possible. In order to overcome these impediments, the
ministry through the DG of SME department, has created incentive
packages for Omanis to implement technology, train and give them
a better environment for starting their own businesses.
“As part of our hand-holding gestures, we have several
initiatives like doing business from home, loan bank guarantee,
a PEIE business centre and a business diagnostic centre to help
entrepreneurs start their own ventures. This diagnostic centre
will help them to identify the business, develop the business
plan and identify the right kind of financing,” Salah says.
The scheme for starting a business from home is the simplest and
most effective, Salah discloses. Anyone who wants to start a
business can register themselves with MoCI by paying three rials
for three years and begin their business. After three years, the
SME is required to do a formal registration with the OCCI as
well the MOCI. It cannot get any better or simpler than this,
says Salah.
The ministry is also working closely with the Tender Board for a
mechanism to give benefits to SMEs through Article 36 which
mentions that Omani products have to be taken even if they are
priced at 10 per cent higher rate. This way local products,
goods and services will be given preference and revenues
generated for the smaller companies.
Apart from manufacturing sector, the services sector has been
identified as one of the key thrust areas in which SME
development will be encouraged by MOCI.
Work stoppages
Talking about difficulties facing businesses in Oman, large
companies in manufacturing and the oil and gas sector have been
facing real time problems like labour unrest, high turnover of
employees etc. There have been instances of work stoppages in
various companies in Sohar and Muscat recently. If such problems
continue then the ramifications would be very bad as new
investments will be impacted and old investors will try and
withdraw. There is a loss of productivity and this has to be
made up by other workers.
Dr Bhaskar Dutta, CEO, Jazeera Steel Products Company, says, the
problem is that people only want benefits, bonus, increments etc
and they are not interested in work. Almost every company in
Sohar is facing similar issues. Absenteeism is galore. During
the recent three day holidays of Al Isra’ wal Miraj (June 14 to
16), 40 people were absent a day before the holidays and
probably another 40 were absent a day after the holidays. They
come back and fill up an emergency or sick leave application.
Further, there are no procedures that are being followed, either
by the workers or the junior officials in the Ministry of
Manpower (MoM) for solving matters. “If some workers go and make
a random compliant to the MoM, then the junior officials of the
MoM start harassing us based on those complaints. We have
certain grievance procedures in our company and if people are
not happy, they have to follow this process, but this is not
happening. When we raise constructive issues like work culture,
tackling absenteeism the MoM officials brush them aside saying
that in such instances you need to follow the law. With this
indulgence, the workers think that they can do whatever they
want,” says Dutta. |
