Diversifying national revenues


Sultanate’s historic potential as a regional hub has never been more achievable

By Oliver Cornock
 

In addition to its sizeable reserves of oil and gas, Oman enjoys another geographical advantage. It is central to the region, and its position at the mouth of the Persian Gulf makes it an obvious location for the trans-shipment of goods. As the Sultanate looks to reduce its dependence on hydrocarbons, a wealth of ambitious road, rail and air projects is now in the pipeline to develop the country’s huge potential as a ‘gateway’ to the region.

In April, Oman United Engineering Services (OUES) and Portugal’s Sociedade de Construções Soares da Costa – who are ranked among the world’s 100 biggest contractors – won a contract to build road infrastructure linking the new Muscat International Airport with the Muscat Expressway. Valued at around $62m, the Omani-Portuguese partnership saw off several contenders for the bid.

Focus on infrastructure
This is the result of increasing infrastructure prioritisation within Oman, which means that realising the Sultanate’s historic potential as a regional hub has never been more achievable. The latest five-year plan (2011-2015) allocates some $78bn toward infrastructure spending, representing a 113 per cent increase on the last five-year plan. This government investment is planned for a range of large-scale projects, including over $25bn on building construction, $15bn investment in Salalah Free Zone, investment of $1bn on developing a medical city (also in Salalah).

Last year, a report by Business Monitor International described Oman’s construction and infrastructure sectors as “fragile”, citing the Oman Cement Company’s 77 per cent drop in 4Q profits for 2010 as evidence of a weak sector, which would struggle to recover. Yet, less than a year later, the situation has been transformed. If Omani infrastructure was ever considered “weak” in the past, it must surely now be recognised as one of the most promising sectors going forward.

The results of the marked rise in sector spending speak for themselves; since the implementation of the latest Five-Year Plan, the non-hydrocarbon sector has exhibited rapid increases in their GDP contributions, including manufacturing (with 17.5 per cent growth), electricity and water (9.5 per cent) and construction (5.8 per cent).

Diversifying economy
Of course, oil and gas continue to play a significant role in Oman’s economic performance, contributing just under half of GDP in 2011. Indeed, the government is continuing with its plans to diversify, modernise and “Omanise” the economy to the extent that oil will only contribute 9 per cent of GDP by 2020, according to Vision 2020, Oman’s diversification policy. As part of these plans, infrastructure upgrades play a key part in supporting non-hydrocarbon growth.

Specifically, it’s the transport sector that is set to be the big winner from this increased funding. The current Five-Year Plan sets aside around $20bn for transport infrastructure projects up to 2015. This includes a new terminal at Muscat International Airport, which will be completed by 2014, with the capacity to handle 12mn passengers annually. Furthermore, Oman’s connection with the inter-GCC railway network will be a significant development, bringing enhanced freight and passenger access to the entire region.

The government’s strategy is to provide a solid platform for economic diversification. Infrastructure upgrades will create a positive cycle of improved connectivity and transport linkages, which in turn will make Oman more attractive to business and foreign investment.

The positive spin-offs that investment in infrastructure will bring to the Sultanate’s diversification drive are clear. The expansion of the airport and passenger handling capacity, for example, will support growth plans for Oman’s travel and tourism industry, which Vision 2020 forecasts will contribute 6 per cent of the country’s total GDP by 2021. Additionally, although specific details have not yet been announced, Oman intends to build or expand six airports, including Salalah airport. To further facilitate the growth of tourism, the government has already approved the spending of around $8bn on tourism-related property developments across the country, with the aim to attract around 12 million visitors a year by 2020.

With regard to overland transport, Oman’s challenging topography has traditionally posed difficulties with the development of transport links in Oman’s interior, yet the increase in funding, together with technological improvements mean that long-awaited projects can at last go ahead. Indeed, the idea of a GCC-wide railway has been talked about since 1981, but the region is closer than ever to achieving this. According to the Ministry of Transport and Communications, when operational the Oman-GCC railway will be 2000 km long (with 1000 km of track in Oman), running from Kuwait’s border with Iraq, down to Salalah in the southern tip of Oman. The expected total cost of the regional project is estimated at $25bn.

This will allow Oman to tap into regional trade (and vice-versa), stimulating commerce by facilitating the movement of goods. The Port of Salalah, for example, is strategically located on the major shipping lanes between Europe and East Asia, and greater access by rail will increase its competitiveness with other Gulf ports. Given that the difference between docking at Salalah and Dubai is three days’ journey, Salalah has a huge amount to gain from enhanced rail linkages.

The projects are bold and ambitious, but the Omani government is in no way passive or complacent about drawing in foreign developers; rather, with construction projects picking up momentum, Oman is actively courting international participation. In April, Malaysia’s minister for International Trade and Industry was welcomed to Oman as part of a broader invitation to Malaysian companies to take part in infrastructure deals in the Sultanate. Although to date no Malaysian firms have ventured into Oman, companies are now showing interest in the Sultanate’s construction, retail and IT sectors, as well as the halal meat segment.

Furthermore, October will see Oman host an international exhibition for infrastructure and industrial projects – “InfraOman” – for the second time. Last year’s InfraOman expo, the first of its kind to be held in Oman and the GCC region, was attended by a host of international firms, generating a great deal of interest in Omani construction projects spread across a range of sectors, including power, water and renewable energy technology. Whereas last year the attention was mainly on heavy industry and equipment, InfraOman 2012 will also have a special focus on affordable housing, interior design and building materials, areas which the Sultanate wants to focus on in order to improve housing availability and quality.

Taking into account Oman’s geographical advantages, and renewed spending drive on transport connectivity and network upgrades, infrastructure investments in the Sultanate are set to become increasingly attractive to foreign investors. Oman’s huge potential as a gateway to the region is set to become a reality. 

Top^