Key risks investors must navigate in Oman

01 March 2019

Forward-looking assessment of Oman country risksOman’s continued dependence on dwindling oil production produces risks to the country’s long term economic outlook. Fiscal and external balances will remain in deficit until 2024. Strong growth in the construction, non-hydrocarbon and petrochemicals industries will support long-term economic diversification.

Security Environment 

Internal security risks in Oman are low compared with its immediate neighbours, Yemen and Saudi Arabia.

Crime and kidnapping present no major danger and the country faces no immediate external threats.

The security environment remains strong and effective border controls with Yemen mitigate the spill over risk of terrorist activity.

Nonetheless, there is a moderate risk to marine cargo and transport, with an increase in piracy attacks in the Arabian Sea and the Gulf of Oman.

The Omani Police Coast Guard’s capability to counter piracy is limited to Omani territorial waters.

Nonetheless, there is a moderate risk to marine cargo and transport, with an increase in piracy attacks in the Arabian Sea and the Gulf of Oman.In common with most other regimes in the Gulf, Oman’s authoritarian political system raises long-term political risks.

However, in March 2017 Sayyid Assad bin Tariq was elevated to the post of deputy prime minister for foreign affairs.

This indicates that he is likely to be groomed for succession by Sultan Qaboos, and should reduce uncertainty.

Policy continuity is likely, with Oman balancing relations with the US, Iran and other Gulf Co-operation Council (GCC) members.

Trading Environment 

Real GDP growth will slow in 2019 to 2.3% as Oman adheres to OPEC oil production cuts in H1 2019. Inflation will likely remain at under 2% in 2019. 

There will be stronger revenue gains in late 2019 and early 2020 if the long-planned value-added-tax (VAT) of 5.0% is implemented on 1 September 2019.

Petrochemicals are rapidly becoming the largest driver of global oil consumption.

They are set to account for more than a third of the growth in oil demand to 2030 and nearly half to 2050.

Oman’s limited oil reserves have forced the government to focus on diversification as a long-term economic priority. 

Major infrastructure projects currently being undertaken include the USD 7.0 billion Duqm refinery and petrochemicals complex, set against a 2021 deadline.

The natural gas sector is expected to grow significantly during 2018-2021.CPS RO March19 chart

BP’s Block 61 facility came online in late 2017. This will boost production capacity by 10% in 2019.

Industrial sectors will expand at moderate rates in the medium term.

Targeted government spending on industrial development, alongside foreign direct investment in the Duqm Special Economic Zone and Sohar port, will help to maintain modest growth in the non-service industries.  

The construction industry is set to grow by 11.5% in real terms in 2019, up from 10.4% in 2018 – second only to Qatar among GCC countries.

Government debt will increase more slowly over the coming years as fiscal deficits shrink to 7-8 % of GDP in 2019-20.

This is down from an average of 17% of GDP from 2015-2017. Measured as a proportion of GDP, Oman’s public spending is the third-highest in the MENA region.

This is forecasted to decline in line with the long-term reduction in oil revenues.

The government has demonstrated its intention to utilise privatisation as a revenue generation tool.

It has proposed the sale of state-owned Oman Electricity Transmission and Muscat Electricity Transmission, with combined assets worth USD 3.2 billion, by year-end 2019.

Investment Environment

Expropriation risks are minimal and ownership of property is well-documented. In the rare event of nationalisation or expropriation, Article 11 of the Omani Basic Law stipulates that the government must provide fair compensation. 

However, given the pressing need to diversify the economy and gradually shift the employment burden on to the private sector, expropriation is highly unlikely in the medium-term outlook. 

World Risk Review Oman Map StatsInvestors are adequately protected as part of Oman’s aim to promote investment via a policy of equal treatment for foreign and domestic investors.

The Omani Centre for Investment Promotion and Export Development (OCIPED) is intended to entice foreign investors.

Through OCIPED, automatic approval of majority foreign ownership of up to 70% is available.

Oman continues to be successful in attracting investor interest, as evidenced by an oversubscribed USD 1.5 billion Islamic sukuk issue in December 2018.

Anti-monopoly and anti-cartel measures are relatively weak.

State-owned enterprises have an upper hand in the market, even though private companies are legally entitled to the same access.

The ‘Omanisation’ policy has long set quotas for various industries to reach in terms of the ratio of Omani to foreign workers.

In the long-term outlook Oman will continue to issue decrees and pass legislation that opens up employment to Omanis and gradually reduces the number of expatriates in the country.

The monthly Risk Outlook is supported by JLT’s proprietary country risk rating tool, World Risk Review (WRR) which provides risk ratings across nine insurable perils for 197 countries. The country risk ratings are generated by a proprietary, algorithm-based modelling system incorporating over 200 international sources of data.

World Risk Review Stats Oman

 

5 Key Takeaways

  • Oman’s security environment is strong, with limited crime and kidnapping risks
  • Succession risks have fallen, following the elevation of Sayyid Assad bin Tariq to post of deputy prime minister for foreign affairs
  • Oman’s petrochemicals industry is growing, generating investor opportunities
  • Oman is keen to attract investor interest, providing equal treatment of foreign and domestic investors
  • Government debt will increase more slowly over the coming years as fiscal deficits shrink.

In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Argentina, Cambodia, Cameroon and Zimbabwe all of which have been the subject of recent enquiries from JLT's client base.

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Eleanor SmithTALK TO AN EXPERT

For further information, please contact Eleanor Smith, Senior Political Risk Analyst on +44 (0)121 626 7837 or email eleanor_smith@jltgroup.com

 

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