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GCC states will see advantages and disadvantages from either outcome in the U.S. presidential election but will rely on the persistence of long-standing ties.
There is renewed buoyancy for the Omani economy as rallied oil prices are expected to ease the execution of plans, big and small. Yet, public trust in government plans still falls short.
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DonateSigns of optimism and, perhaps, relief are on the horizon for Oman. As 2021 came to a close, the minister of finance, Sultan bin Salim Al Habsi, said that estimated total revenue for the 2022 budget would likely be 6% higher than the total revenue collected in 2021. The country’s fiscal deficit, according to Habsi, showed enough promise to be projected at its lowest since 2014. These figures were calculated based on $50 per barrel oil prices. However, by the end of January, oil prices rose to $85/bbl. Now hovering over $100/bbl, high oil prices have encouraged greater oil production, incentivized energy sales (for instance, with Shell), and strengthened commitments toward renewables. There is certainly hope that, besides debt repayment and closing the budget deficit, economic recovery also entails strengthening other productive sectors, ranging from tourism to public services. The bigger question revolves around Oman’s ability to break free from the vicious cycle of dependence on its hydrocarbons. An increase in oil revenue may ironically prompt the sultanate to revert to old habits – slowing progress in the non-oil economy. And a corollary problem involves the Omani workforce, and whether the oil price rebound will undo the sultanate’s Omanization drive for hiring nationals – which was given a reality check with unemployment protests in May 2021.
Encapsulated in Muscat’s Vision 2040 is economic and social planning, endorsed by Sultan Haitham bin Tariq al-Said early in his reign. Accompanying this masterplan are focused medium-term plans. The latest, the 10th Five-Year Development Plan for 2021-25, has been pitched as the “the first executive plan” by the Ministry of Economy. According to an economic briefing released jointly by the Oman Chamber of Commerce and Industry and Oxford Business Group in November 2021, the plan aims to “gradually reduce the fiscal deficit to 1.7% by 2024 and shift the balance to a surplus beginning in 2025.” These objectives reflect continuity from tawazun, a fiscal balance program previously introduced to reduce spending and raise revenue (primarily through taxes). The sultanate is also considering imposing an income tax on high-net-worth individuals – originally as a means of addressing a budget deficit – but this is now uncertain with state revenue expected to be shored up by high oil prices.
An analysis of Oman’s 2022 budget by KPMG revealed cuts in expenditures on gas purchases, transportation, and development projects, while both oil- and non-oil revenue are expected to rise. This feeds into the economic diversification model adopted by the sultanate, known as tanfeedh, where indicators from the last 5-year plan show the business environment and finance exhibiting the most progress, whereas only three of 27 key performance indicators were met in the job market and employment stream. Among the existing diversification priorities, including manufacturing, agriculture and fisheries, mining, and logistic services, education and information technology are new additions, with the latter sector receiving $442 million worth of investments to improve digital infrastructure.
Running in tandem with the new 5-year plan are national executive programs, targeting three key areas: financial sustainability, attracting investment and supporting Omani exports, and increasing national employment. Abdullah Al Hakmani, the head of the project management office at the Oman Vision 2040 Support and Follow-Up Unit, in personal correspondence with the author, explained that the current phase focuses on implementation and project sustainability, in terms of personnel and thinking ahead to anticipate challenges. In efforts to overcome bureaucratic hurdles, dedicated teams of professionals, detached from the relevant ministries, have been formed to expedite the implementation process. Hakmani cited the example of the Invest in Oman program, where a technocratic team that is not associated with any ministry has been able to garner “multi-sectorial opportunities” through its own setup. Elsewhere, when addressing labor concerns and the need for a reliable skilled workforce, a different team is working to better facilitate the transition for students from graduation to the job market. From reviewing the standards of the education system to launching pilot programs for vocational training targeted at students, Hakmani acknowledged the “gap between high school and reality.” The focus on the education pillar seeks to avoid stopgap solutions to address concerns about unemployment, while identifying “jobs of the future.”
For all the hustle across government agencies, there remain reservations on the ground. According to Yousuf Mohamed Al Balushi, Group CEO of YA Group Oman, of the vision’s 12 national priorities, only four or five are given adequate attention. He said, in personal correspondence, that this was an imbalanced approach and suggested sociocultural targets would be better drivers to ensure continuity in the next generation. Likewise, a foreign diplomat based in Muscat, who requested anonymity, concurred with this view, emphasizing the challenges with bringing Omanis “into the plans if they do not understand them.” The diplomat continued that there had not been “low hanging fruits” from the vision to help secure buy-in. Additionally, contradictory policies, with months passing between their announcements, do not help the government’s case. For example, in December 2020, the government announced a plan to gradually remove utility subsidies, but it was rolled back in April 2021 as authorities announced an increase in the same subsidies for some Omanis to offset the impact of the value-added tax.
Part of the 5-year plan’s roadmap is “balanced development for the governorates,” which coincides with a decentralization of authority through the “Provincial and Municipal Affairs System.” This should be an effective move toward power devolution that will have implications for the economy, however, there is more to be done to address social grievances. Since his ascension, Sultan Haitham has made efforts to delegate tasks and streamline government agencies, marking a shift away from the former sultan’s personalized rule and toward an institutionalized model. However, while this move insulates Sultan Haitham from direct criticism, broad public support still eludes him.
The May 2021 protests in Sohar are a stark reminder of lingering discontent, predominantly over high rates of youth unemployment. According to the February bulletin of the National Center for Statistics and Information, the net number of Omanis in the private sector has been increasing since 2020 (currently 270,440) with the largest share in the construction sector (mainly in managerial and administrative positions). This figure still pales in comparison with the number of expatriate workers in the private sector (1,152,858). A September 2021 IMF Country Report recommended further incentivization for employment in the private sector, particularly for Omani women and youth. One way is to better align public and private sector wages and benefits. Yousuf Hamad Al Balushi, founder of Oman Investment Gateway, reaffirmed the need for a “paradigm shift” by shedding outdated business strategies and stepping up the involvement of youth in business. He suggested, only then would labor dividends be reaped.
Shifting authority to a provincial or municipal system – a key component of the 10th 5-year plan – will provide a better means of monitoring public sentiment. However, to ensure issues such as unemployment and other social grievances are properly addressed, programs should also put into place targets and performance indicators. Such metrics – reflecting productivity and transparency – would in turn show the economy’s potential competitiveness and provide necessary public assurances.
Inward investment, as opposed to the external use of sovereign wealth funds, is key to Oman’s investment strategy and, by extension, its hopes for economic recovery. At the microlevel, the government’s move to position “Invest Easy” as a centralized online portal for registering new businesses and issuing commercial licenses has paid off. The number of transactions made through the portal has increased exponentially, and the centralized system makes it easier to conduct business. Initiatives such as the Investor Residency Programme, which grants foreign investors long-term residency rights, also seek to attract high-net-worth individuals. AGSIW Senior Resident Scholar Robert Mogielnicki wrote in a report on debt dynamics that investors view Oman favorably even when it has a “junk” rating for its bonds, as the sultanate “offers comparably high-yielding investments.”
Muscat particularly stands to benefit from the partnership opportunities offered by the convergence of Oman’s vision with Saudi Arabia’s Vision 2030. During Saudi Crown Prince Mohammed bin Salman’s December 2021 Gulf tour, 13 memorandums of understanding were signed between Omani and Saudi firms, and the Saudi Public Investment Fund pledged $5 billion in investments. Balushi, of YA Group Oman, noted that he is hopeful that these deals, building on the recently opened 450-mile road directly linking Oman and Saudi Arabia, will benefit the Duqm project and provincial development.
Further, the Sovereign Investment Partnership, signed in January between the United Kingdom and Oman, promises numerous investment opportunities, for instance, in the industrial sector where “ripe” areas have been identified for approximately $535 million worth of British investments. However, according to the foreign diplomat based in Muscat, while such agreements offer potential for Oman’s economic growth, it remains unclear whether the priority sectors in Vision 2040 will be able to “backfill the difference as Oman diversifies from oil.”
There is renewed buoyancy for the Omani economy as rallied oil prices are expected to ease the execution of plans, big and small. Yet, public trust in government plans still falls short. Hatim Al Shanfari, an assistant professor of economics at Sultan Qaboos University, remarked in an interview with the author that the official narrative of Vision 2040 remains “overly optimistic,” and suggested that the leadership needs to shift away from a “traditional approach.” Citing the example of the sultan’s public absence in the aftermath of Cyclone Shaheen, Shanfari indicated that the direction at the top (at the time being) seems perceivably less engaged and lacking in public outreach. Where politics and economics meet, the Omani government will require credible strategic communication to get widespread support from society. The “resilience and resourcefulness” of Omanis during tough times, a compliment given by Omani Foreign Minister Sayyid Badr bin Hamad Al Busaidi in an interview with the National Council on U.S.-Arab relations, must be reciprocated by government assurances.
is a research fellow at the National University of Singapore’s Middle East Institute, where he heads the Diffusion of Ideas-Gulf research cluster.
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