The global crisis and the coronavirus pandemic hit Oman already in the spring of 2020. The drop in oil prices brought immediate cuts in state budget revenues. Revenues from the sale of oil make up about 65% of Omani budget revenues. GDP fell by 6.2% in 2020. The government was forced to implement a series of measures to reduce the budget deficit, reducing state spending, introducing new taxes, raising fees and issuing bonds. Oman’s public debt therefore increased year-on-year from 60.4% to 81.9% at the end of 2020.
Analysts warn that oil in Oman will dry up in less than 15 years. Oman is fully aware of this challenge and is therefore seeking to diversify government revenues and move its economy away from dependence on oil revenues. As an oil-rich country, Oman still has the means to do so. Oman is aware that the fastest way to economic development is thanks to foreign investors, which is why it offers them very interesting incentives. This is also a new opportunity for Czech companies that are considering their expansion into the GCC markets with a certain degree of localization of production on the territory of Oman.
In the crisis, Oman did not reduce investments or cancel incentives for investors, on the contrary, it intensified its efforts. He adopted the so-called “medium-term fiscal consolidation plan”, on the basis of which he wants to gradually eliminate the financial deficit within five years. The state is enticing foreign investors to locate production in Oman, take advantage of the interesting location in the middle of international sea routes, and from there freely distribute their goods not only to the GCC countries, but to the whole world.
Unlike its wealthier GCC neighbours, Oman is taking some unprecedented steps in the region – allowing companies to own land and allowing foreigners to own 100% of a business (though so far only in economic zones). There are a number of special economic zones, so-called industrial cities, on the vast territory of Oman. These are spread over hundreds to thousands of hectares of networked area, on which new production plants, food and pharmaceutical clusters or centers for automotive, plastic, micro or nano production are growing with state support.
The specifics of Oman are the high share of state ownership in the economy (allegedly the highest among the GCC countries) and the number of large monopoly state-owned enterprises. A potential customer, investor, market regulator will most likely always be some entity owned by the state.
Post-COVID-19 opportunities for foreign exporters
In Oman, the so-called “Motcar Project” is being prepared, i.e. a project to expand the industrial zone, city and port of Sohar (Suhar Industrial City), which will concentrate production and services related to cars, trucks and industrial machinery. It will mainly involve their import, modification or repair and re-export, production of spare parts and accessories, and the provision of a number of other related services, not only for Oman and the GCC region, but also for North and East Africa and South-West Asia. The contracting authority is the state agency for industrial investments MAYDAN. It will come as no surprise to insiders and experts that nearly 60% of our imports from Oman in 2020 were motor vehicle parts and accessories.
All Czech companies that are involved in the production or provision of services in the segment of automotive or construction machinery and are considering the possibility of localization or expansion in the region of the Arabian Peninsula are recommended to contact the general director of the Sohar industrial zone (Mr. Hamad Humud al Qasabi), tel: +968 255 65 114, [email protected] and do your own calculation of the incentives and benefits of such expansion into new markets.
We see new opportunities in Omani energy:
- in the construction of resources based on renewable energy sources – RES,
- in the development and sale of rooftop solar systems for households,
- in the creation of island systems for remote monitoring stations and
- in the projects of building and unifying the backbone transmission system.
According to allcountrylist, the sultanate’s total electricity production in 2020 reached 37,961 GWh, thanks to 10 gas-fired power plants. However, the government’s ambition is to reach a 30% share of renewable energy by 2030, and the government is therefore preparing large investments and providing very interesting incentives. It primarily targets the use of solar energy, as its cyclical production corresponds to local fluctuations in consumption during the day. Currently, there are approximately 8 solar power projects at various stages (the largest with a capacity of 500 MW), but more are in the pipeline.
The favorable conditions of daily sunshine and the vast unused desert area are other factors that contribute to its development. Electricity and water in the sultanate is purchased by the state monopoly Oman Power and Water Procurement Company, which resells it through a number of state and parastatal entities. Total electricity consumption in 2019 reached 33,796 GWh. Households account for approximately 45% of this consumption.
This is also why we believe that in conjunction with the removal of state subsidies from the beginning of 2021, households are already very open to investing in rooftop solar systems. Furthermore, considering the large area of the sultanate and its lack of population, small island energy solutions for monitoring industrial networks are of great use in Oman. The loss of the transmission network is 14% and also in this context we conclude that Oman Electricity Transmission Company (OETC), a member of the Nama Group, signed a number of agreements in late 2020 with a total value of 475 million USD for the implementation of the first phase of the project, which aims to connect northern and southern electricity transmission networks in the Sultanate.
In the following years, other phases of this project are to follow in similar volumes, in which Czech companies can also participate, not only in the role of subcontractors. Construction of 400kV connectors to KSA and UAE, construction of connecting networks and substations etc. is being prepared.
Agricultural and food industry
Oman was an agriculturally disadvantaged country due to climatic conditions, and to this day remains a net importer of food, using only 1.5% of its area for agriculture. However, this is changing with the availability of desalinated water. In order to divert the economy from oil, the government is also investing in the development of Oman’s agricultural and food capacities. These new capacities are being built by the government through the state-owned Oman Food Investment Holding Company (OFIC). Founded just seven years ago, OFIC already boasts an investment portfolio of 23 companies and food-related assets totaling around $billion.
OFIC’s new strategy for 2020-2040 (heavily supported by funds from the state oil fund OIA) plans for further strong growth to bring OFIC among the global players in the field of food production and sales. OFIC is especially open in the field of research, development and intelligent agricultural systems in bilateral cooperation with different countries. This can be an opportunity for Czech companies that are interested in supplying agricultural and food technologies, veterinary preparations, establishing and operating joint ventures.