The Sultanate of Oman Major Business Sectors

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1 The Sultanate of Oman Major Business Sectors Compiled by: Swiss Business Hub GCC/Saudi Arabia Riyadh, July 2014 Overview and trends The Sultanate of Oman is aiming at reducing its dependence on oil by investing in various industries and encouraging investments in the country. A number of large infrastructure and developmental projects are now under construction. These include new build ports, airports, roads, industrial zones and special economic zones. More opportunities can be expected to rise out of the current Eighth Five-Year Development Plan ( ). A middle-income economy, Oman depends heavily on oil resources. Willing to reduce its reliance on the oil sector s contribution to GDP (USD 37.8 billion) the Sultanate of Oman has been actively pursuing a development plan focusing on diversification, industrialisation and privatisation. The Oman government is also focusing on the creation of employment opportunities for the rising number of young Omanis entering the workforce. The Public Authority for Investment Promotion and Export Development (PAIPED) was recently recognised at the United Nations Conference for Trade and Development held in Geneva for its efforts to promote non-oil products. Business and investment environment a- General overview Since 1967, Oil has been considered as the main driving force of the Omani economy. The oil industry supports the country s high standard of living and is primarily stimulating its modern and expansive infrastructure, including electrical utilities, telephone services, roads, public education and medical services. Plus its extensive oil reserves, Oman has considerable natural gas reserves, which are expected to play a leading role in the Omani economy in the next future. To reduce its dependence on oil income, the Government implements five-year development plans to encourage private sector to invest in various industries. About 48.44% of the country s gross domestic product (GDP) is now generated outside the oil and gas sector, as compared to 33% in 1975, when the first plan was employed. Oman s Eighth Five-Year Development Plan ( ) continues the policy of encouraging private sector investment into non-oil and non-gas industrial activities. Foreign investors interested in doing business in the Omani, might invest in priority targeted areas by the Government, including agriculture, fishing, light industrial production, public utility projects, education, health and tourism. The Government particularly encourages industrial production that is export oriented or that will replace imported products. 1/6

2 Omani construction companies are increasingly becoming well established and play a leading role in areas latterly dominated by foreign companies. b- Economic trends and performance With more than USD50bn-worth of megaprojects planned over the next 15 years, Oman is set to become a centre of project activity. During the last decade Oman had adopted a reform programme to developing and diversifying the economy and releasing its potential for growth with the ultimate goal of promoting development and competitiveness through increased government spending on key sectors and stimulating private investment. The Omani industrial sector has for long been the foundation of the government s long-term diversification strategy. The industrial sector is also supposed generating more employment opportunities. Besides the industrial sector, other sectors such as tourism and gas based industries, banking and finance, healthcare and insurance, agriculture, retailing, aviation and recently the railways project, have also been key modules of the government's diversification strategy. Essential industries 1- Oil & gas sector The net oil revenues are forecasted to reach RO 25.5 billion (USD 66.3 billion) in the period. The Government is aiming at investing RO 3.2 billion on oil production during that period. The average daily production of oil is estimated at 897,000 barrels per day 1. Recent discoveries have heavily boosted Oman s known oil and gas reserves. Established in 1967, the country s primary oil producer is Petroleum Development Oman LLC (PDO) 2. The first oil refinery in Oman Oman Refinery Company LLC has been established in The second located in the coastal town of Sohar Sohar Refinery Company shipped its first product in July In September 2007, Oman merged Oman Refinery Company LLC and Sohar Refinery Company LLC into Oil Refinery Company LLC. In 1999, Oman completed its first major liquefied natural gas project. The project is composed of upstream and downstream development facilities. The upstream facility, which produces gas and condensate, is fully owned and financed by the Government. Currently, the government is seeking to increase exploration and production operations of reserves, invest in the discovery of new oil and gas fields, attract investments into Oman s petroleum resources, and continuing to place importance on enhanced oil recovery techniques. In 2013, the Omani government has allocated USD 33.5 billion for development projects and has a planned expenditure. The significant infrastructure already in place, along with the active development of domestic capability and cooperation with international oil companies, contributes much to the bright future of the sector. Oman s gas sector is set to go through a period of unparalleled expansion in the coming years, as the sultanate aims to maintain crude export revenues and meet growing domestic energy consumption. In June 2013, the British firm PB reached an agreement with the Omani government on the overall commercial framework of the Khazzan project that is one of the world s first Greenfield tight gas projects. The final investment decision will pave the way for a 30-year partnership on an operation expected to produce about 1 billion cf/d of sales gas by , boosting Oman s gas supplies by about third. BP will have to hydraulically fracture the formations to release the gas. Therefore, BP plans to drill about 300 wells at the field over a 15-year drilling campaign. BP has requested companies interested in fabricating and constructing gas production well-site facilities. The well site facilities include all equipment 1 Oman expects to pump about 896,000 barrels of oil a day in 2011, Oman Liquefied Natural Gas produced about 8 million tons in The Omani government owns 60% of the company and foreign partners own 40% 2/6

3 and utilities needed to deliver well fluids from the well head to the gas-gathering system. Construction is expected to start in the final quarter of About 35 well sites will be constructed to support the first gas requirements by the fourth quarter of 2016, with another 15 needed to support operations to the end of A separate package for the construction of the gas gathering pipelines will cover a large, dispersed, buried gathering system to transport multiphase gas condensate from the well sites to the proposed Khazzan central processing facility (CPF). It will comprise more than 400km of pipelines, with construction starting on the first 200km in the first quarter of 2014 to support the first gas requirements in BP will also partnering with companies interested in building the gas export pipeline to transport sales gas from the CPF to the domestic market. The package will connect Khazzan to the gas network at Saih Nihayda via a 60km, 36-inch pipeline. Construction work is expected to start on the pipeline in early 2015 with completion set for the third quarter of Additionally, the agreement also covers the building of two separate water disposal pipelines to transport produced water and reverse osmosis reject water from the CPF to disposal wells. These pipes will be built in Mineral sector There is a substantial mineral resource base in Oman, predominantly contained in the mountains which span 700 kilometres by 150 kilometres, and contain mineable minerals such as chromite, dolomite, zinc, limestone, gypsum, silica, copper, gold, cobalt and iron. The Sultanate also has a vast non-metallic minerals wealth that is beginning to be recognised globally; for example, around 70 per cent of the marble mined in Oman is exported. The Omani mineral industry is on a strong growth path and significant industries have been developing around the mineral sector as part of the national development process. The Middle East in general and Oman in particular is set to experience an industrial minerals mining boom. The mining and mineral sector s contribution to the GDP reached RO million in 2012, from RO 99.3 million in This trend is expected to keep on increasing considering a number of new developments. Mining in Oman can be a significant primary industry and a big contributor to the national economy. Historically, mining has attracted big foreign investors to Oman. Many different ores and minerals are mined throughout the country. Authorities are however concerned that mining should not result in a substantial environmental impact in some areas of the country. 3- Manufacturing Bolstered by government investment in infrastructure and long-term diversification projects, non-oil sectors are becoming more significant drivers of growth. Oman s Vision 2020 blueprint envisages the non-oil sector s contribution to GDP increasing to 81 per cent by 2020, from about 50 per cent currently. The Government continues to decrease the country s reliance on imports by encouraging locally light industry (building materials, chemicals, plastics, base-metal products, furniture and other wood products, paper products, garments, textiles, leather, food and beverages). One of Oman s most significant industries outside the production of oil, gas and minerals is the production of cement through plants operated by public companies located near Muscat and Salalah. The combined annual capacity of both plants is 2 million tonnes. Oman has established a number of special economic zones and industrial estates in Duqm, Sohar, Al- Mazunah and Salalah to encourage new industries and start-ups. In 2012, the Free Trade Zones Authority announced it would invest USD 450m in extending the zones, which will involve expanding land plots and constructing warehouses, roads and staff accommodation. 3/6

4 In last February, the Omani government allocated an initial capital of USD 182 million to strengthen the economic contribution made by small-to-medium-sized enterprises (SMEs). The fund will help young Omani nationals to establish their own businesses. Highlighting the government s strategy to reduce its reliance on oil incomes, the Sohar industrial hub and port, located 200km north of the capital Muscat, is a focal point for a downstream industrialisation push. Oman Refineries & Petroleum Industries Company (Orpic) is carrying out a USD1.5 billion expansion of its refinery complex, while Sohar Aluminium is planning to invest USD 2.4 billion to expand the capacity of its smelter complex. By 2020, Oman aims to increase the industrial sector s contribution to GDP to 15 per cent, while reducing the oil sector s contribution to 9 per cent. 4- Tourism The sultanate s tourism sector is also one the major sectors. It becomes an increasingly important part of the economy. It accounts for about 3 per cent of Oman s GDP and indirectly supports 70,000 jobs. The aim is for the industry s contribution to the economy to rise to 5 per cent by 2015 and for the sector to support more than 130,000 jobs. Currently, there are about million tourists each year. The government hopes to increase this to 12 million by Railway sector Muscat s railway projects are ambitious. The second-largest country by area in the GCC region, the sultanate has the most topographically diverse. Therefore, its USD 15 billion national railway (2,444- kilometre) is one of the most challenging rail schemes in the region. To connect Oman s major ports and cities, including Muscat, Sohar, Duqm and Salalah, in addition to linking with the UAE s Etihad Rail project and the wider GCC rail network, the Omani railway will pass through mountains and cross deserts. Requiring 12,000km of rail and 10.2 million sleepers, the Omani network will have 46 stations, eight marshalling yards and nine intermodal yards. The first phase of the scheme comprises a 242km section from Sohar port to Al-Misfah in Muscat, an 8km spur line to the Sohar railway yard, a 20km link from Al- Misfah to Muscat central station, a 486km track from Muscat to Duqm port and an 84km section from Sinaw to Ibra. A 136km track from Sohar to Al-Ain in the UAE, with a 27km spur to Buraimi, and a 58km line from Sohar to Khatmat Malaha on the border with the UAE are also part of the first phase of the project. The UK-based Grant Thornton has been granted a deal to study the organisational structure of the Oman Railway Company. Established by Transport & Communications Ministry, Oman Railway Company will manage and help expedite the development of the railway. In August 2013, the Transport & Communications Ministry awarded a USD 37.3 million consultancy services deal for the preliminary design of the railway to Italian state railway group Italferr, and since then there has been a flurry of bidding and prequalification activity for various roles on the scheme. 4/6

5 DOMESTIC 2012 BUSINESS SECTOR % OF GDP CHANGE FROM PREVIOUS YEAR VALUE IN USD M Crude Petroleum & Natural gas Manufacturing Wholesale & Retail Trade, Restaurants and Hotels Transport, Storage & Communication Building & Construction Agriculture & Fishing Source: Oman National Centre for Statistics & information IMPORTS 2011 BUSINESS SECTOR % OF IMPORTS CHANGE FROM PERVIOUS YEAR VALUE IN USD M MAIN COUNTRIES OF ORIGIN Motor cars and other motor vehicles principally designed for the transport Petroleum oils, other than crude Iron ores and concentrates Tubes, pipes and hollow profiles, seamless, of iron (other than cast iron) Parts and accessories of the motor vehicles of headings Motor vehicles for the transport of goods Polycarboxylic acids, their anhydrides Milk and cream, concentrated or containing added sugar Source: UN Comtrade The UAE, European Union, Japan, India, China, USA, Brazil, Saudi Arabia, South Korea 5/6

6 EXPORTS 2012 BUSINESS SECTOR % OF EXPORTS CHANGE FROM PERVIOUS YEAR VALUE IN USD M MAIN DESTINATION COUNTRIES Petroleum oils and other gaseous hydrocarbons Commodities not specified according to kind Cyclic hydrocarbons Mineral or chemical fertilisers, nitrogenous Unwrought aluminium Acyclic alcohols and their derivatives China, the United Arab Emirates, Japan, South Korea, European Union, India, USA, Thailand, Singapore, Saudi Arabia India, Saudi Arabia Iron ores and concentrates Ferrous products obtained by direct reduction of iron ore Source: UN Comtrade FURTHER INFORMATION AND LINKS Central bank of Oman Oman Ministry of Commerce and Industry Middle East Economic Survey The World Bank MEED NOOZZ Date: 23 rd of July 2014 Author: Larbi Elattari Commercial Counsellor, Swiss Business Hub GCC/Saudi Arabia Author s address: Embassy of Switzerland Diplomatic Quarter P.O. Box Riyadh Kingdom of Saudi Arabia Tel: ext.207 From Switzerland: ext. 207 Fax: larbi.el-attari@eda.admin.ch 6/6