Oman’s Uncertain Industrialization
[This post was originally published in June 2012.]
As discussed in the previous post, political stability in Oman, a strategically placed Gulf country, hangs in the balance due to an impending succession crisis. The future of the country’s economy is likewise uncertain. Historically, Oman was an important player in the Indian Ocean trade networks, but in the last half century its economy has been concentrated on oil, which is now dwindling. A rapidly growing labor force is another problem that Oman will have to face in the coming years. In order to address these problems, the Omani government has pursued an active policy of diversification, industrialization, and privatization. To what extent this development plan will be successful—and whether the same policy will be pursued by the next sultan, whoever he may be—remains to be seen.
Oman joined the oil exporters’ club in 1967. In the last 45 years, and especially since Sultan Qaboos’ accession to the throne in 1970, many more oil fields have been found and developed. Currently, Oman’s proved petroleum reserves total about 5.5 billion barrels, 24th largest in the world. This figure has held almost steady in the last decade, but oil production has been declined. It reached a low point of 714,300 barrels a day in 2007. By 2010, the oil production has been estimated to have bounced back to 867,900 barrels a day, but the overall trend since 2001 is still one of decline. Approximately 70% of the oil produced in Oman is exported, though oil exports have declined as well, by 18% since 2005. Natural gas is also produced and exported by Oman. As with oil, proved reserves remain steady, and the production grew from 14 billion cubic meters in 2001 to 24 billion cubic meters in 2008. However, consumption of natural gas also nearly doubled in the same period, reducing exports and forcing Oman to start importing natural gas in 2007. Oman’s other mineral resources include chromite, dolomite, zinc, limestone, gypsum, silicon, copper, gold, cobalt, and iron. Agriculture focuses on dates, limes, grains, and vegetables, and is chiefly subsistence in nature. Foodstuffs are imported in large quantities, along with machinery and transport equipment, manufactured goods, and livestock, according to the CIA Factbook. Because of the underdeveloped nature of Oman’s industry and agriculture, fossil fuels account for about three quarters of its exports (see image). Therefore, declining oil and natural gas exports translate into significantly smaller revenues. Moreover, recent outlays in health services and basic education have stretched the country’s budget even tighter.
While oil production slows down and exports decline, the population of Oman is growing, as is its labor force. As a result, unemployment is a growing problem; according to the International Monetary Fund, 15% of Omanis were out of work in 2004, a figure that had gone up to 24.4% by 2010. But natural population growth—due chiefly to plummeting infant mortality rates and steady fertility rates of over 5.5 children born per woman up until 2009—is not the only reason for the growth of the labor force and high unemployment. About 20% of Oman’s population—and about 60% of its labor force—is composed of migrant workers. To combat this problem, the government has put in operation an “Omanization” program whose goal is to replace up to 600,000 non-nationals in the labor force with trained Omani personnel. Omanization targets have been set in both the government and private sectors, and companies that meet those targets receive preferential treatments. But simply replacing foreign workers with Omanis would not solve the unemployment problem, and new jobs must be created.
So far, Omanis remain fairly content with and optimistic about their country’s economy, according to the 2012 MasterCard Worldwide Index of Consumer Confidence, based on a survey conducted between December 5, 2011 and February 8, 2012 in twenty-five countries within Asia/Pacific, Middle East and Africa. With a score of 93.6 out of 100, Oman ranks at the top of the Middle East, sharing top position with Qatar, which has an identical score (the index score is calculated with zero as the most pessimistic, 100 as most optimistic, and 50 as neutral). Omani consumers are optimistic about all five indicators examined: Quality of Life (98.2), Economy (97.9), Employment (96.5), Regular Income (94.5) and the Stock Market (80.6). Curiously, women tend to be more optimistic than men (96.1 vs. 91.2), even though Oman ranks 123rd out of 165 countries in the list of women-friendly countries. While the overall consumer confidence figures are very positive, they hide two worrisome trends. First, optimism about all five indicators has weakened since the previous index was tabulated in 2011, with the Regular Income indicator going down by nearly 5 points, and the Stock Market indicator plummeting by a whole 17 points. The second disquieting trend is that respondents younger than 30 feel less optimistic than their older counterparts (92.1 vs. 95.5). Moreover, the confidence of younger Omanis in their economic future has deteriorated significantly since the tabulation of the previous index, declining by over 7 points. And Omani youths have good reasons to be concerned, as their unemployment is higher than those of older age cohorts.
High unemployment rates, especially among younger Omanis, resulted in a series of protests in February 2011 in Muscat, Sohar, Salalah, and other urban centers. The protesters demanded salary increases, the creation of more jobs, and progress in fighting corruption. In response, Sultan Qaboos reshuffled the cabinet, pledged to create 50,000 government jobs and to provide a monthly benefit to the unemployed, and ordered a committee to draft proposals for boosting the power of an elected council that advises him in state affairs. The pledge to create new jobs was repeated again in November, when the Sultan called “on the private and public sectors to employ as many young people as possible to serve the development of our country”. So far the council’s advisory role remained unchanged, but 44,000 new government jobs emerged in 2011. Yet tens of thousands of new jobs in the private sector must also be created before the situation will improve. Efforts are currently underway to liberalize investment opportunities in order to attract foreign capital. A development plan has been actively pursued that focuses on diversification, industrialization, and privatization. The overall objective is to reduce the oil sector’s contribution to GDP to 9% by 2020. The key industries to be developed include tourism, natural gas, and metallurgy. Enhanced oil recovery techniques granted Oman more time to diversify, while the increase in global oil prices through 2011 provided the greater financial resources to invest in non-oil sectors.
Most of these investments have been injected into large industrial complexes, especially in the port cities of Sohar and Duqm. Sohar, with a population of 140,000, has become the focus of attention of many Omani and foreign investors and businessmen. Historically a fishing town, it has turned into a major industrial hub and a world-class port. Established 10 years ago, the Port of Sohar is of strategic importance due to its closeness to the Strait of Hormuz. Current investment into the port exceeds $12 billion, making it one of the world’s largest port development projects. Sohar Aluminum Company, established in 2004, plays a major role in Oman’s diversification program. The Omani government is also investing an additional $5 billion into the steel industry in the Sohar industrial area, with the goal of making the Sultanate one of the Gulf Cooperation Council’s top steel producers. In late May 2012 Oman Shipping Company (OSC) took delivery of the biggest two carriers in the world: measuring 360 meters long, 65 meters wide, and 25 meters high, each vessel has the capacity of more than 200,000 tons. Built in Nantong, China, these carriers will be used to transport iron ore from Brazil to the Oman Vale Iron Palletizing Company plant in Sohar. The two ships were specially built for OSC; two additional vessels of similar size will be delivered in September. The company plans to raise its fleet to 41 vessels by 2012, bringing its capacity to about 8 million tons. The celebration of the launch, delivery, and naming of the two vessels was attended by Oman’s Minister of Transport and Communications Dr Ahmed bin Mohammed al Futaisi, who used the opportunity to stress the Oman’s rich history in international marine trade, making a fitting reference to Sohar’s most famous son, Sindbad the Sailor. According to the Minister, this latest launch
“places the name of OSC alongside prestigious international companies operating in the field of marine shipping services. It is also an important qualitative leap in the field of enhancing economic co-operation and trade relations among the Sultanate, China and Brazil.”
While China remains the largest consumer of Omani exports, South Korea is a close second (see map). Just days before his visit to China, Minister al Futaisi visited Seoul, where he met with his South Korean counterpart Chung John Hwan to discuss fostering co-operation between the two countries in all sectors of transport. Al Futaisi also met with the chairmen of Korea Gas Corporation and of Hyundai Heavy Industries Co, with whom he discussed investment opportunities available at Duqm Free Zone in central-eastern Oman. The city of Duqm, another historical fishing village, is now an industrial city and the home of Al Duqm Port & Drydock, operated by another South Korean company, Daewoo Shipbuilding & Marine Engineering.
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