Open for Business?

Oman legislation changes

New legislation is laying out the welcome mat for foreign investors, but is it too little too late?

The Sultanate of Oman is attempting to diversify away from a reliance on hydrocarbons. In pursuing the targets of Vision 2020, a roadmap for the post-oil era, Oman is hoping to streamline investment conditions.
But like many nations it faces the chicken-and-egg dilemma of catering to its own citizens and businesses—Omanization—while requiring both know-how and direct investment from abroad. Diversification opens up new sectors capable of attracting both, and law has been drafted to accommodate this.

Facing realities…

What’s more, the days of lavish public spending floated by oil are likely also over, as excessive spending is unwise given global fluctuations in hydrocarbons prices. Hence, implementation of the new Foreign Direct Investment Law (FDIL) will broaden the commercial possibilities of the non-national.

…and taking steps

Until now foreign companies have looked to Free Trade Zones to maximize their commercial presence. Facilities such as the Salalah Free Zone offer familiar benefits of cost competition, capital repatriation, discounted utilities, assured IP protection, and the opportunity of establishing a wider international footprint to the Middle East, Africa, and elsewhere. Moreover, the free zone regulatory environment allows for 100% foreign ownership.

Chasing numbers

To address a dearth of current data, the National Center for Statistics and Information (NCSI) this year announced new comprehensive annual surveys of foreign investment in Oman to better guide investors across all sectors.

The UK is the largest foreign investor out of roughly 50 nations investing in the Sultanate, at around 36% of total FDI in 2016. It is followed by the UAE and Kuwait. That year, overall foreign investments hit over USD40 billion, up 11.1% YoY from around USD36 billion. And FDI comprised 52.4% of total foreign investment, at over USD20 billion, up from almost USD18 billion in 2015, with 34.1% going to the oil and gas sector at USD13.5 billion.

The new environment

Oman today ranks 71st in the Ease of Doing Business category of the World Bank’s Doing Business Report. In 2015 it signed several agreements to incentivize FDI, notably by avoiding double taxation. And now the FDIL enables 100% foreign ownership, aside from certain areas considered to be of interest to national security.

The draft has received approval from key stakeholders including the Majlis’ A Shura, State Council, Royal Oman Police (ROP), The Public Authority for Investment Promotion & Export Development (Ithraa), and the Ministry of Legal Affairs.

All-out investment

The FDIL accommodates Oman’s existing investment obligations and international agreements such as those with the World Trade Organization, and its Free Trade Agreement with Washington. The prerequisite of local Omani participation in commercial companies is lifted; in short 100% foreign ownership gets the green light. Also gone is the minimum capital requirement. And regarding disputes, the FDIL envisages international arbitration at the International Center for the Settlement of Investment Disputes (ICSID) and related organizations.

Other parts of the puzzle

Let’s finally consider the other side of the investment coin. Two key aspects of the government’s economic strategy stand out; Omanization and SME nurturing. Accordingly, Vision 2020 aims to strike a workable balance between foreign investment and the Omani’s employment opportunities. The nation’s largest employer is the construction sector, with around 750,000 people, of which 55,000 were Omanis and the remainder expatriates as of April 2018, according to Tanfeedh data. Yet SMEs contribute around 16% of GDP, and have the potential to develop innovative local content across the entire economic spectrum. The government had some years ago stipulated that local banks allocate 5% of total credit to SMEs by December 2014, while the Central Bank eased their prudential requirements.

And in public tendering, bidders for government contracts are assessed in terms of the in-country value (ICV) they promise to deliver.

The government is working toward that sweet spot between being an appealing FDI address and the longer-term interests of the average Omani.