On The Spend

Accordingly, government spending came in at OMR16 billion for the year, 23% above the target, as the authorities sought to pump money into support mechanisms for SMEs, as well as job creation, health, and education, the latter lapping up 13% of the 2013 budget compared to under 5% in previous years, a figure the government says it will maintain. But despite steady growth in the non-oil arena, hydrocarbon exports still dominate the export basket, with OMR14.3 billion exported in 2013 compared to OMR3.8 billion in non-oil exports and OMR3.54 in re-exports. And with total imports of OMR13.2 billion, Oman was able to post a trade surplus of OMR8.5 billion. The current account surplus came in at 7.5% of GDP in 2013, according to Coface, including FDI inflows of $1.6 billion over 2013, up 56% on the previous year.

THE CENTRAL BANK

The Central Bank of Oman (CBO) acts as both the monetary authority and banking sector regulator. Over the recent period, the CBO has formulated policy against a setting of “easy liquidity conditions, lower inflation [according to Coface, inflation for full-year 2013 came in at 3.1%, up just a notch from 2.9 for full-year 2012], low Omani rial interest rate on deposits, and surpluses in fiscal and balance of payment positions,” explained HE Hamood Sangour Al Zadjali, Executive President of CBO. The Omani rial is pegged to the US dollar, a reality that has steered monetary policy for many years. Elsewhere, foreign reserves at the CBO stood at $16 billion as of mid-2014, up 10% YoY. And back on inflation, a rise in deposits by 11% over 2014 to OMR15.3 billion is helping to curb pressure, with a dramatic rise in imported food prices the only potential inflationary risk. For 2014, inflation is expected to average 2%, having fallen to 0.6% in February YoY compared to 1.2% in January. To keep things ticking over, the CBO has a number of tools in its bag, using both direct (cash reserve requirement and lending ratio) and indirect (sale of CBO CDs, repo operation, and swap and reserve swap operation) instruments for liquidity management. And in order to strengthen the financial sector, the CBO has undertaken a number of regulatory and supervisory measures in wake of the global financial crisis, including the establishment of a financial stability unit, while the minimum regulatory capital for the banks was also raised to 12% of risk-weighted assets. In that respect, Oman is well on the way to meeting Basel III requirements. “The outlook for the Omani banking sector in the next few years remains positive taking into account the pace of economic diversification and the role of the private sector,” concluded Al Zadjali.

SMEs

SMEs account for up to 90% of all registered firms in Oman, although their impact on GDP is far less significant. Never underestimating the potential for SMEs to drive growth, however, the authorities have launched a number of initiatives to promote smaller businesses. In that regard, the baton has been passed to the Public Authority for SME Development (PASED), initiated by Royal Decree in 2013 and taking over from the Department for SMEs at the Ministry of Trade and Commerce. Its goal is to increase SME access to credit through public and private outlets, while also encouraging a culture of entrepreneurship and self-employment. SMEs already enjoy interest-free loans, while the CBO has advised banks to allocate 5% of their total credit to SMEs by December 2014. Requirements for lending to SMEs have also been relaxed. Other support mechanisms include public provision of agricultural, industrial, and commercial land for SMEs on a lease basis. On top of that, 10% of government procurement will be carried out through SMEs, while large firms will also be required to commit 10% of the value of public tenders to SMEs. Support is also on hand for government workers wanting to try their hand at opening a business, with one-year paid leave granted to employees to leave and manage a business. Work is also underway to simplify the SME registration process, which is the icing on the cake for a strategy that is likely to shape growth in the non-oil sector for years to come.

TRADE

Oman exported OMR21.67 billion worth of goods in 2013, OMR14.3 billion of which was oil and gas. Non-oil exports accounted for OMR3.8 billion and re-exports accounted for the remaining OMR3.5 billion. In the oil and gas category, crude oil accounted for OMR12.3 billion of the total OMR14.3 billion, with LNG the next top category at OMR1.67 billion and then refined oil, at OMR340 million. In non-oil, of the total value of exports, mineral products accounted for OMR1.28 billion, followed by chemical products (OMR800.5 million), base metals and articles (OMR724.6 million), and plastic and rubber products (OMR288.8 million). In re-exports, transport equipment represented the lion’s share at OMR1.7 billion, followed by mineral products (OMR1.29 billion). On the import front, Oman imported OMR13.2 billion in merchandise, equating to a trade surplus of OMR8.5 billion. The top import category was mineral products (OMR3.6 billion), followed by transport equipment (OMR2.37 billion), electrical machinery and mechanical equipment and parts (OMR2 billion), base metals and articles (OMR1.38 billion), chemical products (OMR1 billion), and animals and animal products (OMR429 million). In 2014, total exports as of end-April were OMR6.75 billion, down from OMR7.45 billion in the same period of 2013. This is mainly on account of a drop in hydrocarbon exports from OMR4.9 billion in the first four months of 2013 to OMR4.38 billion in 2014. Non-oil exports, however, rose over the first four months of 2014 compared to the same period in 2013, from OMR1.1 billion in 2013 to OMR1.33 billion in 2014. In import terms, the total value of incoming merchandise dropped from OMR4.34 billion over the first four months of 2013, to OMR3.7 billion over the same period in 2014.

FDI & SOVEREIGN WEALTH

A total of $1.62 billion in FDI flowed into Oman over 2013, up 56% from $1.04 billion the previous year. That said, Oman is yet to return to the highs of 2008, when it drew in $2.95 billion. FDI outflows, over 2013, reached $1.38 billion compared to $877 million in 2012, a leap of 58%. Much of Oman’s outbound FDI is accounted for by State General Reserve Fund (SGRF) investments. The SGRF acts as the country’s sovereign wealth fund and has, since its foundation in 1980, pursued a mixed investment style. The fund has over $8 billion in assets and a diverse portfolio. The government is determined to diversify its revenue streams away from hydrocarbons, and is placing much hope in its SME sector. EOR will, however, keep the coffers full while the non-oil sector continues on its growth trajectory.