Oman: An Economy in Transition
Wednesday, May 23rd, 2007
Oman was known to the Sumerians in Mesopotamia as early as 3,000 B.C. Archaeological finds have proven that the ancient Omanis knew of the copper deposits in their settlement area and worked it into various objects. Copper spearheads have been found in Mesopotamia, and other objects even in some ancient Indian kingdoms. All of these objects were handwork products from Oman. The trade with incense has been well known since time immemorial. It was produced out of the incense trees in Dhofar, a state district of the present-day Sultanate of Oman. This role of trading between the Middle East and the Indian Subcontinent, West, South, and East Asia grew further with the spread of Islam in the 7th century and Sohar became the most important trading center with connections reaching all the was to China and East Africa. In their expansion, the Portuguese recognized this role in trading in the Indian Ocean and occupied the coastal cities of Oman from the 16th to the 18th century. After its liberation, Oman rose again as Arab sea power in the Indian Ocean. Its circle of influence reached all the way to the East African coast. Today, after centuries and the beginning of oil and gas production, the trade is chiefly directed toward South and Southeast Asia. When he took office in 1970, Sultan Qaboos Bin Said began a new era, an era of power consolidation through the building up of a new state based on modern economy instead of the old, backward, primitive, and feudal economy. These investments were made possible through the growing income from the export of oil (since 1967) and natural gas (since 1978). Massive investments were made in development over successive five-year plans in the areas of: infrastructure and development of the oil and gas industry, as well as the promotion of mining, agriculture, fishing, and not least of all trade and tourism; development of a modern education system with schooling, vocational training, and academical training for natives. The whole system is offered to the citizens free of charge. Approx. 15 % of the total state expenditures in 2005 were used for this; development of a health system with a modern international standard. It is available to all citizens free of charge.
Today, after the begin of the seventh five-year plan (2006-2010), the Sultanate of Oman can look back in pride on what it has achieved. With an area of ca. 310,000 km2 almost all towns and villages are reachable by asphalt streets since 2005. That is a total of 3,000 km, of which almost 800 km is highway. This has widely made the mobility of the people much easier, promoted the unity of the domestic market, schooling and vocational education and training, and social services, especially medical and welfare, have been greatly improved. And the living standard and quality of life have been raised to a higher level (the per capita income reached 14,200 US $ in the year 2006). The Sultanate is also crossed by ca. 7,000 km of pipelines for the extraction and shipping of oil (3405 km) and gas (4072 km). If the financing of the whole economic and social development until now is thanks to the state revenues from the export of oil (1) (this constituted by 2006 ca. 85 % of the total export of the country), then natural gas is seen as the coinage of the future (2). This view is pressing because of slacking productivity in the oil fields and the low oil reserves known to date. For this reason, the government of Oman is following major plans and is undertaking large investments in gas exploration, extraction, processing, and diversification of its commitment of energy use in the country itself (3). At present, ca.17.2 billion m3 of gas is produced. Of that, ca. 10.43 billion m3 is exported. The gas reserves have been estimated (by 2005) at 829 billion m3.The Sultanate of Oman was one of 14 natural gas-exporting nations (4), who founded an interest representation under the name “GECF” in the capital of the Gulf Emirate Qatar on April 9, 2007. The functioning of the organization in the future will be modeled on the “OPEC” cartel (Oil Producing and Exporting Countries). Oman‘s industry is not limited to the exploration for oil and natural gas and its processing (refining, etc. or liquefaction and petrochemicals) but also includes mining. This sector has played a major role in Oman’s economy since antiquity. Today it includes the mining of copper, chrome, nickel, iron, gold, and silver. Also non-metallic minerals like gypsum and limestone are mined and used in the domestic production of cement. High-quality marble is also mined, sold domestically and partly exported. Large deposits of hard coal have been verified in the east of the country (in AL-Askkarah), although the mining of it has not yet begun. Industry made up 39 % of the GNP (in 2006), with a growth rate of 5.9 % (compared to the previous year). In the same year, and with the beginning of the 7th five-year plan, agreements were signed for a series of major industrial projects with a total value of ca.12 billion US$. Most of these projects will be carried out in the industrial parks of Sohar. Presently, the industry in the Sultanate of Oman is composed of about 4,700 businesses in which almost 15,000 Omani men and women work. Since 2004, a series of obligatory industrial standards for industrial goods have been issued by the state to promote their competitiveness in the domestic and international markets. Not only the Omanization of jobs and of some businesses is supported by the state, but also the privatization of industry is being pushed ahead. Along side investment, including in the energy section and energy distribution, private firms have also signed contracts for mega-projects in the industry sector in Sur Salalah and Sohar (with the participation of international investors). Worth mentioning are Sohar Refinery Co., Sohar International Urea & Chemical Industries, Oman Methanol Co., Sohar Power Co. and Sohar Aromatics Co. Also, an aluminum mill, an iron foundry, as well as polyethylene, polyprophylene and steel factories are being built.In order to coordinate and simplify its intervention in the economy, the state has developed certain instruments like the “OOC” (Oman Oil Co.), which was founded in 1992 as a 100 % state-owned enterprise with the main objective of engaging in investment in the energy sector within and without Oman and to diversify sources of state revenue. It acquire 49 % of the shares of BP Oman at the end of 2002, and Omanoil come onto the market as a new brand (October 2003). In August 2001 the OOC founded the (Oman Gas Co.), or OGC for short, a closed joint-stock company in the gas sector. 20 % belongs to OOC and 80 % to the Ministry for Oil and Gas. OGC in turn owns the gas transport facilities in the country, which primarily provide gas for the energy power stations and other smaller consumers in the country, such as the industrial businesses in Salalah Industry Park, Omani-India Urea Fertiliser Co. in Sur, as well as petrochemical businesses in Sohar. Furthermore, OOC has a 20 % share ( 80 % has the Finance Ministry) in OSC (Oman Shipping Co.), which transports liquid natural gas to the consumer markets and today has 7 LNG -tankers (no. 8 will be added in 2008).
Fishing & Agriculture
Fishing is the oldest source of income in Oman (2006 about 2.6 % of the GNP). This makes it the second most important economic sector not connected to oil. From the Arabian-Persian Gulf and the Gulf of OMAN, along the Arabian Sea all the way to the Indian Ocean stretches a 2092 km-long coastline with waters rich in fish. According to preset fishing quotas (144,400 tons in 2004) particularly tuna and sharks are caught. Fish from Oman is consumed with pleasure both domestically and abroad and so it is a favourite export article. There are presently almost 33,000 licensed fishermen working with ca. 14,000 fishing boats. The government supports with financial aid and training. In the year 2005 two training centers were opened in Salalah and Al-Bourah as well as a fish farm. The renovation and modernization of the fish markets is enjoying priority as well as the completion of 14 fishing ports.
About 200,000 Omanis are employed in farming, which explains the great social dimension connected to this economic sector because the arable area is very small and includes only about 720 km2. There are about 200,000 farming enterprises in the country, 52 % are for the cultivation of economically useful plants, 31 % for animal husbandry, 16 % for both agriculture and animals and 1 % for agriculture and animals and fowl. 93 % of the consumption of dates and fruits as well as 64 % of the demand for vegetables is covered by domestic production. Along with 8 million date palms, there are in Oman also 390,000 mango trees and thousands of coconut trees (in the Dhofar district) as well as citrus trees. Only in one place is coffee grown in mentionable amounts, the Wadi Samail ( Ismail Valley), which divides the abal El Achdhar (Green Mountain) into two ranges: east and west.Through the large-scope animal care and immunization programs, the number of animal stocks has risen to ca. 2 million animals (cattle, sheep, goats, camels, and fowl), raising the production of meat, milk and eggs. The water supply is given special attention. The demand for water mounts steadily for individual, society, and agriculture. The available reserves (127,000 wells) with sparse precipitation (ca.100 mm/year) are enough to cover about 65 % of the demand for water. So developing new resources was unavoidable. from seawater using desalination plants; finding new wells through a broad program of new drilling; according to completed studies, well borings carried out actually brought new wells of drink water quality (in Wadi Rawnat and inr Wusta Region) and others with water only suitable to agricultural use. Furthermore, clarification work of various kinds is being organized to rationalize water use. On the other hand, a complete technical network of reservoirs, dams and dikes was constructed to optimally protect and use artesian as well as rain water. Thus Oman has, along with the dikes that protect against high water and the danger of flooding from torrential rain (Monsoon danger), also 52 dams and 24 artesian water-fed reservoirs with a total capacity of 77.8 million m3. An integrated system of 4000 measuring stations nationwide provide for steady recording of the precipitation and so offer constant control, analysis, and evaluation of the water situation. Whether for irrigation or piped over great distances – over mountains and down into the valleys – as drinking water, Oman has had a contiguous wide-spread water system for over 1500 years. It is composed of 4000 units, of which 3017 are still in operation today. They are called “Aflaaj.” The government regularly takes care of their maintenance; i.e., repair work on the canals themselves; drilling for new wells or excavation of tributaries or basins to raise the water level in the canal system.When and how this system can be employed depends on the water level, the amount of precipitation and the consumer quotas. The Trade SectorThe service sector‘s part of the GNP in 2006 was 58.7 %. Diversification is decisive for the future of the Omani economy and here trade is considered to be the main bearer. The on-going Omanization of domestic trade and the smaller consumer markets, the further increase in consume with a further rise in the standard of living will lead to a rise in the import of popular consumer goods. Much more important for the diversification of state revenue and, for that matter the Omani economy, is the promotion of export, especially the re-export of goods from out of the free trade zones that are being built at present (the first was opened in Salalah already in 2006 during the course of the 7th five-year plan). During the course of 2004, over 200 Omani industrial firms exported their products. With the exception of oil exports, most exports went to the VAE and other Gulf states. Around 20 % of the goods produced in Oman are exported to Asia and 18 % into the USA.
Oman’s strategically advantageous position on the important sea routes has today as before enormous significance for the trade in this region. The Sultanate is assiduously in the process of enlarging and modernizing its ports and creating the appropriate legal framework for a thriving foreign trade (Oman has been a member of the WTO since 2006). Today, in the midst of the second phase of national development (1996-2020), the Sultanate of Oman, member of the AGCC, is continuing on its path toward achieving the main goal of this phase as set out in the study drawn up for it. “2020 Vision of Oman‘s Economic future,” provides for the diversification of the national sources of revenue, growing participation of the private sector on development projects and the creation of an advantageous investment climate.
worked over by Dr. Isam Haddad
(1) petroleum reserves amount to 4800 million barrel (as of 2006) of which 92,4 % falls to the PDO (Petroleum Development Oman), founded in 1967. It controls today all of the natural gas production. 60 % belongs to the state of Oman, 30 % to Dutch/Shell-Group, 4 % the total concern and 2 % to Patex. (2) oil revenues sank from 74 % of the states total revenues to 65 % because of falling production of the oil fields. At the same time, however, the contribution of natural gas rose to ca. 1 billion US.$. That means an increase of 7 % in 2005 compared to the previous year. (3) e.g., industrial businesses in Salalah Industry Park and Petrochemical businesses in Sohar.
(4) these states have over 70 % of the known natural gas reserves worldwide and produce today 40 % of the world’s production.