What role does Grant Thornton play with regards to facilitating business in Oman?
ASHRAF: Grant Thornton believes in an instinct for growth. We try to deliver this to our clients by assisting them in a variety of areas. We have been helping companies in Oman with regards to strategic growth, both organic and inorganic. We are assisting companies with operational improvements in order to be able to generate a platform that allows them to grow in Oman and throughout the region. There are a lot of things happening at the moment and the potential for growth just needs to be realized by many organizations.
What is your general economic outlook for Oman? Which industries are showing the most positive trends and which are showing the most negative?
ASHRAF: Oman has a reasonably positive outlook in terms of economic development. With respect to infrastructure, there is a considerable amount being invested by the government in primarily the transport segment. In addition to transport, there are also investments being made in utilities, power, and water. Essentially, the government is trying to make sure that the right fundamentals are in place in order for the economy to sustainably grow and develop. Financial services are developing further and this is also helping to create a better economic environment for future growth and development.
What are the main challenges for companies looking to enter the Omani market? What initiatives are being implemented in order to further attract and encourage FDI throughout the country?
ASHRAF: There are not many challenges, but the obstacles that are there are important to consider. The key challenge has to do with the working environment of the labour market. The government is looking to make changes and create a number of improvements. They have been encouraging Omanization and providing various support structures to ensure that Omani employment is being undertaken. In addition, they are trying to streamline and improve some of the processes that would help with expatriate employment. These processes are ongoing at the moment and I do not think that there will be a definitive solution in the immediate future. In addition to that, there are a variety of initiatives which are being taken by various organizations to encourage FDI. There are initiatives being implemented by the Public Authority for Investment Promotion and Export Development (PAIPED). There are also initiatives being undertaken by the Ministry of Commerce and Industry. For example, the Ministry is working with the Singaporean government on supporting SME development in Oman. They are also collaborating more closely with Singaporean companies in order to help them establish operations here in Oman. Furthermore, there is additional FDI coming through the special economic free zones, Duqm is an example. The Port of Sohar also has a special economic zone attached to it. The government has invested in a number of integrated tourism development initiatives. There are several international strategic partners, which have been working on the development of various projects. These projects are spread throughout the country. The government’s strategy has been focused on different parts of the country and not in just one place alone. The initiatives around these developments are worth several million dollars.
Oil and Gas accounts for roughly 80% of the government’s revenues. What actions are being taken in order to help safeguard the country’s economy from large fluctuations in the price of oil? What progress is currently being made in the upstream segment and how do you see this being sustained in the long term?
ASHRAF: In order to safeguard the economy from oil and gas fluctuations, the government has been undertaking a number of initiatives. One of these initiatives has been with regards to working with partners on increasing exploration activities and reserves. By doing this, the government is hoping to increase the amount of oil and gas that is available. Oman Oil Company Exploration & Production (OOCEP) has a large gas field, which it is developing in the South. These are major things that will increase overall capacity. In addition, there are strategic initiatives underway geared towards value-added based projects. These projects are typically using gas not purely as fuel but as a raw material. Therefore, there is an opportunity to create clusters of industry and grow the petrochemical sector even further. This is part of what the government has been doing in order to diversify away from purely oil and gas. Investments with respect to industry have also been increasing. The government has been providing incentives for industrial estates and industrial projects to be undertaken. The government has also been looking at a number of service-based initiatives. It is clear that they are trying to not purely rely on oil and gas.
What is the financial sector’s contribution to the overall GDP of Oman? How do you see this progressing with the introduction of Islamic financial products and services?
ASHRAF: Oman’s GDP has grown substantially over the last few years. In 2011 there was a 22% increase in GDP over previous years. This can primarily be identified because of the high oil prices and services that stem from that. However, other sectors, such as financial services and telecommunications, are also contributing more to the overall GDP. Islamic financial services are now opening up in Oman and the financial sector has the potential to contribute even more to the GDP. Islamic finance has a number of characteristics apart from the usury aspect of no interest. They are focused on investing in things that do not have a high degree of uncertainty. Therefore, the risk aspect comes down. They are also looking at equitable contracts so that all parties can try and benefit. The final part is about profit sharing. Asset financing or project financing is actually a very well structured vehicle. One expects in the coming years that Islamic finance will be able to contribute significantly to GDP in these areas.
How have regulations put forth by the CPA affected liquidity and trade volumes throughout the financial sector? What impact will the full implementation of Basel III have on the industry?
ASHRAF: Liquidity has not been affected that much. However, I think the implementation of Basel III will have its own hurdles especially with regards to Islamic financing. Islamic financing contains certain aspects that do not fit neatly into Basel III. Most of the banks have settled down with their Basel II implementations. Now they have to start planning for Basel III implementations. I doubt that there will be an urgency to implement it here. However, I believe that the potential for the financial services sector to contribute is still very significant. The issue is with regards to the sort of risk profile that they are willing to address. For example, when one looks at NPA (Non Performing Assets) versus the gross loan portfolio, they will notice that there has been a downward trend over the past 8-9 years. It has come down from somewhere around 11% of the gross portfolio being NPA. I think that it is now roughly around 4%. It is a very clear downward trend over the last 8-9 years. The banks have been trying to clean up their asset book. They are trying to go for better debt and funding which will help them create stability in the long run. However, with the ongoing pressures from the government and the economic environment, I think they will be looking at how they can structure reasonable risk based products for supporting SMEs. The key thing is that, overall, the sector is in a very healthy state due to lack of exposure to the global financial crisis. They were not impacted as much as other jurisdictions.
The labour regulations need to be reviewed and further enhanced. The government has been looking at some of these areas. There have been pressures from industries and many commercial businesses to review legislation and improve it further.
How would you describe Oman's industrial infrastructure? What investments is the government making in this capacity?
ASHRAF: The government has started off by making sure that there is a solid core of infrastructure in place. They have been focused on developing the country’s road transport, shipping, air connectivity, and railways. There have been major investments in all of these areas. It takes time for the realization for some of these things. In 2011, development plans began for a 2000 megawatt power station. The construction is going on right now and early power will be coming in April or May of this year. The early power will be in the range of 600-700 megawatts and then the remainder of the capacity will be brought online within a year. This is going to tremendously increase the overall capacity of the country. The port handling capabilities for Sohar and Salalah are being enhanced in order to cater to different types of raw materials and industrial activity. There are still some areas that can be enhanced further but overall things are moving forward.
According to the World Economic Forum, the most problematic factor for doing business in Oman is the restrictive labour regulations. What is being done in order to ease the industrial labor burden?
ASHRAF: The labour regulations need to be reviewed and further enhanced. The government has been looking at some of these areas. There have been pressures from industries and many commercial businesses to review legislation and improve it further. The government has begun looking at a couple of aspects. Initially, it has been focusing on occupational health and safety. Now, there are some areas being looked at in terms of performance related labour aspects. There is also emphasis on looking at the social aspect and ensuring that fairness, as well as equity, is there for employees. The next stage is looking at productivity and performance.