I picked up mixed signals concerning the performance of Oman’s economy while on a visit to Muscat last week. On the positive side, there was the steady growth in oil production, with output is projected at 980,000 barrels per day in 2015, up 4 per cent compared to what it was in 2013. Stats for 2014 are not out until April.
The petroleum sector is vital by virtue of accounting for 79 per cent of budgetary revenues. Certainly, this raises questions about the success of various efforts to achieve economic diversifications. Among other things, the drop of oil prices over the past few months has reaffirmed the need to double efforts at reducing oil dependency given the market’s volatility.
The authorities assumed a price of $75 per barrel for fiscal year 2015. While lower than the $85 assumed in the budget for 2014, the rate remains above prevailing market levels. By one account, a balanced budget would require an oil price of $102 per barrel, something not attainable nowadays.
For good reason, the authorities seem determined to pursue the implementation of essential infrastructure projects despite the fall in oil prices and by extension that of treasury income. These schemes entail the expansion of the airport and port facilities.
The airport development should help Oman Air as it tries to compete for business with powerful regional carriers such as Emirates, Qatar Airways and Etihad.
Likewise, the further development at the ports is essential to strengthen the logistical capability as the sultanate attempts to position itself as an ideal place for doing business and away from regional geopolitics. Oman’s geography allows for facilitating business through Strait of Hormuz. More than one third of petroleum supplies traded by sea passes through this strategic location.
On the adverse side, recently Standard & Poor’s lowered the foreign and local currency sovereign credit rating for the Sultanate from A/A-1 to A-/A-2 while maintaining a positive outlook. The move reflected the effect of the plunge of prices on the economy, in turn heavily dependent on the petroleum sector for its economic well-being.
To be sure, S&P has taken similar actions against other Gulf states ... Bahrain’s was reduced from BBB/A-2 to BBB/A-3, while outlook for Saudi Arabia waschanged from positive to negative.
Moreover, Oman has the lowest ranking within the Gulf on logistics performance index (LPI), based on data with the World Bank. The 2014 version of LPI grants Oman the 59th ranking among 160 economies in the survey. The UAE leads the region with a 27th ranking.
The logistics survey relies on numerous variables dealing with efficiency of customs, infrastructure, quality of trade and transport infrastructure as well as that of logistics services.
In addition, the 2015 Index of Economic Freedom, produced by the Heritage Foundation and the ‘Wall Street Journal’, grants a reasonable ranking by regional — but not international — standards.
Worryingly, Oman’s ranking declined by eight positions, the biggest drop for any GCC economy on the index, to arrive at the 56th global ranking. Bahrain, the UAE and Qatar outperform Oman with their 18, 25 and 32 rankings. The index relies on numerous factors like property rights and regulatory efficiency.
Nevertheless, the Omani economy is in a position for a soft landing provided it makes full capitalisation of its potentials. Positives also include presence of an educated local workforce willing to assume jobs in industrial enterprises, the geographical advantage and natural attractions.
The writer is a Member of Parliament in Bahrain.
