GCC Insights: Oman's legislature faces hard economic challenges

Last week, Oman staged its first ever election for members of the Shura or Consultative Council. Now members of Oman's elected legislature have the hard task of addressing athe economic challenges facing the sultanate.

To be sure, Oman must overcome numerous economic problems including solving unemployment, amending investment laws, cutting red tape, deregulating the utilities sector, halting decline in oil capacity and reforming the telecom industry.

First, the unemployment problem is a serious one, which requires concrete measures. Thousands of young Omani nationals enter the workforce annually. The sixth five-year plan covering the period 2001-05 calls for creating some 110,000 new jobs.

Full ownership

However, forced Omanisation is not a remedy since this could raise hurdles to attracting direct foreign investment, in turn deemed essential for stimulating economic growth. Worse, if forced to employ locals, other firms might find it preferable to relocate their operations, possibly to Dubai.

Second, Oman should further liberalise investment laws. In particular, the sultanate ought to reform the 1994 Foreign Capital Investment Law. Currently, foreign ownership is restricted to 70 per cent for investments in banking and insurance, information technology, services and securities though full ownership in undefined economic development projects.

Third, the authorities must do away with excessive bureaucracy, which is blamed for causing losses of investment opportunities. In September 2002, Hillwood Strategic Services of the US pulled out from a proposed 6,000-acre free zone in the southern port of Salalah. Press reports attributed Hillwood's decision partly to the lengthy negotiations.

A year earlier, Ogden Yorkshire Water withdrew from a plan to privatise Muscat's wastewater system. The joint American and British firm was locked in lengthy talks with authorities, but the two sides failed to agree on financial terms.

Fourth, Oman has yet to register a breakthrough in deregulating the electricity services. Three firms have been commissioned to draw up recommendations for a new scheme aimed at unbundling services. The aim is to have three separate firms dealing with power generation, transmission and distribution.

True, Oman was the first GCC state to offer independent power projects, but it must maintain its edge amid competition from other member states.

Fifth, Oman must reverse its steadily declining oil production, which is the mainstay of the economy. Press reports say Oman's oil production capacity (excluding condensate) has been declining for several years.

Numerous measures

Crude oil output fell from 849,000 barrels per day (bpd) in mid-2001 to 750,000 bpd by last November and is now heading toward 700,000 bpd. Fortunately, Petroleum Development Oman has revealed plans to invest $1.5 billion to boost capacity to 800,000 bpd by 2007.

Finally, Oman must speed up liberalisation of the telecom industry. The authorities have adopted numerous measures towards opening up the telecom market. They include forming the Oman Telecommunications Regulatory Authority as an independent regulatory body, partly to oversee the privatisation of Oman Telecommunications Company (Omantel).

However, despite offering a 40 per cent stake in Omantel, the proposal failed to attract a strategic partner.

A new scheme calls for splitting Omantel into three separate companies (fixed, mobiles, and internet), with 30 per cent sold through an initial public offering by year-end.

The regulatory authority is considering granting a second GSM licence to compete with Omantel.

Moreover, Oman's telecom statistics confirm the need to expand the telecom infrastructure by adding capacity in fixed lines, mobile services and the Internet.

According to the International Telecommunications Union, phone density in Oman last year stood at nearly 9 per cent for fixed lines and 12.4 per cent for GSM. Also, there are only 458 Internet users per 10,000 inhabitants.

In short, the newly elected legislators do not have the extravagance of overlooking Oman's economic challenges.

The writer is assistant professor, College of Business Administration, Universityof Bahrain