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>challenges
confronting the Government due mainly to uncertain oil revenues.
The price of oil fell dramatically in 1998 and at one point in
early 1999 fell to less than $10 a barrel. Recognising the finite
nature of oil reserves - even though latest estimates are that
these reserves are guaranteed for 50 more years at least - and
the vagaries of an oil market outside its control, the Government
is placing greater emphasis on the diversification of the country's
economic base, led by the private sector. This has meant a detailed
review of existing laws and regulations, in addition to introducing
a new Foreign Investment Law.
Major revisions have also been made in the Commercial Law, the
Agency Law and the Corporate Income Tax Law. All these measures
are designed to encourage foreign investment in Oman and active
domestic participation. Most important of all has been the introduction
of the Basic Statute of the State, which states in Article 11
that 'The National Economy is based on justice and the principles
of a free economy.'
In
June 1995, the Vision Conference, Oman 2020, was held in Muscat
with the aim of moving the economy into a new phase of development.
The main aims have been:
- Economic
and financial stability.
- Reshaping
the role of Government in the economy, and broader private sector
participation.
- Diversification
of the economic base and sources of national income.
- Globalisation
of the Omani economy.
- Human
resource development and upgrading the skills of the Omani workforce.
By
the year 2020, it is expected that the economy will no longer
rely on oil, but will be diversified with higher levels of savings
and investment and that other sources of national income from
the non-oil sector will assume the primary role:
- The
crude oil sector's share of GDP is estimated to drop to around
9% in 2020, compared with about 41% in 1996.
- The
gas sector is expected to contribute around 10% to GDP in 2020
compared with less than 1% in 1996.
- The
industrial sector is where the major change is envisaged with
the non-oil sector's contribution rising from 7.5% in 1996 to
29% in 2020.
| Custom
Duty & Exports |
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In
order to make up for the weak oil price and reduce the deficit
as far as possible, the Government has introduced a number of
measures to produce additional revenue. Corporate tax was increased
from 7.5% to 12%. The tax on tobacco was increased from 75 to
100% on 7th March 1999. In imposing these duties, the Government
has been careful to ensure that those in society who are not so
well off are not affected by the increases.
In
1998, the value of Oman's exports fell to RO2,117.5 million compared
to RO2,934.1 million in 1997, representing a drop of 27.8%. This
was mainly due to the low oil price resulting in a 35.9% fall
in revenue. Oil exports in 1998 amounted to RO1,424.9 million
compared to RO 2,223.9 million in the previous year.
| The
Development Record |
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Until
oil production in 1967, Oman's exports largely comprised of dates,
limes, fish, tobacco, fruit, vegetables, hides and henna. The
country was dependent on imports of goods such as rice, tea, fabrics,
pipes, furniture, machinery and cement to name but a few of the
essential items needed to build a modern economy. In the mid-70's,
the oil sector became the mainstay of the economy and its main
source of income. Since then, not only has the economy gradually
reduced its dependence on the oil sector, but has achieved an
impressive record of social and infrastructure development. The
magnitude of the changes that have taken place are summarised
in the following reports:-
According
to the World Bank Development Report 1994, Oman achieved an impressive
average annual per capita growth rate of 4.1%, without inflationary
pressures, during the period 1980-1992.
The
UNICEF Progress of Nations Report 1994 commended the remarkable
achievements of Oman in reducing the infant mortality rate to
around 10% in the 1980's. This is just one example of the standard
achieved by the health services, which hardly existed in 1970.
At that time there were only three schools, whereas today there
are some 1000 schools and colleges all over the Sultanate with
a university internationally acknowledged to be of the highest
standard. For any visitor to Oman, the developments that have
taken place are striking.
These
achievements have not occurred without overcoming problems caused
by external and internal unfavourable factors, such as oil price
fluctuations which have had significant adverse effects on the
Government's ability to implement the Five-Year Plans.
However,
the efforts made to diversify the economy and the encouragement
given to the private sector have achieved positive results with
a structural shift towards the private non-oil sector:-
The
non-oil sector's contribution to GDP has been increasing steadily
and was estimated at about RO3932.4 million towards the end of
1998. This sector now accounts for 72% of GDP compared with only
43% during the first Five-Year Plan (1976-1980).
The
share of non-oil revenues in 1998 amounted to over RO506.2 million,
compared to RO418.3 million in 1995. As a share of total State
revenues, this sector's revenues have been steadily increasing.
In 1998, its share was equivalent to government revenue of 30.8%
compared to an average of 20% during the previous Five-Year Plan.
In
1998, total GDP amounted to RO5457 million at current prices.
The GDP declined by 10.2% in 1998, but the non-oil sector registered
an increase of 4.6%.
The
Consumer Price Index (CPI) declined by 0.5 % in 1998. Inflation
is expected to remain at a low level for the foreseeable future.
Development
Planning
Under
the Chairmanship of His Majesty, the Development Council was formed
in 1975 to launch Oman's Five Year Development Plan(1976-1980)
which coincided with the oil sector boom. The Development Council
was cancelled by Royal Decree 6/92 issued January 1996, when all
powers were transferred to the Council of Ministers. The plan
aimed at establishing essential infrastructure, such as Government
buildings, power stations and communication centres. It also aimed
at increasing the absorptive capacity of the economy and laying
the foundation for a competitive private sector-led economy.
The
Second Five Year Plan (1981-1985) aimed at completing the infrastructure
needed to modernise the economy and raise living standards. The
scope of the plan was broadened to include water resources projects
and regional development. The implementation of this plan was
helped by the increasing demand for energy on world markets, which
boosted the oil price.
The
Third Five Year Plan (1986-90) augmented the achievements of previous
plans, but the steep decline in the oil price posed a serious
challenge to Government which was compelled to tighten its fiscal
policy at the expense of some investment and development projects.
The
Fourth Five Year Plan (1991-1995) concentrated primarily on broadening
and diversifying the production base of the economy and private
sector development. Special attention was paid to regional development,
with 60% of funds allocated to projects outside the Capital area,
compared with 34% in the previous plan. The plan also aimed at
developing human resources. By the end of 1995, Omanis represented
36% of the total labour force. This figure is expected to rise
to 42% by the end of the current plan in the year 2000. In June
1995, a major conference, "Oman 2020", was held in Muscat
to prepare for the current Five Year Plan and to chart the course
of the economy for the following 25 years.
| First
National Census |
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A
major step in Oman's development was the undertaking of Oman's
first General Census of population, housing and establishments.
The results form the basis for all future economic planning.
The
scope of the first Census was more than a simple population survey.
Preparations were made at the end of 1993 and the final results
were known at the beginning of 1995. In January 1996, "The
Full Results of the General Census" were published in a Ministry
booklet.
At
the end of 1993, the total population of Oman was 2,018,074, of
which 1,483,226 were Omanis (73.5%) and 534,848 were expatriates.
The majority of expatriates are concentrated in the Capital area,
where they represent 46% of the population. In most other areas
of the Sultanate, Omanis comprise 75% or more of the total population.
The census revealed that 52% of the population is aged 15 or under,
while those over the age of 64 represent only 3% of the population.
This indicates a high birth rate of around 3.5% as well as a marked
improvement in health standards. The current estimate of the total
population figure is 2.324 million.
Education
has also achieved remarkable progress. The statistics showed that
illiteracy among Omanis of the older generation was about 41%
, while in the younger generation it had fallen to 4.5% for males
and 21% for females. The census showed that 86% of male and female
children aged 6-11 were attending primary school, which compares
most favourably with statistics from other developing countries.
The
next national census will not be held before 2003, but the Government
continues to update and publish its statistics annually. In October
1998, the 'Statistical Year Book for 1997' was published and is
available in the Ministry's Information and Publication Centre.
| The
Fifth Five-Year Plan |
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The
current Five-Year Plan (1996-2000) is regarded as the beginning
of a new era of development planning in the Sultanate. This plan
differs from the previous ones since it calls for wider public
and private sector participation, the use of sophisticated computerised
macro-economic modelling techniques and planning Oman's development
within a regional and global context. It prepares for the next
century and implements measures to maintain a prudent fiscal policy,
such as strict adherence to the framework of the plan in the preparation
of the annual State budget, limiting public debt and striving
towards a balanced budget by 2000.
Diversification
Diversification
is a fundamental factor in Oman's economic strategy, which goes
hand in hand with private sector development. New economic enterprises
are being introduced for future sustainable development. The main
parameters of this strategy are:
- Technology
transfer to produce high value-added products
- Export-oriented
policies
- Private
sector development
- Promotion
of greater integration with the world economy
| Human
Resources |
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Human
resource development is a high priority in Oman's development
planning. This is reflected in the allocation of RO207 million
for this purpose. During the current plan, funds will be used
to cover the development of basic education, as well as increasing
the number of health and nursing institutes and the provision
of additional technical and vocational training. It is expected
that about 30,000 students will be trained during the plan. The
Government is intensifying its efforts to provide Omanis with
sound basic education and the appropriate level of skills through
technical and vocational training.
The
number of Omani workers in the private sector registered with
the Public Authority for Social Insurance went up during 1998
by 35.8%. At the end of the year, there were 46,171 Omani workers
compared to 34,004 at the end of 1997. Concomitantly, the number
of expatriate workers fell by 2.29% from 483,847 to 482,527. The
number of expatriate workers decreased mainly in the wholesale
and retail trade as well as in vehicle workshops. There are currently
119,849 expatriate workers in construction, 56,748 in agriculture
and fisheries and 52,189 in domestic service.
| Banking
in Oman |
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The
banking system in Oman consists of the Central Bank of Oman and
16 commercial banks of which seven are locally incorporated. There
are also four specialized banks :-
The
Oman Housing Bank, The Oman Development Bank, The Alliance Housing
Bank which commenced business on 6th January 1998 and The Industrial
Bank of Oman, formally inaugurated in December 1998. In June 1998,
the Commercial Bank of Oman and the Bank of Oman, Bahrain &
Kuwait merged to form the Commercial Bank of Oman (SAOG) with
a capital of RO55,391,000. The assets of Habib Bank A.G. Zurich
were acquired by a new local bank, Majan International Bank (SAOC)
on November 1, 1998. At the end of 1998, there were 337 operating
bank branches in a network covering the entire country, of which
25 are specialized bank branches. Additionally, there are 11 money
exchange institutions licensed by the Central Bank to issue drafts
and deal in foreign exchange, as well as 58 money changers for
personal and individual transactions .
From
1st April 1999, the capital of the Central Bank of Oman was raised
from RO200 million to RO250 million by a Royal Decree. the formal
opening of the new Central Bank extension in April 1999 marks
the 25th anniversary of its foundation in 1974 and the subsequent
transfer of its assets from the dissolved Oman Currency Board
on April 1, 1975. The original building was opened in 1978. One
of the features of the new extension is a currency museum which
was opened in April 1999 and which contains 564 coins and 108
currency notes.
In
January 1999, the Central Bank launched a monthly statistical
bulletin to provide up-to-date information and monetary data for
the financial community.
Currency
Issues
For
the 25th Anniversary of National Day and to mark the Silver Jubilee,
the Central Bank issued new legal tender in currency notes of
the following denominations: RO50, 20, 10, 5, 1 and 500, 200 and
100 baisa. The new currency went into circulation on November
1, 1995 alongside the old which will be withdrawn gradually but
will remain as legal tender until further notice. By the end of
1998, the new notes made up nearly all the currency in circulation,
to the value of nearly RO280 million. In November 1995, the Central
Bank also issued commemorative gold and silver coins depicting
the new building of the Central Bank of Oman, forts and castles,
and other selected Omani landmarks. Two commemorative coins, each
with a face value of RO1, one gold and the other silver depicting
“The Year of the Private Sector’ logo were issued in
November 1998 to mark the 28th National Day celebrations. In September
1998, the Central Bank issued two silver commemorative coins,
one depicting a leopard and the other a gazelle, to commemorate
wildlife in Oman.
Training
& Omanisation
In
order to meet the training and Omanisation requirements of the
banking sector, the Oman Institute of Bankers was established
in 1983 and has since played a leading role in increasing the
number of Omanis working in the sector. The Central Bank monitors
the progress made by the commercial banks with Omanisation and
in July 1995, issued a circular stipulating that by the end of
the year 2000, at least 75% of senior and middle management positions
should be held by Omanis. In the clerical grades, 95% of staff
should be Omanised and 100% in all other grades. At the end of
1998, 88.3% of all positions were held by Omanis which is a considerable
achievement for the banking sector in general. Women made up 31.1%
of the total. During 1998, Omanis employed at senior and middle
management levels went up from 72.9% to 76.7%.
Oman
Development Bank
In
1997, the Oman Development Bank was established by a Royal Decree
as a public joint stock company (SAOG) with capital of RO20 million,
fully subscribed by the Government. All the obligations of the
previous Oman Development and Agriculture and Fisheries Banks
were transferred to the new Oman Development Bank.
The
former Oman Development Bank was established in 1978 and began
operations in the following year. During the period 1979-1996,
it played an important role in the development of the country
by providing medium to long term loans to Omani companies, thus,
encouraging greater private participation in the industrial, service,
agricultural and fishing sectors of the economy.
A
total of 666 loans worth RO134.5 million were advanced for projects
with investments of about RO540 million during this period.
Besides
advancing loans to Omani companies, the Oman Development Bank
is an institution specializing in lending to individual small
investors, by advancing loans not exceeding RO165,000 for projects
with an investment cost of not more than RO250,000. The rate of
interest charged by the bank is 9%, of which 6% is borne by the
Government and only 3% by the borrower. Under certain conditions
the ODB grants interest free loans not exceeding RO5,000 to small
investors and craftsmen. In 1997, a total of RO92,000 was approved
for 38 tailoring projects. In 1998, the loans for tailoring projects,
sponsored by the Ministry of Social Affairs, Labour and Vocational
Training increased to over 100, which is evidence of the bank’s
contribution, not only to the drive for Omanisation, but also
to the success of the ‘Year of the Private Sector’
During
1998, in its first full year of operation, the ODB sanctioned
finance for 644 projects amounting to over RO6.1 million. This
figure represented 50.7% of the total investment in these projects
which were worth RO12.1 million.
The
loans were spread over the Sultanate, with Dhofar accounting for
RO1.6 million, representing 27.5% of the total finance distributed
over 130 projects. The highest number of projects was in the Sharqiyah
region with 182 loans worth RO761,000. The number of projects
in the Batinah region and value of loans received were similar,
but the Capital area, Al Dakhilia, Al Wusta and Al Dhahira received
much less while Musandam was only granted four loans worth RO53,000.
In
1991, the ODB established an Export Guarantee and Finance Unit
(EGFU), which was renamed the Export Credit Guarantee Agency (ECGA)
in 1999. The Agency arranges insurance of exports on behalf of
the Government. During 1998, it insured over 89 exporters sending
goods worth over RO86 million to 1,757 overseas buyers in 70 countries.
Commercial
Bank
The
commercial banks reported total net profits of RO71 million for
the year ending December 31 1998, compared with RO68.25 million
in 1997. This was due mainly to higher net interest income and
increased lending to corporate and personal customers, the expansion
of financial services throughout the Sultanate and effective containment
of operating costs. All local banks performed above expectations.
The commercial banks are all actively seeking investment opportunities
locally and abroad as well as strategic alliances. The AGCC countries
have agreed a common licensing policy which will enable local
banks to open branches within the region.
In
January 1999, the commercial banks began trading in the Euro,
which simplifies transactions with the EU for the business community.
On introduction, the Euro was equivalent to US$ 1.17 making it
worth RO0.450 (RO1.000 = 2.2 Euros), but it has since fluctuated
in value against the Omani rial which is pegged to the US$.
Electronic
Banking
Electronic
banking is widely available to the public. All banks provide a
variety of services to customers through their ATM networks. Currently
there is one independent system and two integrated networks, which
will all be merged into a single network serving the whole country.
There are plans to further integrate this network with the systems
used by banks in the Gulf States. In addition to cash withdrawals,
the local banks are introducing new ATM services such as settlement
of accounts, which can also be done through telephone banking,
making it easier for customers to make payments for services like
water, electricity and telephones. E-mail can also be used for
the transfer of funds.
Debit
cards are widely used in Oman and most of the international credit
card networks are linked to the local banks. The most frequently
used credit cards are the VISA, Master, AMEX and Diner's Club
cards.
Development
Bonds
In
August 1998, the Central Bank launched the 19th issue of Government
Development Bonds. The five-year bonds carry a coupon rate of
7.75% and interest is paid half-yearly. The 20th issue of RO20
million, launched in February 1999, is a three-year bond and has
an interest rate of 8% payable half-yearly. The Central Bank followed
up this Bond with issue 20A of RO50 million, which has the same
terms and matures on 1st March 2002. The success of 20A issue
was enhanced by the fact that their launch coincided with the
maturity of the 15th and 10th issue. From the 19th issue of bonds,
the auction method of sale was introduced. The Central Bank also
raised the limit of investment by the commercial banks from 20%
to 30% of their net worth.
The
Central Bank introduced its first issue of development bonds in
1991 and since then they have proved to be a most attractive investment.
Regulations
The
Central Bank of Oman has enacted a number of rules and regulations
in order to keep tight control of banking practices. Periodically,
cautionary notices are issued warning the public of the risks
of dealing with unlicensed investment salesmen.
The
share purchases from the Muscat Securities Market by the commercial
banks are closely monitored by the Central Bank. This is done
to ensure the safety and soundness of the banking system.
In
1998, the Central Bank released details of the security features
incorporated into the new banknotes to discourage attempts at
counterfeiting them and to raise public awareness in general.
The notes contain all the latest security devices, such as watermarks,
changes in colour tone and transparent security thread with micro-lettering.
Following
the collapse of BCCI in 1991, the Central Bank arranged for the
takeover of the assets and liabilities of BCCI (Oman) by another
commercial bank, thus making Oman the first country anywhere in
the world to settle the BCCI claims.
The
Deposit Insurance Law, which came into effect in April 1995, aims
to provide comprehensive cover facilities in respect of depositors’
funds with banks; augment and sustain public confidence in banks;
and minimize systemic risks associated with the working of the
banking system. According to the law, the net amount due to any
depositor by a member institution shall be limited to 75% of the
net deposit to a maximum of RO20,000.
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