Country Analysis: General Background

The Sultanate of Oman is a Middle East country under the leadership of Sultan Qaboos bin Said Al-Said.  The administration of Sultan Qaboos has seen the state develop into modernization, and has also enabled the country to integrate with the external world. The country is politically stable and also maintains peace with its neighbors. Besides, the state has an independent foreign policy that makes it easy for the country to maintain good relations with other countries. The country also enjoys close ties with the US and the UK. This paper analyzes the financial, economic, and institutional characteristics of the nation to determine its viability for business expansion.

Economy

Oman depends almost entirely on oil and gas resources which make up to about 68 to 85 percent of the total revenue of the country. The country’s economy changes depending on the prices of gas and oil commodities. As such, the country’s GDP and budget changes accordingly as the prices of oil and gas shift. For example, in 2016, the low prices of gas and oil resources caused a budget deficit of $13.8 billion, an equivalent of 20 percent of the Gross Domestic Product (CIA, 2019). However, the government reduced subsidies as a way of correcting this deficit, causing it to reduce to 12 percent of the GDP in 2017. The government also adopted measures in 2018 to cover the deficit using debt issuance.

Other sectors

The government has developed numerous policies such as trade diversification, privatization, and industrialization to reduce over-reliance on the oil and gas industry. In its efforts, the government targets to improve the mining industry, shipping and logistics, tourism, aquaculture, and manufacturing. These developmental policies are applied hand in hand with strategies to boost production in the oil and gas industry.

Revenue

The GDP-per capita for 2015-2017 was $48,400, $47,900, and 46,000 respectively. These results indicate a constant decline in GDP. The country ranks 37 on the global ranking of GDP-per capita. The global ranking for Oman’s purchasing power parity is 67, and the values for 2015, 2016, and 2017 were $182.8 billion, $191.9 billion, and 190.1 billion respectively (CIA, 2019). The country has a labor force of 2,255 million people, most of who are non-nationals (Chen, 2018). The annual inflation rate as of 2016 stood at 9.0 percent, and the country had a negative gross domestic product.

Currency and Exchange Rates

The Oman Rial (abbreviated OMR) is the national currency of Oman which is an equivalent of $2.6008. The currency is strong when valued against other currency and is the third most valuable currency in the world (Chen, 2018). The currency is pegged at a fixed exchange rate against the US dollar and has been valued at $2.6008 since 1986 (Chen, 2018). Hence, the country enjoys a stable exchange rate. The fixed exchange rate is essential for the country as it is a protective measure against market volatility that is apparent in small economies that rely on trade and resources such as Oman. The country’s currency is heavily dependent on oil and gas prices since these resources are the largest GDP contributors. As such, the country’s currency will remain pegged on the dollar until the state succeeds in shifting production to empower other sectors and reduce reliance on oil and gas.

Viability

The country favors investments due to factors such as strategic location in the global market, political and economic stability, developed infrastructure, favorable tax systems, foreign ownership (100 percent in free zones and 70 percent in other areas), and customs exemptions for the first five years of commencement (KPMG, 2016). In addition, the country is currently embracing diversification and has numerous trade agreements such as WTO, GAFTA, GCC common market, and FTAs with governments such as Singapore, US, Switzerland, and Norway, among others (KPMG, 2016). The country has a transparent legal system with almost zero levels of corruption. Due to the current diversification efforts, the state is suitable for investments in sectors such as tourism, food processing, manufacturing, training and education, healthcare, creative industries, and agriculture.

References

Chen, J., (2018). OMR (Oman Rial). Retrieved from https://www.investopedia.com/terms/forex/o/omr-oman-rial.asp

Central Intelligence Agency, (2019). Middle East: Oman. The World Factbook. Retrieved from https://www.cia.gov/library/publications/the-world-factbook  

KPMG, (2016). Oman Investment Handbook. Retrieved from https://assets.kpmg.com/content/dam/kpmg/om/pdf/oman-investment-handbook.pdf