Economic Trends

Oman is an oil-based economy, although its reserves are modest compared with other states in the region.  By some estimates, Oman's proven oil reserves will be substantially depleted by 2020; however, this is generally considered a sliding window in light of the potential for new discoveries or technological advances, which can add to the stock of reserves.  By 2020, Oman hopes to have diversified its economy by developing its natural gas resources, including LNG facilities, energy-based industries, and related industries. The country also hopes to expand non-oil, non-energy-related industry including light manufacturing, agriculture and fisheries, and tourism.  Nonetheless, Oman's economy continues to move in step with oil price fluctuations.  Oman's oil revenue in 2003 accounted for 73 percent of government revenue and 42 percent of overall GDP.

Increase in Government Expenditures to Promote Economic Growth
In FY03, Oman exported 278.5 million barrels of oil at an average price of $27.84 per barrel, a 9.1% decrease from 306 million barrels at $24.2 in FY02 and a 15.0% decrease from the 326 million barrels at $26.71 in FY00.  The FY03 budget included a projected deficit of $1.04 billion, based on a "budget" price of $20.00 per barrel.  With surplus revenues going into a strategic reserve fund, deficits not covered by the fund are covered by borrowing.  In FY03, Oman expected to fund 25 percent of its deficit from the fund, with the balance (75 percent) funded with debt.  However, Oman's reserve fund grew in FY03, as the actual average price exceeded the budgeted figure of $20.00.

The FY04 Omani State Budget increased overall government spending by 14.0%, reaching $8.89 billion.  As the public sector is the primary engine of economic growth, the government hopes that the increase in government spending will stimulate the economy.  Net oil revenue reached $6.01 billion by the end of 2003, an increase of five percent from FY02 revenues of $5.71 billion.

GDP and Petroleum Prices
Gross Domestic Product (GDP) increased by 6.3% in 2003 to reach $21.6 billion, compared to $20.2 billion in 2002. Much of this gain is attributable to increased activity in the industrial sector.  According to provisional government figures in 2003, there was 6.5% growth in industrial petroleum activities and a 15.2% rise in industrial non-petroleum activities.  Production of LNG increased by 30 percent, while the supply of electricity and water increased by 36 percent and construction activity rose by 13 percent. The General Price Index (based on retail prices in Muscat and four other large cities) reported a 0.4% decrease in FY03.

In 2003, Oman experienced a trade surplus of $5.09 billion, a 1.4% drop from $5.16 billion in 2002.  The value of Oman's principal export, crude oil, increased to $7.7 billion in 2003, a 4.4% rise from the $7.4 billion of 2002.  This increase was mainly due to the rise in oil prices from $24.29 in 2002 to $27.84 in 2003.  The value of non-oil exports increased by 16.2% in 2003, with the exception of textile exports, which grew by only 0.8%, and vegetable exports, which experienced a 20% decline.  All other export categories witnessed major increases, ranging between eleven (11) and 35 percent.  Re-exports, on the other hand, dropped by 17.3% in 2003.  Also in 2003, imports increased by 9.4%, reaching a total value of $6.56 billion.  The value of imported transport equipment reached $1.42 billion, with the value of imported electrical machinery also exceeding $1.4 billion.  Food and food preparation products, as well as chemical products, also accounted for a major part of Oman's imports.  Due to the considerable number of expatriate laborers in the country, there is a stable net outflow of $1.4 billion annually in workers' remittances from Oman.

Removing Barriers to Trade and Investment
Though, a number of constraints affect trade and investment in Oman, the government continues to modify its legal and institutional structures. The new GCC Customs Union, implemented in January 2003, could make Oman an attractive base for certain industries, especially in light of its outside-the-Gulf ports.  However, other industries are likely to suffer from the intra-GCC competition.

Visas are easier to obtain than before, but require advance planning for non-GCC residents.  In July 2003, the Omani government introduced two new classes of visa available at all sea, air, and land points of entry for citizens of the U.S., Western Europe, and other selected nations.  The one-month visit visa costs R.O. 6 (approximately $15.60), and the one-year multiple-entry visa costs R.O. 10 (approximately $26).  The visit visa is renewable, but the multiple-entry visa is not.  The Omani government charges $26 per day for overstays of visas.  Visas can also be obtained in advance through application to an Omani embassy, consulate, or trade representative abroad.  There are also new expedited procedures for citizens of other GCC nations, as well as a new agreement allowing Omani visa-holders to visit Dubai.

Factors Favoring Oman's Economic Development

Important factors favor Omani trade and investment development:

  • Oman's new private-sector based development strategy, which promises greater efficiency and global competitiveness; 

  • Oman's renewed emphasis on privatization, which offers attractive opportunities for foreign firms;

  • Oman's accession to the World Trade Organization (WTO) on November 9, 2000, which should smooth integration into the global marketplace.  WTO-consistent protection of intellectual property, market access, and customs valuation are making Oman a more dependable trading partner and a more attractive destination for majority foreign-owned investment;

  • The promising potential of Port Salalah as an international air-sea transport hub, and prospects for the Salalah free-zone as a magnet for value-added export industries;

  • A new industrial port at Sohar, which will help exploit Sohar's geographic location outside the Strait of Hormuz;

  • Oman's linguistic strengths – English widely used as a commercial language, supplementing Arabic (Oman's official language) and other regional languages;

  • Oman's favorable credit rating from overseas lenders, based on its excellent payment record;

  • Customs duties exemptions for new industrial projects;

  • Incentives granting new investment or expansion projects a renewable five-year holiday from corporate taxes; and

  • Oman's deserved reputation for security, stability and moderation, and its pro-business outlook.  While Oman is a traditional Islamic society, the country promotes modernism, hard work, moderation, and tolerance to foreigners and their beliefs.  Unlike women in more traditional societies in the region, Omani women can – and do – work in many fields.

Rapid Infrastructure Development
Since the early 1970s, oil revenues have enabled Oman to modernize its infrastructure.  The country enjoys modern roadways in all major urban areas and population centers.  Communications, utilities, and other services are also well developed, widely available, and expanding to remote areas.  The telephone system, operated by government-owned Omantel, offers quick and reliable connections.  Oman started GSM (i.e., cellular) service in late 1996 and full Internet service in early 1997.  The approximate number of subscribers to Omantel's Internet services stood at 51,800 as of March 2004. Omantel remains Oman's sole Internet service provider.