Oman announces new measures to attract investment
MUSCAT – The Omani government approved new incentives to stimulate the business climate, reducing income tax for small and medium businesses for 2020 and 2021 and offering long-term residency permits for foreign investors, Omani state TV said on Tuesday.
The move comes as Muscat shifts its focus towards diversifying its sources of income away from oil. Since last year, Oman’s decision to cut reliance on energy sources has gained further momentum following the outbreak of the coronavirus pandemic, which contributed to large fluctuations in the prices for all refined petroleum products during the first half of 2020.
The official Omani TV said on Tuesday the new incentives are part of Oman’s Vision 2040 aimed at diversifying the economy away from oil, which makes up the bulk of state revenue.
Oman, one of the weakest economies in the Gulf region, was hit hard by the coronavirus pandemic and low oil prices. The International Monetary Fund (IMF) said last month that Oman’s economy likely shrank 6.4% in 2020 and estimated it would make a modest recovery to 1.8% this year.
The new Omani measures included a cut in rent at the Duqm Special Economic Zone and industrial areas, and this until the end of 2022.
Omani media reported that granting longer residencies for foreign investors would be done “in accordance with specific controls and conditions that will be announced later after their study is completed by the Council of Ministers, in addition to incentives related to the market.”
Omani state television quoted Sultan Haitham bin Tariq Al Said as saying, “The Council of Ministers has also adopted a long-term strategy for urban development that is considered possible as a basis for achieving Oman Vision 2040.”
The authorities seek to simplify procedures and permits related to commercial activities in some sectors and attract local and foreign investments, in addition to enhancing local added value, encouraging national products and promoting exports.
Over recent years, Muscat has intensified its efforts to reform the economy on many levels. Last year, an entity was established to collect all the state’s assets dispersed between several investment funds and the finance ministry, a giant leap towards putting the economy on a sustainable path to face future challenges posed by several overlapping factors.
Analysts said the creation of the new entity reflected a frustration with the conventional management of state assets that proved inefficient. The need for a new approach, they said, became crucial with the serious challenges the Sultanate is currently facing.
Sultan Haitham took advantage of the double shocks of the pandemic and the collapse of oil prices to tell Omanis that the time for change has come.
Among the reforms he wants to undertake is the consolidation of austerity measures in order to tackle the aftermath of the prosperity period and cut government spending. The sultan even set an example by cutting his family’s own budget.
Analysts say Oman’s economic openness and plans to attract investments took into account the national interest, with a ban on foreign investment in vital industrial sectors that are crucial for Oman’s economy and the government’s strategy for job creation.
The Sultanate had banned foreign investors from engaging in the Omani sweets industry, the manufacture of traditional daggers, some retail sales and other sectors, with the aim of protecting national products and entrepreneurship projects. The decision came as the government prioritised the empowerment of small and medium size enterprises.
Oman does not boast large financial reserves like its wealthy neighbours, with the total assets of its two largest sovereign wealth funds estimated at $20 billion.
Before adopting the income tax, the Sultanate issued a number of legislations to stimulate the economy. The recent legislations included a law on partnership between the government and the private sector, an investment law, and a bankruptcy law.
In the same context, the Sultanate made great strides towards benefiting more from tourism, approving a package of tax exemptions to stimulate investment in this vital sector.
Tourism is considered one of the most active non-oil sectors, so Muscat is seeking to secure a share of this growing industry by strengthening the role of tourism in the local economy.
Officials are convinced that enabling the private sector to strengthen its presence in this sector will lift the burden of development off the country’s shoulders, allowing the state to devote itself to other tasks, including monitoring, legislation and adjusting development policies and strategies.
In recent months, Omani efforts to put the final touches on implementing the largest economic transformation programme in the country’s history have accelerated. According to observers, the Sultanate is now preparing for the post-oil phase in line with Vision 2040, which focuses on diversifying Oman’s sources of income and finding alternative sources for budget revenues.
The vision also aims to develop all aspects of Omani life by strengthening the role of the private sector in the economy.
Muscat has joined its Gulf neighbours, notably the UAE and Saudi Arabia, in walking this path, especially after its budget was severely damaged by a decline in oil prices over the past four years.
Despite turning towards financial markets and selling $3 billion in bonds in July last year, Oman’s financial position remains weak and credit rating agencies associate its debt with “high risk.”
Standard & Poor’s estimates that Oman’s debt increased to about 49% of GDP, compared to 5% in 2014.