Strengthening ties: Expanding trade relationships with regional heavyweights support economic growth

Trade is an activity embedded in Omani history, crucial to facilitating the country’s past and present economic successes. In the past five years, Omani exports have seen impressive growth. Although in 2009 they dipped from OR14.5bn ($37.8bn) to OR10.6bn ($27.7bn) due in large part to global economic conditions, exports bounced back quickly. By 2010 they reached OR14.1bn ($36.7bn), 97% of pre-downturn levels, and by 2011 they had risen to OR18.1bn ($47.2bn).

Exports

A large share of Oman’s export value is generated by hydrocarbons. As non-oil exports and reexports continued to grow, that lead started to shrink. The majority of income from exports in 2011 came from crude oil, which accounted for OR10.66bn ($27.8bn) or 59% of overall outward trade, according to the most recent annual data from the Central Bank of Oman (CBO). Crude combined with liquefied natural gas (LNG) and refined oil accounted for OR12.8bn ($33.4bn), or 70.8% of export value in that year. In 2007, however, that number was five percentage points higher at 75.8%. During the intervening years, hydrocarbons’ share of exports by value shrank – even as crude oil’s value nearly doubled, refined oil’s value grew by 50% and LNG’s value rose by 24%. At the heart of these changes is strong growth in non-oil and re-export activities. Non-oil exports more than doubled between 2007 and 2011, growing 135% from OR1.29bn ($3.4bn) to OR3.03bn ($7.9bn). Re-exports expanded as well, clocking a 124% increase from OR1bn ($2.6bn) to OR2.24bn ($5.8bn) during the same period.

The sultanate’s overall trade balance has been favourable, with exports consistently exceeding the value of imports during the past five years. Moreover, the rate of growth for exports, 91%, has outpaced that of imports, 50%. The annual trade balance recorded in 2011 stood at OR8.8bn ($22.9bn). High oil and gas revenues, which Ministry of Finance data indicate grew by 70% and 26%, respectively, were an important factor contributing to a more favourable 2011 trade balance. With continued strong revenues, 2012 brought more positive news regarding the balance of trade. Both the petroleum and non-petroleum sectors posted impressive growth in the first quarter of the year. Petroleum’s contribution to nominal GDP rose by 25.7%, while the non-petroleum sector’s share grew to 12.4%, according to a statement by the CBO in August 2012.

Trade With China 

Oman and China have seen their trade links grow in recent years. The relationship is underpinned by a simple premise: China has what Oman wants, and Oman has what China wants. For Oman, China has been an important source of heavy machinery and construction equipment, both of which have been in high demand thanks to a flurry of construction activities across the country, Yao Ziazhao, the first secretary of economics and commerce at the Chinese embassy in Oman, told Muscat Daily. Chinese engineers and technicians have also been sent to the sultanate to consult on ongoing projects. For China, Oman is an important source of fuel. China received 45.6% of Oman’s outbound crude oil, by far the largest portion of the sultanate’s oil exports to a single country in 2011, according to data from the CBO. Indeed, the world’s largest country by population has accounted for 40-45% of Omani crude exports in every year except 2009, when that ratio declined and demand in other Asian countries rose. To support continued growth, Oman Trading International (OTI), the company responsible for selling Omani oil abroad, announced plans for a new office in Shanghai in February 2012, marking the firm’s second office in China. OTI is owned by the state-affiliated Oman Oil Company and Geneva-based Vitol.

Non-Oil Exports 

Oil is not Oman’s only major export to China and other trade has also been on the up. From 2010 to 2011, Oman’s non-oil exports to the Middle Kingdom increased more than 79% year-on-year, increasing from OR185.2m ($482.6m) to over OR331.8m ($864.7m), according to data from the Directorate General of Customs and former Ministry of National Economy. China’s share of Oman’s non-oil exports has risen in step, from 8.6% to 10.9% between 2009 and 2011, demonstrating the growing importance of China as an export market for non-oil sectors.

Omani re-exports to China have also seen an exponential expansion in recent years. In 2009 China accounted for 1.9% of Omani re-exports, but that number has risen to 10.4% in recent years. The value of re-exports grew correspondingly, up nearly 10-fold from OR24.9m ($64.9m) to OR234.2 ($610.3m). This growth has been supported by the sultanate’s ongoing investment in its ports infrastructure. Indeed, Oman’s ports on deepwater locations and closer proximity to international shipping routes make them more competitive than other ports in the region, giving the sultanate a natural edge for trade activity. Continued investment could lead to even better infrastructure, facilitating growing trade ties.

Trade With India 

India has long been an important trade partner of the sultanate. Underpinning this relationship are historical and cultural links between the two countries. Trade between them dates back to ancient Indian Ocean trade routes that facilitated trade with their seasonal monsoon winds. In recent years this ancient relationship has only grown closer. In January 2012 India’s Ministry of Manpower estimated that 718,252 of its nationals resided in Oman and 581,832 worked there. Muscat and New Delhi also have a growing bilateral trade relationship. The two governments entered into a series of joint ventures, including the $969m Oman India Fertiliser Company, the $2.4bn Bharat Oman Refineries project and the $464m Jindal Steel and Power Company’s Omani operations. The importance of the relationship between the two countries is evident in growing trade volumes. In the past few years, India has been Oman’s largest destination for non-oil exports after the UAE.

With a growing population and an economy to match, India is an energy-hungry country. In 2007 India imported 3.8m barrels of oil from Oman, which is less than 2% of the country’s total oil exports, according to data from the Ministry of Oil and Gas. During the intervening five years, that figure has grown dramatically. India accounted for the highest share of the Omani oil exports after China in 2011, representing some 12.4%, or 33.5m barrels. These figures represent more than eight-fold growth over the five-year period.

Gcc-India Fta 

The GCC and India have also been making progress on a planned free trade agreement (FTA). The process has been ongoing. In 2004 GCC representatives met their Indian counterparts in New Delhi to sign the framework agreement for enhancing and developing economic cooperation. Since then, two rounds of talks have been held in Riyadh in 2006 and 2008 to settle the logistics of an FTA, including tariff rules and rules of origin. The countries have already identified various sectors with high potential to benefit. A third round of negotiations is scheduled to take place in New Delhi. “Within a year, it should come through,” K K M Kutty, former chairman at the Confederation of Indian Industry, told the Times of Oman in June 2012.