Heavy duty: Several segments are expanding as part of ongoing diversification

For an economy in the process of diversification, the expected further growth of Oman’s industrial sector is a welcome sign. Although a significant share of the sultanate’s GDP is currently derived from the petroleum industry, Oman’s oil and gas supplies are expected to be depleted before those of most oil producers within the region. As a result, the country is energetically working to expand other sectors. Further diversification efforts are also taking place within the industrial sector. As government authorities have recognised that downstream activities are well-suited to provide jobs for local Omanis, the government is promoting the segment through a number of incentive schemes.

Figures

The industry sector recorded total revenue of an estimated OR222.7m ($580m) for the beginning of 2012, according to an April 2012 report compiled by Gulf Baadar Capital Markets (GBCM), a local broker. While this was slightly lower than expectations, GBCM noted that net profit for the sector increased substantially by almost 30% year-on-year (y-o-y) to reach an estimated OR20.16m ($52.53m) in the first quarter of 2012. This was up from around OR15.6m ($40.65m) the year prior. Figures for the sector’s quarter-by-quarter increase in net profit are even more noteworthy. GBCM records net profits rose by 42%, up from about OR15m ($39m) during the fourth quarter of 2011.

A Significant Role 

While the sector’s role in the wider economy is relatively small when compared to the oil and gas sectors, industrial activities still make a significant contribution to the GDP. Industrial activities accounted for almost 15% of Oman’s overall GDP in the early part of 2012, contributing more than OR1.09bn ($2.84bn) to the economy. This represents an increase of around 12% when compared to the sector’s OR971m ($2.53bn) contribution in the same period of 2011.

A number of different government bodies are involved with industrial activities in Oman. The Ministry of Commerce and Industry (MoCI), for example, works as a regulator over the sector at a higher level and is involved in efforts to harmonise Omani and GCC regulations. In addition to its regulation responsibilities, the MoCI recommends policies related to the sector and works to promote Oman’s activities abroad. The body also provides detailed statistical reports and serves as a one-stop-shop for completing regulatory requirements.

The Oman Chamber of Commerce and Industry (OCCI) aims to promote private-sector growth in the sultanate, with a particular emphasis on the industrial sector. Set up in 1973, the OCCI represents the interests of industry and provides guidance—including legal advice—for local and oversees investors operating in Oman.

In operation since the early 1990s, the Public Establishment for Industrial Estates (PEIE) also plays an important role in the sector. The PEIE develops and manages a number of industrial properties, including land at Sohar, Rusayl and Nizwa, as well as the Al Mazunah Free Zone and the Knowledge Oasis Muscat, a technology park. In addition, the organisation assists companies in developing buildings, assembling sites, determining infrastructure requirements and promoting a company’s products. The PEIE helps firms understand what incentives are applicable and facilitates the process of securing necessary permits.

Big Players

One of the largest companies in the petrochemicals segment is the Oman Refineries and Petroleum Industries Company (ORPIC). The firm’s industrial complex of four plants is split between Sohar and Muscat, though a 266-km pipeline connects the two sites. Two of ORPIC’s facilities are refineries, which operate with a combined production capacity of 222,000 barrels of crude per day. ORPIC’s aromatics plant is able to produce as much as 818,000 tonnes of paraxylene and 198,000 of benzene per year. Annual production capacity at the company’s polypropylene facility is 350,000 tonnes of polypropylene pellets.

Three of the firm’s facilities are located in the Sohar Industrial Estate (SIE) surrounding the Port of Sohar north of Muscat. ORPIC is joined by a number of other petrochemicals firms at its Sohar location, including the Sohar International Urea & Chemical Industries’ fertiliser factory, a formaldehyde manufacturing facility owned by Oman Formaldehyde Chemical Company’s and a methanol plant.

Areas Of New Importance

That fertiliser factory could point to a particularly important segment, according to Ahmed Ali Nasser Al Awfi, the CEO of Oman India Fertiliser Company. “The production of fertiliser is directly related to the diversification of national income and growth of downstream industry in Oman,” he told OBG. “The industry also expands the knowledge base of Omani nationals since the production of fertiliser is a new industry to the sultanate.”

The sultanate’s downstream hydrocarbons and petrochemicals segments are expected to also expand significantly with the completion of several projects. In June 2012 the Oman Oil Company and Abu Dhabi’s International Petroleum Investment Company (IPIC) formed a 50:50 joint venture firm, which will own and operate a planned oil refinery in the town of Duqm. According to IPIC, the refinery is set to have a production capacity of 230,000 barrels per day and is to be completed by 2017. A second phase will focus on developing a petrochemical complex. Such facilities are meeting an important domestic need, said Morten Albriktsen, the CEO of Oiltanking Odfjell Terminals & Co.: “There must be greater focus on internal development of the national downstream oil and gas industry. This is the essence of the government’s in-country value scheme.”

Another key development in petrochemicals is the expansion of OCTAL Pharmaceutical’s manufacturing facilities for polyethylene terephthalate (PET) resin, a lightweight plastic used to package a range of consumer products including food and beverages. Located in the Salalah Free Zone, OCTAL’s 10 ha of land is already the site of two manufacturing plants. However, a $200m extension – which includes two facilities – should raise production capacity to 927,000 tonnes of PET-bottle-grade resin per year, according to 2011 OCTAL estimates. Construction on the project was completed in July 2012, and much of the new capacity will be exported to markets in Europe, Asia, and North and South America.

Metal Developments

Oman also has a growing metals cluster, which includes Vale’s steel and pellet plant. An agreement between the Brazilian mines and metals conglomerate and the Sohar Industrial Port Company, which manages operations at the Port of Sohar, was signed in May 2008. Located on the SIE, production at the facility began in April of 2011. According to Vale, the plant is capable of producing 4.5m tonnes of direct-reduction pellets each year. The construction of a second line of operations at the facility was completed in late 2011.

Indian steel conglomerate Jindal Shadeed Iron and Steel (JSIS) is another large part of Oman’s metals cluster. JSIS commissioned a steel plant in the SIE near the end of 2010 with a production capacity of 1.5m tonnes per annum (tpa). However, the firm has already launched several expansion projects, which include increasing production capacity to 2m tpa as well as constructing a pelletising plant, according to JSIS.

The firm’s expansion plans are well-suited for the current economic environment. JSIS has noted that total steel consumption in the GCC is forecasted to rise by more than 65% by 2015, and the MENA steel industry is registering the third fastest rate of growth, following the markets of China and India.

Demand for steel in the GCC region is expected to increase with significant construction projects in Qatar, Saudi Arabia, the UAE and Kuwait. Furthermore, the MENA region’s first and second fastest growing steel markets are Saudi Arabia and the UAE, respectively.

Perhaps most significantly, Oman remains a net importer of steel, meaning there is substantial demand for steel both worldwide and within the sultanate, according to JSIS figures. A favourable GDP forecast of 4.2% growth over the next five years for Oman, in addition to substantial local infrastructure projects, should ensure that the steel industry remains robust.

Further Strength 

The planned addition of two ferro-chrome smelters should further strengthen Oman’s metals cluster. In May 2012 Freezone Sohar and Gulf Mining Materials Company (GMM), a division of the locally headquartered Gulf Mining Group, signed a leasing contract to build a ferro-chrome smelter.

Construction on the facility is expected to be finished near the end of 2013 or the beginning of 2014, and GMM has set a provisional date to complete an expansion project on the planned smelter by 2015. While chrome ore for the new facility will predominately be extracted from GMM-owned mines in Samayil, material will also be sourced from a number of other mining companies operating in Oman.

GMM is an entirely Omani-owned company and is one of the sultanate’s largest chrome ore mining and exporting firms. Set up in 2005, GMM currently focuses primarily on the mining, extracting and processing of chrome, laterite and marble.

Construction of another ferro-chrome smelter at Freezone Sohar should be completed over the coming years. In June 2012 Freezone Sohar signed a leasing agreement with Metkore Alloys and Industries, a metal alloys manufacturing and trading firm based in India.

As of mid-2012, the company had already chosen to retain a number of consultants to complete technical and environmental surveys in preparation for its Sohar-based project, and the firm was engaged in negotiations with an Omani company over forming a joint venture for the smelter. Construction of the facility is estimated to be completed by 2014.

Rolling Out Aluminium

Oman’s aluminium industry is also showing signs of further growth. Oman Aluminium Rolling Company (OARC) is currently working to build an aluminium rolling mill plant in Sohar, which will manufacture flat sheet and aluminium foil. With operations scheduled to begin during the third quarter of 2013, the plant is expected to have an initial production capacity of 140,000 tpa. OARC’s new facility will chiefly supply markets in Europe as well as the MENA region. The Swiss conglomerate ABB was awarded a $9m contract in early 2012 to develop, implement and carry out all maintenance activities at the facility.

OARC will be the downstream client of Sohar Aluminium, a primary aluminium smelter and a relatively recent entrant into the region’s metals market. The firm is owned by three shareholders: the Oman Oil Company (40%), Abu Dhabi National Energy Company, which is known as TAQA (40%), and Canada-based Rio Tinto Alcan (20%). Located at the SIE, Sohar Aluminium operates a 1.2-km-long single potline smelter that produces around 360,000 tonnes of aluminium annually at purities of p1020 and above, according to recent statistics reported by Sohar Aluminium.

The company also operates a 1000-MW, combined-cycle power plant and maintains its own port facility at the Port of Sohar. With a capacity of 75,000 tonnes, the port is used for importing raw materials and shipping out primary aluminium. According to company data, a variety of storage silos, ranging in size from 5000 tonnes up to 60,000 tonnes, as well as a bulk materials unloader complement the port.

Sohar Aluminium broke ground in August 2012 for its new Treatment of Aluminium in Crucible/Skimmer (TAC/Skimmer) stations, which work to take out alkali and alkaline earth metals from aluminium through aluminium fluoride injections. The TAC/Skimmer stations will be used in the process of delivering aluminium to OARC for further processing. Allied Global Projects, a Sohar-headquartered firm, has been selected to act as both the civil and structural contractor for the project.

Mining And Extraction 

The sultanate’s mining sector has been experiencing widespread and substantial growth. According to recent figures provided by the MoCI, gypsum output rose by more than 90% in 2011, from around 650,000 tonnes in 2010 to 1.25m tonnes the following year. At over 92%, production of laterite was slightly higher, climbing from 375,000 tonnes in 2010 to more than 720,000 in 2011.

While not quite as dramatic, marble output increased by 34% over the period, reaching more than 931,000 tonnes in 2011. The MoCI also reported that copper production rose some 28% between 2010 and 2011, topping out at around 111,400 tonnes, and limestone output likewise jumped from roughly 4.6m tonnes in 2010 to just under 5m tonnes in 2011 – an increase of approximately 8% y-o-y.

While general mining output has increased significantly, the segment has also expanded into new areas; for example, commercial mining of the mineral manganese began in 2011. Over 41,000 tonnes of manganese were mined out of domestic quarries in 2011, according to recent figures reported by the MoCI.

Such ventures may be the reserve of large firms, but small and medium-sized enterprises (SMEs) also have a role to play. “While we would like to see the development of SMEs in mining, it is not very feasible in terms of extraction as it is very capital-intensive nature,” said Abdullah Ahmed Sulaiman Al Hady, the chairman of Gulf Mining Materials. “However, there could be a great trickle down market for SMEs in areas such as equipment leasing and maintenance.”

Pharmaceuticals 

There are two pharmaceuticals companies operating in Oman: National Pharmaceutical Industries (NPI) and Oman Pharmaceutical Products (OPP). Once a government-owned company through the Ministry of Health (MoH), NPI’s origins date back to the 1990s, though the firm did not start manufacturing products until 2002. NPI became privatised in 2008 when the MoH sold all of its shares; OPP is owned by Omani conglomerate the Al Bahja Group and its headquarters are located in Salalah.

In line with the rising prevalence of non-communicable lifestyle diseases, demand for pharmaceutical products in Oman is growing. Diabetic medications followed by cardiac-related medicines and antibiotics are the three most demanded pharmaceutical products in the sultanate. Roughly 50% of all medicines are purchased by the MoH, with the remainder sold to private pharmacies, clinics and hospitals, according to NPI data.

High Drug Imports 

According to NPI, most Omani pharmaceutical products are generics, and around 85% of all medicines currently purchased in the country are imported. Much of these imports come from Europe and the United States, although there are some GCC imports sold in the country as well.

The large amount of Western brand name medicines in the market poses challenges for Oman’s manufacturers as European and American products are generally seen as superior. However, Omani generic products are sold at a markdown from brand name products, and the introduction of new medicines provides NPI and OPP with additional manufacturing opportunities.

While a majority of pharmaceuticals sold in the sultanate are imported, Omani firms also export a significant percentage of their products. In fact, NPI recently reported 75% of its sales derive from exports. These products are sold exclusively to the MENA region, with Saudi Arabia the firm’s largest market. A significant development underway in the pharmaceutical segment is the expansion of NPI’s manufacturing facilities.

The firm recently doubled the size of its property and is in the process of preparing the land prior to constructing a new research unit. The centre should be completed in 2014 and will focus on areas including antibiotics, vaccines, amino suppressants and antibiotics. NPI estimates the project will cost OR5m ($13m).

Oman Drydock Company 

One of Oman’s emerging industrial centres is the central-eastern port town of Duqm, with the Oman Drydock Company (ODC) playing a key role in the area’s development. Set up in 2006, the ship repair yard and dry dock is owned by the government and operated and managed by Korea’s Daewoo Shipbuilding and Marine Engineering Company. The repair facilities began full operations in June 2012.

ODC has built two docks, each measuring 14.5 metres in height. The larger dock is 410 metres by 95 metres with a deadweight tonnage (dwt) capacity of 600,000. Slightly smaller, the second dry dock measures 410 metres by 80 metres, and offers 500,000 of dwt capacity. The overall yard covers over 1.27m sq metres of land and around 1.14m sq metres of sea.

ODC’s five quays stretch a combined 2800 metres in length, with the longest measuring 800 metres, according to ODC figures. An additional 80,000-dwt-capacity floating dock is in the planning stages.

The newly opened ship repair yard is one of the most well equipped in the region and is set up to handle some of the world’s largest tankers, including the ultra-large crude carriers. Among its facilities, ODC has built a sludge and slop treatment plant, as well as a number of workshops providing electric, pipe-fitting, machining, painting, and hull processing services.

Powering Up

As ODC and the wider Duqm industrial area continue to expand, upcoming power projects are planned in order to keep pace with the town’s development. A temporary diesel power station has been built with a generation capacity of 67 MW.

While initial power from the plant will be generated at 11 KV, there are plans to increase this 33 KV through the use of three step-up transformers. Power is distributed in Duqm via an underground cable network and seven substations have been constructed – one of which currently serves the port’s energy needs. In addition, a large, 500 MW to 1000 MW capacity power plant is in the planning stages, according to the Special Economic Zone Authority at Duqm (SEZAD), the manager, regulator and developer of economic activities at Duqm. The gas-fired facility will be fuelled through a pipeline from the Saih Nihayda gas field.

R&D

Efforts are underway to increase research and development throughout the industry sector, and the Industrial Innovation Centre (IIC), a subsidiary of the PEIE, is leading the way for the country. Set up in early 2010, the IIC promotes innovation by connecting researchers with industry leaders through its Industrial Innovation Assistance Programme (IIAP). The centre approaches industrial companies and works in tandem with these firms to generate research questions. These questions are then made available to the IIC’s research network: a pool of qualified academics, many of whom are already engaged in research. Researchers working on IIC projects are paid by the centre, while the implementation costs are covered by whichever company requested the research. According to the IIC, the centre usually pays half of a project’s total cost, with industry paying for the rest. Reaction to the scheme has been positive, and as of September 2012 the centre was working with around 25 firms on a total of 27 projects. The IIC expects to be working on about 40 projects by the end of its five-year tenure. The IIC’s efforts appear to be paying off. The centre’s 2011 evaluation report noted that of the 12 approved IIAP projects at that point, 50% had generated intellectual property and 17% led to patent creation. The sultanate’s ranking on the Global Innovation Index also moved up 10 spots in 2012. Co-published by INSEAD and the World Intellectual Property Organisation, the report ranked Oman as the world’s 47th most innovative country out of 141, up from 57th in 2011.

Role Of SMEs

SMEs can play a significant role in helping a country become more innovative and diversified in its industrial output. In fact, the 2012 GII report noted that during the late 2000s, SMEs in a range of countries worldwide tended to collaborate on innovation with higher education institutes and government research centres more than large-sized firms. “SMEs and other spinoff industries will be crucial for the building of ancillary service industries catering to larger heavy industry,” N A Ansari, the director and head of plant at JSIS, told OBG. Recognising the importance of SMEs and their role in many sectors, Oman has taken steps to strengthen these smaller firms within the economy. The MoCI issued a circular in mid-2012 which altered the definition of small and medium-sized companies. Designed, in part, to increase the flow of funding to SMEs, the new definition is based on annual sales and employment numbers. According to the document, medium-sized enterprises are made up of 10 to 99 employees and gross OR250,000 ($651,500) to OR1.5m ($3.9m) in annual sales. Small-sized companies are defined as having five to nine workers, with annual sales of OR25,000 ($65,150) to OR250,000 ($651,500). Micro enterprises, a new category of business in Oman, contain no more than four employees and gross under OR25,000 ($65,150), according to the 2012 circular. Previous definitions were based just on employment.

Finding Labour

Industry leaders reported that while demand is strong, the availability of skilled labour presents challenges for the sector. Steps are being taken, however, by both the government and industry to increase the amount of training.

For example the PEIE is currently setting up an institution which will educate new employees working in industry-related jobs. Scheduled to become operational sometime between December 2012 and March 2013, the new institute will focus its training in four core areas: technical skills, work ethic, English and employee rights. An emphasis on group work will be integrated into the programme. Enrolment will be compulsory for Omanis and optional for foreign nationals.

The new centre will also provide training to previous students who have been working for several years. These students will eventually earn a vocational diploma in preparation for future supervisory positions. Funding for the institute will be shared between the government and industry, and while the exact figures have not been established, each side will likely shoulder around half of the costs, according to the IIC.

Private industry has also taken initiative to improve the quality of the sector’s labour force. For example, JSIS, which recently identified the shortage of skilled workers in Oman as its foremost challenge to growth, provides in-house training for its workers, with instruction focusing on upgrading technical skills. OCTAL also provides a training programme, as well as a range of review courses for its employees. Sohar Aluminium provides vocational training as well.

In addition to its current workforce programmes, the firm recently began setting up a new two-year programme aimed to provide technical and entrepreneurial training to women from the local community. The new centre will be a partnership between Sohar Aluminium and the Public Authority for Craft Industries (PACI), a government entity launched in 2003 to advance craft industries in the sultanate through training and qualification. According to a memorandum of understanding signed between the two organisations in July 2012, instructors and study materials for the programme will be supplied by PACI, and Sohar Aluminium will provide the funding. Sohar Aluminium has reported that the programme will focus on training women from families with lower incomes.

Outlook

As Oman’s industry sector continues to grow and diversify, a number of additional challenges will need to be worked through. JSIS has pointed out, for example, that there is a general lack of supporting industries in the sultanate, requiring JSIS to look abroad for some machinery parts. However, despite these challenges, industry leaders remain positive in terms of the sector’s development. Indeed, large expansion projects are under way, and government efforts to facilitate innovation and increase the availability of skilled labour should help propel the sector over coming years.