Bruce Palmer, Managing Partner, Curtis, Mallet-Prevost in Oman, on how diversification has propelled steady and resilient growth

Over the last few decades, Oman has been far less exposed to economic vagaries than its regional and global counterparts, principally due to its prudent economic and fiscal policies and early recognition of the need for economic diversification and strengthening of non-hydrocarbon sectors. This approach has focused on areas where the country has natural competitive advantages, such as mining, manufacturing and tourism.

The sultanate’s economic diversification strategy is devised to encourage high-quality domestic and foreign investment and provide a secure and stable investment and business climate. This has included a host of incentives such as tax rates that are amongst the lowest in the world. The underpinning of the government’s economic policy continues to be the provision of job opportunities to the nation’s growing youth population. As a corporate practitioner, it is a privilege to be able to get a ringside view of the evolution of a legal framework that can easily adapt to new business paradigms without dismantling old models.

Even as Oman ushered in a new phase of banking with the introduction of Islamic finance, the existing banking law has been adjusted and new regulations implemented to enable national and international banks to establish Islamic banking windows through which they can offer an array of sharia-compliant products and services. The Islamic banking windows will operate as full-grown Islamic banks and their funds will be ring-fenced and managed separately from the other assets of the parent banks. On the conventional banking front, strategic mergers of national banks have been encouraged to consolidate capacity and enhance efficiency as minimum capitalisations for national banks and branches of foreign banks have been increased.

A highlight of the 2014 budget will likely be the announcement of the government’s long-term privatisation strategy for promoting private sector investment in new projects and divestment in some of its 60 state-owned enterprises, which the government has indicated it may privatise over the coming decade.

A strong forerunner of the government’s intent and seriousness was the September 2013 decision to sell 19% of the government’s stake in the national telephone operator, Oman Telecommunications. Privatisation remains a top priority on the government’s agenda to bolster economic diversification.

Mining is the cornerstone of the mineral-rich sultanate’s economic diversification plan. After extensive re-evaluation of metallic and non-metallic mineral sites, the mining sector is being revamped in order to develop world-class mining infrastructure in the country. There is also a shift in focus towards adding value to extracted minerals before they are exported.

The renewed emphasis on value addition is aimed at ratcheting up industrial growth and the creation of new jobs in the market. A new mining law is also in the works, aimed at addressing issues of the previous law and incorporating value addition as a statutory prerequisite for mining companies. Such prerequisites will likely be minimal initially in order to give existing mining companies sufficient time to comply.

Small and medium-sized enterprises (SMEs) have long been regarded as the future engines of Oman’s economic growth. In line with the Sultan’s directive to support SME growth, the Public Authority for Small and Medium Enterprises Development was established recently and vested with the broad mandate to develop and promote SMEs and integrate them as critical components of economic diversification. The authority is expected to play a central role in helping SMEs navigate their way around the key obstacles identified by industry players, such as non-availability of sufficient funding for innovative business opportunities, lack of strategic marketing support and an unrealistic emphasis on hiring local workforce. In other words, SMEs call for a new business climate that the authority must guarantee in order for them to take root and power the economy. As Oman's international ratings amply demonstrate, the government is responsive in loosening structural bottlenecks and facilitating business.