Wayzata World Factbook 1996

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U.S. DEPARTMENT OF STATE OMAN: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICES BUREAU OF ECONOMIC AND BUSINESS AFFAIRS OMAN Key Economic Indicators (Millions of U.S. dollars unless otherwise noted) 1992 1993 1994 /1 Income, Production and Employment: Real GDP (1988 prices) 8,563.1 N/A N/A Real GDP Growth (pct.) -9.0 N/A N/A GDP (at current prices) 11,496.7 11,491.2 N/A By Sector: Petroleum 4,733.3 4,193.8 2,082.9 Natural Gas 142.0 157.6 75.7 Mining 16.1 8.8 9.9 Oil Refining 53.3 99.9 43.2 Electricity/Water 175.5 149.2 85.5 Construction 471.4 489.1 182.8 Wholesale/Retail Trade 1,601.3 1,728.4 892.1 Government Services 2,008.5 2,181.1 982.0 Other Sectors 2,418.5 2,625.0 1,536.9 Less-Imputed Bank Charges -247.5 -254.8 -162.8 Real Per Capita GDP (1988 base) 6,044.7 5,943.5 N/A Labor Force (000s) 530.0 521.3 N/A Unemployment Rate (pct.) N/A N/A N/A Money and Prices: (annual percentage growth) Money Supply (M2) 3,312.7 3,420.3 N/A Weighted Average Interest Rate on Deposits 4.2 2.9 N/A Personal Saving Rate N/A N/A N/A Consumer Price Inflation 1.4 1.9 N/A Consumer Price Index (1990 base) 105.6 106.6 N/A Exchange Rate 1 rial equals USD 2.60 Balance of Payments and Trade: Total Exports (FOB) 5,449.6 5,298.0 2,056.3 4/ Exports to U.S. (non-oil) 26.4 42.1 N/A Total Imports (CIF) 3,900.0 4,112.9 1,596.7 4/ Imports from U.S. 256.9 331.8 N/A Aid from U.S. 30.0 1.6 0.2 Aid from Other Countries 72.7 N/A N/A External Public Debt N/A N/A N/A Debt Service Payments N/A N/A N/A Gold and FOREX Reserves /2 2,334.5 1,813.4 N/A Trade Balance 1,549.6 1,185.1 N/A Trade Balance with U.S. /3 230.5 289.7 N/A N/A--Not available. 1/ Unless otherwise indicated, all 1994 figures are for the first six months only. 2/ Gold and foreign currency are Central Bank reserves. State general reserve fund figures are not publicly available. 3/ The trade balance with the U.S. does not include Omani oil purchased by the U.S. on the spot market. No oil is purchased directly from Oman by U.S. companies. 4/ Figures through May. Sources: Annual Report-1993, Central Bank of Oman; monthly statistical bulletins-main economic and social indicators, Ministry of Development. 1. General Policy Framework The Sultanate of Oman is a small nation of just over 2.0 million people (537,000 expatriates) living in the arid mountains and desert plain of the southeastern Arabian Peninsula. Oil production is the foundation of the economy. Oman is a small oil producer and its economy moves in lockstep with the world price of oil. When the price of oil falls, Oman's oil revenues and government spending swiftly follow. Although Oman has a per capita GDP of just under USD 6,000, a significant proportion of its population lives in rural poverty. Oman and the United States have had diplomatic relations for 150 years and commercial relations for even longer. Sources of government income are relatively few in Oman. A corporate income tax has long been collected from companies which are not 100 percent Omani-owned. There is a corporate income tax applicable to Omani-owned firms which has not been implemented. In 1993, however, the government proposed a graduated system of taxes which applies to Omani-owned companies. There is no personal income tax nor are there property taxes. The most significant sources of income besides oil revenues are the 5 to 20 percent tariffs levied on imports, revenues from utilities, and revenues from the 100 percent tariff on tobacco, liquor and pork. Recently, the government imposed substantial increases in the fees for labor cards and fines were proposed for companies which do not reach specified levels of "Omanization" by the end of 1996. There is also a tax on companies which employ expatriates which is used for vocational training for Omanis. The 1993 budget deficit stood at 28 percent of net government revenues due to weak oil prices and resulting slowdown in revenues combined with only a 1.0 percent cut in spending. The government financed the shortfall by drawing down reserves and issuing development bonds, which were first sold in August 1991. At least 34 percent of Oman's budget is spent on defense and security, 35 percent on the activities of the civil ministries and 22 percent on capital spending projects. Oman promotes private investment through a variety of soft loans (through three specialized development banks) and subsidies, mostly to industrial and agricultural ventures. The government also grants five year tax holidays to newly-established industries, with the possibility of an additional five year holiday. Incentive programs focus on creating Omani investments. Access by foreigners to the Omani economy is generally through Omani agents or partners, although restrictions on asset ownership are decreasing. Fellow nationals of the Gulf Cooperation Council (GCC) states can now invest in Oman. Oman and Bahrain are exchanging listings on their respective stock exchanges. In addition, a new investment mutual fund has been established allowing non-GCC nationals to buy Omani shares, at least indirectly through the mutual fund. Oman's economy is too small to require a complicated monetary policy. The Central Bank of Oman directly regulates the flow of currency into the economy. The most important instruments which the bank uses are reserve requirements, loan to deposit ratios, treasury bills, rediscount policies, currency swaps and interest rate ceilings on deposits and loans. Such tools are used to regulate the commercial banks, provide foreign exchange and raise revenue, not as a means to control the money supply. Oman has no legal provision for using government bonds to regulate the money supply. The large amount of money sent home by expatriate workers in the country and by foreign companies in Oman helps ease monetary pressures. 2. Exchange Rate Policies The rial is pegged to the U.S. dollar at a value of one rial to USD 2.60. Oman last devalued the rial in 1986. 3. Structural Policies Oman operates a free-market economy, but the government is the most important economic actor, both in terms of employment and as a purchaser of goods and services. Contracts to provide goods and services to the government, including the two largest purchasers, the National Oil Company and the Defense Ministry, are on the basis of open tenders overseen by a tender board. Private sector purchases of goods and services are made free from government involvement, although for most private firms, the government is the main client. Oman has fairly rigid health and safety and environmental standards (mostly British origin), but these are enforced inconsistently. Wholly Omani-owned companies now face taxes on profits, but at a low rate, giving them a clear advantage over companies with substantial foreign ownership. Firms which are 100 percent foreign-owned (international banks or other services) are taxed at the highest rates. For firms which are less than 51 percent Omani-owned, the tax schedule is higher than for firms with 51 percent or more Omani ownership. A recent development in Oman is an increasing reliance on privatization. Companies currently owned by the government are being privatized partially or completely. In addition, new major projects are being designed with a significant private sector component. 4. Debt Management Policies Oman's sovereign debt is estimated at USD 2.9 billion. So far, the debt is easily managed and is owed to a consortium of international banks. The consortium has no difficulty in finding buyers of this debt. There are no International Monetary Fund or World Bank adjustment programs and there is no rescheduling of official or commercial government debt. Oman gives little publicity to the foreign aid that it donates. In 1993, modest aid packages went to Bosnia and Somalia. 5. Significant Barriers to U.S. Exports A license is required for all imports to Oman. Special licenses are required to import pharmaceuticals, liquor and defense equipment. The licenses for general merchandise are issued to the sole agents of individual products in order to protect the exclusivity of the relationship. Once entered into, the agency agreements are difficult to break. This may cause problems for exporters who enter into agency agreements without fully judging the qualifications of the agent. For instance, some local agents will not have strengths in all the markets that a U.S. firm may want to tap. Because the agreements are hard to break, a firm dissatisfied with its agent may be forced to endure a prolonged dissolution of the agency relationship or withdraw from the market completely. There has, however, been one recent change affecting agency agreements. Individuals are now allowed to bring in goods through the ports or airports without paying the agent's commission. This, however, is a policy more designed to promote activity at the ports and airports than an attempt to change fundamentally the agency requirements. Service barriers consist of simple prohibitions on entering the market. For example, entry by new firms in the areas of banking, accountancy, law and insurance is not permitted. Oman uses a mix of standards and specifications systems. Generally, GCC standards are adopted and used. However, because of the long history of trade relations with Great Britain, British standards have also been adopted for many items. Oman is a member of the International Standards Organization and applies standards recommended by that organization. U.S. firms sometimes have trouble meeting dual-language labelling requirements or, because of long shipping periods, complying with shelf-life requirements. With few exceptions, companies in Oman must be majority Omani-owned, and foreign investment is allowed only through joint stock companies or joint ventures. In order to obtain a waiver for more than 49 percent foreign ownership, a company must petition the Minister of Commerce and Industry. Even when this privilege is granted, most foreign companies in Oman find that their ownership is limited to 65 percent. For foreigners willing to invest in high-priority industries, such as food processing, the government will provide subsidies and will waive or reduce the usual requirements for majority Omani ownership. Use of foreign labor is permitted, but the government demands that companies "Omanize" their work forces as quickly as possible. The government has recently set minimum "Omanization" levels for many sectors of the economy which must be achieved by the end of 1996. Those companies failing to meet those levels will have to pay a fine equal to half the amount of the salaries being paid to the expatriates who exceed the numbers permitted. Oman continues to promote "buy Oman" laws. This is a slow process as very few locally made goods meeting international standards are available. The tender board evaluates the bids of Omani companies for products and services at 10 percent less than the actual bid price. In addition, the extremely short lead times make it difficult to notify U.S. firms of trade and investment possibilities which, in turn, makes it difficult for those firms to obtain a local agent and prepare tender documents in the alloted time. Oman's customs procedures are complex, and there are complaints of unequal enforcement and sudden changes in the enforcement of regulations. Processing of shipments in and out of the port can add significantly to the amount of time that it takes to get goods to the market or inputs to a project. 6. Export Subsidies Policies Oman's policies on development of light industry, fisheries, and agriculture are geared to making those sectors competitive internationally. As noted above, investors in those areas receive a full range of tax exemptions, utility discounts, soft loans and, in some cases, tariff protection. The government has also set up an export guarantee program which both subsidizes the cost of export loans and guarantees Omani exporters payment for exported products. Oman is not yet a member of the General Agreement on Tariffs and Trade (GATT) but is considering joining. 7. Protection of U.S. Intellectual Property Oman has a trademark law which the government enforces actively. Official registration of trademarks appear in most issues of the Official Gazette. Such application for trademark protection, however, depends on whether the company has a local agent. There is no patent or copyright protection, although draft laws on each are circulating through the Omani government. Oman is not a member of any major international intellectual property protection conventions. However, Oman has shown an interest in other views and concerns on intellectual property rights (IPR) issues. A U.S. intellectual property rights (IPR) delegation visited Oman in May 1992 and, in early 1994, a World Intellectual Property Organization (WIPO) team advised the Oman on its draft Copyright Law. In the past, there have been one or two cases of U.S. firms refusing to do business with Omani companies because of the lack of IPR protection. The local audio and video cassette markets are comprised almost exclusively of pirated copies. Pirated versions of computer software are also available. Nevertheless, local agents of foreign companies seek to limit pirating when it cuts into their business marketing legitimate products. In terms of computer software, major companies and government agencies buy only legitimate products. 8. Worker Rights a. The Right of Association Omani labor law does not presently address the formation of labor unions. Although Oman's labor law does not expressly grant workers the right to strike, in practice, a few strikes have occurred. In 1994 Oman joined the International Labor Organization and received a visiting ILO delegation in the fall of 1994. Legislation amending the labor law is currently under review by the government which may liberalize regulations with respect to the right of association which includes the right to strike. b. The Right to Organize and Bargain Collectively There are no provisions for collective bargaining for wages and working conditions in Oman. The 1973 labor law (as amended) imposes a statutory obligation on employers with over 50 employees to propose the creation of a representative body of worker and management representatives and to relay to the Ministry of Social Affairs and Labor the proposed constitution for the body. Wages are set by employers within guidelines set by the Ministry. The labor law is a comprehensive document defining conditions of employment for both Omanis and foreign workers, who constitute 50 percent of the work force. Work rules must be approved by the Ministry and posted conspicuously in the workplace. Any employee, Omani or expatriate, may file a grievance with the Labor Welfare Board. The Board operates impartially and generally gives workers the benefit of the doubt in grievance hearings. Disputes that the Board cannot resolve go to the Minister of Social Affairs and Labor for decision. c. Prohibition of Forced or Compulsory Labor Forced or compulsory labor is prohibited by law. d. Minimum Age of Employment of Children Under the law, children, defined as those under the age of 13, are prohibited from working. Juveniles, defined as those over 13 years and under 16 years of age, are prohibited from performing evening or night work or strenuous labor. Juveniles are also forbidden to work overtime or on weekends or holidays without Ministry permission. Education is not compulsory, but the government encourages school attendance. More than 90 percent of eligible school age children enter primary school. e. Acceptable Conditions of Work The labor law allows the government to set minimum wage guidelines. These guidelines do not cover domestic servants, farmers, government employees, or workers in small businesses, categories with many foreign workers. The minimum wage is sufficient to provide an Omani worker in the capital area with a decent living with something left over for rural relatives. The same applies to expatriate manual laborers or clerks who, likewise, send money home. The private sector workweek is 40 to 45 hours (less for Muslims during Ramadan). The workweek is five days in the public sector and generally five and one-half days in the private sector. Extent of U.S. Investment in Selected Industries.--U.S. Direct Investment Position Abroad on an Historical Cost Basis--1993 (Millions of U.S. dollars) Category Amount Petroleum (1) Total Manufacturing 0 Food & Kindred Products 0 Chemicals and Allied Products 0 Metals, Primary & Fabricated 0 Machinery, except Electrical 0 Electric & Electronic Equipment 0 Transportation Equipment 0 Other Manufacturing 0 Wholesale Trade 0 Banking (1) Finance/Insurance/Real Estate 3 Services 4 Other Industries 0 TOTAL ALL INDUSTRIES 123 (1) Suppressed to avoid disclosing data of individual companies Source: U.S. Department of Commerce, Bureau of Economic Analysis (###)