Interview: Mark Geilenkirchen, David Gledhill and Reggy Vermeulen
What more can be done to assist the growth of the transport and logistics sector?
MARK GEILENKIRCHEN: Oman has been investing significantly in the transport and logistics sector for years, and combined with the development of some new trends in the industry, we have seen a few great years for the sector in Oman. While many ports around the world have been struggling with volumes – given the state of the global economy, the slowdown in China and slower oil markets, among other things – we have actually seen growth in Oman in direct shipments and trans-shipments. This is a reversal of a previous trend of declining trans-shipments. Furthermore, the sultanate’s investments in flagship projects, such as the Liwa Plastics Industries Complex in Sohar, will provide engines for growth for additional downstream activities. Captive cargo is obviously a big boon for port operators, so working to boost the downstream and manufacturing sectors in the country is key.
Furthermore, we are hoping that Oman is able to successfully leverage its position and relationship with Iran to grow the domestic logistics sector. Apart from the direct trading relationship, Iran also offers a major access corridor to Central Asia. Lastly, Oman needs to continue to attract direct shipping lines to the country, as well as to develop the smaller feeder services that serve the country’s ports and connect them with those in the region. A good strategy will be to continue leveraging the country’s position outside the Strait of Hormuz, which gives shipping lines the option to completely avoid entering the Gulf. This is one of Oman’s strong points.
DAVID GLEDHILL: More than anything, Oman needs to focus on making it easier to do business in the country. Oman is currently 66th in the World Bank’s “Doing Business” rankings, but it needs to get into the top 10 if the country truly wants to become a logistics hub. We need to make it easy to bring goods to Oman, process them, add value and re-export them. This also means providing world-class services at the ports in terms of efficiency and productivity. Oman has invested significantly in this area over the past few years, and we are at productivity levels that rival other regional ports. Not only will such investments continue to cement the existing market share, but they will also help attract new markets to the country’s ports, including the world’s megaships.
We also need to leverage our location. In the case of Salalah, this means our proximity to Yemen. Given the current political instability in that country, Salalah is fast becoming a major gateway to the Yemeni market, but to fully capitalise on this we need a change of mindset. This comes down to things as simple as understanding what transit cargo is and easing customs regulations around that cargo. The political will is there, but it is often not sufficiently cascaded down through the civil service. As a result, there are often misunderstandings and complications. Unfortunately, there are still significant barriers to trade, which undermine the country’s efforts when we are competing with the likes of Dubai.
REGGY VERMEULEN: Significant steps have already been taken in this regard. On a general level this has included the alignment of the strategies of different logistics entities in Oman. Those entities have also avoided competition amongst themselves and worked towards greater collaboration and cooperation instead. This is illustrated best by the creation of the Oman Global Logistics Group (OGLG), which brings all of the government stakes in various logistics entities under one roof and will hopefully improve synergies in the sector.
All of these efforts increase Oman’s position as a logistics hub. There is immense competition throughout the GCC, with most of the competing ports located inside the Gulf. Oman needs to leverage its position outside of the Gulf and use this as its unique selling point. It is also essential that the country carries on investing in infrastructure and continues to make doing business easier by streamlining the process and facilitating investment in the country and its port areas.
To what extent will Oman’s growing non-oil export base be sufficient to sustain the transport and logistics sector in the years to come?
GLEDHILL: I think that any good logistics strategy has to be based around cargo. Consider the economies that have boomed over the course of the past 50 years; they are not only based around logistics but also manufacturing. I think there is a really big opportunity for Oman to grow its manufacturing base given its proximity to cheap labour and raw materials. To achieve that, you need to focus on making it easier to do business. This includes rethinking the labour laws. Either Omanis need to be willing to do jobs that they are not currently willing to do, or it needs to be easier to recruit foreign labour.
Looking ahead, for us to be successful, we cannot just depend on trans-shipments, we also have to increase the amount of imports and exports that we handle. To this end, we are working alongside the Salalah Free Zone to develop more import and export industries. This sort of collaboration will be further bolstered by the Omani government’s decision to create the OGLG.
The ability of the country’s ports and economic zones to work well together and have a common direction is extremely important for the development of the logistics strategy in Oman. Now that the rail project is indefinitely delayed, we must ensure that the ports are effectively linked with each other via feeder services, as well as with the country’s industrial areas.
VERMEULEN: This is the million-dollar question. Oman must decide what its growth strategy will be for the logistics sector. On the one hand, the country’s ports can be used to support the growth of the domestic industry and manufacturing sectors. On the other hand, they can also be used primarily to cement Oman’s position as a logistics hub in the regional and international arena. However, it is clear to me that Oman should leverage its port facilities to boost internal growth and to help spark new investment in domestic manufacturing and industry. This is essential, especially considering the country’s employment targets and Omanisation requirements; manufacturing and industry can be employment engines for this country.
In this regard, we see a lot of potential in Duqm’s automotive market, including in manufacturing, assembly and logistics-related operations. Therefore, part of making Oman attractive for new industrial investment is of course ensuring that the country has the appropriate infrastructure to support the growth of these industries. Accordingly, we are currently investing in a roll-on/roll-off terminal in Duqm to be able to attract investments specifically to this subsector.
GEILENKIRCHEN: Low oil prices and the slowdown in China have of course hit the domestic manufacturing sector, which has also undermined exports. Apart from trying to keep the engine oiled here at the port, this also means we are focusing significantly on improving logistics, making the supply chains more efficient and minimising costs as much as possible.
We also see this as an important time to look towards diversification, and we have some new projects that are coming on-line in the near future that will move in this direction. The big question is how to bring companies to Sohar, and how to keep them there. The answer is by ensuring cooperation between the port and its tenants, building solid logistical networks, establishing a clear plan for the future and investing in infrastructure.
How will the Bayan single-window clearance system help make doing business in Oman easier?
VERMEULEN: Bayan has been a positive development in terms of the ease of doing business, but Oman should continue to innovate. It is all about services, and we need to keep in mind that we are competing with many other countries in the region. Therefore, we need to consider the provision and cost of utilities, the need for solid logistics systems and sound infrastructure, and the need for efficient decision-making. What an investor wants more than anything is predictability.
Beyond this, Oman needs to continue to institute reforms and changes with its eye on encouraging development and investments in certain sectors that have already been identified.
Consider the mining sector, which has significant potential for investment. Recently, Oman lowered the weight limits for trucks on its roads, which has had a serious impact on operators, especially with the recent changes to fuel subsidies. So the question is, how do we offset this? We should be looking at how we can make it easier for mining companies.
One concept that has been explored is road trains – basically, a single massive engine pulling multiple trailers behind it – which has been hugely beneficial to the mining industries in Australia and New Zealand. But even more important is the further development of the rail network, which would improve the logistics of minerals and reduce road congestion.
Furthermore, we should be looking at the development of infrastructure, such as jetties, in parts of the country with significant potential for mining investment. By using a public-private partnership funding model, the need for government finances could be lowered, while the attractiveness of these areas to investors is still improved.
GEILENKIRCHEN: Logistics is very simple: in the end it is all about communication, whether that is with the new Bayan system or by other means. Anything that works to improve connectedness and strengthen collaboration will help the sector in the end. Where we can play a role is by connecting tenants with one another to their benefit – for example, connecting a tenant that needs warehousing space with an investor that has a warehousing project.
Apart from the Bayan system, there are various other strategies the government is using, such as the introduction of the InvestEasy platform, to which we are connected. If these efforts continue to evolve in the right direction – and there is nothing that indicates that they will not – we will see further improvements to speed and efficiency across the sector and the economy.
Something else that should be considered is the cost of doing business. Currently, given the state of the its finances, the government is considering removing electricity and water subsidies across the board. As a country, we need to look at costs for our manufacturers and ask ourselves if these outlays will still be competitive if the subsidies are removed.
In a regional context, we have to ensure that we do not price ourselves out of the market by moving too quickly. Therefore, any measures that increase the cost of doing business should be taken with consideration of what our neighbours are doing. We must constantly examine our prices, infrastructure, labour and efficiencies vis-a-vis our competitors. We should routinely ask ourselves what further incentives are required to ensure that Oman remains competitive and continues to attract new investment.
GLEDHILL: The Bayan system is a good step in the right direction, but the programme needs to be developed further and to be made quicker and more efficient. It must also take on a true “one-stop shop” approach, in that it should be connected to all the relevant government departments. In relation to this, to support the growth of certain sectors in Oman, we need to ensure that our infrastructure and systems continue to improve. This equates to investments in new equipment, adequate planning and concrete strategies.
Lastly, if we really want to continue to attract investment to the country and improve the ease of doing business for investors, then our free zones actually need to be free zones. If you look at the path taken by places like Singapore and Hong Kong, they based their success on very liberal policies in terms of governmental intervention. Oman benefits from its geographical location and impressive political stability, so if it can capitalise on these two strengths and also have a more liberal regime for doing business, we could see fantastic growth.
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