Covering some 309,000 sq km and home to landscapes as varied as rugged mountains, long coastlines, rocky deserts, fertile oases and land watered by monsoon rains, Oman is a large and diverse country. Its 4.3m inhabitants also hail from a number of different ethnic and linguistic groups, tribes and nations, with this variety also evident in the sultanate’s cultural and social traditions. In recognition of this rich multiplicity, the country has long been divided into regions, with the government and the sultan keen to achieve a much more equitable and sustainable economic balance between them.
Vision 2020
Oman’s current long-term development plan includes provisions targeting this goal, with its successor, Vision 2040, likely to continue on this trajectory. Vision 2020 calls for the delegation of authority to regional administrations and agencies, along with the distribution of investment expenditure according to specific economic and social goals. The plan also calls for the provision of primary health care and basic education services to all Omanis, regardless of where they live, with all set to benefit from rising GDP and social and economic development.
Moreover, the plan seeks to support local development and self-reliance “in order to narrow the gaps in living standards between the various regions and income groups”. Regional development is also part of the government’s strategy to encourage diversification within the economy. With over a third of its GDP coming from the oil and gas sector, Oman is acutely aware of the need to diversify the economy through the development of non-oil sectors such as manufacturing, tourism, transport and agriculture to ensure long-term, sustainable growth. Thus, projects that aim to attract other sectors to various regions are considered high priority (see analysis).
Regions & Governorates
First outlined in 1995, Vision 2020’s goals have undoubtedly had a major impact on the sultanate, from the Musandam exclave in the north to the Yemeni border in the south. Oman is divided into 11 muhafazah, or governorates. This follows a major reorganisation in October 2011, which changed the previous arrangement of four muhafazah and five regions.
The muhafazah are further divided into wilayets, or provinces, which total 61. Each muhafazah is headed by a governor, with all but two of these officials appointed by the government and reporting to the Ministry of the Interior. The two exceptions are the governors of Muscat and Dhofar, who sit in the Cabinet as ministers of state. This reflects the key importance of these two muhafazah in the sultanate’s economy and history. The 11 muhafazah include Muscat, Dhofar, Musandam, Al Buraimi, Dakhiliyah, Al Batinah North, Al Batinah South, Al Sharqiyah North, Al Sharqiyah South, Dhahirah North and Al Wusta.
Geography
These administrative divisions also correspond to major geographical borders. The sultanate is generally split into a mountainous north and south, separated by a long stretch of rocky desert. In the north, the Musandam exclave lies on the Strait of Hormuz and is separated from the rest of the country by a stretch of UAE territory.
Known as Ruus Al Jibal, this is an area of low mountains, fjords and sparse population. Further south, where Oman begins again, is the much more populated region of Al Batinah, also home to the Al Hajar Mountains which then feed into the Muscat-Muttrah coastal area. Natural harbours are a regional asset, with most of the land otherwise barren and characterised by a coast of steep cliffs until Ras Al Hadd.
From there, a long tract of land extends, past the offshore Masirah Island and on through tableland that extends as far south as the frontiers of Dhofar. In this central region, the port of Duqm is located. Dhofar includes a range of high mountains, marking the sultanate’s borders with Saudi Arabia and Yemen. This muhafazah is also affected once a year by the tail end of the Indian monsoon. Known as the khareef season, mid-June to mid-September sees the area receive much rainfall and a sudden blooming of vegetation temporarily greens the normally dry landscape.
Different Levels
Recent statistics from the National Centre for Statistics and Information (NCSI) show that in 2015 the population overall reached 4.2m, of which 2.3m are Omani nationals. Breaking this down by muhafazah, Muscat has by far the largest concentration, with 1.3m inhabitants, while Al Wusta has the smallest at 41,409. Other muhafazah with large populations include Al Batinah North (676,459), Dakhiliyah (414,160), Dhofar (385,031) and Al Batinah South (373,060). Muscat also has the fastest-growing population at 0.6% per annum, while it is also the only muhafazah where expatriates are the majority. North and South Al Batinah both recorded a 0.5% growth rate, with Omanis being the clear majority, while Dhofar is roughly split evenly between Omanis and expatriates. In comparison, Al Wusta recorded the slowest population growth at 0.1%.
Labour Pool
The bulk of the population is concentrated in the northern governorates, which also have the highest unemployment rates, with urban areas generally having larger numbers of job seekers and rural areas tending to assimilate local residents into agriculture-related jobs. NCSI figures from April 2015 showed a nationwide unemployment rate for 2014 of 11.75%, with 72% of those who are unemployed living in cities and 33.2% of job seekers living in North and South Al Batinah. The Muscat muhafazah accounted for 15.7% of the unemployed population. However, the overall highest unemployment rate was in Dhofar, with 18.9% unemployment.
Regional policy aims to address this issue by creating employment opportunities in areas where large numbers of jobs are needed. There is growing pressure on this front as the population itself grows and more people enter the labour market. NCSI figures suggest that the number of active job seekers rose by an annualised 2.6% over the period from 2003 to 2010, the last period for which figures were available.
At the same time, urbanisation has changed much of Omani society in the last few decades, particularly since the 1970s, when Sultan Qaboos bin Said Al Said embarked on a major development and modernisation programme, referred to in the country as the Renaissance. The rate of urbanisation is currently estimated at around 2.23%, with the urban population reaching 73.4% in 2011. While unemployment may not be technically high in rural areas, urbanisation has depleted rural communities of many young people, leading to pressure on local services and narrowing local opportunities. Countering this trend is a major part of regional policy.
Reshaping The North
With North and South Al Batinah facing the greatest pressure to create more jobs for both their growing populations and Omanis relocating from elsewhere in the sultanate, the government’s decision to launch a major expansion and national supply chain reorganisation at the Port of Sohar has been a key strategy.
Sohar is the capital of Al Batinah North. Its deep-water port, which can handle vessels with capacity up to 20,000 twenty-foot equivalent units (TEUs), was established in 2002, while in 2010 the 4500-ha Sohar Free Zone was added. The combined entity is managed by the Sohar Industrial Port Company (SIPC), a 50:50 joint venture between the sultanate and the Port of Rotterdam. “Sohar Port and Free Zone have been an enormous boost for Al Batinah,” Edwin Lammers, SIPC’s executive commercial manager, told OBG. “The government came here in order to develop this area, and now we are the main employer.”
The port has three major clusters – logistics, petrochemicals and metals – with an agricultural bulk terminal also being added, the land for which was approved in September 2015. A new $250m Oman Sugar Refinery Company plant and an Oman Flour Mills-operated food grain handling facility were also recently announced for the port, which, as of August 2015 had a container handling capacity of some 1m TEUs, with this rising to 1.5m TEUs in the short term with the completion of Terminal C, building up to 5m-6m TEUs with the construction of Terminal D.
The port’s oil and gas facilities are also being expanded, with Oman Oil Refineries and Petroleum Industries (Orpic) planning to hike capacity from 120,000 barrels per day (bpd) to 180,000 bpd under its multibillion-dollar Sohar Refinery Improvement Project. This initiative involves increasing the output of fuels, naphtha and propylene, and when finally completed, will see Orpic’s fuels production rise by 4.2m tonnes per year to 13m tonnes in 2016. Associated aromatics and polypropylene plants also make Sohar a significant player in the local plastics market.
The free zone is home to a wide variety of industries. Sohar Aluminium, Vale and India’s Jindal Shadeed have investments in the metals cluster. The construction of the largest rare earth plant outside China is also under way, after a $60bn deal with a UK-led consortium. The port also handles some 70,000 imported vehicles annually and acts as a hub for Oman’s OTE and Suhail Bahwan Automotive’s Nissan, Hyundai and BMW distribution grids. Additionally, Sohar is the base for Saud Bahwan Group’s pre-delivery services.
Inclusive Growth
The city is trying to encourage small and medium-sized enterprises (SMEs) to locate to the free zone. These firms have a major role to play in the success of regional policy, as SMEs form the basis of much organic economic growth, providing jobs and developing the private sector. SIPC has been working with the Oman Chamber of Commerce to develop SME participation in the port and free zone.
The port sees its hinterland as stretching beyond Al Batinah to encompass the rest of Oman, the wider Gulf and the Indian Ocean rim. This strategy is paying off. The Port of Sohar is already a destination for major global shipping companies, such as Hanjin, and in August 2015 the port held a ceremony to welcome the 8600-TEU M.V. Hanjin Hamburg. The arrival of the container vessel marked the addition of another global line to its roster of direct calls. All non-cruise liner traffic has also recently been shifted to Sohar from Port Sultan Qaboos (PSQ) in Muscat.
New Links
A key plan related to this is a national railway project that represents the sultanate’s share of a pan-GCC initiative to link the region. Currently, SIPC is working hard to ensure that the port and the free zone are closely linked to the proposed rail network, with on-dock facilities to enable seamless transportation from ship to train. The trains will then access Segment 1 of the project, which is being implemented by Oman Rail. The first part of this segment will run 127 km from Sohar to the Oman-UAE border at Al Buraimi. This stretch is particularly important, as when completed it will connect the port to further stretches of railway running through the UAE and eventually as far as Kuwait. A contract for the construction of Segment 1 is due to be awarded by the end of 2015, with this including track and stations, freight yards and maintenance areas.
Oman Rail has also stated that it intends to create high in-country value from the project, with some 15,000 Omanis employed nationwide in the long term and up to 40,000 labourers working on the railway during intensive construction. The company intends to use local contractors, materials and workers, boosting local businesses and incomes, fulfilling the regional development goals of Vision 2020. In terms of employment, Oman Rail has suggested an Omanisation target of 20%, which is a fifth of all jobs.
The sultanate’s Omanisation policy focuses on increasing the number of nationals employed, reducing dependence on expatriate workers and encouraging knowledge transfer. Particular sectors and industries are given percentage targets, with free zones subject to less stringent regulations. This is only one of the many incentives for firms to locate their business in the free zones, including 10-year exemptions from corporate tax, a one-stop shop service, 0% personal income tax and Customs duties on imported materials, and the ability to benefit from existing free trade agreements between Oman, the US and Singapore. The incentives package increases with the more remote free trade zones, with Al Mazunah, for example, close to the Yemeni border, offering a 30-year tax holiday on profits (see analysis).
Easier Transport
In addition to the future rail link, Sohar’s roads are also being improved, helping to build the free zone’s logistics cluster. In February 2015 Dubai’s Centre Point Logistics took a nearly 50,000-sq-metre plot in the zone, capitalising on the three-hour road trip from Sohar to Dubai – considerably less than the time it takes to go by sea via the Strait of Hormuz. Another shortcut will be available in the form of enhanced road connections to Saudi Arabia. Currently, road traffic must pass via the UAE, which means a 2000-km journey to the nearest major Saudi city. A new 160-km Omani roadway to the Saudi frontier opened in October 2015, which links to a 566-km stretch on the Saudi side of the border, cutting the distance by more than half. The road, which starts at Tanam near Ibri wilayet, will also boost Sohar’s status as a vehicle import hub, with automobiles being driven to the lucrative Saudi market, rather than being transported by ship.
The government is also investing in Sohar in the form of other major infrastructure works. The sultanate’s largest water desalination project is being rolled out in Al Batinah Region, with one plant on the coast at Barka and the other at Sohar. The first will have capacity of 281,000 cu metres per day (cmd), while the latter will handle 250,000 cmd. Seven international firms were competing for the tender, bidding in partnership with 13 Omani-based ventures. Commercial operation of both is due to begin in April 2018.
On The Peninsula
Further north, the Musandam exclave is also experiencing a major boost in investments. Khasab is the capital of this muhafazah, lying about 570 km north of Muscat on the Gulf side of the peninsula. Connected by road to the UAE, it also has fast ferry services to PSQ. These transport links are being boosted by a new airport, which was still at the planning stage in October 2015. Four sites have been advanced, including Khasab, which has a small airstrip, but is largely constrained by surrounding mountains. Bukha, Lima and Al Harf are also possible locations for the airport. The award for a consultancy package was expected to be made in early 2016.
Musandam Power Company (MPC), a subsidiary of Oman Oil, has also signed agreements for project finance, power purchase and natural gas sales for a 120-MW independent power plant in the exclave. Commissioning of this major power project is expected by year-end 2016. Both this and the airport will undoubtedly encourage investment in what is likely to be the exclave’s main economic driver for the coming period, tourism. Musandam has spectacular fjords along its rocky coast and a rugged, mountainous interior, ideal for adventure holidays. Sailing and cruises on specially fitted dhows, or traditional sailing vessels, are another major draw. In August 2015 news came that a high-end resort on the peninsula is being planned by Soneva Group, consisting of 40 luxury villas. Work is expected to begin in 2017.
The Centrepiece
Moving south from Sohar and Muscat, the long central stretch of Oman is one of its most sparsely populated areas. Oil and gas, both on-and offshore, is its most lucrative industry, although this has provided relatively little for the development of the governorates located there. However, all that is changing rapidly thanks to the development of the Duqm Special Economic Zone (SEZ). A joint venture between the government of Oman and the Consortium Antwerp of Belgium, the SEZ Authority Duqm (SEZAD) manages, regulates and develops all economic activities in Duqm. This giant project will see an entirely new port city being built from scratch on the coast of Al Wusta, around 550 km south of Muscat.
At the heart of the zone is the Port of Duqm, with marine work on this all but complete in August 2015. This includes an 18-metre-deep inner basin, 2.25 km of commercial quay, and a 1-km government quay for naval ships and fast ferries. With the commercial side now in operation, work on the topside is the focus, with Customs houses, management buildings and transport infrastructure being laid out. Duqm also has ship repair and dry dock facilities in operation, with the capacity to repair 10 ships simultaneously.
Oman Drydock Company (ODC) was established in September 2006 by the government of the sultanate, and it is operated by Daewoo Shipbuilding and Marine Engineering Company of Korea. Projects such as the port and dry dock avail more opportunities for SMEs to take part in the development of Duqm.
“To develop Duqm, we don’t need pioneers, we just need to create the right business ecosystem for SMEs to come and participate,” Sheikh Khalil Al Salmi, deputy CEO of ODC, told OBG.
Groundwork on a major petrochemicals and refinery complex at the SEZ started in June 2015. The Oman Oil Company and the International Petroleum Investment Company are behind this facility, with the oil refinery aiming for a capacity of 230,000 bpd. Adjacent aromatics, polypropylene and styrene plants are planned, along with a mixed feedstock cracker. The SEZ’s industrial zone is also moving forwards, with work under way in preparing the land and installing basic infrastructure. Drainage projects were being constructed as of August 2015, along with an upgrade of major roads.
Indeed, transport connectivity on land is a major focus for Duqm, which lies far from major population centres, either to the north or south. A 300-km upgrade to the road to Muscat is also under construction, and a new airport has been installed. The latter, which currently receives four flights a week from the capital, should see work on terminal buildings and facilities start by the first quarter of 2016.
Planning Ahead
Residential facilities at Duqm have also expanded in recent months thanks to SEZAD. Three hotels are now in operation, namely, the Crowne Plaza, Park Inn and City Hotel, with these offering villas and apartments, in addition to standard rooms, with the long-stay accommodation of workers in mind. Other employees are being housed at workers’ villages, with Renaissance Services building a camp to International Labour Organisation standards for 10,000 people, with this set to expand further in 2015. New facilities, such as restaurants, entertainment areas, offices and more serviced apartments are also planned on a 50-ha site in the SEZ.
The development of the social, educational and health care networks in Duqm is especially important given the need to attract employees away from Muscat and Salalah. The local population is also sparse and in many cases, migratory, with little experience of organised labour and construction, where the main demand for workers lies. This challenge dovetails with ongoing efforts to improve education and training. “The Duqm port development is the future,” Lawrence Alva, CEO of the private sector National Training Institute, told OBG. “There is a need to provide vocational training there to the Omani population in order to help them get jobs in the project.”
Monsoon Season
The need for vocational training exists in other areas of the country as well, and regional development requires more Omanis in the workplace. Further south, in Dhofar muhafazah, is another major port and free zone development at Salalah, the capital of the governorate, which also seeks to bring more local development with it. The Salalah Free Zone (SFZ) divides into two sections, Adhan and Raysut. The latter has become one of the world’s leading trans-shipment hubs, leveraging a strong position for serving vessels on East African, South Asian and Gulf routes, with connectivity via the Red Sea and Suez Canal to Europe and the Americas, and via the Indian Ocean to East Asia.
The port is operated and managed by Salalah Port Services, a joint venture in which APM Terminals has a 30% share and the Omani government 20%, with the remainder held by private and publicly listed investors. The port has a 12-berth cargo terminal and seven-berth container terminal. Salalah also has a 20-year master plan for its development over the 2011-30 period, the third expansion phase of which was also unveiled in mid-2015. Under this programme, three additional container quays are planned, along with a government berth and a dedicated cruise terminal. Meanwhile, by mid-August 2015 some 94% of the port’s new liquid jetty had been completed, with this set to serve both as an import-export facility and a centre for the nearby petrochemicals zone.
While cargo showed decline in the first quarter of 2015 – down 24% to 627,000 TEUs year-on-year – conflict in neighbouring Yemen has also increased interest in Salalah as a gateway to the East. Indeed, logistics is another sector coming alive at Salalah, with the initial moves in the formation of a new company, Salalah Port and Airport Logistics Services, announced in July 2015. This would integrate Salalah’s maritime hub with the new airport.
The latter opened in June 2015, with a new 65,000-sq-metre passenger terminal unveiled, capable of handling 2m passengers per annum. The airport’s 4-km runway can accommodate A380s, and was already busy for the 2015 khareef season, when Salalah becomes a major destination for Gulf tourists in particular. Indeed, NCSI data shows that after the airport opened, tourist arrivals in Salalah were up 44.4% year-on-year for June to early August 2014.
As at Duqm and Sohar, Salalah is also working closely with Oman Rail to ensure good future connectivity with the rail network, which will also eventually extend to the port. The SFZ, meanwhile, received some OR1.5bn ($3.9bn) in investments in early 2015 through 23 projects that cover some 2.6m sq metres. With an Omanisation rate of 28%, higher than the legally required level, the SFZ also directly employed some 1485 people and is contributing to Omanisation targets and local employment.
Outlook
The giant port and free zone projects currently under way in the sultanate bode well for the development of their regional hinterlands, as well as for the country as a whole. Currently, with low oil prices affecting government revenues, the continued progress of these projects is likely to increasingly meet financing challenges. This illustrates the importance of private sector involvement.
For economic development to have an impact on the per capita incomes of ordinary Omanis, it will be necessary for more locals to obtain the education and training required to take up specialised jobs within the zones. Engendering a sense of entrepreneurship among citizens who may traditionally have looked to the public sector for work is another means of improving employment outcomes, and thus comprises part of regional policy. With major investments beginning to bear fruit in north, south and central Oman, the years ahead are likely to see the sultanate’s regions become busier and more prosperous.
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