Diversified economy will bring growth, resilience to Oman

Muscat: Oman’s plans for economic diversification will help bring growth to the country and make it more resilient, according to a top official at the World Bank.

Issam Abousleiman, the World Bank’s country director of the GCC countries, Middle East and North Africa, said in an exclusive interview with Times of Oman that diversification also provides more sustainable levels of growth, and multiple career opportunities for the next generation of graduates.

“Taking into consideration that oil and gas are exhaustible resources, which could be depleted or stranded in the future, and over-reliance on oil exacerbates macroeconomic volatility. Diversification will provide a sustainable source of growth and employment when oil resources are depleted,” he explained.

Abousleiman added that more countries have understood the importance of diversifying, owing to the impact the COVID-19 pandemic has had on economies that manufacture fewer or a limited number of products.

“The pandemic has shown that countries that are heavily dependent on one particular sector or resource, such as oil or tourism, for example, are vulnerable to sudden external shocks,” he added. “Extreme reliance on one commodity revenues produces large pro-cyclical swings in expenditures, resulting in painful spending cuts and a boom-bust cycle.

“This in turn will dampen growth in the non-oil sector particularly spending on much-needed public investment and human capital programmes, and strain the sustainability of public employment,” he said.

“Diversification of the economy has long been on the agenda of GCC countries. However, it takes time and persistence to introduce and implement the needed reforms. It is a way to move away from volatile oil prices, and yet it is the volatility of those prices that makes it difficult to do.
 

“When oil prices are low there is tremendous demand for more diversification, austerity and reform,” revealed Abousleiman. “During this time, diversification programmes receive an impetus. However, oil prices don’t stay low for long periods and when the oil price rises, there is increasing political pressure to abandon the tough reforms required to diversify the economy. The trick is announcing an implementable long-term plan and sticking with it even when the oil price rises.  Therefore, patience, perseverance and predictability are the main three ingredients for a successful reform programme.”

Oman’s economic expansion is a key part of Vision 2040, which aims to develop a sustainable, diversified economy that provides good standards of life and employment opportunities for all. The World Bank country director said that in expanding into tourism, agriculture and fisheries, mining, renewable energy, manufacturing, transport and logistics, the country is taking the right steps forward.

“With a stunning coastline of over 3,000 km plus attractive natural landscapes, historical monuments and a welcoming culture, Oman is well poised to capitalise on the tourism sector and its niche areas of eco-tourism and MICE (meetings, incentives, conferences and exhibitions),” he said.

“Other areas in which Oman might have a comparative advantage include logistics, given its geographic location, and food and agriculture,” said Abousleiman. “In addition, given the energy transition, Oman can move in taking advantage of the wind and the sun to expand renewable energy production that could reduce the cost of its own energy, reduce emission by helping meet its international commitment, and export excess energy as the GCC links its grid to other parts of the Middle East, Africa and beyond.

“The other area of diversification that is less talked about is fiscal diversification,” he went on to say. “This is important for Oman because the Sultanate depends on oil for more than just exports but also for revenues. Diversifying the revenue base is equally important for ensuring sustainability of ongoing programs, besides improving the efficiency and prioritisation of its spending.

“Here, the introduction of value added tax earlier this year and the move to explore additional sources of non-oil revenues are important steps in the right direction,” Abousleiman added.