The government is planning to adopt a new strategy to reduce its dependence on oil income by half in a bid to balance its financial books and give the economy a shot in the arm.
The five-year plan, ending 2020, has been designed to harness the full resources of the Sultanate, from farming, fishing, mining, manufacturing to tourism starting from this year.
The plan will put in motion over 500 policies, including the previous stagnated programmes, to diversify income of the Sultanate. The decision has been based on the experience of the last two years, with low oil prices blowing holes in the government’s finances.
Up to December 2015, the contribution of oil made up for 44 per cent of the Gross Domestic Product (GDP). By 2020, oil production’s contribution to GDP will go down to just 22 per cent.
The government’s investments would grow by an average of 30 per cent per year by 2020. State-owned companies, such as the Oman Investment Fund (OIF), Muscat National Development and Investment Company (Asaas), Oman Oil Company and the pivotal role of the State General Reserves Fund (SGRF) would increase public-private partnerships in project establishments by 50 per cent.
As the government is finally set to commit to its economic plans, the Sultanate would ease off the crippling investments in oil production. It would have no pressure increasing output and risk rapid depletion of crude oil’s reserves.
The current production of 990,000 barrels per day would be adequate for growth throughout the period of the Five-Year Plan. It would also eliminate a one-dimension economy of injecting billions of rials a year just to increase production by a few thousand barrels a day.
Before the end of the current five-year plan, Oman will be positioning itself as a leading regional marketing institution for gas distribution. Thanks to Iran’s pact with the Sultanate, the government will have direct access to 30 per cent of the Middle East’s total gas production.
The abundance of gas availability in the country will fit the glove of investment in the hand of foreign projects to fuel manufacturing industries located in the steel, copper, aluminium, power generation sectors and for water desalination plants.
But the crown jewel is the abundance of local manpower. Oman is a very young nation with over 60 per cent of the population still under the age of 30. The youthful workforce will expand investment horizons and help respond to evolving needs as demanded by foreign companies.
It will address the employment prospects of graduates, who currently heavily depend on public jobs. The new economic regime will be in a better position to comfortably create jobs in the spinoff of the OMR66 billion expenditure planned in the next five years.
The main objectives of the massive expenditure will also eliminate squandered resources and improve productivity in the current stagnating areas of the economy. Much attention will be given to free enterprise in the private sector. The gesture has already attracted a lot of interests, including car manufacturing giants, multinational mining industries and property management companies. But the bold and impressive plans are not without challenges.
The government would need to strictly adhere to its new financial policies of sticking to its main objectives. However, there are already solid signs of commitment with the reduction of energy subsidies and the imminent introduction of the value added tax (VAT) this year.
The commitment of expenditure savings starts this year, with the already implemented subsidies cut of 64 per cent, development spending having been slashed by 18 per cent, oil and gas expenditure cut of 14 per cent, defence and security by 8 per cent in 2016.
All these cuts are now considered non-essential expenditure that has taken away much needed funds from the private enterprising in the past. The cuts will release over OMR2.5 billion this year and channel investment spending to support sectors that were previously deprived of investments. If carefully implemented, the new five-year plan will have every chance to reinforce the Omani economy in a new era of diversification.