The economy of the sultanate of Oman is heavily dependent on oil, which accounts for 46% of gross domestic product. But with just 15 years of proven oil reserves left, Oman is increasing its focus on natural gas and making economic diversification a priority. The government aims to reduce the oil sector’s contribution to GDP to 9% by 2020. It’s keen to attract foreign direct investment, particularly in light industry, tourism and electric power generation. It is also encouraging Omanis to shift from public to private-sector work.
Since 2015, falling oil prices have reduced government revenues, forcing spending cuts. Fiscal austerity has included reductions on subsidies, particularly on electricity and fuel. Government employee wages are under tighter control. The country also has cut spending on defense. Oman plans to increase revenue with a new value-added tax likely to take effect in 2017 or 2018. The VAT is certain to drive up consumers’ costs for goods and services.
Oxford Economics believes the combination of fiscal austerity and extended period of low oil prices will push economic growth to 2% in 2016 — down from 3.6% in 2015. The economic research group expects Oman’s growth to remain at this level for the next few years.
Business travel industry insight
Oman is one of the Middle East’s smaller travel markets. With less than 2.5 million international tourists in 2015, only Iraq and Yemen have fewer visitors. The fortunes of the tourist market may improve with the expansion of Muscat’s airport and the opening of the Oman Convention and Exhibition Center. The government has a long-term goal to attract 9 million tourists to the sultanate by 2040.
Business travelers spent just US$1 billion in Oman in 2015. That’s significantly less than the US$8 billion spent in Saudi Arabia and US$10 billion in Kuwait. Inbound business travelers accounted for a third of total spending, but their contribution is falling because oil industry workers are traveling to the country less frequently.
Travelers to Muscat have a wide choice of international hotels. Hotel chains continue to invest in the city, with Dusit, Hilton, Starwood and Wyndham among those planning new properties. Accommodation choices are more limited elsewhere, although it is possible to find one or two chain hotels in cities like Salalah, Sohar and Duqm.
Air travel is also focused on Muscat, where Oman Air is the largest airline. It flies frequently to Oman’s second city, Salalah, and internationally to 45 cities across the Middle East, South Asia and Europe. Salam Air, a low-cost airline, is set to launch in 2017 as the Omani government seeks to advance the aviation and tourism sectors.
- The government’s 2016-2020 development plan aims to reduce the economy’s dependence on oil. Omani leaders are promoting the expansion of manufacturing, transport, logistics and tourism to attract a broader range of business investment.
- Natural gas production is buoyant. New production, from sources such as BP’s Khazzan gas project, is expected to begin soon. Meanwhile, investors continue to fund exploration in search of further gas discoveries.
- The government’s investment in tourism has encouraged hotels to add capacity. Supply outpaces demand right now, meaning business travelers may find attractive deals on accommodation.
- As the Omani economy moves away from its dependence on oil, less government spending and increased taxes will weigh down economic growth.
- The introduction of VAT is likely to increase travelers’ costs, particularly for hotel stays.
- Low oil prices are dampening investment in oil exploration and production improvements.
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