Dr Yousuf Hamed Al Balushi
Muscat: Oman’s Vision 2040 calls for swift economic transformation and a holistic transition to a new phase of development. A phase that enables the country to continue to successfully adapt to a constantly changing world and build on the great achievements of the past five decades. However, for this transition to be successful at this crucial time for the country, it must be implemented in a holistic and all-encompassing approach in order to upgrade all aspects of the existing system, including but not limited to, the private sector, public sector, governance, policies, economy, education, labour force, civil society, social contract, etc.
There are many reasons that make reforms necessary and urgent for Oman today more than ever. The country is at crossroads. It’s most important revenue resource, hydrocarbons, is increasingly losing importance globally as the oil market continues to head closer to peak-demand and shift to renewable energy increases. This makes the country in dire need for diversifying its economy away from oil. Moreover, the large youth population, aspiring for increased participation in decision-making, present a double-edge sword if not managed properly and timely. There is also a mismatch between the skills taught and the skills demanded in the labour market, negatively impact employment and the country’s productivity. This article will explore some of the aspects that must be upgraded as part of the holistic approach needed.
The 2014 crash in oil prices underlined the country’s high dependency on hydrocarbons and the need for fiscal reforms to ensure economic resilience. In addition, the recent oil production increases after OPEC and Russia failed to reach an agreement and massive drop in global oil prices further highlight the urgency for fiscal reform. This reform should include: out-of-the-box fiscal and monetary policies to enable the economy to smoothly sail through external and internal shocks and maintain macroeconomic stability; a change in the budgetary process to enhance government accountability and discipline in the revenue-expenditure process; retargeting of subsidies to low income individuals instead of products; increasing capital expenditures to create new resources for the country and jobs for Omanis; and abolishing public debt. Meanwhile, absence of fiscal consolidation will lead to unsustainable growth in public debt and financing the deficit will be even more challenging, especially as oil revenues continue to drop, placing the country’s future in unchartered territory.
In the banking sector, it is the time to make the system of bank credits more transparent and geared towards promoting investment, production and exports instead of financing consumption. This requires providing affordable financing to SMEs and productive investments, which will accelerate the growth of the private sector. Financial inclusiveness must also be expanded to further support economic prosperity. Furthermore, connections between the banking sector in Oman and international banks should be strengthened as it will diversify financial services supplied to consumers and help attract foreign investment.
In the private sector, we need to improve the competitiveness of the business environment, encourage entrepreneurship and development of SMEs. The current features of the private sector in Oman is based on trading, imports and government tenders. The majority of businesses are also family business, while the share of SMEs is very limited (less than 20 per cent) compared to other advanced countries, where SMEs make an average of 90 per cent of the activities. Furthermore, there is clear signs of a performance problem within the private sector as a result of some fundamental impediments. The private sector development is a multi-sectorial challenge. Indeed, for private sector to develop effectively and maximize production, it must eliminate conflicts of interest between politicians and business. It is also essential to attract FDIs associated with capital and technology, as well as know-how to fill the gaps in the economy.
Also, there is an urgent need to tackle typical barriers facing private sector growth and recognize what determines this growth. This includes dealing with genuine problems in all production factors including capital, labour and institutions, and strengthening absorptive capacity. The culture of doing business in Oman must also be considered. The dilemma is to create the balance among all those factors. We must work to strengthen the private sector and ensure its ability to generate projects other than ones by the government; encourage the private sector to employ Omanis; and enable the sector to produce unicorns, which would generate an additional stream of revenue and jobs.
The author is an economist at Smart Investment Gateway (email: email@example.com