The Sultanate must act to suitably capitalize on the immense opportunities expected to be spawned by the emerging integration of current and future economic powers China, India and Africa, a leading Muscat-based economist has stressed. Dr Fabio Scacciavillani (pictured), Chief Strategy Officer at Oman Investment Fund (OIF), a sovereign wealth fund of the Sultanate of Oman, underlined the importance of the Omani economy being plugged into what he described as a “powerful economic wave” that will play out over the next several decades in the wake of the expected integration of these economic giants.
“We need to catch this expected wave of integration between China, India and Africa, because theirs will be the growth of this century,” Dr Scacciavillani said. By getting hooked into the value chain that will be created as a result of this integration, the Sultanate can give strong impetus to its economic diversification objectives over the long term, he added in a presentation at the OER Business Summit on Monday.
Speaking on the theme, ‘Macroeconomic Outlook; Diversification Challenges,” the economist alluded to Oman’s burgeoning trade and economic ties with China. The vast bulk of Oman’s oil exports are currently shipped to China, with small volumes destined for markets in Asia and the Far East, he said.
“Our (economic) prospects are more linked to what’s going on in China and Asia,” Dr Scacciavillani observed. He noted in this regard China’s epic One Belt One Road initiative, envisioning a network of roads, railway lines, shipping trade routes, and other economic corridors, and so on, that will effectively create the world’s largest economic platform. The Maritime Silk Road component of the initiative connects Asia, India, Africa and Europe, with Africa set to play a pivotal place in this grand vision, he noted.
Offering his assessment of the performance of the domestic economy, Dr Scacciavillani acknowledged that the global oil price slump has “inflicted a heavy toll” on the nation’s economic prospects. As a result, average per capita income dropped from $23,000 in 2012 to $13,000 in 2016, leading to Oman’s classification as a ‘middle-income’ country in terms of per capita income, from a ‘high-income’ country prior to the crisis. Per capita incomes are projected to rise to an average of roughly $15,000 in 2020, he said.
However, prudent fiscal policy conducted in “good times” did help offset some of the worst impacts of the downturn, he pointed out. “We were well-prepared to offset the negative impact of the downward cycle in oil prices because we didn’t waste much money during the good times and spent it in a very sensible way. So it was relatively easy to borrow about $10 billion (from international markets) this year, which will more than cover the budget deficit (for 2017). This was possible despite the downgrades by major ratings agency, the latest one being Moody’s to a level that is not investment grade. In theory, based on these judgments, Oman should have paid a very high rate of interest (on its borrowings), which was not the case.”
On the expenditure front, current expenditures have been maintained at levels comparable with the good times, the economist said. Perhaps more importantly, capital investment on infrastructure has remained largely consistent, save for a few quarters of 2016.