Thursday, March 28, 2024 | Ramadan 17, 1445 H
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EDITOR IN CHIEF- ABDULLAH BIN SALIM AL SHUEILI

Economic impact of family businesses

Bader Al Kiyumi
Bader Al Kiyumi
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Family firms are an integral part of Oman’s economy and have contributed significantly to the GDP of the country which sustains economic growth. Family business is defined as a business in which two or more members of a family are involved and the majority of ownership and control lies within the family. Family business is one of the oldest forms of business organisation.


Family ownership is often associated with a double role for the family as that of owners and managers of the firm. In economic terms, families make firm-specific investments in human capital, which makes them reluctant to give up control. This, and the fact that typically a higher share of owner’s wealth is invested in the firm, creates a long-term commitment to the survival of the company and results in family firms being more risk-averse than other firms.


The business families established by parents and their grandparents under extreme circumstances are passed on to the next generation till their companies attain a certain level of popularity.


However, some companies faced prospects to become extinct after the third generation. The business families in Oman represent roughly around 90 per cent of the total companies and their contribution to the national economy however is still very much limited.


The private companies in Oman have achieved significant success during the last four decades. However, we are looking at the bright side to see more expansion to avoid any disastrous results that affect them, particularly companies which are transferred from the founder to future generations.


This invariably makes me think about the transformation into joint stock companies through their inclusion in the financial market as a necessity. Primarily this will avoid conflicts like the law of averages on age and inheritance issues as most of them desire to have prime positions to head the company.


The financial crisis which affected the region since 2014 revealed that private companies solely depend on government support through tenders and supplies to the government sector.


Unfortunately, Sultanate’s economy depended more on international companies’ more than local ones since we do not have many companies who can achieve what is expected.


For example, most of the companies which work to develop the real estates are global and the recent signing of a Memorandum of Understanding with Damac Company to develop the Sultan Qaboos Port in Muttrah to transform it to tourist spot is one of many examples.


We need to have more firms to merge and form major conglomerates or companies. They can benefit from the many facilities offered by Muscat Securities Market (MSM) or from different establishments. They can obtain large loans from finance companies because banks give large loans to the joint stock companies rather than for family business.


As I write this article, I am trying to get accurate figures from the concerned authorities with regard to capital of family business and how much is its contribution to the national economy. I think we need more studies on how we can establish companies and on how we can handle big infrastructure projects.


BADER AL KIYUMI


baderalkiyumi@hotmail.com


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