Recent changes to Oman’s business and regulatory environment have been characterised by market experts as nothing short of ‘momentous’.
In a span of two years or less, the Omani government has issued a flurry of new laws of such strategic import the likes of which the nation has not witnessed in the preceding two decades. They attest to the invigorated vision and commitment of the government of His Majesty the Sultan to place the economy on a sound footing as its charts a course for national development and socioeconomic growth notwithstanding the fiscal challenges unleashed by the global oil price shock of 2014.
Indeed, the post 2014 phase has galvanised the Omani government, like virtually no other time in the past, into building a robust regulatory and legal framework designed to underpin Oman’s economic growth over the long term. At the heart of this strategy is a vision to enhance Oman’s appeal as a destination for foreign investment, as well as position the private sector to play an increasingly dominant role in, among other areas, infrastructure development, service delivery, and so on. For its part, the government aims to play the role of enabler and partner.
In the single most striking contribution to modernising the Sultanate’s business and investment environment, the government just earlier this month issued a raft of new and far-reaching laws that effectively elevate Oman into the rankings of countries with ‘business and investment friendly’ economies.
Promulgated by Royal Decree were four landmark statutes that, in the words of Ithraa — the nation’s preeminent investment promotion and export development agency — “reflect the government’s desire for the private sector to play a role in Oman’s development and creating greater job opportunities for the national workforce”.
The Royal Decrees promulgating a set of laws governing Bankruptcy, Public-Private Partnership, Privatisation and Foreign Capital Investment are a testament to the government’s efforts to create a streamlined and favourable regulatory environment for investment in all fields that serve the objectives of the Sultanate’s vision for the future and promote competitiveness of the national economy globally, Ithraa noted in a statement.
Foreign Capital Investment Law: Promulgated by Royal Decree 50/2019, this new law seeks to promote the Sultanate’s position as an investment destination capable of attracting foreign capital. The new statute also seeks to enhance the Sultanate’s competitiveness in line with international indicators through the legislative system that governs business.
Significantly, the FCI Law seeks to streamline procedures and permits necessary to start foreign investment within the Sultanate through the Investment Services Center of the Ministry of Commerce and Industry. In addition to various incentives and guarantees, the law opens up a number of new sectors, including strategic projects, for foreign investment.
Land and real estate required for any investment project may be allocated by way of a long-term lease or usufruct over the same, without being subject to the provisions of Royal Decree 5/81 regulating usufruct over the Sultanate’s land and the Land Law in accordance with the rules and provisions set out by the regulations after coordination with the relevant authorities .
Public-Private Partnership Law: Promulgated by Royal Decree 52/2019, it defines the concept of partnership as a business or public service of economic or social importance in line with the Sultanate’s strategy. Alternatively, it could be designed to develop, improve or raise the efficiency of an existing public service.
The PPP Law, as it is called, seeks to encourage the private sector to invest in infrastructure projects and public services to contribute to the diversification of national income sources. It also enshrines the establishment of a new Public Authority for Privatisation and Partnership (PAPP) as the focal point for the implementation of the provisions of the Law.
Privatisation Law: The Privatisation Law, promulgated by Royal Decree 50/2019, sets out procedures for the launch and award of privatisation project, as well as guidelines for the privatisation of government facilities (restructuring). It spells out the methodology for the disposal of revenues from privatisation initiatives. Procedures for settling the status of Omani public servants working in projects affected by privatisation or restructuring are outlined as well. The Public Authority for Privatisation and Partnership (PAPP) will oversee the implementation of this Law.
Bankruptcy Law: This long-awaited statute creates a legislative and legal framework that promotes the business environment by restructuring the procedures that enable businesses to overcome deb-related challenges. It enables distressed businesses to revive and resume their economic activity.
A key feature of the Bankruptcy Law is ‘Restructuring’, which envisions a pre-preventive composition stage in which the concerned parties cooperate with distressed businesspeople aiming to support them to re-structure their business as well as encourage investment and entrepreneurship. It also sets out provisions on bankruptcy based on the rights of the bankruptee, creditors and the public interest, and develop procedures governing this matter.
At the same time, the government — represented by the Capital Market Authority (CMA) — is finalising a new Securities Law, designed to stimulate the growth of a sound and vibrant securities market in the Sultanate.
The proposed Securities Law will serve as a separate standalone piece of legislation that will be distinct from the rest of the legal framework governing the capital market in Oman. Most importantly, it will enhance the level of confidence of all participants in the sector and bring about a structure that would be in line with the international best practices.
Importantly, the new law will authorise the rollout of a diverse range of instruments for trading and investment in the securities market. This would include derivatives such as swaps, forwards, futures, mortgage-backed securities and options, none of which are currently available for trading in Oman.
Also promising is the potential for introducing trading on commodity derivatives, currency swaps, interest rate futures, credit default swaps, CFDs and international indices etc. and so on. Introduced progressively over a period of time, these instruments will contribute to both transactional activity and volume on the securities market. The new law will also introduce Trusts as a vehicle for Collective Investment Schemes, which will allow greater flexibility in structuring and higher standards of governance to be implemented.
Additionally, the new law will legalise crowdfunding as a means for small and medium enterprises (SMEs) to raise finance for their operations and growth. As Limited Liability Companies (LLCs), many SMEs just don’t have the means to tap the capital market for their funding requirements. With this new Securities Law, the securities market will serve as platform for small businesses to crowdfund their operations.
In effect, a dedicated SME Exchange will be created and brought under the jurisdiction of the CMA. The idea is to aggregate the entire start-up ecosystem in a way that maximises the synergies between the incubators, angel investors, venture capitalists, disruptors, entrepreneurs etc. and pave the path for the nascent ideas of today to become the large, publicly listed companies of the main board in the future. CMA also intends to promote Fintech in a big way and would set up regulatory sandboxes for the innovators to experiment and evolve into main street products.
While all of the afore-mentioned initiatives will pave the way for a healthy recovery of the Omani economy going forward, a rebound has already in play over the past two-plus years in the wake of a number of groundbreaking programmes introduced in recent years.
Most notable is Tanfeedh — also known as the National Programme for Enhancing Economic Diversification. Initially unveiled in 2016, the Tanfeedh programme is a government initiative that links the strategies of vital business sectors, such as Manufacturing, Tourism, Transport & Logistics, Energy, Mining, Fisheries, Financial Services, and Labour, with each other with the aim of diversifying national income resources. A series of ‘labs’ focusing on each of these sectors have generated a substantial portfolio of projects and initiatives that are currently in various stages of implementation and operation.
Nearly 100 projects and initiatives — designed to deliver ‘quick wins’ to the Omani economy over the short term — are in various stages of implementation. These initiatives — distributed across the eight economic sectors listed above — are already opening up investment opportunities for the private sector, and driving employment growth as well. The Implementation Support and Follow-up Unit (ISFU), set up under the auspices of the Diwan of Royal Court, is tracking the speedy delivery of these projects.
Indeed, thanks to the government-led initiatives, the nominal Gross Domestic Product (GDP) of the Sultanate continues to expand at a robust pace, having burgeoned by 12 per cent during 2018 as against 7.3 per cent in the previous year, the Central Bank of Oman (CBO) announced recently.
The petroleum and nonpetroleum sectors grew in nominal terms by 37.1 per cent and 2.9 per cent, respectively, during this period. The contribution of hydrocarbon sector to nominal GDP jumped to 35.5 per cent in 2018 from 29.0 per cent during 2017 mainly due to a surge in oil prices. On the other hand, the share of nonhydrocarbon sector declined to 68.4 per cent from 74.4 per cent during this period, the apex bank stated.
The brightening economic outlook was also affirmed by the IMF, which recently noted that Oman’s policy efforts since the 2014 oil price shock have been aimed at strengthening the fiscal position, enhancing private sector-led growth and employment, and encouraging diversification. “Economic activity started to recover last year, and the overall fiscal and current account deficits improved somewhat, reflecting mainly higher oil prices,” it stated.
The report noted in particular growth in real non-oil GDP in 2018 — an uptrend that reflected “higher confidence” driven by the rebound in oil prices. “Non-hydrocarbon growth is projected to increase gradually over the medium term, reaching about 4 per cent, assuming efforts to diversify the economy continue,” it said, noting that an uptick in oil and gas production had also boosted hydrocarbon GDP growth in 2018.
Oman’s overall fiscal balance had also improved last year, according to the report. “The fiscal deficit is estimated to have declined to about 9 per cent of GDP from 13.9 per cent of GDP in 2017, reflecting higher oil revenues. However, gross government debt increased by 7 per cent of GDP last year (to 53.5 per cent of GDP),” it noted however.