MUSCAT, MARCH 1 – Judging by the initial fallout — a sizable drop in the price of Oman crude, deferrals of high-profile industry forums, curtailments in inbound and outbound airline and hotel bookings, and the scramble for face masks and sanitisers — the Sultanate is clearly not immune to the impacts of the novel coronavirus that has unleashed mayhem in global financial markets over the past week.
But the potential impacts for Oman vary from sector to sector and could be marginal at best if an effective vaccine against COVID-19 — the deadly virus behind the global epidemic — is discovered sooner than later. However, the outlook is less heartening for Oman if the disease becomes a wider and protracted pandemic globally.
The Observer talks to well-known Muscat-based market expert, Alkesh Joshi (pictured) – Partner, EY Oman, on the broader implications of COVID-19’s global spread for different sectors of the Omani economy, notably Oil & Gas, travel and tourism, stock market, investment and retail segments.
Plummeting crude prices
Oman crude slumped below $50 per barrel for the first time this year in trend with other international benchmarks as global oil markets were buffeted by concerns over slowing demand particularly from China, as well as a worsening economic slowdown internationally.
The Oman Crude Oil Futures Contract (OQD) declined to $49.11 per barrel in trading on the Dubai Mercantile Exchange (DME) on Friday, the lowest in nearly three years. The oil price benchmark has lost almost 30 per cent of its value from this year’s peak of $70.45 a barrel, achieved on January 6, 2020.
According to Joshi, the decline is unlikely to have a sizable impact on the Omani economy if the fall in prices is short-term. “Omani crude has averaged around $63 per barrel for the first two months of this year, which is well above the assumed price of $58 on which the 2020 State Budget is based. So there is enough of a cushion to absorb this decline provided, of course, this downtrend is brief. If prices remain relatively low for a longer period however, then it would give cause for concern for the health of Oman’s overall fiscals.”
The steep tumble in oil prices, the expert noted, comes at a somewhat tricky time for Oman’s fiscal authorities.
“Right now, we are in the midst of a very delicate balancing act between kick-starting the economy, on the one hand, while managing the fiscal deficit, on the other – an effort designed to grow the economy and create more jobs. But a lower oil price means that it will be difficult for the government to contain the fiscal deficit. Consequently, any new borrowings will add to the interest cost burden and constrain the government’s ability to invest in infrastructure or other productive programmes.”
Much hinges on how the global crisis surrounding the spread of the epidemic pans out, says the economist. “The next two weeks or so will signal which way the crisis is headed, particularly with regard to how the world reacts to the proliferation of new infections and measures they may start imposing to restrict the spread of the virus within their domains. So we will have to wait and see how this plays out!”
MSM less vulnerable
While the Muscat Securities Market (MSM) did take a knock last week, the decline was nowhere near the levels witnessed by financial markets elsewhere around the world. The benchmark MSM Index fell by around 1.45 per cent last week, a far cry from the dramatic reductions posted by, for example, the Dow Jones (12 per cent), British stocks (11 per cent), Germany (12 per cent), Japan (10 per cent) and South Korea (8 per cent).
“As the Muscat bourse is less dependent on international investors, the panic selling witnessed in international financial markets was not replicated here locally. Thus, while we are seeing a decline on the MSM, it is not commensurate with the sharp falls seen internationally. Going forward, given the holding capital of local investors, I don’t foresee the MSM Index nose-diving further.”
Alkesh sees some calm returning to jittery international markets once the realisation sinks in that the COVID-19 crisis is unlike, say, the 2008 global financial crisis or the 2014 oil price crash when international crude prices tumbled to around $20 barrel.
“This is a health-related challenge that is having a ripple effect on other sectors of the global economy, but economies around the world are intrinsically doing relatively okay. But, again, we have to wait and see if analysts continue to paint a gloomy scenario for the overall global economy.”
Churn in travel and tourism
As with other destinations and countries around the world, Oman’s travel, tourism and hospitality industry is also expected to be roiled by the COVID-19 crisis, according to the expert. Business travel is being curtailed, cancellations of hotel and travel bookings are rife, and several high-profile conferences and exhibitions put off till after summer.
But the latest crisis is a double whammy for the industry as it coincides with the start of the lean tourism season in Oman, effectively compounding the impact for the sector, he noted.
Impacts for retail
Shopping malls and retail establishments are not only being challenged by the COVID-19 crisis but also from the proliferation of online channels and e-commerce platforms that are encroaching the retail space in the Sultanate, says Alkesh.
Hearteningly, shoppers and the general public are still out and about visiting malls and shopping establishments undeterred by fears about the spread of the virus. “People are taking precautions – it’s not unusual to see some of them wearing face masks, but they are mindful of the fact that the number of infections in Oman is very small and there is no reason for them to stop going out provided they take the usual precautions.”