How Oman is developing a modern economy to match its long history as a trading nation

One of the most important books on Oman is "Travels in Arabia: Travels in Oman" by James Raymond Wellsted. It covers the history and the origins of the Sultanate. The author visited the country between 1835 and 1836 and conducted the political and social conditions in the country at the time.

Full independence from Britain came in 1920, and this was confirmed under the sultan's sovereignty. Said bin Taimur, the 13th sultan, took power in Oman in 1932 and continued to rule until his son Qaboos bin Said took over in 1970.

Contemporary renaissance

The contemporary renaissance in Oman began when Sultan Qaboos bin Said took power in July 1970. Since that date, urbanisation and economic advancement have become the two main themes of governance.

According to the National Centre for Statistics, Oman's population passed 5 million for the first time in history in March. These people – 58% of whom are Omani citizens with 42% expatriates from elsewhere – live across a vast and diverse landscape of about 310,000 square kilometres, bordering Saudi Arabia, the United Arab Emirates and Yemen.

These figures show Oman is one of the Gulf countries with a higher proportion of domestic nationals than expatriates, as is the case in Saudi Arabia. That is important to policymakers, with the state highlighting the importance of human development and increasing the contribution of Omani workers to the labour market.

For the past half-century, Oman has prioritised its institutional and national infrastructure as well as its human development capabilities as it accelerates its development, building a modern economy to complement its long history and geo-strategic potential.

The Omani economy can't be compared to those of Gulf countries such as Saudi Arabia, the UAE, Qatar and Kuwait, as oil resources remain relatively limited, keeping national revenues down.

Oil production and national budget

Oil production was estimated at 1.06 million barrels per day in February. It also produced natural gas, around 104.5 million cubic metres per day in the same month.

The Omani government is conservative with its estimates of public finance revenues for 2023, setting an official average oil price used in its budget calculations at $55 per barrel, giving oil a total of $13.8bn out of total national revenue of $26.1bn, or 10.1 billion Omani rials.

Gas revenues were estimated at $3.6bn. Thus, oil and gas revenues make up $17.4bn, or 66.7% of budget revenues.

If we consider the conservative price of a barrel of oil in the budget, there's the possibility of improving oil revenues this year due to higher prices in the oil market, thus an expected budget deficit may be avoided, where the volume of spending was estimated at $29.6bn, or 11.4 billion rials.

Reforms and speeding up privitisation

The country has a sovereign wealth fund managed by the Oman Investment Authority, with assets valued at about $41.5bn. The fund's money is invested in 40 countries, and its returns were estimated at 10% of the value of its assets at the end of 2021, helping the improvement in sovereign revenues.

Sultan Haitham bin Tariq launched a new fund under the name Oman Future Fund, capitalised at $5.2bn, which aims to boost partnerships between the government and the private sector.

It will finance projects in various sectors of the Omani economy to diversify the economic base and in line with the objectives of the country's Vision 2040 policies.

The fund will back projects that provide job opportunities for citizens and enhance the contribution of vital sectors as the management of the country's economy seeks diversification, using national surpluses to boost re-investment.

The Omani government is also carrying out large-scale structural reforms, including speeding up privatisation measures as it seeks to get more Omanis into the labour market.

The sultanate's private sector is taking on a stronger role, lifting its contribution to the country's gross domestic product.

Profound economic legacy

Until 1970, many Omanis were working in other Gulf countries, while others continued their studies in these countries or in other Arab countries or India, but things changed after Sultan Qaboos bin Said took power and embarked on a modernisation programme that continues, even after his death in 2020.

His economic legacy to the country was profound.

Omani exports have improved significantly over the past years, with exports of goods during the past year rising to $65.6bn — a 52.4% increase compared to 2021.

Exports include oil and gas, which account for 65% of the value of exports, while non-oil exports amounted to $19.2bn, or 29% of total exports, according to the National Centre for Statistics and Information. Re-exports accounted for the remainder, and these operations are active with Iran and the UAE.

Overall, 2022's gross domestic product was about $115bn. The economic growth rate is expected to slow to 1.7% in 2023 from 4.3% in 2022, before rebounding in 2024, according to forecasts from the International Monetary Fund.

The development of gas fields is expected to contribute to this growth, along with efforts to revive manufacturing and agriculture.

Ports along the Arabian Sea and the Gulf of Oman give the country appropriate commercial importance. But Oman still imported goods worth more than $30.9bn in 2022. The Sultanate is working to improve the efficiency of domestic manufacturing and services industries in order to reduce imports.

A young consumer base

Omani society is a young society.  The median age is 22 for Omanis and 35 for expatriates.

The rising consumption levels of a relatively young society means this transition will take care and time, as the required local industries are developed. That includes agriculture, as Oman moves toward self-sufficiency in food production.

It can currently meet much of its nutritional needs and makes some agricultural exports. They include date palms, coconut palms, lemon trees, mangos, bananas, wheat, and frankincense.

It is also a highly urbanised society at 80% of the total population. It has a relatively high birth rate of 2.6 per woman of fertile age, according to World Bank data for 2021.

These demographics are important for defining policy in the country and play into the needs for education and the labour market. There are official targets to create 35,000 jobs this year, including 10,000 in the public sector. Professional jobs are important in state programmes.

In turn, that means vocational education is needed.

Technological shifts in education systems must be used to feed the needs of a modernised labour market as Oman builds a knowledge-based and professional economy, moving away from dependence on its relatively limited oil and gas resources and out-moded, rent-seeking techniques that do not lead to sustainable growth.

Opening up to foreign investment

Opening up to foreign investment and adapting laws to attract them will enhance the potential to achieve the goals of Vision 2040 and enable the transition to a balanced and diversified economy, relying on a well-trained and qualified workforce.

That would be an achievement worthy of Oman's long history as a trading nation with partners in the Middle East and beyond.