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

The land of frankincense has been trading with its neighbours around the Arabian Gulf and the Arabian Sea for millennia. It now has cutting-edge ambitions for its future.

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Landscape of Mutrah Corniche in Muscat, Oman. The land of frankincense has been trading with its neighbours around the Arabian Gulf and the Arabian Sea for millennia. It now has cutting-edge ambitions for its future.

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

Amer Ziab Al-Tamimi

last update on 22 Jul 2023

Times are changing in Oman — a country with one of the most significant strategic locations in the Middle East.

The country is located in the southeast of the Arabian peninsula and is a gateway between the Arabian Gulf and the Arabian Sea. It also extends to southern Yemen and the coast of East Africa.

This has given the country an exciting history — one that can be traced back further, more or less, than anywhere else in the world. As well as having a long and storied past, Oman has ambitious plans for its modernised view of its place in the world, shaped by reforms which began over 50 years during the rule of Sultan Qaboos bin Said.

But the country’s story goes back much further than that.

Ancient history of economic activity

Omani artefacts from as long ago as the 8th millennium BC, range from hunting weapons to images of humans and wild animals, as well as skeletal remains.

A number of ancient human settlements have also been identified, including the settlement of Al-Wutayyah in Muscat.

Getty — Traditional houses of the old city district sit surrounded by mountains in Muscat, Oman.

Then, as now, Oman’s location makes for easy links with the countries and islands of East Africa, India, Iran, and Iraq. The archaeological discoveries confirmed the existence of economic activity, including trade relations between it and a number of other ancient countries and civilisations, via land routes linking it with Mesopotamia.

Oman on the mappic.twitter.com/lrzupiRKry
— Sultan (@soli2022) December 12, 2018

With the country looking for a bold future, Al Majalla reviews Oman’s story and looks at where the next chapters might take it.

From Persian occupation to renaissance

The Persian Empire dominated Oman from the 6th century BC until the arrival of Islam, which was one of the most notable periods in the sultanate’s history.

Then, in 751, the population developed an administrative system in which clerics were chosen to rule the regions as spiritual leaders. In 1159, the Bani Nabhan tribe was able to establish a hereditary system of government that lasted until 1429.

At the beginning of the 16th century, Muscat was taken over by the Portuguese, who ran it until it was liberated by Imam Sultan bin Saif in 1650.

Oman became an independent country and concluded a treaty with Britain in 1798 after the first sultanate was established in 1775. Sultan Said bin Sultan relied on British support after signing the treaty, expanding into East Africa where Omani rule reached Mombasa, Mogadishu, and Zanzibar.

Archaeological discoveries in Oman confirm the existence of economic activity, including trade relations between it and a number of other ancient countries and civilisations, via land routes linking it with Mesopotamia. Then, as now, Oman's location makes for easy links with the countries and islands of East Africa, India, Iran, and Iraq.

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.

Diana Estefana Rubio

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.

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.

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.

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.

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.

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. As a result, the 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.

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.

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.

AFP — Omanis collect dried Mabsali dates in Bidiyya, 220 km east of the capital, Muscat.

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.

Oman's young 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. In turn, that means vocational education is needed.

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.

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