More famous for frankincense than finance, Oman is attracting investor interest thanks to its development projects and its first corporate sukuk.
Oman lacks the vast oil and gas resources of the wealthier Gulf countries. Its capital, Muscat, does not have flashy skyscrapers like Dubai. However, this country is developing at a steady pace.
One example is the town of Duqm in central-eastern Oman, where the authorities are building a port with a ship repair facility and dry docks, the first of their kind in the country. If the port is a success, it might one day challenge Dubai as a trading hub, with the advantage that ships could reach it from the Arabian Sea without having to negotiate the Gulf.
Then there are plans to link Oman and the other Gulf countries with a railway, a project with a total cost of more than $15 billion that is targeted for completion in 2018. Omanis are being encouraged to specialise in railway engineering to support the new industry.
Muscat airport is being redeveloped too, with a new terminal. Meanwhile, the country is planning a medical city on the outskirts of the capital.
Perhaps more importantly, the country is investing in tourism, building five-star hotels in the capital and Salalah, the country’s southern second city, whose unusual, tropical climate draws visitors from across the region.
However, don’t expect Oman to transform overnight.
“Those who are constructing new buildings have restrictions on the architecture – many design criteria,” says Ahmed Al Ghassani, dean of the College of Banking & Financial Studies, which is part of the central bank in Oman.
“We are trying to keep our cultural heritage.”
This architectural conservatism has helped Oman maintain its distinctive appearance, but it is not only in buildings that Omanis are conservative.
While other Gulf countries, such as the UAE and Qatar, have been transformed by immigration, Oman has kept its immigrant population at less than a third of its total.
It has also pursued Omanisation programmes to increase the proportion of nationals working in key industries. As of 2000, more than 90% of workers in the banking sector were Omani, says Al Ghassani. The authorities have since turned their attention to senior management.
“Now we have several Omani CEOs,” he says. “In addition to the 90%, they have been successful at Omanising the top levels.”
The government has achieved high levels of national participation in the education and petrochemicals sectors too, though not the construction sector.
Another factor for investors to consider is that Oman is a less aggressively consumerist society than some neighbouring countries. Although it does have oil reserves and has recently increased output, its reserves are not as large as the likes of Saudi Arabia and Kuwait. Partly because it has less oil wealth, the country is classified as middle income – 34th in the world in terms of GDP per capita, according to the International Monetary Fund.
The average Omani is comfortably off but not super rich. You do not see as many fast cars and flashy shopping malls as elsewhere in the Gulf.
In addition, the country’s stock exchange, the Muscat Securities Market, is relatively small, with a capitalisation of $27 billion. This is about a quarter of the size of the Dubai Financial Market and a mere 5% of the regional giant, the Saudi Tadawul.
The entire market trades only about $15 million a day. As a result, many regional fund managers do not get too excited about investing in Omani equities.
However, there is progress in Oman’s capital markets. At the end of last year, Tilal Development Company issued the country’s first corporate sukuk.
Ayman Khaleq, a partner in the business and finance practice of Morgan Lewis, the law firm which advised on the transaction, says the issuance came despite the absence of local regulations addressing sukuk issues. Oman is working on rules to fill the gaps and Khaleq hopes to see more corporate sukuk during this year.
“The mindset has changed and the authorities are supportive of promoting sukuk issuances,” Khaleq says.
If a lively bond market does develop in the country, it could one day allow investors to access some of Oman’s exciting development projects, such as the Duqm port.
©2014 funds global mena