July 1, 2005

QUALITATIVE PROGRESS ON THE PATH OF INDUSTRIAL AND COMMERCIAL DEVELOPMENT IN THE SULTANATE OF OMAN. MARKET-ORIENTATED POLICIES AND PRIVATE SECTOR DEVELOPMENT AS MECHANISMS FOR PROSPERITY AND GROWTH. IMPORTANT ACHIEVEMENTS BY THE MINISTRY OF COMMERCE AND INDUSTRY IN LARGE DEVELOPMENT PROJECTS. In 1970 the Sultanate's economy, which was virtually a subsistence economy, was entirely based on agriculture and fisheries. It was not until the discovery of oil in commercial quantities in 1964 and its production in 1967 that the country was able to embark on its development. Even so, after the initial construction phase is completed, an oil industry is not labour intensive. Over half the total Omani population is still engaged in the agricultural and fisheries industry. 787,300 people hold cultivable land, according to the most recent survey, and the total number of agricultural workers is around 187,820. A large per centage of the Omani population live in rural villages. However, the stimulus to the national economy derived from the exploitation of oil and gas has also benefited the development and modernisation of agri culture, so that the Ministry of Agriculture and Fisheries was enabled to achieve nearly 50% self-sufficiency in food production by the end of last year, with a goal of 100% by the year 2000. The Sultanate of Oman lies in an arid region of the world, but ow ing to its size and topography it has considerable variations of climate. The backbone of the country is the Hajar range of mountains extend ing from the tip of the Musandam Peninsula in the north to the south east corner of the Arabian Peninsula in the south. The northern end of the range is largely porous limestone rock, which is the source of water used for irrigation purposes on either flank of the mountains. The southern part of the range is of igneous or volcanic rock. The Hajar range, rising to over 10,000 ft at its highest points, attracts the most rainfall of the Sultanate, much of it as heavy localised thunderstorms during the summer months, and from depressions crossing the Arabi an Peninsula from the west during the winter. However, as elsewhere in the Sultanate, except in the extreme south, it is very sporadic, and is subject to considerable annual variations. The coastal plain and sea ward-facing slopes of the mountains in Dhofar in the extreme south receive regular light monsoon rains from June to September. Much of the Interior of the country is desert or semi-desert. Oman enjoys a stable political, economic, and social system, which is enhanced by the excellent relationships between the Sultanate and neighboring countries. Sultan Qaboos, encourages market-orientated policies and private sector development as the mechanism for prosperity and growth. Commercial export of oil began in 1967 and since Sultan Qaboos' accession to the throne in 1970, many more oil fields have been found and developed. In June 1999, Petroleum Development Oman (PDO) discovered a new oil field in southern Oman after drilling and testing three wells which demonstrated the commercial viability of the reservoir. This is the most significant find in five years. There is currently only one oil refinery in the Sultanate, which is located at Mina al Fahal. Plans are now underway to build a refinery at Sohar with an associated polypropylene programme. The Sohar Refinery is expected to produce 75,000 barrels/day. The basic engineering design has been finished and completion of the whole project is anticipated for the end of 2003, with beneficial operation achieved in early 2004. Since the slump in oil prices in 1998/99, Oman has made active plans to diversify its economy and is placing a greater emphasis on other areas of industry, such as tourism and liquid natural gas. Oman's Basic Statute of the State expresses in Article 11, that, "The National Economy is based on justice and the principles of a free economy." The Vision Conference: Oman 2020, held in June 1995, has developed the following aims with regard to securing Oman's future prosperity and growth: To have economic and financial stability. To reshape the role of the Government in the economy and to broaden private sector participation. To diversify the economic base and sources of national income. To globalise the Omani economy. To upgrade the skills of the Omani workforce and develop human resources. By 2020, it is expected that the economy will not be reliant on oil, but rather, will have diversified into non-oil sectors, raising higher levels of savings and investments The crude oil sector's share of GDP is estimated to drop to 9% in 2020, compared with 41% in 1996. The gas sector is expected to contribute around 10% to GDP, compared with less than 1% in 1996. The non-oil industrial sector's contribution is expected to increase from 7.5% to 29% Economic Diversification: Oman LNG was set up by Royal Decree to handle the downstream operations of the gas export project, namely the liquefaction, transportation and sales of LNG. The shareholders are the Government (51%), Shell (30%), Total (5.54%), KOLNG (5%), Partex (2%), Mitsubishi (2.77%), Mitsui (2.77%) and Itochu (0.92%). The upstream operations are handled by PDO and are wholly Government-owned. The gas fields are being developed by PDO for the Government at a cost of $1.4billion. The gas will be transported from three fields in central Oman to Sur via a 360km, 48-inch diameter pipeline. The LNG plant in Sur is designed to produce a nominal 6.6 million tonnes of LNG per year from two LNG process trains. At present, appraisals are underway to see if a third LNG process train is warranted. LNG demand is expected to grow dramatically over the next few years, particularly in the emerging economies. An additional process train would increase the Qalhat plant's production to around 10 million tonnes per year. The Government has stressed that a third train is dependent upon obtaining firm offtake agreements with the potential buyers. The first shipment of 135,000m3 gas was sent to Korea (Kogas) on Thursday, 8 April 2000. The proven gas reserves in the Sultanate amount to around 20 trillion m3 of which OLNG are involved with extracting one third. Proven reserves are expected to rise to 30 trillion m3, of which 5 trillion m3 is allocated to domestic industry for the next 25 years. In addition to the LNG project, a fertiliser plant is to be built in Sur with a capacity to produce 1.4 million tonnes of urea and 330,000 tonnes of excess ammonia per annum, from natural gas to export. Mina Raysut/Port Salalah: Port Salalah is the new container terminal located in the Dhofar region, southern Oman. It is located close to the direct shipping lanes between Europe and the Far East and also has easy access to the Gulf, Red Sea, Indian Ocean and the East Coast of Africa. The new port is one of the largest in the world and has highly sophisticated equipment. There are four berths, each covering an area of 50 hectares which are capable of holding five cranes. The cargo traffic for 2000 is anticipated at 900,000 TEU (Twenty foot Equivalent Units). Salalah Port Services Company (SAOG) will run the port over a 30-year concession period. Partners in the venture include: Sea land (15%); Maersk (15%), government (20%), pensions (11%), Omani companies (19%) and public subscribers (20%). Port Sohar: Work should be completed on Port Sohar by 2001. The Japanese Export and Import Bank has loaned RO96 million to finance the project. The first phase will consist of two liquid cargo berths, two bulk berths for an aluminium smelter, two cargo berths and a container berth. An additional berth will be built for Government use. The harbour will have a depth of 17m which is deep enough to accommodate the fifth generation of container vessels which are coming into service. The port is located close to the jetty for the copper smelting import and exports (Marsa Majees) and the Sohar Industrial Estate. Port Qaboos (Muscat): Mina Qaboos has been in operation for many years and is about to bring Oman's first bunkering terminal on-stream during April/May 2000, at a cost of US$8million. The terminal is established on a Build-Own-Operate-Transfer (BOOT) basis and will be operated by joint Omani-Saudi venture company, Oasis Energy Co LLC. It has the capacity for 20,000m3 of fuel oil and gas oil to meet the needs of the commercial, military and fishing sectors. Agriculture and Fisheries: Over half of Oman's population is still involved in the agriculture and fisheries sectors of the economy, when taking into account related activities such as wholesale, retail, transport and other services. Recent estimates indicate that Oman is 64% self-sufficient in vegetables, 53% in milk, 46% in beef, 44% in eggs and 23% in mutton. Agriculture and fisheries are Oman's main non-oil exports, accounting for nearly 25% of the GNP. The Government has set up programmes to educate communities in water conservation and placed restrictions on over-fishing. Minerals: Oman is rich in minerals, not least copper, which has been extracted for centuries. Recent studies have revealed reserves of over 18 million tonnes along the Batinah coast. Chromite reserves are estimated at 2 million tonnes and chromite ore is exported to Japan and China. Private investors are currently being encouraged to exploit the 122 million tonnes coal reserves near Sur. THE DIRECTORATE GENERAL OF INDUSTRY: The speech of Sultan Kaboos Bin Saeed in the 28th national day: "Today, more than any day in the past, the private sector is asked to duplicate his efforts, and trust himself, transforming all the chances into promising production devices. We are able to make the industrial sector the basic income source, or at least a source equal to oil." When the oil revenues started to arise, Oman was able to build a state of the art infrastructure, such as roads, ports, and communications facilities. The sultanate's development over the last two or three decades was quick and amazing. And in the last couple of years, this country was able to make an important achievement, transforming from an oil-dependent economy into an economy with different sources of income. The government continued to support and encourages the industrial sector, taking into consideration the very important role that this sector can play in achieving continuous development in the least time. The issuance of decree number 1/79 in 1979 to organize and encourage industry was the beginning of the production process in Oman. This decree was followed by decree number 17/97 to give financial support to the private sector in the industry, tourism, health, education, heritage, agriculture, and fishing sectors. This was a very important step that empowered the industrial activities in the country. The revolutionary change started with about 10 registered factories, to reach about 700 working industrial establishments. 1991 and 1992 were called the years of industry to appreciate and encourage industry and businessmen. The government proofed that it is following great policies to integrate private businesses and industries with the national aims of the economy. The government considers the foreign investment to be a vital aspect of the comprehensive diversification strategy, so it welcomes foreign companies and supports them in different areas. The country in fact is preparing to face the challenges of the 21st century with a carefully planned structural evolution in the economy. Products and services contribution in the GDP are expected to be 8.1% in 2004-2005. The directorate general of industry, the general institution of industrial areas, the Omani center of investment promotion and exports encouragement, and the Omani chamber of commerce and industry are the basic bodies giving support to industry in the sultanate. Standards: "Standards and standardization touch all aspects of economic and social activities of human beings. Standards are the best guarantee towards removal of non-tarrif trade barriers, and are most effective instruments for fast industrial development, resource conservation, technology transfer, skills upgadation, environmental protection, safety and protection of health of the populace at large, consumer protection and welfare of society." "Reliable measurements are pre-requisites for fair and efficient trade, scientific research, industrial process control, technological development, quality assurance, protection of health and safety". "Legal metrology provides the basis for credible measurements which lead to effective trading at national, regional and international levels. A knowledge of industrial metrology and its application, is of increasing importance in industry for quality and productivity." "Conformity assessment is a process for evaluating a product, process, service, or system against a standard. Conformity assessment is important to manufacturers, suppliers, consumers and regulators. In addition to helping conscientious producers and consumers, it enables governments to enforce the regulations for protecting the public health and safety." "Without the standards, conformity assessment is meaningless; and without well specified standards backed by unambiguous operational procedures and reliable testing, conformity assessment may be of marginal value." "Certification is a procedure by which a third party gives written assurance that a product process or service conforms to specified requirements." "Mark of conformity (for certification) is a protected mark, applied or issued under the rules of certification system, indicating that confidence is provided, that the relevant product process or service is in conformity with a specific standard or other normative document." "Omani Quality Mark' is the third party Product Certification Mark (Mark of Conformity) applied on a product - under licence from the DGSM, under the product Certification Scheme of the Directorate General for Specifications and Measurements." "Accreditation Systems are essential safeguards against possible incompetence of conformity Assessment and Certification/Registration Bodies." External trades have grown lately, accompanied with an increase in import and export, with a high increase in the number of registered companies and career offices. And because of the saving support policies, joint-stock companies were established, and stock and bond exchange was activated. The last few years have witnessed an apparent growth in the amount of capital invested in companies established under the law of foreign capital investment, because of the government's special care given to provide an appropriate investment environment and flexible administrative regulations. The Omani commerce sector development strategy is based on a number of pivots: Maximum exploitation of the sultanate's strategic geographical location, by converting the sultanate into a regional base for commerce, services, and re-exporting activities. Adopting the free economy philosophy, focusing on the private sector's role. Reinforcing the cooperation with friend and sister countries, following the sultanate's balanced external policy, in order to employ economical and commercial cooperation in increasing commercial exchange and joint investment attraction. Developing the infrastructure appropriate for the new needs. Develop a flexible and integrated legal framework more capable of achieving the strategic goal to build a free economy that relays on market mechanisms and free competition and efficiency, with a special care given to procedures simplification. The exploitation of the sultanate's position is mainly based on port facilities development. According to this, the sultanate started the first stage in the Salala port container station, developed Sohar port, started developing Khasab port, and adopted the Salala's free zone project to serve Oman' economy and the regional commerce. Procedures simplification. Intensive efforts are being spent now to develop the level of coordination between the government and the private sector, focusing on achievement speeding, procedures transparency, authority delegation, and procedures simplification. That's why the (one depot) was established, which is a good experience of group work and accurate coordination between different ministries to serve investors. Reacting to the international developments. Joining the WTO, the sultanate adopted the international heading towards maximum freedom and custom and non-custom obstacles removal. These developments have participated in increasing the efficiency and setting the institutional bases for investment and commerce, and putting the basic infrastructure of the Omani commerce sector. The advanced integration steps continued with the GCC's countries to achieve the gulf custom union. On the Arabic part, the sultanate participated in the Arabic commerce development and facilitation agreement, and kept its commitments to establish the grand Arabic free trade zone. On the international part, the sultanate joined the WTO, and carried an participated in forming the Indian ocean rim for regional cooperation. Cooperation with friend and neighbour countries is continuing through some bilateral agreements, and cooperation protocols between chambers of commerce and other private sector initiatives, in addition to the private sector's participation in international exhibition either regionally, or these organized in some friend countries, in order to show how much development have been achieved in the commercial sector.