Rich pickings for construction in Oman's $78bn plan

Non-oil companies, especially those in the construction industry, are set to benefit hugely from government contracts following Oman’s record five-year spending plan, economists have said.

On Sunday, the Gulf state released its latest development plan in which it pledged to spend $78bn over the next five years.

While $15.5bn will be allocated to the oil industry, the majority will be spent on infrastructure, hospitals and education as the country looks to diversify its economy away from oil.

“If you are in the infrastructural game, project management or anything like that you get a big boost because of the government’s expenditure in all of these areas. The same goes with those in education and health as there is a focus to try and develop a knowledge society, which will also be good for companies,” said Margaret Purcell, chief economist at Bank Muscat.

The filter down effect from government spending will be huge, said Sahdy Shaher, MENA economist for Standard Chartered.

“One thing about infrastructure spending is the filter down effect to the economy, [which] is much bigger than upstream oil production. So when you invest in building roads, and expanding ports, for example, the filter down effect to companies in the economy will be much wider,” he said.

Oman is spending 113 percent more in its 2011-2015 development plan than it did in its last five year plan, according to Ahmed Abdul Nabi Macki, Oman’s Minister of National Economy.

Two of the country’s biggest priorities are education and boosting tourism, which accounted for 2.9 percent of GDP in 2009, according to statistics from the Omani Ministry of Tourism.

“Without the development of infrastructure Oman cannot diversify,” said Purcell. “Oman has to have greater road accessibility, ports - all these factors that without which the diversification can’t really take place.”

The plan, which is based on an average oil price of $59, is forecasting economic growth of 5 percent a year and an average inflation rate of four percent.

The country’s biggest challenge will be to keep its forecast inflation rate, said Purcell.

“The risk to the five-year plan is trying to keep inflation under control at four percent. There are big challenges to that because the forces are out of its control, namely prices of food, and food makes up a fairly large portion of the inflation basket in Oman.

“There is a big government focus on trying to build up greater food reserves so that they can manage the prices to a degree but there is only so much any government can do in that respect,” she said.

It is the eighth five-year strategy to be released by Oman as it seeks to boost areas outside of oil and gas. The plan will focus on the development of tourism, industry, agriculture and fisheries with non oil activities expected to grow at an annual rate of 10 percent at current prices and 6 percent at constant prices.