A country on hold: Oman's next step?

The Gulf state has been relatively stable under the rule of one man for 45 years, but the indefinite absence of an ailing Sultan Qaboos and deteriorating economic conditions are causing angst in a country that can ill afford stagnation. With no public succession plan, just what will the next era in Oman hold?
A country on hold: Oman's next step?
By Sarah Townsend
Fri 06 Mar 2015 10:01 AM

A country in
rebellion has many rulers; a stable country has one. The proverb has been true
of Oman, whose enigmatic and largely benevolent leader has been in power for 45
years and transformed a once turbulent state into one that enjoys relative
peace and prosperity.

Sultan Qaboos
bin Said Al Said came to power after toppling his father in a non-violent coup
d’état in 1970. He is credited with modernising Oman and building closer ties
with the West, healthy foreign investment levels and an educated and ambitious
workforce.

Yet now, Omanis
face an uncertain future. Qaboos travelled to Germany last July and has not
returned. He is reportedly being treated for colon cancer and appeared on state
television last November looking frail. Unmarried, he has no successor or heir.
Officials are remaining tight-lipped and nobody knows for sure who will lead
the country post-Qaboos.

Meanwhile,
economic conditions have been deteriorating. The World Bank predicts the drop
in oil prices will hit Oman and Bahrain the hardest of the GCC states because
they have the smallest oil reserves and sovereign savings, potentially tipping
both countries into deficit in 2015.

Given that
hydrocarbons accounted for 45 percent of Oman’s gross domestic product (GDP)
and 86 percent of government revenues in 2013, according to the country’s
National Centre for Statistics and Information, the pressure is on to diversify
the economy away from oil dependence. Tourism, agriculture and trade could be
key areas.

Attracting
greater investment in infrastructure, tourism and logistics is a key component
of the sultanate’s plans. Arguably the scheme with the biggest economic
potential is the Port of Duqm, a joint venture between Oman and the Antwerp
Port Consortium, a Belgian firm.

Built three
years ago, the port is intended to become one of the main Gulf stopping points
for cargo ships from around the world and there are plans to develop the area
into a multimodal industrial hub. But Sultan Qaboos’ uncertain health is making
some potential foreign investors nervous; they are holding back from making
decisions to expand or diversify in Oman until there is greater certainty
around the country’s leadership.

On the surface,
Omanis are stoic. They accept that economic diversification is needed but claim
to be unperturbed by any uncertainty raised by the Sultan’s ill health. “To be
honest I have never even thought of it [succession],” states Malak Alshaibani,
director of the country’s National Business Centre, which works to promote the
growth of small and medium enterprises (SMEs). “Throughout history Omanis have
had little problem with transition and things always fall into place. The
Sultan is our hero, but we have been used to having confidence in our
institutions and systems.”

Scratch the
surface and a different picture emerges. Alarm bells are ringing for more than
a few commentators who warn a perfect storm is brewing. They say if economic
unease persists, it could spark another outbreak of the (small-scale) Arab
Spring protests Oman experienced in 2011. The country has suffered a persistent
15-20 percent unemployment rate among nationals in the past five years and,
given that Oman has a larger local population (60 percent) compared to other
GCC states, it needs strong leadership to meet people’s needs and curb
dissatisfaction.

At the very
least, citizens are frustrated by the lack of official communication about the
ruler’s condition. The state news agency has been silent on the subject, other
than broadcasting Qaboos’ 44th National Day address live from Germany in
November. But there has been no official statement indicating the nature of his
illness, when he might return and whether any interim measures will be put in
place if he becomes too unwell to rule.

One well-placed
expat resident tells Arabian Business: “Everything is ridiculously secretive
out here regarding Qaboos. It’s all getting rather strange to be honest. He’s
been out of the country for months and rumours are that he has terminal cancer
– though nobody seems to know anything for sure.”

The resident
says her husband works in the compound of one of Qaboos’ palaces and reports
that preparations have been in place for his return from Germany for several
weeks now but there remains no sign of him.

“As for his
successor, there are rumours he has chosen someone but again nothing is
concrete, which is odd,” she says. “We’re hoping he names someone before his
health really goes on the decline – which it may already have done, hence his
non-return.”

Her hope may go
unfulfilled because of Oman’s long held “envelope” tradition. According to
tradition, on Qaboos’ death the ruling Al Bu Said family will have three days
to decide who will take his place. If they cannot agree they will open an
envelope left by the ruler containing the name of his chosen successor. His
three cousins—Assad, Shihab and Haithem bin Tariq Al Said—are said to be the
most likely candidates but little is known about them. Out of sensitivity they
have kept a low profile with “little obvious political posturing”, notes Shahin
Shamsabadi, head of business intelligence for the Middle East and North Africa
at The Risk Advisory Group.

Marc Valeri,
senior lecturer of political economy at the Institute of Arab and Islamic
Studies and director of the Centre for Gulf Studies at the University of Exeter
in England, believes many others are disappointed by the opacity of the
situation. In his report 'Simmering unrest and succession challenges in Oman',
published in January, he writes: “The regime’s reluctance to appoint a prime
minister or crown prince with some executive powers and prepare for a
post-Qaboos Oman has only fuelled popular anxiety over the perceived lack of a
long-term economic and political vision for the country.

“If the current
ruler does not provide answers to these questions soon, the uncertainty could
provoke considerable turmoil in the event of his sudden demise.”

Valeri adds
that while Qaboos has fostered deep loyalty in Omanis during his 45-year reign,
veiled criticism of his practices has become more common. For example,
discontent over economic opportunities led to several small protests in 2011,
although by no means as raw and deep-rooted as those in the so-called Arab
Spring countries. The rallies were quickly quashed with the offer of well-paid
public sector jobs. But Valeri says repressive measures have become more
prominent since then.

“Young Omanis
will not be willing to grant the next ruler the same degree of control their
parents granted Qaboos,” Valeri wrote. “Instead, his successor is likely to
face renewed demands for reform.”

Valeri declined
to comment further when approached by Arabian Business. Indeed, few people
living or working in Oman were comfortable speaking on the record about
succession, for fear of upsetting the sultanate or deterring foreign business.

One resident,
British Business Forum coordinator Maggie Jeans, explains there is a
deep-rooted desire among Omanis to uphold the status quo.

“There is a
great deal of speculation about the future of Oman, much of it ill-informed and
destructive in the long term,” she says. “Plans are in place for November to
celebrate the 45th year Sultan Qaboos came to power and transformed the country
into the modern nation it is today. It is in everyone’s interest that progress
should continue and there is no reason to believe it won’t. The strength of the
country is in the strength of its people and its long history, and this will
safeguard its future.

“This is a very
sensitive issue as most Omanis don’t like to talk about the death of the
sultan.”

Whether they
will talk about it or not, Omanis are faced with the very real possibility of
the end of a political era and the profound social shift that could bring. Some
commentators even believe Oman could become the first constitutional monarchy
in the Middle East.

“Oman is in a
state of catatonic paralysis,” says a former Asian ambassador to Oman. “The
country is an oddity in the GCC in that it has the same political order as the
other GCC members but not the financial resources to sustain it. Thus, it is an
authoritarian order that projects itself as paternalistic when unchallenged but
quickly displays its tyrannical side in the face of even low-key dissent.

“The Omani
order has had such a long life because in the early years of the sultan’s rule,
oil revenues affected vast socioeconomic change in an otherwise marginal,
backward, entity.

“But the sheen
has worn off now. The new generation is better informed about regional and
world affairs and aspires for an order that is more open and responsive. Oman’s
problem is not uncertainty over succession – it is that the present political
order has outlived its value.”

The country’s
impending change could present fresh business opportunities in Oman. But there
are hurdles to cross, first.

“Business
activity has slowed considerably and companies with foreign ownership are
looking at possible relocations,” the former ambassador claims. “Not only is
there a leadership and policy vacuum, there is also a loss of confidence brought
about by [widespread and well publicised corruption among state employees] and
negative consequences of hand-outs and other employment policies announced in
panic to appease a restive population.”

Business
remains reasonably brisk in oil and gas. BP Oman recently awarded a $10m
contract to Galfar Engineering and Contracting to build a new 25km-long oil
piping network. However, Oman has struggled to compete with the UAE in sectors
such as hospitality and real estate and attempts to set up a Dubai-style
freehold system have failed, argues The Risk Advisory Group’s Shamsabadi.

He says the
sultanate’s well-enforced Omanisation policy has also deterred some foreign
firms whose business plan relies on recruiting an expat-driven workforce,
because they're either cheaper or have higher or more desired skills.

A British
businessman working in Oman adds that late payment and sudden termination of
contracts is common. In January, British defence supplier Ultra Electronics
Holdings reported that its £310m ($477m) IT contract with Oman Airports had
been terminated and there would be a likely provision against the contract
balances in its 2014 results. However, Ultra Electronics declined to comment on
the reasons for the termination due to ongoing legal action.

“Oman has publicly
committed to tackling corruption but has yet to establish itself as an
alternative investment opportunity to the rest of the GCC,” The Risk Advisory
Group’s Shamsabadi concludes.

One
organisation likely aware of this is Oman’s state-owned inward investment agency,
the Public Authority for Investment Promotion & Export (Ithraa). Two weeks
ago it commissioned consulting firm Deloitte to draw up a strategy for
attracting higher levels of investment of the magnitude of such schemes as
Vale’s $1.25bn Sohar industrial complex and Majid Al Futtaim Properties’ $380m
Muscat retail space.

“Attracting
high-impact inward investment has become a priority for Oman,” says Ithraa’s
director general Faris Al Farsi. “In common with other countries across the
world we have an attractive tax regime, sophisticated financial markets,
business-friendly policies and new business incubators – all designed to
strengthen our economy, know-how and talent. We fully recognise that further
efforts are required to enhance our competitiveness.”

He highlights
the potential of Oman’s fledgling SME sector to drive future growth – a view
shared by the National Business Council’s Alshaibani. She says the sultanate
has introduced several measures to support SMEs, including a OMR70m ($181m)
Raffad seed fund for start-ups, new rules to help SMEs win government contracts
and to account for 5 percent of commercial banks’ lending portfolios, while
changes to the bankruptcy legislation also is intended to help them.

State employees
can also take a four-year sabbatical or one year’s paid leave to start their
own business.

“Oman needs to
create jobs in both the public and private sectors, and encouraging
self-employment is a big part of this,” says Alshaibani.

The public
relations push to reposition Oman as an attractive location in which to do
business continued this week, with consultancy group Emerging Markets
Intelligence & Research (EMIR) announcing that three quarters of 120
multinationals polled during a roundtable last month said it was “likely” their
companies would expand or invest in Oman within the next three years.
Ironically, the event took place at the Burj Al Arab hotel in Dubai – not in
Oman.

But there is
hope that the right policies and clear public drive to create a successful,
independent country will buffer Oman through a potentially turbulent time
ahead.

Washington-based
Middle East analyst Sigurd Neubauer says the sultanate would be well supported.
“Oman is a popular country internationally. It has good relationships with
international powerhouses and could look forward to their support if it needed
it.”

However, few
successors are likely to be able to sustain the highly personalised and
authoritarian regime installed by “visionary” Qaboos, Neubauer warns.

And some say
recent news that 84 percent of the Shoura council, the country’s key political
advisory group, voted in favour of a country-wide alcohol ban could do more
than just deter future investment in tourism.

“The vote is
unlikely to be backed at a higher level but it’s significant because it signals
that whoever succeeds Qaboos will have to deal with a more conservative
population than many realise, which may not grant him the same leeway as they
did Qaboos,” Neubauer says.

When it comes
to Oman and succession, the phrase “the calm before the storm” has never seemed
more fitting.

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