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.
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