Analysis Development How Oman’s sultan is reshaping the nation By Pramod Kumar June 2, 2022 Creative Commons Sultan Haitham bin Tariq faces challenges as he attempts to streamline government services and introduce digital transformation, according to an Omani businessman Oman needs government reform and economic diversificationReforming too fast or too slow threatens civil unrestSultan keen to attract investment and nurture homegrown talent Omanis went into three days of mourning after the death of Sultan Qaboos bin Said in January 2020. When they reemerged with a new leader in Qaboos’ first cousin, Sultan Haitham bin Tariq, the oil-rich country was unaware that two waves of crises were looming on the horizon. A sudden dip in oil prices soon after Haitham’s coronation was made only worse by the onset of the coronavirus pandemic, plunging the sultanate into a quagmire of dire economic forecasts and some fears that the government might collapse. Oman’s economy required barrels to sell at $87 just to pay for the budget, so prices dipping under $30 along with OPEC+ issuing commands to reduce production threatened to produce nothing short of an economic catastrophe. Two years on, however, and the country’s economy is in a stronger state. It has been helped predominantly by a jump in fossil fuel revenues — it expected 3.5 billion riyals in oil revenues last year but received 5.5 billion. Another factor is the continuation of the old sultan’s modernising mentality – reforms have been accelerated, with the latest round of changes permitting foreign owners of listed companies. The centre of Haitham’s economic revival strategy lies in reducing the extent to which Oman is a victim of geopolitical events. His Five Year Plan (2021-2025) prioritises reducing Oman’s reliance on hydrocarbons — with oil and gas accounting for 68 percent of the government’s budget, 59 percent of all exports, and just under half of total GDP — making it susceptible to extreme financial fluctuation. The sultanate also has fewer oil and gas reserves than its regional neighbours. But the sultanate is now adopting wider regional attempts to diversify Middle Eastern economies and promote a more holistic source of national wealth. Across Oman’s western border, Saudi Arabia’s headline-grabbing Vision 2030 reform plans have outlined a rapid economic liberalisation and diversification programme. The Omanis have been more cautious, however, opting to set their Vision for 2040, hoping to gradually induce a greener, more knowledge-based economy. The plan was launched almost a decade ago, with Haitham anointed as chair of the committee responsible for navigating its success. It launched its preliminary document in January 2019 under the old sultan, but its message of privatisation and wealth-creation has been advanced by the current leadership. Philip Ingram, a former senior British intelligence officer and geopolitical analyst with close ties to the sultanate, told AGBI: “The new Sultan’s government has set out a 10-year development plan and a Vision out to 2040. They are focusing on deficit reduction, which is currently 6 percent above estimates due to the high oil prices, and includes a move towards renewable energy, with the inauguration of the 500 Mw Ibri 2 Solar field at the end of January this year. It is Oman’s largest renewables project.” Ibri 2, Oman’s largest renewables project Ibri 2, a $417 million, 1.5 million-panel solar plant, is expected to aid Oman’s target of achieving 20 percent of electricity production through renewable sources this decade. It’s hoping for 39% by 2040. Ingram added: “The 2040 Vision also sees Oman developing an increasingly hydrogen-powered approach to energy alongside its wind and solar facilities, which will be key to tackling youth unemployment — which sits at around 49 percent — and providing a new economic future for the sultanate.” It’s no surprise that business reform and economic diversity has been at the top of Haitham’s agenda. He enjoyed support from the merchant elite when he ascended to rule the sultanate and was among the first of Oman’s royalty to work as a businessman. Sultan Haitham’s background His personal business background is mixed. His first foray into industry came in the 1990s when he picked up shares in the Sun Farms agricultural company, a top vegetable producer in Oman. Through a holding company that he chairs, Haitham has substantially enhanced his business work since that decade, with the group partly controlling Oman’s largest power company, SMN Power, when he assumed the crown. Displaying a keen awareness of the country’s need to diversify its economy from natural resources ahead of the recent boom around this message, he has also invested in the Blue City project, a new city south of Suhar that is designed around tourism. But the venture struggled, and in 2011-12 the state’s sovereign wealth fund stepped in to buy Blue City bonds. Perhaps this episode of struggle has shaped the sultan’s ruling business mentality more than any other, as he has introduced an attitude of ruthless efficiency into stagnant state administration. On May 28, 2020, Haitham instructed all government agencies to end the contracts of at least 70 percent of all foreign experts and advisors, retire at least 70 percent of Omani experts and advisors who had worked for 25 years or more, and to retire a minimum of 70 percent of Omani state employees who had worked for 30 years or more. Economic reform includes upgrades to how the government reforms, not just who is in it, with the last budget including a digital transformation programme to push 80 percent of all government processes online, deemed “crucial” to the country’s growth. An Omani businessman told me on condition of anonymity that despite the attempts to streamline government services, acquiring government clearances and business licences has only become more difficult and expensive. They added that the digital infrastructure is not happening effectively, hampering the transformation. But beyond slashing regulations and retiring ageing bureaucrats, Haitham is also intent on learning lessons from successful economies in the region and beyond. The sultan was educated at Oxford University in the UK, a country which enjoys an historic and close relationship with Oman. Haitham personally welcomed Prince Charles and Camilla, Duchess of Cornwall, when they visited Oman in 2016. Now, he is working to extend the same hospitable welcome to UK business links to establish new ventures in the sultanate. Last year, Plexal, an innovation centre in east London, signed a partnership with Aljabr, Oman’s innovation development company, to found a new innovation initiative. Plexal said that the accelerator was launched to fulfil a business need while also offering Omani entrepreneurs a chance to enhance their solutions and thrive in the post-pandemic world. Attracting support from UK universities, the Omani Ministry of Transport, the UK Oman Digital Hub and others, the partnership provides Omanis with workshops and guidance to improve their plans for growth at home. This year, it has hosted a cyber accelerator and a 20-day mentorship sprint. The government is keen to attract startup investment and nurture homegrown talent as the industry booms across the region, with Mena startups raising some $375 million across 81 deals in February, a 51.6 percent increase on January and a 134 percent jump year-on-year. Saudi Arabia, the UAE and Egypt are leading the way in attracting startup investors, with the bulk of accelerator and seed funding heading into logistical businesses. Haitham has some scope to manoeuvre and to reform the political economy, but is it as the economy needs Straddling the western side of the Strait of Hormuz, where one-third of the world’s liquified natural gas passes through, Omani businesses might consider capitalising on the region’s logistical startup rumble. This interest could be enhanced by Mena oil and gas products attracting a greater premium amid the Russian energy sanctions. Oil revenues in this year’s Omani budget were assumed at an oil price of $50/bbl, down from the average price of $61/bbl in 2021. Current prices more than double the assessment for the year. Making the sales route more efficient for these products can only aid national revenue. Urgent entrepreneurial, innovative business solutions will be key to ensuring Haitham’s rule provides Omanis with the jobs they need. If his reforms are too disruptive, unrest could soon envelop his reign. Matthew Gray, a professor of Middle Eastern studies at Waseda University, Japan, told AGBI: “Oman needs to move away from hydrocarbon dependency, for budget stability but especially to create sufficient jobs for a young, growing workforce.” He added: “Business-friendly legal reforms — such as changes to corporations law and laws to attract more foreign investment and make things easier for foreign investors — are important, and do help, but mostly indirectly. Real reform means getting more nationals into jobs they don’t normally do, making them as efficient as foreign workers, and creating a more entrepreneurial and dynamic spirit in the economy.” There are also some suggestions that the Omani leadership will introduce income tax, expecting more from their citizens as they gain from a diversified economy. Gray said: “These rumours are a positive sign: it shows that real thought is being given to changing the economic obligations of citizens, who for many decades now have assumed that the state would provide for society from oil revenues and without the need for taxation.” But it’s a risky business. Any attempt at broader taxation could backfire, so Haitham will likely limit the taxation drive to wealthy citizens. Despite civilian tensions and the threats of a renewed Arab Spring, the sultan appears fully committed to his vision. Last month, the CEO of the Muscat Stock Exchange announced that 35 state-owned firms would be listed within five years. “Haitham needs to make substantial reforms, but he lacks the money to do them comfortably over the longer-term, and he lacks the popular support to simply impose them more quickly. He has some scope to manoeuvre and to reform the political economy, but not as much as he would like, and not as much as the economy needs,” said Gray. A bitter fight for business reform and diversification is set to continue and the sultan knows that his reign, and the prosperity of his people, depends on its success.