Oman-UK trade dips but optimism remains

Virgin Orbit

• Key trade sectors include mechanical and electrical goods
• UK imports plastics and steel from Oman
• Free trade deal with GCC could add £1.6bn a year to UK economy

UK trade with Oman saw a drop of 5.5 percent through the first 10 months of 2022, compared to the corresponding period the previous year, despite an overall uptick in the UK’s global trade.

Latest figures available from UNComtrade, the UN Statistics Agency, up to October 2022 show total trade between the two countries reached $637.3 million, compared with $674.4 million for the same period in 2021.

However, with the final two months of the year still to be reported, “strong trade growth in the last two months of the year could see the UK-Oman trade relationship close out 2022 with overall growth for the year, albeit slightly,” according to Cassidy Lyon, head of research at Emerging Markets Intelligence & Research.

The drop was attributed to the combination of a 26 percent decrease in imports from Oman and a marginal 0.36 percent decline in exports and re-exports to Oman from the UK.

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Kuwait was the only other GCC country to post a negative in its exports from the UK, down 10 percent, while Qatar (up 85 percent), UAE (58 percent) and Bahrain (23 percent) all reported healthy growth numbers.

Lyon said: “The key strength in the relationship is trade of mechanical and electrical goods ranging from vehicles to industrial machinery and power generators. Materials such as plastics and steel are also prevalent imports to the UK from Oman.” 

Aircraft, spacecraft and their parts previously dominated UK exports to Oman, totalling over $2 billion between 2017 and 2018, before sinking to just $55 million in 2021. Electrical machinery exports have also dropped since 2017, from roughly $140 million to $55 million in 2021. 

Lyon said that this decline is the “key driver behind the weakening trade relationship, which has struggled to register growth since”.

It comes almost exactly a year since the signing of a Sovereign Investment Partnership between the UK’s Office for Investment and the Oman Investment Authority.

The partnership was designed to strengthen the economic ties between the UK and Oman and to identify and support commercial investments in areas such as clean energy and technology, an important part of the £1 billion a year trading relationship.

Over the last year the Omani government has appointed a commercial and investment attaché to the UK embassy and held a series of conferences for UK investors and companies. It is also eyeing the UK for investments from its sovereign wealth fund.

Ibrahim Al Eisri, director general of private equity at the Oman Investment Authority, said last year that the wealth fund was considering investing in the UK’s technology sector to take advantage of valuations hit by rising interest rates and the fall in sterling.

Simon Penney, UK trade commissioner for the Middle East, told AGBI: “We are working together across a range of sectors that are key to our shared prosperity: digital and cyber, maritime and shipping, and also renewable energy, especially recognising Oman’s potential as a green hydrogen producer.

“These priorities have driven the agenda for our bilateral partnership, and I am confident that this will go from strength to strength in the years to come.”

According to a report from Moody’s Investors Service, Oman could follow-up the $2.98 billion fiscal surplus achieved in 2022 with a further surplus this year, albeit slightly smaller, as long as oil prices remain around the $90-$95 per barrel mark for the 12 month period.

The sultanate has targeted a move towards renewable energy as part of its Vision 2040 plan. This includes the $417 million 500 Mw Ibri 2 Solar field, which was inaugurated at the end of January 2021. With 1.5 million solar panels the plant is Oman’s largest renewables project.

Justin Alexander, director of Khalij economics and Gulf analyst for GlobalSource Partners, said: “Clean energy is an obvious area of interest on both sides.”

In September, UK-based energy services provider Petrofac signed a memorandum of understanding with Oman Hydrogen Centre to collaborate in developing capabilities for Oman’s renewable energy sector, particularly in green hydrogen.

Green hydrogen offers a strategic opportunity for the country to ensure its energy security and diversify its economy, while supporting the decarbonisation efforts of hard-to-abate sectors both in Oman and around the world. 

Oman’s Ministry of Energy and Minerals’s green hydrogen strategy anticipates an estimated $140 billion in investment in a new low-carbon energy industry. The country has committed to reaching net-zero emissions in 2050, in line with the Paris Agreement’s objectives of limiting global warming to 1.5°C compared to pre-industrial levels.

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The GCC and UK are currently pursuing plans to sign a free trade agreement, with the first round of talks having been concluded at the end of September. The target is to have the deal signed by the end of 2023.

Cassidy Lyon said: “As the UK seeks a GCC trade agreement, trade relations between the two countries would certainly be expected to benefit, especially with the support of the Sovereign Investment Partnership’s business activity further strengthening the economic synergies.”

Government analysis shows that a free trade deal with the GCC is expected to increase trade by at least 16 percent, add at least £1.6 billion a year to the UK economy and contribute an additional £600 million or more to UK workers’ annual wages.