The Omani economy saw another good year in 2012, with high levels of growth on the back of increased hydrocarbons production and solid results from the private sector. However, unemployment remains a concern for the authorities.
In late November, the National Centre for Statistics and Information (NCSI) released figures for the economy’s first-half performance, showing that GDP soared by 16.2% year-on–year (y-o-y). The opening six months of 2012 saw GDP total $39.6bn, compared to the $33.8bn for the same period the previous year. This strong showing, and a similar increase in earnings in the third quarter, saw the state budget record a surplus of $7.5bn in the nine months ending September 30, more than 200% up on the same period in 2011.
Much of this growth came as a result of high oil prices and an increase in hydrocarbons output. According to NCSI data, earnings from the oil and gas sector rose by 19.9% in the first half of the year, contributing $20.47bn to GDP. However, the non-oil sector also performed strongly, adding just over $20.84bn to the economy, an improvement of 12.6% over the opening six months of 2011. With oil continuing to trade at or around $109 per barrel in December, Oman should be looking at continued high returns when the full-year GDP figures are issued in 2013.
While sustained prices helped boost GDP and fill the state coffers, higher production from Oman’s oil fields also played a significant part in the economy’s growth. Average daily production in 2011 was just under 885,000 barrels per day (bpd), but this number increased in November 2012 to 933,000 bpd, a level officials expect will be maintained this year.
Inflation remained subdued during 2012, with the consumer price index rising by just 3.2% as of the end of October, down on the 4% of 2011. This lower rate of inflation helped the Central Bank of Oman keep interest rates at near-historic lows, with the reserve cutting its repo rate from 2% in March to just 1%, in line with its policy of supporting private sector lending and investment.
However, while capital was more freely available and GDP was rising, this did not translate into a rapid increase in job creation. At the beginning of 2012, Omanis made up 14% of the workforce in the private sector, with the balance comprised of expatriates. The Public Authority for Manpower Register said in mid-December that the number of registered unemployed Omanis reached 153,326 people, or 5.4% of the population.
While the government has been stepping up efforts to develop the private sector by offering incentives to firms to hire more local staff and also providing assistance to Omanis to establish their own businesses, these efforts have not been able to keep pace with the rising population.
To this end, the government has been active in creating new public service positions, putting some 44,000 Omanis on the state payroll in 2011. In late 2012, the government announced it was creating a further 56,000 jobs, with Mohsin Bin Khamis Al Balushi, the chairman of the Public Authority for Manpower Register, promising on December 11 that more positions in both the civil service and the security forces would be opened up in 2013.
The government is looking to maintain growth and increase employment this year, with higher allocations for capital works projects in the 2013 budget. Development funding for government departments was increased by 30% in the draft budget, with much of this to be spent on completing infrastructure projects, which Darwish Bin Ismail Al Balushi, the minister responsible for financial affairs, said would help create an investor friendly environment. The new budget also foresees a 40% increase in spending on education, job creation programmes and social support schemes, many of which were aimed at providing young Omanis with the skills to enter the private sector.
Even with the higher spending, the 2013 budget should still return a surplus, given that it has been calculated on a base price for crude of $85 per barrel, more than $20 below the international trading rate as of mid-December, H E Darwish bin Islamil al Balushi, the Minister Responsible for Financial Affairs, said in December.
As long as there is no significant crash of oil prices, Oman should be able to fund its budget from revenue, rather than having to tap into the markets. However, the continuing challenge in the coming year and on will be to turn that funding into employment so Oman can best take advantage of its oil windfalls.
Oxford Business Group