2012 Investment Climate Statement - Oman

2012 Investment Climate Statement
Bureau of Economic and Business Affairs
June 2012

Openness to, and Restrictions Upon, Foreign Investment

Advantages of investing in Oman include:

· Oman’s business-friendly environment, including the U.S.-Oman Free Trade Agreement; a modern business law framework; respect for free markets, contract sanctity, and property rights; relatively low taxes; and a one-stop-shop at the Ministry of Commerce and Industry for business registration;

· The talented, educated, and largely bilingual Omani work force;

· The excellent quality of life: Oman is a safe, modern, friendly, and scenic country, with outstanding international schools, widely-available consumer goods, modern infrastructure, and a convenient and growing transportation network;

· Oman’s geographic location, just outside the Persian Gulf and the Strait of Hormuz, along busy shipping lanes carrying a significant share of the world’s maritime commercial traffic, with convenient access and connections to the Gulf, Africa, and the subcontinent; and,

· The steady and ambitious investment by the Government of Oman in the country’s infrastructure, including free zones, seaports, airports, rail, and roads, as well as in its health care and educational systems and facilities.

Oman actively seeks foreign investment and is in the process of improving the framework to encourage such investments. Oman promotes higher education, manufacturing, healthcare, aquaculture, renewable energy, ICT, and tourism as areas for investment. Investors transferring technology, developing management expertise, and providing training for Omanis are particularly welcome. The Public Authority for Investment Promotion and Export Development (PAIPED, formerly OCIPED) is tasked with attracting foreign investors and smoothing the path for business formation and private sector development. PAIPED also provides prospective foreign investors with information on government regulations, which are not always transparent and sometimes inconsistent. Although the Ministry of Commerce and Industry (MoCI) and PAIPED have established a ‘one-stop shop’ for government clearances, the approval process for establishing a business can be slow, particularly with respect to labor requirements. Further, there is anecdotal evidence of a difference between treatment given to majority Omani companies, which tend to be approved quickly, and that experienced by American companies. The MoCI claims 95% of registrations are turned around in one day, while American applicants report up to eleven-month delays.

In 2011, Oman experienced nationwide protests associated with the “Arab Spring”, which many observers attributed to youth demands for greater economic opportunity and transparency. (With more than 50% of the 2.9m population under 20, there is a national imperative to address the mismatch between limited available jobs and the coming demographic “youth bulge”.) The Government of Oman (GoO) responded swiftly, decreeing the creation of 50,000 new jobs, 35,000 in the public sector, and raising the private sector minimum wage to RO 200 ($520). The minimum wage does not apply to third country nationals, and there have been reports of companies switching to contract employment of foreigners to avoid mandates associated with Omani citizens. According to the Public Authority for Social Insurance, at the end of November 2011 the average private sector wage was RO 314 (about $1000), with half of the private sector workforce earning minimum wage or below and 75% earning below RO 300. According to the Minister of Finance, Darwish al Balushi, the GoO exceeded its target, creating 94,000 jobs by the end of 2011. By the end of the year, there was a 4% drop in the private sector workforce as Omani citizens opted for the newly created positions in the public sector, which are perceived as being more secure and comfortable and offer higher average wages. (In 2010, for example, the average private sector worker grossed $4,692 while the public sector counterpart earned $19,812.)

In response to protester demands, the GoO also managed to cover huge increases in social subsidies (scholarships, wage supports, housing allowances, etc.) thanks to prevailing high oil prices, averaging $102 per barrel in 2011, and end up with a surplus of $2.2bn at the end of 2011. (Oil production in the Sultanate reached 159.07 million barrels in the first half of 2011 with 878,800 barrels produced per day, up 2.6 percent compared with the same period the previous year.) In 2012, the GoO has announced a $26bn budget (a 9% increase in spending) with robust increases in education, health, public employment, and social spending, and plans to cover an expected $3.12bn deficit with oil and gas sales and issuance of domestic bonds worth $520m. The budgeted oil reference price this year is $75 (up from the previous $58 reference price), and if current global trends continue to keep oil close to $100 per barrel the GoO should have no problem paying for the new benefits.

With the implementation of the U.S.-Oman Free Trade Agreement (FTA) on January 1, 2009, U.S. firms may establish and fully own a business in Oman without a local partner. U.S.-Oman FTA commitments have increased opportunities for U.S. financial service providers, as well as cross-border service providers in the areas of communications, express delivery, computer-related technologies, health care, and distribution, among others. Other (i.e., non-U.S.) majority foreign-owned entrants are barred from most professional service areas, including engineering, architecture, law, and accountancy. There are some exceptions for international consultancies, though requirements are strict. For example, engineering consultancies must be 35% owned by an Omani who is currently practicing in the specialized field with a relevant degree and minimum ten years’ experience. Although U.S. investors are provided national treatment in most sectors, Oman has an exception in the FTA for legal services, limiting U.S.-ownership in a legal services firm to no more than seventy percent. In addition, Oman has limited foreign lawyers to practicing in appeals courts, with the goal of phasing them out entirely in the court system; many expatriates continue to work as corporate lawyers and advisors however, and arbitration is widely used. In 2011, Oman also began to enforce a new directive limiting customs clearing and forwarding activities to Omani and GCC citizens. Oman has not historically had a provision in its commercial legal framework for the establishment of a foreign-owned branch except for the purpose of responding to a government tender; discussions on how to register American branches outside of the widely used LLC format are ongoing.

The Foreign Capital Investment Law (Royal Decree No. 102/94) provides the legal framework for non-U.S. and non-GCC foreign investors. Oman amended this law in 2000 as part of its WTO accession and in 2009 to implement the U.S.-Oman Free Trade Agreement. For most investments (apart from those covered by the FTA) the law requires that there be at least 30% Omani ownership. There are exceptions; notably wholly foreign-owned branches of foreign banks are allowed to enter the market. Non-American investors may also obtain approval by the Ministerial Cabinet to allow a 100% foreign-owned business entity if the investment is in the national interest. Aside from ensuring that the investor satisfies the legal requirements for entry into the market, Oman does not screen foreign investment. If a concern were raised regarding a particular investor’s entry into the market, the MoCI would be the government body tasked with reviewing the proposed investor. Investments are not screened for competition considerations, and Oman does not have an active competition commission.

Oman has privatized some parastatals and is in the process of privatizing others, but maintains government dominance in several sectors. This year the government amended legislation to allow for public-private partnerships in government hospitals and clinics. Foreign investors are allowed to participate fully in privatization programs, even in drafting public-private partnership frameworks. The most successful privatization program to-date has been the electricity and desalination privatization program. The telecommunications sector has also been increasingly privatized.

Industrial establishments must be licensed by MoCI. In addition, a foreign firm interested in establishing a company in Oman must obtain relevant approvals from other ministries, such as the Ministry of Environment and Climate Affairs and organizations such as the Oman Chamber of Commerce and Industry. Foreign workers must obtain work permits and residency permits from the Ministry of Manpower and the Royal Oman Police - Immigration. To speed the approval process, MoCI created a “one-stop-shop” where representatives from relevant ministries are present to receive inquiries, forms, and applications. However the authentication of foreign registration documents (Certificate of Incorporation, Articles of Association, Board resolution to participate in the new company, and Power of Attorney appointing one or more individuals to sign the constitutive contract) is a time-consuming process which has frustrated many investors.

Oman has a flat tax of 12% for all businesses; the first $78,000 in profits is tax exempt. (This differs for oil and gas investors, whose taxes are negotiated in individual mining concession agreements.) Duty and tax exemptions are granted for renewable five year periods for investments in manufacturing, mining, agriculture, aquaculture, tourism, exports, education and healthcare. There are no taxes on personal income, capital gains, or inheritance. There are a few minor municipality taxes on lease agreements, hotel and leisure facilities etc. Foreign airlines and shipping companies are completely exempt from taxation based upon reciprocal treatment by foreign governments. Higher education institutes, private sector schools, training institutes, and private hospitals are also tax exempt. The free zones in Salalah and Sohar offer 25-30 year tax holidays.

Commercial law in Oman is continually evolving. Although the judicial process is slow, business contracts are generally enforced. According to the 2012 World Bank Ease of Doing Business Report, it takes an average of 598 days to enforce a business contract. Insolvency laws are nascent, at this time allowing only for complete dissolution rather than restructuring, and many businesses opt to simply shut their doors rather than go though the insolvency process, which can take up to four years. The U.S. Department of Commerce provided training and capacity building in 2011 to encourage Omani policy makers to update existing bankruptcy legislation to allow for appropriate reorganization. Would-be investors should note that Omani law provides for arrest and imprisonment in many bankruptcy cases. Oman recently adopted an e-Commerce law although it has yet to be tested in the court system.

The current process for registering a business in Oman is laid out in the Foreign Investment Law (promulgated by Royal Decree No. 102/94) as per below. In late 2011 PAIPED requested U.S. government assistance to begin revising and updating the law. The current requirements include:

1. Submit an application duly signed by at least three founders in case of Joint Stock Companies, and by at least two members in case of other types of Companies.

2. Submit a certificate from the Commercial Registration stating that no other Company is registered in Oman under the same proposed commercial name.

3. Prepare the Articles of Association/Incorporation of the proposed Company, according to its legal type.

4. If a proposed partner is a juristic person (corporate entity with legal standing), it must submit its Articles of Association and Certificate of Registration and Power of Attorney to its authorized Managers. In case of a non-Omani juristic person, also a brochure of the Company’s major projects and last balance sheet (if any) are preferred to be submitted as well, duly attested (as well as the former) by the concerned authorities in the country where the head office of the Company is located and from the Embassy of Oman there.

5. Capital of the proposed Company should not be less than RO 150,000 ($390,000). (Note: US Companies exempted under FTA.)

6. Omani proportion in the Capital and share of profit should not be less than 35%. (Note: US Companies exempted under FTA.)

7. Activities and objects of the proposed Company should be limited within one specific field. No foreign participation is allowed in General Trade and Service ventures.

8. The non-Omani partner other than citizens of Gulf Cooperation Council (GCC) States in the proposed Company must be a Juristic Person having an experience of not less than 5 years in the same field of the activity required.

9. Written approvals must be obtained from the appropriate government departments concerned with the proposed activities.

10. When the establishment of the Company is approved, the necessary financial recommendations are to be forwarded and steps for registering with the Commercial Registry are to be taken.

Oman’s Key International Competitiveness Rankings:

2011 Transparency International Perceptions of Corruption Index: 4.8/10*

2011 Heritage Foundation Index of Economic Freedom: 69.8/100**

2012 World Bank Ease of Doing Business Indicator: 49th/183 countries

*0: “Highly Corrupt”-10: “Very Clean”

**100: “Maximum Economic Freedom”

Conversion and Transfer Policies

Oman does not have restrictions or reporting requirements on private capital movements into or out of the country. There are no plans to change remittance policies. Oman does not restrict the remittance abroad of equity or debt capital, interest, dividends, branch profits, royalties, management and service fees, and personal savings. The Omani Rial is pegged at a rate of RO 0.3849 to the U.S. dollar, and there is no difficulty in obtaining exchange. The government has consistently, firmly, and publicly stated that it is committed to maintaining the current peg. The GoO has stated firmly it will not join the proposed GCC common currency. There is no delay in remitting investment returns or limitation on the inflow or outflow of funds for remittances of profits, debt service, capital, capital gains returns on intellectual property, or imported inputs. Investors can remit through legal parallel markets utilizing convertible, negotiable instruments. There are no surrender requirements for profits earned overseas.

The Central Bank of Oman (CBO) regulates local banks on all lending practices to individuals and corporations inside the Sultanate. In May 2011, Oman approved the introduction of Islamic banking to the Sultanate. Regulations governing the new sector will be issued by CBO in early 2012. Omani financial institutions, controlled by a strong and effective regulatory system, are well-capitalized, have low non-performing loan ratios, and tend to report attractive profits. Individuals have to be resident in Oman or have an investor visa to open a bank account and transfer funds. For foreign bank transfers, Omani banks require complete documentation of the source of funds before approving the transaction.

Expropriation and Compensation

Oman's interest in increased foreign investment and technology transfer make expropriation or nationalization unlikely, although there have been sporadic reports of these in the past several years. In the event that a property must be nationalized, e.g., for a public building, Article 11 of the Basic Law of the State stipulates that the Government of Oman must provide prompt and fair compensation. There are no recent examples of expropriations, although on December 8, 2011 the first trade dispute under the U.S.-Oman FTA was submitted to formal arbitration at the World Bank's International Center for Settlement of Investment Disputes. The complainant filed an initial intent to arbitrate on April 4, 2011, claiming expropriation of his multi-million dollar investment in a mining operation by the Oman Mining Company after he was arrested for allegedly mining without necessary permits. (Under the U.S.-Oman Free Trade Agreement, Oman must follow international standards for expropriation and compensation cases, including access to international arbitration.) In practice, Oman compensates for any expropriations it makes, although at times the compensation can be incrementally paid. There are no laws forcing local ownership in any sector, though land ownership is limited to Omani and GCC nationals outside of special Integrated Tourism Complexes set aside for foreign residency. (The U.S.-Oman FTA excludes land ownership.)

Dispute Settlement

Oman is a party to the International Convention for the Settlement of Investment Disputes between States and Nationals of other States (ICSID) and the UN New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. Oman’s legal framework provides for the enforcement of arbitration awards and most foreign companies elect for dispute resolution by arbitration. Business disputes within Oman are resolved through the Commercial Court. The Commercial Court has jurisdiction over most tax and labor cases, and can issue orders of enforcement of decisions. The Commercial Court can also accept cases against governmental bodies; however, the Court can only issue, and not enforce, rulings against the government. If the value of the case is less than $26,000, the Commercial Court’s decision is final. If the value exceeds $26,000, the case is taken up by a Court of Appeal. Parties may appeal their case to the Supreme Court. Cases can only be reopened after judgment if new documents are discovered or irregularities (e.g., forgery, perjury) are found. There is no provision for the publication of decisions, apart from arbitrations carried out under the U.S.-Oman FTA, and the decisions do not carry precedent. U.S. firms should note that the Commercial Court is relatively new, replacing the Authority for Settlement of Commercial Disputes, and many practical details regarding the new Court have yet to be finalized.

Oman has written and consistently applied commercial and bankruptcy laws, though the U.S. Department of Commerce is providing expertise to help the GoO update them. According to the World Bank, it takes on average four years to resolve bankruptcy and investors can expect to recover 35.7 cents on their dollar. However, the expense of resolving bankruptcy is significantly lower in Oman than the region. Would-be investors should note that Omani law (Royal Decree 55/1990) provides for civil arrest and imprisonment in many bankruptcy cases.

Oman maintains other judicial bodies to adjudicate various disputes. The Labor Welfare Board under the Ministry of Manpower hears disputes regarding severance pay, wages, benefits, etc. The Real Estate Committee hears tenant-landlord disputes, the Police Committee deals with traffic matters, and the Magistrate Court handles misdemeanors and criminal matters. All litigation and hearings are conducted in Arabic. Binding international arbitration of investment disputes between foreign investors and the Omani government is recognized. Omani courts recognize and enforce foreign arbitral awards, and international arbitration is accepted as a means to settle investment disputes between private parties.

The Oman Chamber of Commerce and Industry has an arbitration committee to which parties to a dispute may refer their case when the amounts in question are small. Local authorities, including 'walis' (district governors appointed by the central government), also handle minor disputes. Although Oman is a member of the GCC Arbitration Center, located in Bahrain, the Center is not yet firmly established and is not widely used. The Bahrain Center for Dispute Resolution, a member of the American Arbitration Association (AAA) in New York, is very active in the region.

In 2011, a U.S. investor brought the first investment dispute case against the GoO for arbitration under the FTA. Counsel for the complainant and the GoO are still in the investigation stages of the case.

Performance Requirements and Incentives

Oman is subject to trade related investment measures (TRIMs) obligations. At this time, there are no allegations that Oman maintains any measures that violate the WTO TRIM text.

Oman offers several incentives to attract foreign investors. These include:

- A five-year tax holiday, renewable once for an additional five years;

- Subsidized plant facilities and utilities at industrial estates;

- Exemption from customs duties on equipment and raw materials during the first ten

years of a project, with packaging materials exempted for five years;

- English as an accepted lingua franca for business contracts and operations;

- A low corporate tax rate, capped at 12%; and

- No personal income or capital gains tax.

Firms involved in agriculture and fishing, industry, education and training, healthcare, mining, export manufacturing, tourism, and public utilities are eligible for the renewable 5-year tax holiday and exemption from duties on capital goods and raw materials. Under the Industry Organization and Encouragement Law of 1978, incentives are available to licensed industrial installations on the recommendation of the Industrial Development Committee. “Industrial installations” include not only those for the conversion of raw materials and semi-finished parts into manufactured products, but also mechanized assembly and packaging operations.

Omani and American-owned commercial enterprises, and foreign industrial producers in joint venture with local firms that produce goods locally, need to meet standard quality specifications. The government offers subsidies to offset the cost of feasibility and other studies if the proposed project is considered sufficiently important to the national economy. Only in the most general sense of business plan objectives does proprietary information have to be provided to qualify for incentives.

Foreign investors do not need to purchase from local sources or export a certain percentage of output. Foreign investors have access to local and foreign exchange for export finance. Offsets on civilian government procurements are rare, and are generally limited to procurements by the Ministry of Defense, Royal Oman Police, or Royal Office. U.S. and foreign firms are able to participate in government financed/subsidized research programs on a national treatment basis, and are at times solicited. Foreign firms operating in Oman, including U.S. companies, must meet Omanization requirements, which require businesses to employ a percentage of Omani citizens as determined by the Ministry of Manpower.

On November 15, 2011, the U.S. Department of Commerce initiated antidumping (AD) and countervailing duty (CVD) investigations of circular welded carbon-quality steel pipe (steel pipe) imported from Oman. On December 9, 2011, the U.S. International Trade Commission (ITC) preliminarily determined that there is a reasonable indication that a U.S. industry is materially injured by reason of imports of steel pipe from Oman that are allegedly sold in the United States at less than fair value and subsidized by the Government of Oman. Commerce is currently scheduled to announce its preliminary CVD and AD determinations on March 27 and April 4, 2012, respectively. In 2010, imports of steel pipe from Oman were valued at an estimated $24.2 million.

A full list of incentives is laid out in the Foreign Investment Law as follows:

1. Interest-free loans by Government under Royal Decree No. 83/80 concerning the financial support to the private sector in agriculture, fisheries, industry, mining and quarrying and Royal Decree No. 40/87 of the financial support to the private sector in Industry and Tourism.

2. Low interest loans to industrial firms from the Oman Development Bank.

3. Exemption from customs duties on imports of equipment and raw materials required for production purposes.

4. Tariff protection through imposition or increase of customs duties on imported goods similar to local products or to prohibit or restrict their importation, taking into consideration the quality and quantity of local production and the interest of the consumer. The list of products currently under protection includes some types of pipes, cement, cement-products, paints, polyurethane products, corrugated cartons, vegetable oil, detergents and chain-link fencing. (Note: Some of this support is currently being challenged by foreign competitors under WTO rules.)

5. Exemption from corporate tax for a period of five years which can be renewed for another period of five years starting from the date of permission of registration of production commencement.

6. Planned and serviced industrial plots for setting up factories.

7. Recommendation to the Ministry of Electricity and Water for the reduction of utility charges for industrial purposes for those industries fulfilling the conditions for reduction.

8. Survey of industrial investment opportunities and preparation of feasibility studies important to national economy.

Right to Private Ownership and Establishment

Oman's commercial companies law requires that all actions by private entities to establish, acquire, and dispose of interests in business enterprises be announced in the commercial register, and are subject to the approval of MoCI. Foreign and domestic firms can engage in most commercial activities after obtaining a business license from the MoCI.

Protection of Property Rights

Securitized interests in property, both moveable and real, are recognized and enforced in Oman. Foreign nationals are able to obtain mortgages on land in designated Integrated Tourism Complexes. Individuals record their interest in property with the Land Registry at the Ministry of Housing. The legal system, in general, facilitates the acquisition and disposition of property rights.

Oman is a member of the World Intellectual Property Organization (WIPO) and is registered as a signatory to the Madrid, Paris and Berne conventions on trademarks and intellectual property protection. Oman has also signed the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty. Oman is also a signatory to the International Convention for the Protection of New Varieties of Plants. Trademark laws in Oman are Trade Related aspects of Intellectual Property Rights (TRIPs) compliant. Trademarks are valid for ten years while patents are generally protected for twenty years. As “literary works”, software and audiovisual content is protected for fifty years.

In 2011 the GoO took steps to enforce the Intellectual Property Rights of American pharmaceutical and software manufacturers.

Transparency of Regulatory System

Because commercial registration and licensing decisions often require the approval of multiple ministries, the government decision-making process can be tedious and may be perceived as non-transparent. Obtaining licenses for some business activities, particularly labor certifications, can be time consuming and complicated for foreign companies, as the various ministries from which licensure is required do not widely disseminate their policies, quotas, and regulations. In 2011 U.S. investors complained about slowness of approvals for new mining exploration licenses. The Ministry of Commerce and Industry (MOCI) extended a moratorium on new licenses; the freeze had been imposed due to speculation of mining plots. Investors complain the MOCI should separate permitting for simple quarrying activities, the majority of applications, from large scale mineral concessions involving millions of dollars of capital expenditure. They claim bureaucracy in the licensing and environmental permitting process is deterring investment at a time of high commodity prices.

Oman's labor laws, which require minimum quotas of Omani employees depending on the type of work, form another potential impediment to foreign investment. The government's Omanization effort has been the subject of criticism in the Omani private sector, which sees it as harmful to productivity and restrictive of firms’ hiring and firing policies. U.S. companies are not exempt from Omanization requirements under the FTA. Omanization requirements increased after protests in February, March, and April of 2011, and included an obligation to provide higher wages and more training programs for Omani employees.

The government occasionally publishes proposed laws and regulations for public comment, particularly laws that may affect the private sector. However, the Oman Chamber of Commerce and Industry complained new mandates in the revised labor law were imposed with no consultation or grace period in late 2011. There has been a move in recent years towards greater transparency in telecommunications, securities, and corporate governance of publicly traded companies. The Telecom industry is regulated by the Telecommunications Regulatory Authority (TRA). The TRA oversees the process of liberalization and privatization of the telecommunications sector. In order to meet Oman’s FTA commitments, the TRA has issued new procedures for businesses to qualify for Class I licenses and has submitted for public comment its proposal to issue Class II licenses.

Oman has also improved the transparency of its securities markets and publicly traded companies largely through the work of the Capital Markets Authority (CMA), the regulatory body for such areas. The CMA requires all public companies to comply with a set of standards for disclosure. Under the requirements, holding companies must publish the accounts of their subsidiaries with the parent companies' accounts. Companies must fully disclose their investment portfolios, including details of the purchase cost and current market prices for investment holdings. The new initiatives also require publication of these financial statements in the local press. At the same time, the Central Bank has introduced new rules to limit the level of "related party transactions" (financial transactions involving families or subsidiary companies belonging to major shareholders or board members) in Oman's commercial banks. The new rules will help increase transparency in financial transactions in local banks and the Muscat Securities Market (MSM), and will help clarify the activities of publicly-traded companies. The CMA has also moved to shorten the time period companies have to file their financial statements after the close of the fiscal year from three months to two, shorten the time period in which companies have to hold their annual meeting after the close of the fiscal year from four months to three, and require that an internal audit be completed for joint stock companies with capital of over five million RO (USD 13 million).

Efficient Capital Markets and Portfolio Investment

There are no restrictions in Oman on the flow of capital and the repatriation of profits. Foreigners may invest in the Muscat Securities Market (MSM) so long as they do so through an authorized broker. Access to Oman's limited commercial credit resources is open to Omani firms with some foreign participation. At this time, there is not sufficient liquidity in the market to allow for the entry and exit of sizeable amounts of capital. Joint stock companies with capital in excess of $5.2 million must be listed on the MSM. According to the recently amended Commercial Companies Law, companies must have been in existence for at least two years before being floated for public trading. Private, publicly traded firms in Oman are still a relatively new phenomenon. The Muscat Securities Market was founded in 1988. Publicly traded firms remain a minority of businesses, the majority remaining family enterprises. The banking system is sound and well-capitalized with low levels of non-performing loans and generally high profits. Banks’ portfolios are dominated by personal loans, perceived as safe as they are typically drawn directly from borrowers’ government salaries. The government finances most infrastructure projects. As a surplus nation enjoying high prices on oil exports, the GoO issues few bonds, and private investment and pension funds typically invest in real estate, manufacturing, and limited projects outside the country. Typical security provided is as follows:

· mortgage over land (owned, usufruct or lease)

· commercial mortgage (over assets of company)

· share pledge (for joint stock companies only)

· parent company guarantees

· bank guarantees / letters of credit

Competition from State-Owned Enterprises

Oman has been a regional leader in the privatization of utilities, especially power, water and waste management. In general, private enterprises are allowed to compete with public enterprises under the same terms and conditions with access to markets, and other business operations, such as licenses and supplies. Public enterprises, however, have comparatively better access to credit. State-Owned Enterprises (SOEs) are active in a variety of fields, namely utilities, telecommunications, the national airline, and food production. Board membership of SOEs is composed of various government officials, with a senior official, usually cabinet-level, serving as chairperson.

Oman has two sovereign wealth funds; the General Reserve Fund of the Sultanate of Oman, and the Oman Investment Fund. The majority of the Funds’ assets are invested abroad, although their dealings are opaque. Omani sovereign wealth funds are not required by law to publish an annual report or submit their books for an independent audit.

Corporate Social Responsibility

There is a general awareness of corporate social responsibility (CSR) among businesses in Oman. Several companies routinely host competitions in elementary and secondary schools for academic performance and artistic skill; many sponsor charitable, academic and social events. The larger Omani firms have CSR policies; however, most of Oman’s smaller enterprises do not knowingly follow CSR principles such as the OECD Guidelines for Multinational Enterprises. Foreign companies operating in Oman, however, are generally OECD compliant. Firms that pursue CSR are viewed favorably. The Embassy is supporting a program through the Middle East Partnership Initiative to promote CSR through assigning interns to local firms to develop CSR policies and programs.

Political Violence

Politically motivated violence is rare in Oman. Some incidents of violence were associated with demonstrations in February, March, and April 2011, although most protests were peaceful and avoided political issues. The government generally allows demonstrations to occur, but requires individuals to apply for a permit two weeks in advance.


Ministers are not allowed to hold offices in public shareholding companies or serve as chairperson of a closely held company. However, many influential figures in government maintain private business interests and some are also involved in private-public projects. These activities either create or have the potential to create conflicts of interest. In 2011, the Tender Law was updated to preclude Tender Board officials from adjudicating projects involving interested relatives to “the second degree of kinship”.

Most major contracts are awarded through a slow and rigorous tender process governed by Oman’s Tender Board. Pursuant to the U.S.-Oman FTA, Oman advertises most tenders in the local press, international periodicals, and on the Tender Board's website, although a few sensitive projects are not publicized and not subject to FTA obligations. Also, bidders are now requested to be present at the opening of bids, and interested parties may view the process on the Tender Board's website. Disputes arising from the tendering process are reviewed domestically.

Sultan Qaboos has dismissed several ministers and senior government officials for corruption during his reign. In one of Oman's biggest corruption scandals in several years, over 30 government and private sector employees, including the Under Secretary of the Ministry of Housing, Electricity, and Water, were convicted in October 2005 on counts of bribery and forgery, among others. There was also a major reshuffle after the protests in early 2011 and the State Audit Institution, renamed the “State Financial and Administrative Audit Institution” was granted expanded powers under Royal Decree 27/2011. The institution’s mandates now encompass the following:

· to secure public funds, provide a framework for efficient management of such funds, and ensure their efficient and optimal utilization;

· to detect financial and administrative irregularities and identify inherent deficiencies in the relevant financial and administrative laws;

· to identify the causes of, and assign responsibility for, any deficient performances; and

· to ensure transparency in financial and administrative transactions, and make recommendations for the avoidance of conflict of interests and for the prevention of financial and/or administrative irregularities.

Oman has not yet signed the UN Convention against Corruption, though it is an observer and the government has set up a committee to consider and prepare for membership.

Bilateral Investment Agreements

Oman is a member of the Gulf Cooperation Council, which is in the process of finalizing Free Trade Agreements with the European Union, Malaysia, and Singapore. While enjoying a Free Trade Agreement, Oman does not have a bilateral taxation treaty with the U.S. Omani tax authorities may allow relief for foreign taxes paid, limited to the Omani 12% tax rate. Oman has signed double taxation treaties with many countries including: Algeria, Belarus, Belgium, Brunei, Canada, China, Croatia, Egypt, France, India, Iran, Italy, Mauritius, Morocco, Moldova, Netherlands, Pakistan, Russia, Seychelles, Singapore, South Africa, South Korea, Sudan, Syria, Tanzania, Thailand, Turkey, Tunisia, the United Kingdom, Uzbekistan, Vietnam and Yemen.

OPIC and Other Investment Insurance Programs

Oman is eligible for Export-Import Bank of the United States (EXIM) financing as well as Overseas Private Investment Corporation (OPIC) insurance coverage. Unusual for a Gulf country, Oman provides export credit insurance against commercial and political risk, through the Oman Development Bank, as well as the independent Export Credit Guarantee Agency of Oman, a closed stock company which has helped facilitate the dramatic rise in non-oil exports to over 100 countries over the last 20 years through extending credit insurance, guarantees and financial support to Omani exporters. The U.S. Embassy in Muscat purchases local currency at the fixed rate of 1 Omani Riyal to USD 2.6. Due to the likelihood of continuing high oil prices, there is very little risk of devaluation or depreciation of the Omani rial in the next year.


Oman's 2003 Labor Law governs employee/employer relations in the private sector, and enumerates the protections afforded both Omani and expatriate workers. The law sets the minimum working age at 15, provides clear guidelines on wages and working hours for Omani citizens, and specifies the penalties for noncompliance with its provisions. Work rules must be approved by the Ministry of Manpower and posted conspicuously in the work place. The labor law and subsequent regulations also detail requirements for occupational safety and access to medical treatment. Working conditions in Oman for many blue-collar expatriate workers are difficult. Expatriates, mainly from Western countries, fill many managerial positions. In 2006, Oman made significant amendments to the 2003 Labor Law. The amendments and associated Ministerial Decisions allow for more than one union per firm, require employers to engage in collective bargaining over terms and conditions of employment, and specify guidelines for conducting strikes. The amendments also prohibit employers from firing or otherwise penalizing workers for engaging in union activity, and increase the penalties for hiring underage workers or engaging in forced labor. As a result about 100 unions were registered, covering both Omanis and expatriates.

On October 26, 2011, Sultan Qaboos issued Royal Decree No 113/2011 amending provisions in the Labor Law to provide increased protections and rights to the private sector workforce including shorter workweeks, fully paid maternity leave, and increases in overtime pay. The business sector has expressed concern about the increased costs of implementing many of these changes. The changes are expected to primarily affect only Omani citizen workers; expatriate workers are often hesitant to assert their rights out of concern that their employment contracts might be allowed to lapse, requiring them to leave Oman.

The most important changes are as follows:

· If the ownership of a project partially or wholly changes hands, the new owner must continue to employ the previous Omani workforce at their previous salaries;

· Direct deposit receipt is the only proof of payment of salary;

· 30 days annual paid leave (up from 15) after six months continuous work (down from one year) and six days paid emergency leave (up from four). A worker may not waive his or her leave;

· Overtime begins to accrue after 45 hours of work in one week (down from 48) or more than nine hours in one day;

· During Ramadan, Muslim workers shall not be required to work more than 30 hours a week (down from 36) or 6 hours a day;

· Overtime day work will be paid at 25% above the normal salary rate; night work at 50%;

· Every worker must receive two paid days of rest (up from 24 hours) after five continuous days of work;

· Women may not be required to work between the hours of nine p.m. to six a.m. (previously seven p.m. to seven a.m.) (Note: This rule is subject to multiple exceptions as published by the Ministry of Manpower, such as health workers, transportation workers, and women working in certain petrochemical fields.)

· Paid maternity leave of 50 days up to three times per woman per employer (up from 42 Unlawfully discharged workers (as determined by the courts) will receive a minimum of three months of their gross wage and any severance pay to which they were due in the original work contract;

· New penalties for failure to adhere to Omanization rates.

The minimum wage for Omanis working in the private sector, including salary and benefits, was increased in February 2011 from RO 120 ($312) to RO 200 ($520) per month. Omani employees must also receive a monthly RO10 ($26) accommodation allowance and a RO10 transportation allowance. There is no minimum wage for non-Omanis.

Subscription to the Public Authority for Social Insurance (PASI) scheme is mandatory for all employers employing Omanis. Employees are covered against old age, disability, occupational and non-occupational injuries and death. The employer and employee are required to contribute 9.5% and 6.5% respectively of the basic salary to the fund every month and every employer must pay a further 1% as security against occupational injuries and diseases. For foreign employees who are not beneficiaries of PASI, End of Service Benefits (EOSB) are calculated per the Labor Law. EOSB is computed as being equal to 15 days basic wages for each year in the first three years of service, and one month for each of the following years. The EOSB is calculated on the basis of the final basic salary. No EOSB is payable if the period of service is less than one year or the employee was dismissed without notice, e.g., for serious cause in accordance with the Labor Law.

The government’s Omanization initiative, a quota system mandating hiring of specified percentages of Omani citizens, is a high priority for the government. Approximately 50,000 young Omanis enter the workforce each year. Most of these new entries seek government employment, and Omanis make up 84% of the public sector’s labor force. Only 18% of the private workforce is Omani. Organizations with more than 50 employees are expected to set aside the following “Omanized” positions for citizens: HR Manager, Security Officers, Secretarial / Administrative Clerks, and Drivers. Current Omanization rates for selected sectors are as follows:

· Information Technology

o Senior Management 9%

o Sales and Marketing 100%

o Technical Support and Infrastructure 15%

o Applications and Services Development 15%

· Consultancy Services

o Engineers 25%

o Draftsman 70%

o Material Supervision 45%

o Land Survey 80%

o Accountants 60%

o Administrative Posts 90%

· Oil & Gas 82-90%

· Telecom 54-80%

· Finance and Insurance Sector 45- 90%

Oman’s Free Zones offer lower Omanization rates. Pressure to meet Omanization goals significantly increased as a result of protests in early 2011. The Ministry of Manpower will not issue a labor clearance for companies that fail to hire qualified Omanis to meet the labor targets. If qualified Omanis are not available, the Ministry may issue labor clearances pending future availability of qualified Omanis to fill such positions. The Ministry also assists companies in training Omanis for high-demand positions if the companies agree to hire them once trained. Under the U.S.-Oman FTA, the Omani government may set Omanization targets of up to 80% for U.S. companies in the Sultanate, excluding managers, board members, and specialty personnel. Private companies have expressed concerns about the work ethic of Omanis compared with expatriate staff, as well as absenteeism of local workers who are harder to dismiss because of the protections they enjoy under local employment laws. The Ministry of Manpower is authorized to impose fines for companies that don’t achieve targets. These fines can reach up to 50% of the average of total non-Omani salaries making up the difference between target and actual Omanization rates, though they are rarely enforced if the company is making good faith efforts to recruit Omanis. In addition, harsh penalties are applicable for transferring employment visa sponsorship from one individual to another or working under tourist visa status.

Oman is a member of the International Labor Organization (ILO). Oman has ratified four of the eight core ILO standards, including those on forced labor, abolition of forced labor, minimum working age, and the worst forms of child labor. Oman has not ratified conventions related to freedom of association or collective bargaining, or the conventions related to the elimination of discrimination with respect to employment and occupation.

Foreign-Trade Zones/Free Ports

The government has established free-trade zones to complement its port development projects investing heavily in the Duqm, Salalah, and Sohar Free Zones. These areas include strategically located ports and are well connected with modern infrastructure. An incentive package for investors includes a 30-year tax holiday, duty-free treatment of all imports and exports, and tax-free repatriation of profits. Additional benefits include streamlined business registration and lowered Omanization requirements.

Foreign Direct Investment Statistics

Systematic information on foreign direct investment is limited. According to PAIPED, FDI reached $16 billion in 2010, or about 20% of GDP. The UK was the top source of investment at 33%, with the U.S. second at 20% and the UAE third with 15%. As per Capital Market Authority statistics from December 2009, foreign participation, including that from GCC nationals, equaled 23% in terms of shares held in the Muscat Securities Market. Foreign capital constituted 24% of the shares held in finance, 21% in manufacturing, and 23% in insurance and services. FDI has jumped over the course of the decade, from only RO 929 million, or $2.4 billion, in 2003.

The largest foreign investor is Royal Dutch Shell Oil, which holds 34% of Petroleum Development Oman, the state oil company, and 30% of Oman Liquid Natural Gas. Other companies, such as Occidental Petroleum, BP Amoco, Novus Petroleum, Hunt, British Gas, and Nimr, have also invested in Oman's petroleum and gas sectors. Two U.S. firms, Gorman Rupp (water pumps) and FMC (wellhead equipment), have entered into industrial joint ventures with Omani firms. Both joint ventures involve modest manufacturing operations. Since 1999, Oman has witnessed increased foreign direct investment through the privatization process. Major foreign investors that have entered the Omani market recently include Suez-Tractabel (France), Alcan (Canada), LG (Korea), Veolia (France), SinoHydro (China), and National Power (UK).

Web Resources

Ministry of Commerce and Industry - http://www.MoCIoman.gov.om/

Ministry of National Economy - www.moneoman.gov.om

Public Authority for Investment Promotion and Export Development (PAIPED) - http://www.ociped.com/

Public Establishment for Industrial Estates -http://www.peie.om/

Export Credit Guarantee Agency of Oman - http://www.ecgaoman.com/

Oman Chamber of Commerce and Industry - http://www.omanchamber.com/

Muscat American Business Council - http://mabcoman.com/