Billion dollar Oman

The long-term vision for Oman means the boom has only just beginning

ANALYSIS, Business, Government's long-term vision, The construction boom
ANALYSIS, Business, Government's long-term vision, The construction boom
ANALYSIS, Business, Government's long-term vision, The construction boom
ANALYSIS, Business, Government's long-term vision, The construction boom
ANALYSIS, Business, Government's long-term vision, The construction boom

The government’s long-term vision for the sultanate means the construction boom is only just beginning. Gary Wright looks at the progress so far and talks to seasoned contractors about the future

Oman is undergoing a transformation but every infrastructure project commissioned by the government is inextricably linked with a need to create jobs.

Any contractor wishing to operate successfully in the country has to understand its unique requirements.

The government has shown a commitment to simplifying the process of applying for tenders and a series of visits around the country is being run by the Tender Board to the Sultanate’s governate.

It is part of a bid to strengthen relations between the board and privately-owned companies with a view to stimulating economic development.

Late last month the Al Buraimi branch of Oman’s Chamber of Commerce and Industry, - on the border with the UAE - hosted a visit by the Tender Board’s Dr Rasheed bin al-Safi al-Huraibi.

He discussed difficulties the private sector faces in relation to tenders, as well as discussing ways to develop and upgrade its services to companies.

In January Oman’s Council of Ministers appointed a consultancy to evaluate the country’s property industry “in terms of its organisational, legislative and commercial aspects”.

The body will be charged with providing recommendations for a regulatory framework following the huge growth of the country’s construction industry with the aim of increasing the size of the sector and its share of GDP.

The council has also asked government ministries to review their own hiring policies and the number of foreign workers employed.

Wages have been an issue for the contractors operating in the Sultanate and
last month the Oman Society of Contractors called on the government to reimburse extra costs it is incurring as a result of a surprise increase in the country’s minimum wage last July.

The trade body for the country’s construction firms has said that the decision, which increased Omani workers’ minimum wage by 47% from OR 220 ($571.28) to OR325 ($843.94) a month will lead to costs escalating on projects where budgets were set at the former minimum wage rate.

Construction employs 57,000 Omanis - set to reach 65,000 this year - and up to 80% are low-paid drivers or labourers.

The Times of Oman reported that Dr P Mohamed Ali, founder of Galfar Engineering and chairman of the OSC said: “Any additional cost, which is arising from this decision, has to be reimbursed by the government or by the clients who have awarded the contract.”

He argued that construction was “the most important sector” to Oman’s development and a key source of employment which needed to be protected - particularly many of the small and medium-sized contractors.

Current government investment in infrastructure has seen an explosion in multi-million riyal projects across the country.

In the south two Indian agencies are in contention to build the 288km-long fence along the border with Yemen at an estimated cost of $300m, the Indian media was reporting last month.

Two weeks ago Oman’s sports minister has unveiled a raft of new tenders governing new sports stadium projects across the country.

Two new sports complexes in the governates of North A’Sharqiyah and South Al Batinah will be up for tender alonside a new stadium in Musanadam and the expansion of the existing Al Sa’ada Sports complex in Dhofar.

The minister, Sheikh Sa’ad bin Mohammed al-Mardhouf al-Sa’adi, said the tenders were part of a strategy to build new complexes and centres across the Sultanate and tenders will be “floated soon”.

Oman is midway through its eighth five-year plan, started in 2011 with an $11bn budget and gradually increased as the government sought to quell any increase in tension following the Arab Spring and invest increased oil revenues.

Much of the construction is fuelled by the desire to alleviate pressure on Muscat’s main port and airport, transforming the capital in to a more attractive tourist destination and moving heavy industry out of the city.

That has seen expansion in places like Sohar, which has developed an integrated port, freezone, industrial zone and airport project called Gateway Sohar. It’s an enormous project that has seen billions of dollars of foreign investment pour in to the northern region of the country.

Sohar Airport is undergoing a $500m expansion, one of five domestic airports to serve as distributors to the main international hubs of Muscat and Salalah. Target date to begin operation remains 2014 and includes facilities to cope with the double-deck Airbus A380.

Muscat’s push out has also extended south in to Salalah where the deepwater port is undergoing rapid and major changes.

The freezone is also being expanded, and new industries are also being funded to help boost the local and national economies.

Airports account for $4.29bn of the funds set aside under the five-year plan, with expansion projects in Muscat, Salalah and Sohar underway. Oman has also allocated $3.2bn for roads, $1.3bn for seaports, $1.17bn for water and $1.16bn for housing projects.

The sultanate’s government continues to push forward with plans for a national railway (see panel below) with five consortia in the running for the detailed engineering design for more than 1,000km network.

Every part of the country is undergoing redevelopment and alongside infrastructure there is investment in facilities to attract foreign trade.

A good example just 10 minutes from the new Muscat International Airport is the $1bn Oman Convention Centre, which was originally set to open in 2014 but delays mean the centre is unlikely to be ready until 2016.

And two weeks ago it was confirmed that a $1bn medical city will be built just east of Salalah.

The Apex Medical Group, which is developing the healthcare project, said US-based PSOMAS has finished work on the infrastructure plan for the International Medical City (IMC).

Oman built its last major hospital 20 years ago and the population is expanding at four percent a year and the latest official census shows there are 3.2 million people in the sultanate, of which 1.3 million are foreign workers.

Apex president Dr Abdullah Al Joaib said: “Building on the rising trend of medical and health tourism, the International Medical City will be developed in a serene setting on the coast, where patients and their families may stay in an environment that is supportive and culturally aware of their individual lifestyles.”

The 530-bed tertiary care multispecialty hospital, will also include a transplant and dialysis centre of excellence, a rehabilitation centre, and a diagnostic centre of excellence.

The massive infrastructure and investment drive is expected to boost GDP for 2013 and the government has revised its 12-month forecast for economic growth up from the 7% predicted last year to 8.3%. The non-oil sector contribution to GDP is expected to grow by 10.6% because of investment in construction.

The unemployment rate remains stuck with 150,000 Omanis currently registered jobless. In 2011 44,000 Omanis joined the state payroll in 2011 and at the end of 2012, the government announced it was creating a further 56,000 jobs.

Economic forecasters say as long as there is no crash in oil prices, Oman will fund its budget from revenue, without resorting to the markets in 2013 but the continuing challenge for government is turning that oil money into employment.

Education

Around 10% of all state spending will be in the education sector during 2013, in an effort to ensure the next generation has the skills and qualifications needed to work in the modern economy.

Education and training was allocated $3.38bn in January, up 25% on 2012, which came at a time when Oman’s private sector is struggling to fill vacancies. There is high unemployment in many regions and more than 150,000 Omanis registered as unemployed.

High turnover also remains a problem, with figures from the Ministry of Manpower showing that almost half of the 410,000 locals who took up employment in the private sector between 2006 and 2011 either resigned or were dismissed.

Sheikh Abdullah Bin Nasser Al Bakri, the Minister of Manpower, said there were a number of reasons for high levels of employee movement, including limited opportunities for career advancement, a preference for working in the public sector, difficulties in adapting to the work environment and an inadequate grasp of the English language.

Weak English has also been identified as one of the reasons why almost half of students at the Sultan Qaboos University (SQU) do not complete their courses in the allotted time span, with some having to undertake additional language studies to meet the university’s requirements.

Just 14% of new university students in 2011 passed the English language test and the government recognizes that the language is vital for workers operating in an increasingly global economy, particularly in the country’s oil and gas industry. The country also plans to increase the use of technology in higher education.

Rail

The target date for its railway network to begin operation is 2018, with the design stage expected to be completed in early 2014 and construction of the first stage due to begin by the third quarter of 2014.

In Febraury More than a dozen companies had collected tender documents indicating their initial interest in participating Oman’s estimated $15.6bn national rail project, reported the Oman Daily Observer.

The programme envisages as many as nine rail tunnels, extending for six kilometres, along the 1,061km length of the national railway network in phase one, and a total of 130 flyovers.

In addition, around 17km of viaducts, around 20kms of rail bridges and 15kms of wadi bridges are set to be built elsewhere across the network.

Ground preparation alone will be a massive challenge. Soil cutting and filling works across the Sultanate’s rugged landscape will involve removing a soil volume of 210m3.

The first firms to expressed their interest include Mott MacDonald, Sener, Bonifica SpA, DB International, Parsons, Yas Consulting Engineers, Dar Al Handasah, Consolidated Consultants, Al Manarah Engineering, Ehaf Consulting, Khatib & Alami, Hoehler & Partner, and INECO (Spain).

The rail network will offer opportunities for private firms across the board, including design and construction, the supply of materials, infrastructure and rolling stock, and technical services.

The 2013 budget, which was outlined at the beginning of January, indicated a rise in overall outlays of 12% on the adjusted 2012 spending programme, with infrastructure expenditure increasing by up to 30%.

The rail network, expected to be almost all dual track when completed, is set to play a pivotal role in connecting the industrial centres of Sohar, Duqm and Salalah.

Ahmed bin Mohammed al Futaisi, Minister of Transport and Communications said in January: “The national railway is a highly ambitious project connecting Oman with other countries in the region and can trigger the national growth by leaps and bounds. We will soon float tenders for the related works of the current phase of the projects.”

The Minister Responsible for Financial Affairs, Darwish Bin Ismail Al Balushi announced on January 2 that the railway initiative would be partially financed by a $10bn fund provided by fellow GCC members.

In line with plans already drawn up, the network will run from the northern border with the UAE to Salalah in the far south. Branch lines will link up with other major economic centres in the Gulf of Oman and Kuwait, and proposals have been made for the line to be extended from Salalah into Yemen.

Toursim

Tourism is a main focus for the Omani government, which wants to attract 12 million people to the Sultanate within 10 years.

Last year 1.6m foreign tourists visited the country In December Tourism Minister Ahmed Bin Nasser Al Mehrzi told the Mani Shura Council that his ministry would use an international agency to carry out a vital review, though he warned it would take three years to formulate the long-term strategy.

He said “weaknesses in basic infrastructure” was holding back both domestic and international tourism and added: “There was no clear vision for the sector, so the government began evaluating it to find out why it did not reach its set goals and decided to create a long-term strategy for the next 30 years.”

Nasser Al Mehrzi explaiined that the state has spent an estimated OR100m ($259.7m) in the sector over the past few years but returns had not lived up to expectations to date.

His ministry has set a target increasing the Sultanate’s hotel room stock from around 12,000 to 20,000 by 2015 and increasing arrival numbers from the present level of around 1.5m to 12m by 2020.

Tourism represented 3% of GDP last year, or OR768.9m ($2bn), according to the London-based World Travel & Tourism Council (WTTC). That was up by 5.8% on 2011 and higher than the 3.1% average growth in the Middle East region.

But the WTTC forecasts 2.83m inbound tourists for Oman by 2022, and while this is well up on the 2012 figure (1.6m), it does suggest the government may fall well short of its 12m target for 2020.

The state is supporting hotel development but needs foreign investment to increase room stocks.

There had been a total of $1bn of investments in the travel and tourism sector in 2011. By comparison $20.8bn flowed into the UAE and $5.3bn to Saudi Arabia, according to a report by consultancy firm the Oxford Business Group.

Viewpoint

“The number of new projects floated, and which are upcoming is worth a whopping RO 8.5 billion that will totally transform the existing basic infrastructure scenario of various Governorates and Wilayats in the Sultanate of Oman,” said Dr Hamed Hashim Al Dhahab.

The CEO of Al Watanyiah United Engineering & Contracting Co, one of the Sultanate’s largest and most established contractors, sees opportunities for the next 12 months but warns that margins are tight.

“There has been a considerable change in the construction market during the past 12 months. Though there are lot of New Projects floated and many upcoming, but the competition is very tough and the margins have become very low,” he said.

But his company is adapting to the rapidly changing Omani market with a strong track record already and more than two decades of success.

He said: “As the competition is fierce, we need to differentiate between external and internal factors affecting this competition. We can do little to mitigate the external factors. We need to focus on internal factors that are within our capacity to change.

“So, our company has started its branding process by changing the way it looks to the public. New name and logo are in use recently, ERP systems are soon to be implemented and the processes ofrestructuring as well.

These projects will position the company in a better level of professionalism with a better competitive advantage.

“Our other main areas of focus are the timely completion of all our projects especially road projects, a strong emphasis on quality. For the future we will be venturing into the oil & gas segment, with the right partner and we are in the process of looking for a right partner for the Oman Rail project.”

Viewpoint

Suresh Virmani, head of Bahwan Engineering Group (BEC), won the Lifetime Achievement Award at the inaugural Construction Week Awards last year.

Described by one of the awards’ judges as a ‘legend’, Virmani was recognised for his involvement in the building of Oman’s infrastructure.

He feels that Oman is on the right course and recognises the value of training the nation’s next generation and sees the construction boom as only a part of the overall needs of the country.

He said: “Projects are need based and hence nation building oriented. We firmly believe that what is good for Oman is good for BEC. We are continuously focused and committed to the empowerment of National Youth by training and retaining them on long term basis to assume leadership roles in the future.”

Virmani started his company in 1977 with 14 employees and now employs more than 15,000. He believes in 2013 some of the foreign companies attracted to Oman because of the massive government spending must be reminded of their responsibility to the nation’s youth.

He said: “Contractors from some countries are attempting to venture into Oman, with little knowledge of this responsibility of training and employing National Youth. This is resulting in unequal competition. It is a challenge for local construction industry.

“The need of the hour for Oman as defined by the Government is not only to train and provide more and more jobs to nationals, but to create entrepreneurial opportunities in small and medium business.

“I am convinced that, we in the construction sector can join hands in more focused manner and create a number of SME’s in our sector.”

 

 

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