Can infrastructure augment Oman’s private sector?

As Construction Week: Leaders in Construction Summit Oman 2015 draws near, we examine how the Sultanate’s infrastructure investments will augment its private sector

Flying high: Muscat International Airport’s expansion forms part of Oman’s strategy to boost tourism.
Flying high: Muscat International Airport’s expansion forms part of Oman’s strategy to boost tourism.

This Wednesday – 21 October, 2015 – more than 125 senior construction professionals will gather to take part in a high level strategic debate on the state of the industry at the third annual Construction Week: Leaders in Construction Summit Oman 2015. The conference, to be held at Grand Hyatt Muscat, will discuss the state of Oman’s construction industry, which is currently facing uncertainties such as oil-price upheavals and public funding – or the lack thereof.

That Oman might follow the UAE’s footsteps in reducing, if not completely eliminating, fuel subsidies, has already been suggested. Oman is likely to “gradually” cut fuel subsidies starting next year, with all savings and benefits to be paid towards the establishment of economic projects in the Sultanate.

The move, which comes amidst a slump in global oil prices, is also reportedly being implemented to curb fuel smuggling.

According to Gulf News: “An official from the Sultanate’s Ministry of Finance confirmed that [fuel] subsidies would be cut, adding that the reduction will be gradual in order to ensure that the public will not suffer from the move.”

In a study conducted by Oman’s Chamber of Commerce, up to 68.7% of professionals from various business and government sectors opposed the move, with 18% in favour of the decision. According to Oman’s Minister of Oil and Gas, Mohammad Al Ruhmi, low oil prices are costing Oman up to $55m (OMR21.1m) per day.

Siraj Bhavnagarwalla, senior executive officer at Alpen Capital, stated in September 2015 that Oman’s construction sector could face a temporary slowdown from 2017 if oil-price volatility continues.

“Such a situation may push the Omani government to restrict state spending, [thus] hampering the growth of the construction industry, which is materially dependent on government funding,” Bhavnagarwalla said.

“The construction industry opportunity could be affected due to lower investments from the private sector, and declining disposable income levels. Furthermore, lower tourist inflow from oil-dependent nations may also indirectly hamper the growth of the construction industry,” he continued.

Oman’s government continues to focus on employment generation and economic growth, Bhavnagarwalla added, stating this could lead the Sultanate to “come up with innovative ways to finance infrastructure schemes if public funds are squeezed by the downturn”, Oman Daily Observer reported.

“We [envision] new and innovative financing structures, such as build-operate-transfer, build-own-operate-transfer, and other forms of public-private partnerships being employed for some of these projects,” he said.

“The external debt position of Oman is comfortable and there is adequate headroom for innovative borrowing solutions to fund important infrastructure projects.”

Downturns in funding could also intensify competition in the Sultanate’s construction industry, Alpen’s expert added at the time.

This includes the merger of developers, leading to the formation of larger organisations with sizeable negotiating power. Such developments add to the woes of small and medium contractors in the region, Bhavnagarwalla added.

He said: “An increasing number of contractors vying for a project have considerably reduced the margins of firms in recent times. To counter this, we could see larger companies resorting to consolidation, geographical diversification and focusing on high margin business segments in order to protect market share and margins.”

Contracting giants have voiced their reservations about working in Oman within the context of a turbulent oil-price market.

In August 2015, British construction firm Carillion expressed its concerns regarding expansion in the Middle East following uncertainties in global oil prices.

Richard Howson, chief executive officer of the firm, said at the time: “I’m watching Oman with interest. It has more exposure to the oil price than perhaps the other countries in which we trade in the Middle East.”

Revenue from the Sultanate made up 45% of Carillion’s Middle East sales in 2014, according to Liberum analyst Joe Brent.

But it is not only oil concerns that are plaguing the Sultanate’s construction and infrastructure sector. Contractors in Oman, already burdened with the consideration of how dwindling oil prices might affect their order book, are also struggling to meet the country’s employment nationalisation targets.

Oman’s construction sector faces a recruiting problem because nationalisation targets are higher than the country can meet, GulfTalent, a job site for professionals in the Middle East and Gulf region, said in October 2015.

The key stumbling block for firms eyeing nationalisation quotas is that Omani nationals, who are expected to comprise 30% of a firm’s total workforce as per the country’s Omanisation initiative, have an ‘inaccurate’ image of the construction sector.

“To get nationals in this field is difficult because of the unavailability of nationals in the sector,” a contractor, who wished to remain unnamed, told Times of Oman.

According to the source, it is difficult to obtain visa clearances for an expatriate for private construction jobs, and only government projects are given clearances. Some nationals in the construction sector, he added, are interested to work only in certain categories.

“If we get a national to work, he works at most for six months and then leaves the job. They are not ready to work for long periods.”

The Sultanate’s employment sector is not helped by its reportedly stringent labour law. Halfway into this year, up to 57,000 expatriate workers had allegedly fled Oman, leaving their employers in the lurch.

In the first six months of 2015, up to 57,420 expatriate workers – 3% of the total 1.8-million foreign workers in Oman – fled their employers, according to figures released by the Sultanate’s Ministry of Manpower.

The data was released before Oman’s amnesty for illegal expat workers ended on 30 July, 2015.

“These are alarming figures,” a member of Majlis Al Shura [Consultative Assembly of Oman] said at the time.

“[The] Ministry of Manpower needs to study and find out the reason why so many employees abscond. Maybe a new rule, such as finding and deporting them after three months from the date they are reported absconding, may be a good idea to curb the worsening problem.”

Rashid Khalfan, owner of a construction company, told Times of Oman that three of his employees ran away around Eid in 2014.

“While we give them a break to enjoy their holidays, the workers prefer to abscond,” Khalfan said, according to the report.

“This is despite paying them their dues as per their contract,” he added.

Such occurrences are cause for concern in a country bordered by Yemen and Saudi Arabia. Geopolitical turbulence is becoming an increasingly important consideration as business operations are planned and implemented.

Naturally, economic diversification is the safest route for Oman to ensure economic stability until oil prices stabilise.

Faisal Durrani, head of research at Cluttons, tells Construction Week how the country’s economy is evolving to survive.

“You’ve got an economy that has historically been heavily reliant on the hydrocarbon sector for its GDP growth, and that continues today,” Durrani says.

“But given the recent extreme volatility in oil prices and how much they’ve fallen over the last 12 to 18 months – something in the region of 50%-60% – the Omani government has been forced to consider alternative ways of sustaining economic growth.

“One of the ways in which that is being done is through the government’s infrastructure investment programme, which includes the construction of new roads and highways, upgradation of oil infrastructure around the country, construction and upgradation of airports, constructing power plants, and so on.”

Durrani explains how these investments impact Oman’s private sector: “All these investments are helping create jobs across construction, and we’re seeing a lot of architectural and legal practices moving into the country as a result. There is a lot of momentum in Oman’s construction sector through the investment programme.

“The steady creation of jobs means the office [property] market has sustained itself, and on the back of new jobs, you have new households being created, which also boosts the residential sector,” he adds.

It helps that Oman’s government has not retarded its investments in the infrastructure sector. The country’s Tender Board awarded contracts worth $65.8m (OMR25.3m) following its 15th meeting for the year, held on 2 September, 2015.

Construction contracts awarded include a $14.1m (OMR5.4m) deal for the construction of the administration building for the Sultan Qaboos University Hospital. A $19.4m (OMR7.5m) contract to upgrade the efficiency of Sinaw-Mahout-A’Duqm road’s first part was also awarded, Oman News Agency reported.

Oman’s investments appear to follow a two-pronged approach, with infrastructure developments from the government expected to drive greater private investment into the country, and the most evident link between both appears in the Sultanate’s water infrastructure investments.

In May 2015, Oman’s projected capital expenditure for the expansion of the country’s water infrastructure networks till the year 2040 was estimated at $6.5bn (RO2.5bn).

According to a report by The Oman Observer, the infrastructure plan highlights Oman Public Authority for Electricity and Water’s “ambitious” strategy to develop efficient and secure water delivery in the country.

Moreover, the strategy showcases Oman’s recognition of having to transport water across the country to service its waterfront developments, some of which – such as Saraya Bandar Jissah – are situated in remote locations without the requisite infrastructure to support real estate growth.

Durrani remarks on how all these developments pivot around oil prices: “The fall in oil prices has certainly urged all OPEC states, including Oman, to very seriously consider economic diversification.

“Oman is focusing on the tourism and leisure sector, which so far appears to be underdeveloped, despite its huge potential. At the same time, you have to step back and look at the bigger picture – you can’t aspire to have a booming tourism sector without the infrastructure it needs to grow,” he continues.

“We’re already seeing investments in aviation, such as the expansion of Muscat International Airport and the opening of Salalah International Airport recently.

“You have integrated tourism complexes (ITCs) in Muscat, such as Al Mouj [previously The Wave, Muscat] and Muscat Hills, which are the most prominent ones and targeted by domestic buyers, international investors and long-term expats alike, but these are relatively new,” Durrani adds.

“Things are getting done with infrastructure, but like any structural change in the economy, it will take time, and we’ll have to see how it all plays out.”

Most popular


CW Oman Awards 2020: Meet the winners
A round of the thirteen winning names at the Construction Week Oman Awards 2020 that


Leaders UAE 2020: Building a sustainable, 'resilient' infra
AESG’s Phillipa Grant, Burohappold’s Farah Naz, and Samana's Imran Farooq on a sustainable built environment
CW In Focus | Inside the Leaders in KSA Awards 2019 in Riyadh
Meet the winners in all 10 categories and learn more about Vision 2030 in this

Latest Issue

Construction Week - Issue 767
Sep 01, 2020