Middle East Insights: Oman's grand vision for economic transformation

Editor’s note: Middle East Insights is a special feature series by CMG Middle East station, offering a comprehensive analysis of pivotal regional issues spanning politics, economics, culture and other pertinent fields within the area.

A recent development has thrust Oman into the spotlight as the sultanate unveiled the Oman Future Fund in late March, boasting a substantial $5.2 billion investment. This financial commitment represents approximately 4.5 percent of Oman's annual GDP based on 2022 data from the World Bank.

It is worth noting that this fund aligns with Oman's Vision 2040 plan, explicitly stating that it will not invest in any oil and gas, as well as real estate projects. This underscores Oman's pursuit of comprehensive economic and social transformation, aiming for economic diversification despite being a traditional oil and gas producer.

A grand vision

Introduced by the former Sultan Qaboos bin Said in 2013, Oman's Vision 2040 was ratified by Sultan Haitham bin Tariq al-Said in 2020, officially taking effect on January 1, 2021.

"Oman Vision 2040 is the Sultanate’s gateway to overcome challenges, keep pace with regional and global changes, generate and seize opportunities to foster economic competitiveness and social well-being, stimulate growth and build confidence in all economic, social and developmental relations nationwide," Sultan Haitham wrote in the preface of the Vision document.

Since the announcement of this plan, Oman has implemented a series of measures. In March 2021, it launched an economic stimulus package, including measures such as reducing taxes and fees for small and medium enterprises, encouraging tourism development and providing long-term residency permits for foreign investors.

In 2022, Oman continued to prioritize achieving financial sustainability and stimulating economic diversification as part of its annual budget expenditures, focusing on improving the business environment and attracting investments.

Additionally, in early 2024, Oman announced a $31 billion investment plan, primarily focusing on developing the country's tourism industry.

Why Vision 2040?

The abundant oil and gas resources have long been the driving force behind the development of the Gulf region. However, the major economies in the region have begun efforts to reduce their reliance on the oil and gas industry.

Gulf countries have unveiled their vision blueprints in recent years, including "Saudi Vision 2030," "We the UAE 2031 vision," "Kuwait Vision 2035," "Qatar National Vision 2030," and "Bahrain Economic Vision 2030," with economic diversification and attracting foreign investment serving as keywords. As a member of the Gulf Cooperation Council, Oman has also joined this development trend with its Vision 2040.

In 2020, the global energy demand plummeted, and oil prices hit rock bottom, putting pressure on the economic growth of major oil-exporting countries in the Gulf. The need for economic reforms in these countries became more urgent. As oil prices rebounded in 2021, the Gulf's major countries made economic recovery a focal point of their national development. By 2022, the sustained increase in oil prices provided economic momentum for these countries' governments to achieve their development goals.

Previously, affected by the global COVID-19 pandemic and oil price fluctuations, Oman's GDP contracted by 6.4 percent. However, earlier this year, the International Monetary Fund highly praised the resilience of Oman's banking sector in its 2023 Article IV Consultation with Oman, highlighting that its economic recovery had made progress thanks to favorable oil prices and sustained reform momentum.

On March 29, S&P Global Ratings upgraded Oman's outlook to "positive," stating that the country's economic reform plan would accelerate the deleveraging of state-owned enterprises while maintaining economic growth.

Cooperation under BRI and Vision 2040

Oman has been an active participant in China's Belt and Road Initiative (BRI) and was among the first batch of founding members to join the Asian Infrastructure Investment Bank. In line with the objectives of Oman's Vision 2040, the BRI has facilitated productive collaboration between the two countries.

Following the launch of Vision 2040, Oman has consistently encouraged green development, which is also a crucial aspect of the BRI.

In January 2022, the Ibri Solar Photovoltaic Project, Oman's largest renewable energy facility at the time, was completed. Built by PowerChina, it plays a crucial role in addressing peak electricity shortages in Muscat and northern Oman.

In 2023, the Manah II Solar Photovoltaic Project, another solar initiative contracted by a Chinese company, began construction. Anticipated to curtail greenhouse gas emissions by around 340,000 tonnes annually, the project contributes significantly to Oman's renewable energy goals.

Additionally, China and Oman have cooperated in digital infrastructure, assisting in promoting Oman's digital transformation. In March 2023, China Mobile International (CMI) confirmed the successful launch of its Oman Muscat MC1 point of presence (PoP) at the Equinix MC1 data center in Barka. This cooperation "underscores the significance of Oman as a network hub bridging Asia to Europe and Africa," according to a press release.

In Oman's thriving tourism industry, the introduction of a 14-day visa-free entry policy for Chinese citizens in 2020 has sparked increased interest among Chinese tourists. In the first eight months of 2023, Oman welcomed a total of 91,000 Chinese tourists, more than double the total for 2018, according to Oman's National Centre of Statistics and Information. This surge has also led to a broader range of tourism offerings.

Oman's oil wealth has fueled its past growth. Amid economic diversification, Oman is venturing into renewable energy and emerging industries, seeking sustainable development. These aspects are pivotal for the country to invest in the future and will also provide more opportunities for in-depth cooperation between China and Oman.

(Cover via CFP)

For more of Middle East Insights:
Middle East insights: How Chinese EV makers are tapping into UAE

Middle East insights: Why is UAE a target market for Chinese EVs?

Credits:

Supervisor: Mu Li

Producer: Li Chao

Reporters: Wang Xuejing, Li Xiang