Oman's non-oil GDP is set for a 3.5% growth this year, with positive momentum in a range of sectors set to underpin the rapid expansion; the biggest being tourism, with the sector bouncing back from the pandemic with a record 2.9 million visitors, according to leading UAE bank Emirates NBD in its review.
Article continues below
One of these is tourism, with the sector bouncing back from the Covid-19 pandemic last year with 2.9 million visitors, marking an increase of 348% y/y and contributing to the 17.3% growth in restaurants and hotels GDP.
Emirates NBD said 2023 got off to a strong start with 177% y/y growth in visitors in January, and ongoing investment as part of the Oman Vision 2040 plan will help support this over the coming quarters with numerous new projects earmarked for the next two years and plans to collaborate with Saudi Arabia in the kingdom’s tourism development through the potential launch of a joint tourist visa and boosting regional flights.
Nearly two thirds of the visitors to Oman last year came from the UAE, and the development of the rail network between the two countries will help facilitate ongoing growth in these numbers in the years ahead.
Oman Rail and Etihad Rail have an agreement to develop the rail network from the UAE to Oman, which once passenger services are launched will make leisure travel between the two countries easier as it introduces travel times of 100 minutes between Abu Dhabi and the Omani port of Sohar.
We forecast real GDP growth of 1.7% in Oman this year, following 4.3% in 2022, stated the bank in its review.
This is a downgrade from our earlier forecast of 2.8% growth, but – as with the rest of the GCC – this downward revision stems from the voluntary oil production curbs being implemented as part of the OPEC+ grouping. The outlook for the non-oil sector remains positive, buoyed by government infrastructure spending, a surge in tourist arrivals, and falling inflation, it added.
Last year, Oman had recorded headline real GDP growth of 4.3%, the strongest rate of expansion since 2016.
Growth was driven by the hydrocarbon sector which expanded 10.2% and totals just over a third of GDP (oil accounted for 29.2% last year, with natural gas providing an extra 5.0%). Oil GDP grew 11.0%, similar to the double-digit gains seen elsewhere in the GCC, while natural gas expanded 5.9%, stated the report.
However, the non-oil sector was the laggard in 2022 as it grew 1.6%: standout sectors were restaurants and hotels which recorded growth of 17.3%, while manufacturing expanded 28.9%, with manufacturing of chemical and petroleum products growing at a far slower rate.
Headline growth was weighed down by a 23.2% contraction in building and construction, however, which accounted for 7.0% of GDP last year, down from 11.2% in 2020, it added.
As with the rest of the GCC, the top Emirati bank expects the dynamics of growth in Oman will be reversed this year due to the voluntary cut of 40,000 b/d that the country began in May and intends to continue through to the end of 2024 as things stand.
Crude oil production averaged 1.07mn b/d in the first quarter, some 30,000 b/d greater than in Q1 last year, but our expectation over the year is now that oil production will be 3.0% lower in 2022, informing our forecast that hydrocarbon GDP will contract by 2.0%.
Upside risk to this outlook stems from the natural gas sector, as LNG exports hit a record high in April amid ongoing investment in building capacity. A new integrated gas firm to manage the sector will contribute to this.
The Emirates NBD in its report has pointed out that Oman was arguably in a stronger growth position thanks in part to a marked improvement in its fiscal conditions over the past several years.
"We estimate that Oman ran a budget surplus equivalent to 4.0% of GDP in 2022, its first in over 15 years, as the GCC benefitted from higher oil prices and a ramp-up in production. Oil revenues are set to be lower this year, but with a fall in expenditure also anticipated as the integrated gas company means transportation expenses fall away, the budget will be only moderately negative, at -0.1% in 2023 according to our forecasts, and returning to surplus at 1.0% in 2024," the Emirati bank said in the review.
The government has tempered any increase in its untargeted spending even as oil prices surged, instead focusing on a series of infrastructure projects that are aimed at supporting the economic diversification programme, it added. ■