Foreign direct investment (FDI) in Oman

FDI in Figures

Global foreign direct investment (FDI) flows in 2021 were USD 1.58 trillion, up 64 per cent from the exceptionally low level in 2020. The recovery showed significant rebound momentum, with booming merger and acquisition (M&A) markets and rapid growth in international project finance because of loose financing conditions and major infrastructure stimulus packages. However, the global environment for international business and cross-border investment changed dramatically in 2022. The war in Ukraine – on top of the lingering effects of the pandemic – is causing a triple food, fuel and finance crisis in many countries around the world. Investor uncertainty has put significant downward pressure on global FDI in 2022, and new investment project numbers, including greenfield announcements, international project finance (IPF) deals, and cross-border mergers and acquisitions, all shifted in reverse after the first quarter of 2022 to start declining. Cross-border M&A sales were 6% lower and IPF values more than 30% lower in 2022. The outlook for global FDI in 2023 appears weak, with a significant number of economies around the world expected to enter a recession. Negative or slow growth in many economies, further deteriorating financing conditions, investor uncertainty in the face of multiple crises and, especially in developing countries, increasing risks associated with debt levels will put significant downward pressure on FDI (UNCTAD Global Investment Trends Monitor, January 2023). The negative trend reflects a shift in investor sentiment due to the food, fuel and finance crises around the world, the Ukraine war, rising inflation and interest rates, and fears of a coming recession.

According to UNCTAD's 2022 World Investment Report, FDI inflows to Oman reached USD 3.61 billion in 2021, showing an increase from USD 2.86 billion in 2020, despite the global econmic crisis triggered by the Covid-19 pandemic. Oman's FDI stock has been largely restored since the 2010 crisis and remains robust, at USD 34 billion in 2021. Investment has quickened, in particular thanks to the development of the Duqm Special Economic Zone, which involves the construction of a port, an airport, a refinery and tourist facilities. According to figures by the National Centre for Statistics and Information (NCSI), the main investing countries are the UK, followed by the United Arab Emirates, Kuwait, Qatar, and Bahrain. The bulk of FDI were directed towards the oil & gas sector, with lower shares going to the financial services, manufacturing and real estate sectors.

The new Foreign Capital Investment Law adopted in 2020 and specifically the abolition of foreign ownership limits has been welcomed by the international community (WTO, 2021). It relaxed restrictions on foreign investment, streamlined the registration and licensing procedures for foreign investors and aligned foreign investors’ rights and incentives to those given to local investors. Special Economic zones have also attracted substantial foreign investment, though there is scope to further stimulate spillover effects from these economic zones to the local economy (IMF, 2022).

The Sultanate of Oman seeks to attract investors by offering tax incentives and customs duty exemptions. Oman has a stable political and macroeconomic situation. However, access to a limited number of sectors and government pressure on foreign companies to recruit domestic workers are major obstacles to foreign investments. In 2020, Oman issued the new Foreign Capital Investment Law, which removed the minimum 30% Omani ownership requirement for Oman-based companies in a bid to attract further foreign investment. In 2021, Oman introduced new incentives for foreign investors, including exemption from certain fees and operational requirements for investment projects in the country's less-developed regions.

Oman’s unremitting efforts to attract foreign investments into the sultanate are paying dividends with the volume of foreign direct investments (FDI) going up by 10.4% to RO18.14 billion till Q3 of 2022 (47.11 billion USD), compared to the same period in 2021. The statistics show that the volume of trade exchanges between the sultanate and the rest of the world till September 2022 increased 46.18% to reach RO30.421billion (79.01 billion USD. The value of FDI in the manufacturing sector till Q3 of 2022 was RO1.717bn (4.46 billion USD), compared to RO1.512bn over the corresponding period in 2021.

A Fast Track Initiative aims at supporting investment projects facing challenges in their implementations. The projects are assessed and the reasons for obstruction reviewed, to take quick and effective decisions ensuring the continuity of business implementation. The first phase of the initiative targeted 39 investment projects, where 27 investment projects were green lighted for implementation with a total value of 2.779 billion USD. The number of investors, who have obtained investor residency from the beginning of the programme till January 1 this year, has reached 1,219 (Muscat Daily, 7 January, 2023).

What to consider if you invest in Oman

Strong Points

Oman has a strategic location within the east-west nexus joining markets in Europe and Asia. Its ports are one of the most strategically placed in the world and provide fast sailing times to major markets in Asia. Good air connectivity and road infrastructure facilitate access to other GCC countries. Currency risk is low as the country's currency, rial, is pegged to the US Dollar and the Central Bank of Oman has high levels of foreign exchange. Oman does not impose any personal income tax and allows full repatriation of capital, net profit and royalties. The local labour force is highly skilled (most finish their studies in the UK or in the US).

Weak Points

Some challenges for foreign investors seeking to establish in Oman: The time it takes to set up a local business outside of free trade zones and to obtain operating licenses, local ownership requirements outside of free trade zones (setting up a 100% foreign-owned is nearly impossible), Omanisation policy (requirement to employ Omani nationals)

Government Measures to Motivate or Restrict FDI

The Foreign Investment Law (FCIL), promulgated by the Royal Decree No. 102/94 is the main legislation regulating foreign investment in Oman. The law provides for interest-free loans to the private sector in agriculture, fisheries, industry, mining and quarrying. Industrial firms enjoy low-interest loans from the Oman Development Bank. Custom duties are exempted on import of equipment and raw material. Corporate tax is exempted for the first five years of activity (can be extended for another period of five years). There are no limits on the repatriation of capital, net profit and royalties. Free trade zones in Duqm, Salalah, and Sohar provide enhanced tax-free holiday, duty-free treatment of all imports and exports and have lower Omanisation requirements. The Free Trade Agreement with the United States allows US citizens to bypass requirements regarding the process of setting up a business and to be treated as Omani (or GCC) nationals.