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Oman Economy & Outlook
Table of Content
Macro Economic Indicators Gross Domestic Products Public Finance, Monetary Policy & Inflation Oman Budget 2010
Oil & Natural Gas
Muscat Stock Market
2|Page Shurooq Investment Research
During the year 2009 the performance of Oman economy was much better than its regional peers as it was quite less exposed to the financial crisis owing to prudent & proactive policies of government which weather the storm effectively. However numbers still suggest Oman’s heavy reliance on oil revenues but diversification efforts are slowly started to pay the dividends. crude is gaining momentum and maintaining a healthy USD 70 a barrel from last 6 months which has increased the investment sentiments in the oil economies. We believe that Omani economy will be reporting growth of nominal growth of 6 to 7% by the end of 2010. As Oman has planned a deficit budget (on average rate of USD 50/BBL). Declining inflation level is another factor that might help mitigate the impact of the financial crisis as central bank can follow an expansionary monetary policy by cutting its rates. Oman. During the crisis oil prices crashed to USD 35/BBL from a high of USD 147/BBL in the first quarter of FY 2009.5 bn as per provisional figure reported by Ministry of Economy from OMR RO23. During the period per capita income fell by 24% from OMR 7942 to OMR around 6000. Thereafter.535.7% during the period of 2003-08 owing to increased Omani crude oil prices before contracting in 2009 the period of Global Financial Crisis. we expect that oil’s current level would offer an excellent cushion for the government to go ahead with planned expenditure and improved the economic activities as whole. However GDP per capita during period of 2003-08 rose by 18% on CAGR basis to OMR 7.04 a year ago. __________________________________________________________________________________________________ 3|Page Shurooq Investment Research . However Global demands for commodities are firming up since beginning of the year. during the crisis period. GDP contracted by estimated 20% at OMR 18.942 from OMR 3. like its neighbors is an oil based economy which is striving to minimize its dependency over crude and diversifying. Government managed to create liquidity in financial system while creating the funds to counter credit crisis as well as reducing the CRR and lending & deposit ratio lower.Oman Economy & Outlook Executive Summary April 2010 Omani economy recorded a significant GDP growth rate of CAGR 22.
Oman’s oil output is expected to rise by 6 per cent to 860.5 billion barrels of oil and 850 billion cubic meters of gas. Oman has proven reserves of 5. enhancing non-oil sectors and creating a market-friendly economic environment __________________________________________________________________________________________________ 4|Page Shurooq Investment Research . On a USD 70/B Oman will generate huge current Account Surplus which is likely to help the infrastructure growth driven by government which in turn would allow private sector contribute more into economy which is improving going forward.000 bpd last year. Recent finds included a major oilfield estimated to contain about 1 billion barrels of crude. new privatization laws. the prudent government policies during 2009 and 2010 for both fiscal and monetary fronts will reap their benefits helping the overall economy to report 6. Moreover. the International Energy Agency estimated in August 2010. As 2010 budgeted deficit is based on a conservative oil price assumption of US$50/b.Oman Economy & Outlook April 2010 Discovery of three oilfields and a gas field by PDO recently with the combined potential to boost Oman’s reserves by more than 5 per cent. and a potentially large gas field. Macro Economic Indicators Omani Government have been working to reform and diversify the Omani economy through new tax laws.000 barrels per day (bpd) this year from 812.1% of real economic growth as per Ministry of economy. We estimate Omani crude price to average US$70/b for the most likely scenario and US$80/b for the best case scenario. Higher oil prices & economic stability will support actual surplus for 2010. As per IMF and OPEC estimates oil should maintain a healthy USD 80/B going forward its full year forecast of 2010 and 2011. As a result Omani budget will most likely end up with a comfortable surplus in 2010. Improved global economic conditions in 2010 will shed its positive impact on oil prices that might range US$70/b to US$80/b for the year. actual oil prices would exceed this level.
Ministry of Economy & Shurooq Estimates __________________________________________________________________________________________________ 5|Page Shurooq Investment Research .5% 20%12. FY 09 OIL & Gas Non Oil & Gas Export Imports YOY % 4. IMF.87 18.1% 11. Omani Minister of National Economy announced that Oman will continue its expansionary fiscal policy to stimulate growth. 09 GDP FY 09 Prov. (in (OMR Petroleum Production/B International reserves Trade Balance till Nov Source World Bank. the government announced a stimulus package providing US$2bn for the financial sector.77 BN 1. Central Bank of Oman (CBO) provided funding through the exchange of reserve facilities and market stabilization funds worth OMR 150 to support the Muscat Securities Market.69 BN 3.22 BN 13. Moreover. Oman government followed prudent policies whether on the fiscal or monetary fronts with the aim of sustaining growth and supporting its monetary and financial systems. Macro Indicators Snap Shot 2009 YOY % 107%2%44%2%22%0.Oman Economy & Outlook April 2010 During the economic crisis.139BN 14.92 BN 8. Standard and Poor’s maintained the Sultanate’s ‘A’ long term and ‘A-1’ short term on its sovereign credit rating.5BN MN 243 BN 4.32 Indicators Fiscal Surplus (till Nov ( OMR Exports Prov. Considering government healthy position and support to financial system.7% 35% mn 2.68 Indicators (Population (Prov.
0% in 2008 to stand at RO11.7%.942 from OMR 3.04 a year ago. GDP contracted by estimated 20% at OMR 18.32bn.535.Oman Economy & Outlook Gross Domestic Product April 2010 Omani economy recorded a significant GDP growth rate of CAGR 22. GDP crossed the RO20bn landmark for the first time in history to stand at a record level of RO23. CBO & Ministry of Economy __________________________________________________________________________________________________ 6|Page Shurooq Investment Research Nominal GDP (OM % Nominal GDP Gr Real GDP (Constant .0% in nominal GDP for 2008. On nominal terms.05bn by the end of 2008. In real terms GDP reported a CAGR of 7.7% during the period of 2003-08 owing to increased Omani crude oil prices before contracting in 2009 the period of Global Financial Crisis.0% over the same period. This is the fifth consecutive year of GDP growth with the Omani economy growing at a 2003-08 CAGR of 22.5 bn as per provisional figure reported by Ministry of Economy from OMR RO23. Omani GDP reported double digit growth rates over the period 2004-2008. According to official figures real GDP is estimated to have grown by 13. Nominal & Real GDP Source-IMF. During the period per capita income fell by 24% from OMR 7942 to OMR around 6000. Omani economy has been on a high growth trajectory since 2003 culminating in hefty growth of 44. However GDP per capita during period of 2003-08 rose by 18% on CAGR basis to OMR 7.
9 2. 1 Manufacturing sector was one of the major GDP contributors during the period of 2003-08. 7 117.698.1 4.3 FY 2008 11.816. By the end of 2008.049.88 2.1 14. diversification efforts that have characterized the economy since 2003 were the main reasons behind the increasing shares of both manufacturing and services sectors over years.4 3.6 11.6% of total GDP on average over the period 2003-08.6 7. on the bright sight are the prudent government policies on both the monetary and fiscal sides.072.3 (56. Generally.030 .140.399.Oman Economy & Outlook GDP by Economic Sector April 2010 Constituents OMR mn Petroleum Activities Non-Petroleum Activities Agriculture & Fishing Services Financial intermediation services Gross Domestic Product at producers prices Import Taxes GDP at Market Prices Source: Ministry of National Economy FY 2003 3.481.2% of total GDP on average over the period reporting a CAGR of 24. Both polices are expansionary amid a scenario of looming recession for the world economy.7mn by the end of 2008.416.175.3 48. As a result its contribution increased from merely RO675mn in 2003 to OMR 2.962 .4 23.7 (4.487. 2 2.8 15.547.283.2 8. 1 201.1 1.0 16.2 FY 2007 7. 2 183.739. 0 71.2 365.2 FY 2004 4.1 22. 4 293.5) 14.215. Moreover.665. 7 1.077.01 0.160. 6 3.3 171.0 8. Its contribution has been increasing over years to account for 9.5% standing at OMR 2. Wholesale and Retail Trade as a subcategory of the services sector contributed for 8.155 .279.289. Manufacturing of basic chemicals rather than refined petroleum products were the basic contributors to the sector’s growth over years.609. 4 188.931. 8 213.875.694.359 mn.9 FY 2006 6. 5 240. 8 174.939 . 8 1.0 68. its contribution to total GDP grew by 40. Moreover.2% over the same period. it reported a high CAGR of 26.5 4.4 5.4 234.4) 11. 0 191. However.229.0 9.4 6. __________________________________________________________________________________________________ 7|Page Shurooq Investment Research .6%.2 187. Diversification efforts away from oil will play a great role in shaping growth patterns for Omani economy for 2010 and so on. 0 FY 2005 5.15 1.4 9.
By the end of 2008. Moreover.9% on top of 18. commercial. __________________________________________________________________________________________________ 8|Page Shurooq Investment Research .6% and 4% of GDP over the period respectively. However.2% of GDP to stand at RO1. On average both categories accounted for 4. non oil GDP reported 18.5% of growth over the period 2003-08 to increase from RO4. On CAGR basis. the declining inflation level is another factor that might help mitigate the impact of the financial crisis as central bank can follow an expansionary monetary policy by cutting its rates. This has helped non oil GDP to increase its share in GDP for those two years as aforementioned. However.4% by the end of 2008. as a well as residential real estate projects. By the end of 2008.8% in 2008.3% in 2003 to 4. entering 2008.Oman Economy & Outlook April 2010 reaping the benefits of diversification plans over the oil boom will help sustain marginal economic growth. Construction sector saw its share to GDP growing over years from 3. Generally. optimistic scenario of higher oil prices will assure another year of growth however at a slower pace.9% growth in non oil GDP thus increasing its share in GDP to 51.5% growth reported last year.8bn to RO11. together with major tourism. Real estate contribution on the other hand followed a declining trend over the same period from 6% in 2003 to 3. Their growth was driven by the continued expansion of physical infrastructure.7% for non oil GDP. Thus we believe that Omani economy will be reporting a marginal real growth of 1.3% versus 48. non oil GDP reported a significant growth of 27. It is important to note that non oil GDP growth continued to surpass oil GDP growth for 2006 and 2007 mainly due to diversification plans combined with the decline in oil production. both sectors accounted for 8.5% as compared with 27.9% for 2009 before recovering by the end of 2010. non-oil sector experienced double digit growth rates over the period 200408. Finally. Real Estate & Construction Real estate & Construction sectors were the other two main important contributors to GDP in the Sultanate over the years. Non-oil sector contribution growing over the years as Oman has taken measures over the years to diversify the oil dominated GDP to withstand oil prices shocks.2bn. oil GDP grew much more rapidly by 63. both sectors continued to report double digit annual growth rates over the whole period. 880mn.
3% of total GDP on average for the period.5%. Exports.2/b for 2007. The year 2008 was no different as the reported 44. the sector’s contribution is expected to increase as the projects in power and desalination plants get on stream.1% growth over US$65. increasing focus on non-oil sectors for future growth is playing an important role in driving the Omani GDP growth for the near future. Both oil production and prices hiked during the year by 6. agriculture and fishing contributed for 1. or 55.5% of total GDP over the period and reported a CAGR of 6. Oman crude oil price was a huge contributor for GDP growth during 2008 as it reported an average level of US$101.Oman Economy & Outlook Agriculture and fishing April 2010 Other non-petroleum activities in Oman include Agriculture and fishing sector which increased by 16.1/b for the year 2008.5% in 2008 y-o-y to reach OMR 235 mn. Electricity and water supply registered a growth of 6. On average. Similarly.79mn b/d by the end of 2008 up from 0. This could be depicted from nominal GDP growth rate that continued to follow the same trend as Oman crude oil price.85% and 55. the non oil sector contribution is expected to grow further as development plans puts focus on diversification. Electricity & water Supply Despite contributing marginally for 1. Finally.1% respectively. As a result. Looking forward. oil production increased by 6. Oman’s GDP growth rates were mainly backed by the oil boom over the period 2004-08.0% growth rate was backed by oil sector.3% by the end of 2008 to stand at OMR 196. it is important to note that.8mn.71mn b/d reported for 2007.85% to 0. Imports & Trade Balance Trend __________________________________________________________________________________________________ 9|Page Shurooq Investment Research .
8% by the end of 2008 on top of 14.F) increased from OMR 3. it is important to note that such growth in exports is mainly backed by oil and gas exports that accounts for the lion’s share of total exports. On the other side.4% for imports.Oman Economy & Outlook April 2010 Source: Central Bank of Oman. On annual basis. However. IMF. Ministry of National Economy & CBO Composition of Export same period.896. __________________________________________________________________________________________________ 10 | P a g e Shurooq Investment Research .9mn in 2004 to OMR 14.3mn over the same period. 144.9mn to OMR 8.6% as compared with 27.B) increased from OMR 5. exports (F.I.O. On one side. exports reported its highest growth rate of 52.4% of growth reported for 2007.502.381. Both exports and imports continued to increase over the period however exports increased at higher CAGR of 29. around 80% on average. imports (C.9mn by the end of 2008.
On CAGR basis. gas revenues grew much rapidly reporting 59. __________________________________________________________________________________________________ 11 | P a g e Shurooq Investment Research . fiscal surplus increased more than five folds to a record level of RO272. owing to the upward rally of average oil prices. Net oil revenues reported 17.0mn to RO909. the improved fiscal position over years has allowed the government to reduce public debt from 13.9% of growth.9% of GDP in 2004 to 4. Expenditures were mainly focused on investment expenditures much more than current expenditures.3bn over the period 2003-08. Thus. On CAGR basis this could be shown over the period 2003-08 as both revenues and expenditures grew by 18.8% over the period.8bn by the end of 2008.Oman Economy & Outlook April 2010 Public Finance Oman has adopted an expansionary fiscal policy since 2003 which aimed for diversifying the economy. Such policy was supported by the ongoing increase in revenues mainly from oil and gas.3bn in 2003 to a record level of RO7.6% from RO116. The oil boom has helped total revenues to increase significantly from RO3.4mn in 2003 to RO272. increasing from RO2.7mn for 2008 amounting to 1.2% of the GDP. Public Debt is declining owing to continued surplus reported by the Omani economy Omani economy continued to accumulate surpluses over the last five years. oil and natural gas sector surpluses are playing a dominant role in revamping the fiscal position of the Sultanate’s economy. fiscal surplus grew by 18.7mn in 2008. Finally.3bn to RO5.2% by the end of 2008. Similarly.9mn by the end of 2008. Generally.9% increasing from RO87. On annual basis. it is important to note that the increasing oil and gas revenues supported fiscal surplus which was used to retire public debt public debt year after year and contributing to the significant addition to foreign assets.
7%.3bn in 2004 to RO964. However. and injecting liquidity in respective financial systems. public debt continued to decline significantly over the past five years to report a CAGR of -7. debt service also retreated from RO447. Oman follows a fixed exchange rate regime as its currency pegged to the US dollar. Consequently. Monetary Policy Central Bank of Oman (CBO) faced of challenges during the year 2008 as year witnessed major changes where facing the ongoing inflationary pressures were the ultimate goals for monetary policy during the first half. Interest rates as a monetary tool always moves in relation to the policy rates of the Fed.5% over the period. Therefore.8mn in 2008. Such regime exerts pressures on Omani monetary policy framework to maintain the pegged rate and to manage domestic liquidity. by the end of the year the financial turmoil and credit crunch had pushed almost all central banks around the world to face the challenge of stabilizing their economies. This definitely meant changing the targets of monetary policies from a contractionary policy during first half to adopt a loose monetary policy aiming for providing more liquidity and stabilizing banking systems by second half.3mn in 2008 reporting a declining CAGR of -5. 12 | P a g e Shurooq Investment Research CBO adopted anti __________________________________________________________________________________________________ .7mn in 2002 to RO354.Oman Economy & Outlook April 2010 In absolute terms. Public debt declined from RO1.
Similarly.3% of growth respectively over the period.3% in 2007.5%. On CAGR basis. On CAGR basis. M1 -representing the aggregate currency with public and demand deposits in OMR. Further important measure was taken keeping the window open to sell up to US$2bn to local banks allowing them to meet their liquidity requirement. lending ratios were tightened from 87. However international financial crisis and credit squeeze by the end of the year and CBO reduced reserve requirements for banks back again to 5%.995 mn after reporting a record growth rate of 56. M2 increased significantly over the period 2003-08 from OMR 2.Oman Economy & Outlook April 2010 inflationary monetary policy as the increase in money supply and credit had to be contained during the first half of 2008 therefore CBO raised the reserve requirement ratio for commercial banks from 5% to 8% of deposit liabilities. The broad money (M2) comprising of narrow money (M1) and quasi money continued to grow at a brisk rate over the last four years.9% of growth for quasi money. Oman’s monetary policy led the growing money supply at a brisk pace. accounted for 30% on average. By the end of 2008.8% as compared with 31.6%. Quasi money is responsible for major part of growth as it accounts for more than 70% of monetary base on average over the period.8bn to OMR 7. Moreover.5% to 85% and then to 82. M2 reached OMR 7. This is mainly as M1 increased at a lower rate of 3. CBO eased the lending ratios back to 87. quasi money rather than M1 was responsible for money supply growth.5bn at a rate of 21. M1 and quasi money reported 19. __________________________________________________________________________________________________ 13 | P a g e Shurooq Investment Research .6%. or 23.1% increase over OMR 6. M2 continued to report double digit growth rates of more than 20% over the last four years thus mirroring the ongoing economic boom since 2005.533 mn. On annual basis.120 mn reported for 2007. This was mainly traced back to Demand deposits in RO as it almost stagnated at the same level of OMR 1. By the end of 2008.366 mn reporting a marginal growth of 0. Such growth rate is to be compared with 79% of growth reported for 2007.9% and 22. On the other hand. M1 increased marginally to reach OMR 1.5% to avoid credit contraction.
92 1 563 1.95 7 (765 ) 2.57 3 1.31 3 (457 ) 255 (712 ) 3.12 0 1.66 1 233 2.53 3 1.19 9 1.15 4) 152 (1.22 5 (1.40 0 (39) 3.32 3 (2.56 9 (569) 4.40 5 (400 ) 1.05 8 69 1.36 6 5.89 7 456 3.43 1 (166) 3.66 7 112 2.30 5) 6.77 8 954 58 7.41 0 54 422 (369 ) 3.74 5 1.17 2 (2.40 6 196 2.23 2 1.53 8 1.12 8 383 745 2.44 5) 141 (2.57 4 5.30 5 (84) 444 (527 ) 3.42 2 1.Oman Economy & Outlook April 2010 Money Supply OMR mn FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 CAGR 03-08 Q1'0 9 Domestic Liquidity (M2) Money (M1) Currency with public Demand deposits in RO Quasi Money Savings deposits in local currency Time deposits in local currency Deposits in foreign currency Margins (of which foreign currency deposits) Foreign Assets Central Bank Commercial Banks Domestic Assets Claims on Government (net) Government Borrowings Government Deposits Domestic claims on private sector Claims on Public Enterprises Other items (net) 2.89 5 3.64 2 2.26 4 4.99 4 907 329 578 2.00 8 (1.46 1 1.99 5 629 1.18 2 608 1.40 5) 167 (2.83 1 804 304 500 2.23 0 471 759 3.23 3 (954) (906) 3.58 5 __________________________________________________________________________________________________ 14 | P a g e Shurooq Investment Research .67 5 585 1.58 7 2.58 6) 8.26 0 1.21 3 47 6.44 5 851 791 765 38 4.63 9 1.38 2 40 1.92 8 818 1.36 1 4.02 7 647 953 400 28 2.01 2 4.77 1 (421 ) 1.25 9 87 1.00 9 963 1.67 7 469 3.89 7 906 94 22% 20% 16% 22% 22% 21% 25% 18% 27% 18% 25% 26% -199% 18% -314% -17% 48% 23% 47% 15% 7.35 8 4.03 7 734 850 421 31 3.71 6 (652) 229 (881) 4.38 3 257 1.40 9 1.02 5 365 3.21 3) 2.57 2) 8.
foreign currency lending rates declined from 3. Similarly.407% in December 2008 to 1. Following ahead. Foreign currency deposit rates declined from 2.018% over the same period. Both deposit and lending rates for RO and foreign currencies followed a declining trend up to the end of May 2009. it is important to note that rates on foreign currencies declined more rapidly than RO rates. they are broadly in conformity with US interest rates movements due to the fixed exchange rate regime.25 2 981 2.Oman Economy & Outlook April 2010 Monetary authorities Commercial Banks 1. inflation picked from 3. Entering the year 2009.70 0 311 2. the year 2006 picked the change in inflation trend that was coupled with ongoing increase in oil prices as well as economic growth in Oman as well as in other GCC countries along with Global trend. However. As a result. it followed a declining trend for the first half of 2008 then picked up marginally towards the end of the year.4% __________________________________________________________________________________________________ 15 | P a g e Shurooq Investment Research . deposit interest rates followed an upward trend for 2006 and 2007.206% to 3. Inflation Inflation levels in Oman were in the range of 2% since 2000 till 2006. Generally.95 4 631 Source: Central Bank of Oman and Ministry of National Economy Interest Rate As for average interest rates.01 4 758 971 986 1.90 1 668 23% -3% 2. the international scenario of declining interest rates due to financial crisis was seen in Oman as well.407% by the end of May 2009. However.12 4 884 1.
1 91.4 91. On the contrary total expenditure for the 2010 year has been projected to reach OMR 7. Textile & Footwear Furniture.1 98.6 111.9 106. the Central Bank of Oman mirrored any US fed rate cuts which added up to the inflationary pressures.4 98.4 97.3 113.8 118.0 97.4 93. 5 Reasons for the ongoing inflation over the last three years are well documented including factors such as pegging the Omani Riyal against the US Dollar.8 154.4 91.8 94.6 104.2 100. beverage and tobacco that are imported from outside GCC.6 96. Also.4 170.8 FY 2005 105. As a result of pegging against the US dollar. On CAGR basis. which has increased the local-currency cost of Imported goods.9% by the end of 2007 and finally 12.0 103. 2 FY 2007 123.5 135.4 96.61 billion in FY’2009.3 106.3 93.0 98.4% for 2008.18 __________________________________________________________________________________________________ 16 | P a g e Shurooq Investment Research . Index (2000=100) Food.4 128.1 93.3 109.7 105. Omani inflation as measured by the growth rate in Consumer Price Index (CPI) increase by 4.5 109.5 93.0 103.4 101. an increment of 14% on a Y-o-Y basis.3 129. higher public expenditure by the government to ramp up the infrastructure to sustain the high growth rate of GDP and imported inflation appearing in the form of food.7 99. 2 FY 2009 151.5 121.6 102.1 90.38 billion as against OMR 5.7 98. & Housing Material Medical Care Transport & Communication Recreation & Entertainment Educational Services Personal care items and other services Rent. higher liquidity as a result of oil prices.8 92.8% over the period 2003-08 as the general index hiked from 99.3 104.3 89.3 101.2 99.3 100.9 98.4 98.5 90. Electricity.5 in 2009. the rise in CPI during the recent years could be explained by the weakening US dollar (and hence a relatively weak Oman riyal which is pegged to the US dollar) against the currencies of Oman’s main suppliers.4 107.4 99.3 103.1 FY 2004 101. 7 FY 2006 111.4 96. Maintenance.2 107.3 129. 4 FY 2008 150.2 105.7 97. Water & Fuel General Price Index Source-Ministry of Economy FY 2003 100.0 106.6 125. Oman Budget 2010 Oman’s Budget for the year 2010 estimated total revenues of OMR 6.8 94.1 points to 125.1 113.3 89.9 125. beverage and tobacco Clothing.2 points while climbing to 129.Oman Economy & Outlook April 2010 in 2006 to record levels of 5.0 93.2 105.
614.3 0 838.6 0 3678.167.6 40.0 0 4.775.0 20 0 4.348.2 0 649.615.00 50.00 3610.90 1.0 0 821 679 419 485 -810.170.880.00 37.905.00 45 212 80 2.480.70 Budget ed 2010 6.432.9 325. leading an increase of 12% on a Y-o-Y basis.180.420.60 3986.389. Ministry of Finance and Central Bank of Oman __________________________________________________________________________________________________ 17 | P a g e Shurooq Investment Research .9 160.226.0 0 1.90 1.30 3.530.7 162.380.8 54.00 7.00 Actual 2009* 6.00 5.1 396.50 54 196 76 1.560.70 643.60 1. 70 5093.00 1.00 Actual 2008 7.20 810.4 0 2.40 1.898.8 401.0 0 4050.1 0 1.4 78.525.00 1.00 2.9 1.663.60 6. 22.214.171.124.00 909.800.400.00 3.919.00 1.00 1.50 5.550.40 648.8 64.638.1 0 Budget ed 2009 5.8 291.20 Budgete d 2008 5.00 Source: Ministry of National Economy.00 620.545.70 77. Budget 2010 ( OMR mn) Revenue Net oil Revenue Gas Revenue Other Revenue Expenditure Current Expenditure Defense & National Security Civil Ministry Interest on Loans PDO LNG & Oil Condensates Investment Expenditure Civil Ministry PDO Gas Production Expenditures Subsidy to Private Sector Fiscal Surplus/Deficit *indicates figures till Nov 2009 Actual 2007 5.431.00 1.00 55 180 50 1.0 0 970 725 433 620 -800.8 181.90 670.019.4 -139. Taking into consideration upon these assumptions for the fiscal year of 2010.30 1. Oman’s predicts a budget deficit of OMR 800 million for the year 2010 which forms about 3.42 billion in FY’2009.280.3 62.697.48% of FY’2008 GDP.00 745 670 450 385 -400.805.7 0 1.00 800. 80 1.5 476.00 7.5 0 1.4 0 3.590.0 0 3522.Oman Economy & Outlook April 2010 billion as compared to OMR 6.920.020.422.00 2.1 2.3 2.0 40 0 1.424.635.857. 6.5 401.865.9 381.360.00 1.159.
On a basis of a conservative approach. According to the 2010 budget.38 billion from which Oil and Gas revenues add up to 76% of the total revenues. Overall Oil & Gas production current expenditure is expected to __________________________________________________________________________________________________ 18 | P a g e Shurooq Investment Research . Oman’s total revenue is budgeted at OMR 6. The target set for oil production in the 2009 fiscal year was surpassed and with that type of track record.Oman Economy & Outlook April 2010 During the 2010 year crude oil is expected to remain around $70 to $80 a barrel. the oil revenues were estimated at an average oil price of $50 a barrel and therefore the oil revenue is most likely to be more or less OMR 4. this is mainly due to enhanced oil recovery systems that are being implement in many of the oil fields. Oman’s government will most likely be achieving its production target set by 2010. an increase of 8% on a Y-o-Y basis. A number of new health centers are planned for the 2010 year and accordingly Health sector collected OMR 294 million. the government predicts around 10% increase in oil production as compared to 2009 fiscal year production levels. The government of Oman plans to achieve an average oil production of 900. Education and training spending has the biggest share.000 barrels per day by the end of 2010.5 billion. Oman’s total expenditure is budgeted at OMR 7.5% to OMR 874 million. which in return shows the amount of conservatism the Omani Government withstands. however the Government of Oman has assumed an average oil price of $50 a barrel.18 billion as current spending is likely to rise by OMR 330 million to OMR 2. Defense and security current expenses are estimated to be at OMR 1.615 billion.05 billion during the 2010 fiscal year.5% on a Y-o-Y basis. During 2010 fiscal year. an increase of 4. which is expected to rise by 10.
9% of growth budgeted for 2009.Oman Economy & Outlook April 2010 increase by 4. Oman is allocating around RO937mn for new projects during 2010 with the aim of creating 4000 jobs for Omani nationals.92bn budgeted for 2009. Such projects include.1% of real economic growth by the end of 2010. The most important focus of the government is the ongoing support for private sector as subsides to the sector is estimated at RO620mn. __________________________________________________________________________________________________ 19 | P a g e Shurooq Investment Research . Thus investment expenditures are estimated at RO2. the ongoing support for capital expenditure will support the Omani economy to report 6.1% on a Y-o-Y basis to OMR 292 million as compared to OMR 272 million in the 2009 fiscal year. As per the Ministry of Economy. construction of a number of new schools. Finally as per the Minister. or 27. operation and maintenance of Al Ghubra portable desalination plant and construction of a number of new health centers in addition to the implementation of a large number of services projects.9% as compared with 2.8% of growth.13bn for 2010 as compared with RO1. Increased investment expenditure decided by the government is a matter of policy to continue with key infrastructure and development projects. Infrastructure Development & Employment creation is the main focus area in the Budget Investment expenditures are estimated to grow by 10.
During the period of 1960-Present Omani government and foreign companies have worked together to explore different oil and natural gas fields. 4% to Total and a 2% share by Partex.4% of reserves. major fields include Fahud.5% as opposed to Oman which holds 0. and most of it natural gas. the GCC oil producing country which is not enrolled in OPEC alongside Kingdom of Bahrain. To compensate. Oman has easy access on foreign investments which helped attract foreign companies to operate on the oil and gas sector. PDO is Oman’s main exploration and production company. but follow OPEC prices carefully through its Omani crude. KSA hold 21% of the total proven oil reserves. Mina al Fahal. Kuwait holds 8. Oman uses a variety of enhanced oil recovery (EOR) techniques. Oman oil and gas sector is controlled by the government of Oman through two strategic companies. 35% share goes to Royal Dutch Shell. Ras-AlHamra. PDO is a shareholding company owned 60% by Oman government. Oman Oil is a commercial company that is mainly owned by the government of Oman. which accounts for more than 70% of the oil production. a mix of heavy and light crude While compared with other GCC countries Oman still remains small in term of reserves.000bbl/day of oil. it was incorporated in 1992 to pursue investment opportunities in the energy sector inside and __________________________________________________________________________________________________ 20 | P a g e Shurooq Investment Research . Oman Oil (OO) and PDO. PDO produced 556. Yibal and Rima. these methods are used to raise production levels.Oman Economy & Outlook April 2010 Crude Oil Sultanate of Oman. In 2008.
while on a nine year period from 2000. a 7. Y-o-Y basis oil revenues decreased b 37% on the export front. On the long run. exports to China and Malaysia have witnessed the biggest hits with oil export to china declining 21. Oil exports to Korea increase 90. Further. World oil demand growth will come largely from China.06 compare to 2008. The decline in OECD oil demand is expected to outweigh demand growth from Non-OECD countries. oil production decreased 3% during the period 2000-2008 this is attributed to lower declining reserves.7% during the period 20042008.7mn bbl.4mn bbl and 80% for Malaysia which export reached 0. Natural Gas __________________________________________________________________________________________________ 21 | P a g e Shurooq Investment Research .6% increase to Taiwan to reach 5. Source Ministry of Economy Oil productions of Oman have reached 297 mn bbl in 2009 as compared to 277mn bbl in 2008. create jobs and generate revenues to the government. a rise of 7. India. on a CAGR basis oil production has been decreasing 0. However.665 bbl during the period Jan-Apr 2009.6mn bbl and 70. Country wise.3 mn bpd in 2010 as estimated by International Energy Agency (IEA). average oil prices per barrel in Oman however dropped by 43.9% to reach 10. On the other hand Korea and Taiwan witnessed the highest increase in oil exports. Oman Oil lays its focus on energy investments to enhance the energy sector of Oman. exports to China are expected to increase owing to improved economic condition in the world and higher GDP growth forecast for 2010 and so on which in return will increase the demand on oil.8% to reach 27.7 USD/BBL from US$101.Oman Economy & Outlook April 2010 outside Oman.9% to OMR 56.22%. Investments of Oman Oil include a 20% share in oil exploration in Caspian Offshore concession in Kazakhstan. diversify the Oman economy. World oil demand is expected to average 86. Middle East and Africa as per IEA estimates. a 40% share in Oman Polypropylene.5% share in China Gas Holding.
PDO is mainly involved in developing.2% of the Middle Eastern reserves and 0. Natural Gas production in 2008 reached 1. Of the natural gas produced in 2008.069. Oil and Gas revenues accounted for 79. Yibal-1 the largest oil field lead to the discovery of natural gas in Oman. a 0.7tncf in 2007. During the period to 2009. PDO was able to discover new major gas field. Gas reserves remained the same in 2008 as compared to 2007 but on a CAGR basis Omani gas reserves increased 4. PDO is currently spending more than US$3.8bn in capital and operating expenditure.5% during the period 2000-2004 and decreased 0.6tncf as compared to 1.070. 221.3bncf was associated production and 848.3% during the period 2004-2008. and by 1978 Oman had its first major gas plant. develop LNG projects and supplying gas to the nation.2bncf was non associated.1% decrease in production. showing efforts of economic diversification. PDO is working on producing a new gas production station at Haban. __________________________________________________________________________________________________ 22 | P a g e Shurooq Investment Research . Oman is scheduled to develop Harweel plant to make it the world’s biggest miscible gas development plant. Natural Gas Production Omani Government has been spending hugely on projects to enhance oil and gas production.6 tncf which make up 1. As per new projects. In 1962. steam injection. It’s considered one of the few oil companies to implement the Enhanced Oil recovery (EOR) projects based on certain technologies including miscible gas injection. natural gas production increased 6%. In central Oman PDO is developing a steam injection plant where it will contribute 40.5% of the world reserves.000bbl/day of new oil.9% of the total government revenues. The proven gas reserves of Oman in 2008 reached 34. Vision 2020 aims to shift crude oil contribution to below 10% of the GDP and increase natural gas and industrial to above 10% and 20% respectively.Oman Economy & Outlook April 2010 Oman Vision 2020 seeks transformation of Oman’s economy through diversification. On a CAGR basis from 2004-2008. and polymer injection. operating natural gas field in Sultanate of Oman.
the current economic environment presents numerous challenges ahead.8mn which constituted 11. gas revenues increased a substantial 38% during the period 2004-2008. profitable growth would be at its sustainable level.3% of the nominal GDP in 2008.9mn and constituted 13.9% of government revenues.7% of the government revenue. On the other hand Oman is following the Vision 2020 where it will continue its effort to diversify the economy. Though. together they accounted for 51. but if bringing the field into production will help supply shortfalls in requirements and will increase production per day by 50%. In the medium term.3% of total expenditures. Oil and Gas sector of Oman continued to have the major play in the economy of Oman. the enhanced spending by the government (leading to a RO810mn budget deficit for 2010) and the eco-political stability should help tide over this crisis.7 Research Y-o-Y Chg -21. we are positive on the sector considering its relative insulation to the real estate sector exposure and lower loan losses unlike its counterparts in the GCC region. However Omani Banking Sector managed to escape the crisis impact quickly. Gas revenues in 2008 stood at RO909. On a CAGR basis. and 14.3% __________________________________________________________________________________________________ . but it faces obstacles for output where depth of gas is reached nearly 5. The Omani economy is expected to a however at a lower rate of 1% in 2009. Banking Year 2009 provided mixed results for the Omani banks after recovering from the Credit shocks and rising provisioning levels to cover the bad loans. The field Khazzan-Makarem in central Oman is expected to have around 40TCF in place.7 Investment FY 2009 73.4% of the total government revenues as opposed in 2007 gas revenues stood at RO810.Oman Economy & Outlook April 2010 Currently BP is undergoing a test on a potential gas field in Oman which could boost gas output by 50%. We expect that Omani banking sector would recover much faster than its GCC peers being less expose to international markets and believe that though it has the capability to weather the current crisis. Profitability Index of Omani Banks Net Profit (OMR mn) Bank Muscat 23 | P a g e Shurooq FY 2008 93. BP was awarded the field development in 2007 and spent more than US$650mn to develop. 79.000 meters.
0 158.3%.3 mn. The overall assets of the Omani banks increased at an impressive rate of 37. However Bank Dhofar manage to report a small profit of 7% among the bigger banks.3 -53.4 29.4% however loans and advanced moved up by almost 6%. Capital adequacy The Omani banks are well capitalized.1%. Bank Sohar & Ahli Bank continues to grow despite of tough lending conditions and reported a smart gain of 254 & 44 percent YoY profit growth. while the government’s debt remained very minimal. This was reflected by Moody’s reiterating their stable outlook on Oman’s A2 investment-grade Sovereign rating. Nation Bank of Oman was the biggest loser as its profit fell 54% compare to peer average fall 19%.230.0% 7. Total Asset improved marginally however b 1. These assets & reserves amounted to around 75% of GDP at the end of 2008.5% -27.2% 43.4 8.2% In the Year 2009 most of the large cap banks like Bank Muscat.4% as at the end of 2009. Total Assets (OMR 24 | P a g e Shurooq Loans & Advances to Investment Research Customers Deposits __________________________________________________________________________________________________ . the Omani banks are better placed (without any capital infusions by the Central Bank so far) within a range of 13.653.5 23.1 21. National Bank of Oman reported decline in their net profits and smaller or new banks have gained in the absence of lending b the big 3 in our opinion.3% -19.7 5. Customer deposits increased from OMR 5. Asset Growth The Omani banking sector has manage to stay in positive in 2009 in terms of asset growth owing to higher lending by new and mid cap banks those were not exposed to external lending ( read GCC or International).0mn at the end of 2008 thereby registering a YoY growth of 37.5 8.6mn in 2007 to OMR 11.3) 195.Oman Economy & Outlook April 2010 National Bank of Oman Oman International Bank Bank Dhofar Ahli Bank Bank Sohar Cumulative Source-Financial statements at MSM 45.5mn at the end of 2007 to OMR 7.8% from OMR 8.0mn at the end of 2008.457.713. In comparison to its regional peers wherein the central banks/governments are infusing capital to boost its Tier I capital and in turn to improve its total capital adequacy ratio (CAR).9 (2.9 21.5 25.0% to 23. The combined profits of the listed Omani banks dropped by 19% in 2009 from OMR 196 mn to OMR 158.9% 254. On the other hand total Customers’ deposits too increase by 5.
4% FY 2008 3.05% up from 5582 to 6986 as on Sep 30.803 7.6% 1.0% 0.039 12.3% 35.018 375 634 FY 2009 3.401 627 1.122 7.2% 24.441 4.3% 18.261 730 1.46% -9.1% 12.068 1.Oman Economy & Outlook mn) Bank Bank Muscat National Bank of Oman Oman International Bank Bank Dhofar Ahli Bank Bank Sohar April 2010 Customers (OMR mn) Y-o-Y Growth (%) -2. MSM has reported a CAGR return of 31% during the period of 2006-9 whereas most of the regional indices reported a negative return during the same period.3% 46.101 467 832 Y-o-Y Growth (%) -3.487 616 1.582 7.0% 21.798 1.875 16.9% -9.0% -2.3% -6.783 31-Dec09 6.713 11.173 1.324 456 843 FY 2009 5.10% -23% -30% Since Jan 06 31% -63% -39% __________________________________________________________________________________________________ 25 | P a g e Shurooq Investment Research .9% 17.025 Cumulative 11.083 7.933 10.784 8.361 615 1.005 YTD Change 17.018 1.039 1.035 11.984 1.838 1. MSM relative performance over years Index Musca t Saudi Kuwait 31-Dec05 4.460 Muscat Stock Market MSM is one of the best regulated Stock market in the Middle East. Market capitalization of MSM stood at OMR bn which around 50% of its reported GDP of 2009. 2007.3% FY 2008 6.0% 5.2% 51.1% 13. And also one of the best in the term of corporate governess and transparency. MSM yield this year stood at 17.369 6.851 1.4% 2.067 31-Dec07 9.9% -1. Even since 2007 MSM is the only exchange which has a positive return till date.8% FY 2008 3.533 31-Dec06 5.8 16 7.028 1.194 444 787 Y-o-Y Growth (%) 3.23 8 7.9% 5.05% 27.728 1. MSM is one the most promising and performing stock markets is the region.6 54 11.342 729 972 319 548 (OMR mn) FY 2009 3.99% Change Since 2007 14.559 31-Dec08 5.
458 6.22% 14.45 53.06% -34% -11% -56% -9% -2% April 2010 -34% -2% -76% -47% -37% Source Bloomberg Historical MSM performance in % MSM 30 Banking & Investment Industry Services & Insurance 2004 22.7% and 5.218 6. Industry.203 before closing the year at 7.89 Muscat Securities Market is a free float index and has three sub indices called Banking & Investment.88 71.59 72.31 6. Banking & Investment sector closed the year at 9. where Bank Dhofar and Bank Muscat hold the largest market share of 10. Services & Insurance sector consists of only seven companies and hold a remarkable market share weight of 27.4 52.127 3.932 4.2% and 4.580 1. After falling sharply in the 2008 year due to collapse in global equity markets.053 2.5 60.390 6. and profitable companies listed on the Muscat Securities Market.6% respectively.03 2008 -39. Industrial sector is the last sectoral category amongst the MSM30 index which holds a market share of about 20.596 1.092 and a high of 2.886 1.63 11. Banking & Investment sector has the lion share in the total index weight of MSM30 index which is around 52.636 2. liquid. Cement sector stocks such as Raysut Cement and Oman Cement cover the largest bulk in the Industrial sector of about 7.79% 1.804 4.702 after surfacing a low of 2. MSM30 index touched a high of 6.52 2006 14.196 6. MSM30 and its sub sectors posted minimal losses as compared to other regional markets and its sub sectors. Industrial sector touched a high of 8.973 4.09% 10.447.54 31.550 5.552 9.426 5.78 -46.84 34.7% of the total Services & Insurance sectoral index. MSM30 index and its sub sectors have performed significantly well to support their index levels.05 41. The index was developed with a base level of 1000 as in June 1990.17 33. and Services & Insurance.27 22.17% 35.375 after hitting a high of 10. __________________________________________________________________________________________________ 26 | P a g e Shurooq Investment Research .56 35.000 7.133 2.89 -28.23 -46. On a historical basis since January 2006. Services & Insurance sector closed the year at 2.3% in the MSM30 index.744 6.223 and a low of 3.919.209 1. MSM30 index is a capitalization weighted index of the 30 most highly capitalized.203 11.325 7.701 and a low of 4.63 2007 61.45 2009 17.Oman Economy & Outlook Bahrai n Egypt Dubai Abu Dhabi Doha 2.804 2.5%.67 2005 44. Oman Telecommunication and Renaissance Services constitute 9.26% respectively in Banking & Investment sector. During the 2009 year.904.25 17.2%.786 and a low of 4.49 4.755 10.188 before closing the year at 6.34% and 10.369.959 -19.
Oman International Bank (+35%). __________________________________________________________________________________________________ 27 | P a g e Shurooq Investment Research . and Oman Cables Industry (+62%). During the past 5 years size of market have improved significantly added by liquidity & volumes which have substantially increased at MSM. Oman Flour Mills (+212%). Al Anwar Ceramic Tiles (+88%). Industrial sector outperformed the benchmark index and garnered gains of more than 70% on the back of Al Hassan Engineering (+270%). Turnover rose from 593 mn to OMR 3663 mn a CAGR growth of almost 130% before contracting by 33% in F 2009. and Bank Muscat (+3%). Oman Cement (+149%). however Galfar Engineering and Renaissance Services propped up to gain 25% and 23% respectively during the 2009 year. Services & Insurance sector posted less significant gains of about 7% during the year due to decline in index heavyweight Oman Telecommunication (-18%). Volume moved up from 272 mn to 6092 mn during the period. Banking & Investment sector as well outperformed the benchmark index to collect gains of more than 40% supported by Bank Dhofar (+98%).Oman Economy & Outlook April 2010 During the 2009 year. Ahli Bank (+46%). MSM30 index managed to gain 17.5% on a Y-o-Y basis led by a support on Industrial and Banking stocks. Bank Sohar (+89%).
Oman Economy & Outlook April 2010 __________________________________________________________________________________________________ 28 | P a g e Shurooq Investment Research .
This report is not to be relied upon in substitution for the exercise of independent judgment. The investor will not indemnify Shurooq Securities Co LLC and its officers. which may suffer as a result of reliance on such reports. availability or use would be contrary to law or regulation or which subject Shurooq Securities Co LLC to any registration or licensing requirements within such jurisdiction. publication. Neither the information nor the opinions contained are to be construed as an offer to buy and sell securities mentioned above. state. Shurooq Securities Co LLC is not accountable for any decision based on the content of this report. employees and staff against any loss or damage or other liabilities (including Cost). Investor should judge the suitability of the securities to their need.Oman Economy & Outlook April 2010 Disclaimer This report is not directed to. This is report is provided for information purpose only. This report is based on information generally available and is deemed reliable but no assurance is given as to its accuracy or completeness. country or other jurisdiction where such distribution. or intended to or use by any person or entity who is a citizen of or located in any locality. __________________________________________________________________________________________________ 29 | P a g e Shurooq Investment Research .
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