various approaches to evaluate and visualize the difficulties and challenges of foreign capital investment opportunities in Oman
The literature review focuses on both general and empirical studies carried out to examine the various approaches to evaluate and visualize the difficulties and challenges of foreign capital investment opportunities in Oman. The preliminary literature will assist me in formulating my research problem, establishing the theoretical roots of my study, clarify my ideas and develop my research methodology. It will aid me in integrating findings with the existing body of knowledge.
I have used data from various resources, including journals, conference proceedings, academia books, case articles, and websites to derive decision making rather than gut feel or intuition. The sources have enabled me to identify research gaps in the literature of the evaluations of difficulties and challenges of foreign capital investment opportunities in Oman. I have found that the previous research related to this topic conflicted or lacked important details in some way. Analytics has used data to derive insights which drive business actions and therefore produces business outcomes. The general levels of competitive advantage compared to the level of sophistication will cut across through different paradigms of analysis namely prescriptive (What should happen), predictive (What will happen), diagnostic (Why did it happen) and descriptive (How it happened). The first two have a higher level of sophistication that bases its growth in the various techniques such as data mining, analyzing the current data and to make predictions about the future.
My literature review on the research will, therefore, strive to fill the gaps in the previously conducted research on the evaluations of difficulties and challenges that face foreign investment opportunities in Oman. It will integrate the various information resources to come to a joint agreement. The literature review will be divided into various subtopics for active reviewing. This research section seeks to analyze what challenges or difficulty may face the potential or actual investors in the Oman country.
Related Studies
2.1.0 Classification on Evaluation
We are going to classify on the main areas for the evaluation of the project. The classification will aid in analyzing specifically the concerned area. Thus we will classify the evaluation of my project under economic, political and social, sovereign and environmental.
Political factors
His cousin, Haitham bin Tariq al-Said
Here we will investigate how the various policies and regulations such as the Royal Decree laws issued on foreign capital investment imposed by the Oman government affects foreign investors and also how the political environment undermines the operations of the foreign investors. According to various information resources, I found out the following political factors to be affecting the foreign investors;
Government Laws That Makes It Hard for The Foreign Capital Investors to Do or Start Their Businesses in Oman
The Oman government is too strict on foreign investors. According to Article (11) on chapter one of the royal decree acts against foreign capital investors, the projects for the investors shall be prohibited from engaging in any activity whose aim is to achieve political or religious objectives, nor shall they engage in any activity that advocates for discrimination against citizens or residents, nor shall they engage in any activity that breaches public order or morals. This means the investors are limited in their operations, thus limiting the scope of investment. Still, it does not necessarily mean that engaging in the prohibited acts above is the right thing to do.
The investors have no much privacy as according to Article (12) of the decree mentioned above. It states that employees specified by a decision of the Competent Authority in agreement with the Minister shall be granted the capacity of judicial police, for the application of the provisions of this Law. Such employees shall have the right to access, monitor, and inspect the sites, facilities, and offices of establishments or companies. They shall have the right to access their records, documents, and work regulations to verify their compliance with the laws and regulations thereof. Owners and persons in charge of such establishments and companies shall provide the necessary facilitation to such employees for the performance of their duties. There are some activities by the foreign investors, which may require confidentiality and without there can be interference in their normal business operations thus, it may scare away potential or actual investors.
Difficulties in acquiring permits and licenses for conducting business in Oman. According to Article (15) of the same decree, it states that, following coordination with the Competent Authority, the Regulations shall set out the conditions, rules, procedures, and timelines for issuing approvals, permits, and licenses relevant to Investment Projects governed by the provisions of this Law. The complete process of acquiring the projects’ permits and license takes much time with much needed requirements. As we all know, time is an essential factor in production when it comes to business.
The authorities peck its nose to foreign business affairs. According to Article (16) of the Royal decree act on foreigners, it states that concerning Investment Projects dealt with by the Authority, the Authority shall assume the competences of the Ministry and the Authority Chairman shall understand the capabilities of the Minister provided for by this Law. The authority involvement in foreign capital investments interferes or undermines the project operations.
Oman courts are likely to favour its citizens. According to Article (17) of the Royal decree act on foreign investors, the Oman courts shall have the jurisdiction to entertain any dispute arising between an Investment Project and a third party. Cases concerning Investment Projects shall be considered before such courts on an urgent basis. Dispute and differences may be settled by way of arbitration. Reliance on the Oman courts in solving cases of business disputes between the foreigners and Omani individuals has a high chance of favouring the home side.
High fees for any foreign investor found violating the law provisions on foreign investment. According to Article (33) of the royal decree on chapter five concerning penalties, any foreigner carrying out an investment activity in violation of the provisions of this Law shall be fined not less than OMR 20,000 and not more than OMR 150,000. The same penalty shall apply to any Omani who partners with a foreigner in an Investment Project in violation of the provisions of this Law.
Article (34) of the Royal decree on the same chapter also adds that if a person obstructs the employees referenced in Article (12) of this Law from performing their duties, such person shall be penalized by a fine not less than OMR 1000 and not more than OMR 5000. This shows how the foreign capital investors have been put under tight watch on any misconduct that they may find themselves in.
The Royal decree contrast to the above disadvantages is said to promote foreign capital investment, according to Mohammed bin Rashid Al Badi, who is the act. Director of the Legal Department in the Commerce and Industry Ministry made it clear that the said ministry would facilitate the implementation of the foreign capital investment law, which was issued under the Royal Decree Number 50/2019, with an effect from second January 2020. He added that the foreign capital investment law has various incentives together with benefits for the foreign investment opportunities to support their flow and stability while in the Sultanate, as they impact the development of the economy. The new laws allow investors to set up a company in the permitted activities, to enable them to own the entire capital. The new Law stipulates no limit for foreign capital investments in a given project, provided the investment abides within the proposed period for the implementation according to the economic feasibility study.
The equation of the former Oman Sultan to be the country’s determinant by his/her citizens. According to Gulf News in May 2016, the Oman Sultan, Qaboos bin Said Al Said has won the loyalty of his countrymen by forming the Oman State and giving it his identity. The political legitimacy of the Oman state is therefore said to be linked to the current Sultan. The Oman citizens felt more attached to their former Sultan, and thus his absence has turned things in a different direction. It is uncertain whether things will remain the same as the current Sultan.
The demise of the former Sultan, Qaboos has left a gap which is difficult to be filled. According to Gulf News on July 25 the year 2019, a Minister in the Oman government admits that the economy of Oman has been on a decline, but they are doing all they can to revive it. The decline is said to have commenced immediately after the late Sultan demise.
The former regime’s reluctance to prepare for a successor of the Sultan by refusing to either appoint a prime minister or a crowned prince with some form of executive powers has caused unpreparedness of the current regime and lack of trust of the Omanis to the regime. The Sultan has only added to the peoples’ popular anxiety over the thought lack of a durable economic and political plans for the Oman country. The above factors also leave the investors in risk uncertainty, which therefore interferes with any investment plan in the country.
Oman monarch form of government is faced with a dictatorship which can also be extended to the investors
The previous and current regime has shown different cases of dictatorship and oppression to those that seem to oppose the government. According to al-bab.com, peaceful protests took place in 2011 and 2012 by the Omanis in the significant towns demanding for better salaries, improved living conditions, effective political reforms, and doing away with the corruption cases was reacted harshly by the regime. The regime sacked a section of the top management officials and arrested the activists involved in the peaceful protests.
In a bid to stop and prevent protests, the regime had an aim of tightening the legal provisions to criminalize the expression of the nonconformists or those with critical opinions. According to Gulf News of February 2011, a new cybercrime law was issued by the Sultan’s decree to impose prison sentences extending to three years if found using the Internet in producing or publishing or distributing or purchasing or possessing anything that might put the public ethics under violation or may lead to prejudicing of the public’s order or any religious value. As we all know, the Sultan used these laws as a trap or excuse for putting his critics under control.
According to the explanation of one of the leading Omani financial journalists, the public prosecutor could answer directly to the Sultan and put into question or investigate anyone.
After a few weeks, the Sultan’s decree expanded the powers of the public prosecutor with the rest of the controls being held by the inspector general of the Oman police and customs also assigned to the federal prosecutor. In May 2011, the Sultan went further to expanding the powers of the police in detaining suspects with no arrest warrant and for a maximum duration of fifteen days before being summoned to court and period of thirty days without charge for the crimes related to the national security or those that have been mentioned in the Law against terrorism.
According to BBC news, the Sultan’s decree has amended several penal law articles, which imposed jail sentences for publication of any false news, statements or rumours that are liable to incite the public or capable of undermining the prestige of the state or weakening trust in the financial state. A new provision was made, which stated that any person found participating in a gathering of at least ten people to affect the public system, will be punished with a jail term of one-year duration. The amendments mentioned above, therefore, illegalized the activities and methods conducted by the protestors making the Sultan achieve his aims of curbing protests.
According to Al-Jazeera news,2011, The Sultan Qaboos’ bid to exerting greater control across his country, made him conduct an administrative reorganization to transform all the regions into governorates, and with all governors except those of Muscat and Dhofar, to act under the strict supervision of Oman’s Interior Minister. The regime also ensured that no political parties are formed so that the monarch remains with the total control of the Oman state.
All the above factors mean that any foreign investor will depend on the mercy and goodwill of the regime since the regime has total control over any activity happening in Oman. If the Omanis can undergo frustrations by their government, what about the outsiders?
High cases of corruption in the current regime do not provide a pleasant investment climate for investors. According to sources from BBC news, peaceful protests were conducted by the dissatisfied Omanis who feels that effective measures should be introduced to curb correction cases in the Sultanate. Corruption does affect business opportunities and investments. For instance, those in power may decide to award tenders to their preferred persons of choice as opposed to the required one. Corruption may lead to individual business enterprises being judged unfairly by the relevant government authorities. High taxes, false taxation or false allegations of evading taxes or any other misconduct may be imposed on them, leading to adverse effects of the businesses such as closure or fading their customer’s loyalty.
The poor salaries and living conditions of the Omani may not be a good market source for the investors. Gulf news indicated the peaceful protests from the Omanis advocating for the improved salaries and better living conditions shows that they are not under proper condition to provide a profitable market. Business prosperity depends on the economic wellbeing of the potential customers.
The Omani government has illegalized some of the products for the Omanis. According to Encyclopedia Britannica, The consumption of beverages related to alcohol among the Omani individuals has been illegalized. Women are also supposed to wear clothes in a conservative and time-honoured fashion. Therefore, some products will not be marketable to Oman customers.
2.1.1 Economic challenges and difficulties
Oman Economy heavy reliance on oil revenues
According to Cluttons article on investing in Oman, Oman’s economy, just like its neighbouring Gulf countries, is still struggling to revive due to the collapse in oil prices back in 2014. As the nation tries not to depend on revenues from oil through diversifying its efforts and decisive intervention by the Oman government, the real estate industry market has faced the effects of overall demand reduction. The landlords, however, have still some activities and opportunities in residential and commercial sectors of the real estate.
According to Oxford Economics, the GDP growth of Oman economy in 2016 fell to a nominal 0.4% from 1.5% of the previous year as the government spending continued to ease, leading to the slowdown that was currently being experienced. There has been a turnaround in the oil prices from USD 55 per barrel at this time last year to around USD 40 per barrel in February 2020.
Land ownership by the Oman government
According to Cluttons article on investing in Oman under the considerations for in Oman, it points out to the Real estate in Oman is governed by Royal Decree 5 of 1980 on real estate which gives all land ownership to the state unless specified otherwise. According to this Law, the Omani citizens may possess the land only on a freehold or leasehold basis. It is, therefore, an observation that Restrictions on property ownership restrictions applies in Oman just as in the other GCC nations. The investors, therefore, will have to lease land from the Omani government, which has a high cost of licensing and taxation as opposed to if the Oman individuals would own the land.
Challenges of credit downgrades, unsupported Islamic finance segment and delayed payments in Oman
According to the Executive President of the Central Bank of Oman (CBO), Tahir Salim Al Amri, recently at a meeting held with the Oxford Business Group (OBG) section team, the country’s capital, Muscat, is faced with the challenges mentioned above and therefore seeks plans of coming with a report that will show the guidelines of tackling the issues. The CBO Executive President came up with an analysis of the current monetary policy, together with banking supervision measures that are implemented by the CBO to aid in addressing the current economic challenges facing Oman at large. With the current economy, it is clear that foreign investors will face a difficult task trying to start a business in the country as the purchasing power of the Oman customers will be low.
Challenges in managing the liquidity of the liability products in the Islamic finance segment
According to the CBO president, Al Amri, to the OBG, he showed them plans of introducing a range of Islamic liability products with a better structure understanding of their income returns which combined to result to an increased inflow majorly. The CBO president still acknowledged that managing the liquidity in the said segment remained a puzzle. He told the OBG that the CBO recognized conventional instruments in financing remained unsuitable for the Islamic bank segment. He admitted that the bank had launched a reliable consultative process or engagements with aims of setting up tools of managing liquidity and provisions of the wakala agency arrangements together with collateralized partnerships.
An expected weakening of Oman economic resiliency
According to Moody rating agency, a downgrading of the long-term issuer together with senior unsecured of the ratings of the bond of the Oman government from Baa2 to Baa3 on march 16, retained a negative outlook to the Oman Sultanate. The downgrading led to citing of an expectation that the Oman government’s fiscal and the external metrics continued weakening as the fundamental reason for the downgrade, adding to the fact that the slow growth in the future years would lead to a weakening of the economic resiliency.
The Royal decree is said to promote foreign capital investment. According to Mohammed bin Rashid Al Badi, who is the act. Director of the Legal Department in the Commerce and Industry Ministry made it clear that the said ministry would facilitate the implementation of the foreign capital investment law, which was issued under the Royal Decree Number 50/2019, with an effect from second January 2020. He added that the foreign capital investment law has various incentives together with benefits for the foreign investment opportunities to support their flow and stability while in the Sultanate, as they impact the development of the economy. The new laws allow investors to set up a company in the permitted activities, to enable them to own the entire capital. The new Law stipulates no limit for foreign capital investments in a given project, provided the investment abides within the proposed period for the implementation according to the economic feasibility study.
Social challenges and difficulties
There is a water shortage in Oman. According to Fanack water newsletter, there are numerous water challenges in the water sector of Oman. They include; water shortage; intense energy uses in the desalination process, high consumption of water in the domestic population, unsustainable water from the ground for use in the agriculture sector, subsidies that are misdirected, and inefficiency in appreciation of (IWRM) principles by the decision-makers. There are water challenges in Oman which will most likely affect the implementation of some projects that may require an intensive water supply.
The Arabic language of the Omani may become difficult for foreign investors to understand and vice versa during communication. According to Gulf News, part of the Omani population does not recognize speaking English, which is considered to be an international standard language of communication. Without proper verbal communication in business, then it will paralyze the project management or sales of the product.
The high number of expatriates in Oman also contribute to the language barrier. According to gulf news, Oman’s population of expatriates has increased in the last five years, according to recent data released by the NCSI. The expatriate numbers in Oman has been growing at a rapid rate to a population of about 45.5 % of the Oman total. The Indians and Bangladeshis constitute a significant part of the expatriate population. These expatriates speak different languages as they are from various nationalities.
The poor salaries and living conditions of the Omanis may not be a good market source for the investors. According to one of the journalists of Gulf news, the residents were engaged in peaceful protests advocating for the improved salaries and better living conditions. They were blaming the regime for failure to set and implement policies that can improve their social wellbeing. Therefore, they are not under the proper term to provide a profitable market. Business prosperity depends on the economic welfare of the potential customers.
The Islamic culture and region may be against the use of certain products. According to the chronicle fanack article, the Omanis have specific preferences when it comes to product selection. In this region, an investor will only consider selecting products related to the Muslim culture and services for the business opportunity.
Also, according to the Britannica report, the Omani citizens will not prefer consuming alcoholic beverages as it has been declared illegal by the government for the Omanis. It is however permitted to the visitors and only in licensed places such as dining establishments. Omani women conservatively put their attires and a time-honoured fashion. This means that some products will not be that marketable in Oman.
The foreigners may find it challenging to reside in the Islamic culture of the Omanis. According to one of the expatriates in Oman during an interview with me, some of the foreigners are not comfortable residing in Omani due to their cultures such as food. Foreigners complain that purchasing of non-local food has become extremely expensive. The recreational activities related to Muslim cultures also does not please some of the foreigners.
The country’s small population does not provide sufficient market for some of the foreign investments. According to Waldometer, the current Oman population is estimated to be 5,087,832. The population is said to be an insufficient market for intensive foreign investments. For a business to be prosperous, it needs a big market for its products.
The Omanis also have a habit of promoting their fellow Omani businesses, and this dramatically affects the market for foreign entrepreneurs. According to CNN news 2018, the Omanis prefer products from their fellow Omani business owners to other unknown businesses.
Sovereign challenges
A decline in Oman’s fund of the sovereign wealth. According to Al-Monitor, released by SWFI in the mid-April 2020, resources held by Oman’s biggest sovereign wealth fund were assessed at $21.4 billion toward the finish of 2019, they have diminished by about a third to $14.3 billion, as indicated by refreshed information. At the hour of distribution, Al-Monitor could not affirm the specific purpose behind this drop, expectedly identified with budgetary help and misfortunes in resource esteem.
According to Fitch Ratings, Oman could drain the (SGRF) by “over $5 billion” to back spending shortfalls. “It is not generally on the plan, yet everything moves rapidly,” a source acquainted with the issue told Al-Monitor not long ago. In the fallout of the 2014 oil bust, Oman more than once tapped worldwide obligation markets to back remarkable spending shortages. In this manner, its obligation to GDP spiked to almost 60% a year ago. Resources held by Oman’s sovereign wealth funds, interestingly, were, to a great extent protected.
According to BBC news, business analysts say that the change in oil prices may affect the Omani Rial currency, which is mostly based on the Petro-currency.
Environmental challenges
The extreme temperature conditions in Oman is unsuitable for the residing population. According to the climate to travel website article. Along the Gulf of Oman coast, there is a desert climate which is sunny throughout the year, with only a few rains in the winter season, during the summer season, the temperatures go to as high as 37/38 °C or 99/100 °F on average, and the heat becomes even more oppressive by the sea humidity. It becomes more dangerous when the inland wind blows dropping the humidity levels raising the temperature to as extreme as 50 degrees Celsius or 122 degrees Farads.
Oman experiences storms regularly around the coastal areas. From Wikipedia list of Arabian Peninsula tropical cyclones, the country is said to receive tropical cyclones impacts usually as a result of its location on the long coastline of the Arabian Sea. Averagely, the storms strike the country once every three years, especially between the Island of Masirah and port of Salalah, and occurs before June or after October. Dhofar region is not left out when it comes to the impacts of a storm due to cyclones.
According to Aljazeera News in 2007, a team of archaeologists discovered that a significant flood affected Ras Al Hadd in the eastern part of Oman as a result of the tsunami or severe storm. The country experienced a severe damaging storm termed as Gonu cyclone back in 2007, which is the ever-strongest recorded occurrence of the storm of the Arabian Sea and the ever strong to result to landfall on the landmass.
Conclusion
From the above sources, the majority have indicated that challenges are facing foreign capital investment opportunities in Oman. Some sources though have shown that Oman has an excellent investing environment. The research methodology was, therefore held to determine the truth of the matter by surveying on the affected and determinants of the foreign capital investment environment in Oman.