ECONOMISTS' FTA FRUSTRATIONS, CONCERN FOR FUTURE

C O N F I D E N T I A L SECTION 01 OF 02 MUSCAT 000165

SIPDIS

STATE FOR EB/TPP, NEA/PI, NEA/ARPI
STATE PLEASE PASS USTR/JBUNTIN AND JFENNERTY
USDOC FOR 4520/ITA/MAC/AMESA/OME/MTALAAT

E.O. 12958: DECL: 01/30/2015
TAGS: ECON ETRD EINV ELAB EPET EIND SOCI PINR MU
SUBJECT: ECONOMISTS' FTA FRUSTRATIONS, CONCERN FOR FUTURE
(C-NE4-01168)

REF: MUSCAT 27 AND PREVIOUS

Classified By: Ambassador Richard L. Baltimore III.
Reasons: 1.4 (b) and (d).

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Summary
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1. (C) Two Omani economics professors recently discussed with
Econoff the upcoming free trade agreement (FTA),the state of
the Omani economy, and prospects for Omani college graduates.
The academics displayed a subtle but unmistakable sense of
frustration and isolation in their university setting,
particularly re their exclusion from any sort of voice in the
FTA process. Contrary to government pronouncements on the
state of the economy, the economists described their
pessimistic view of diversification and growth in Oman. The
two scholars predicted there would be very little internal
opposition to the FTA from business groups, primarily since
the export sector is relatively weak and underdeveloped and
the domestic market already welcomes a host of American
products. End Summary.

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Getting a Fresh Perspective on FTA
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2. (C) Econoff recently visited Sultan Qaboos University
(SQU),outside of Muscat, to discuss the upcoming FTA
negotiations and the state of the Omani economy in an
academic setting. Dr. Asya al-Lamki, Assistant Dean for
Research and Postgraduate Studies at the College of Commerce
and Economics, and Dr. Hatem al-Shanfari, Professor of
Economics and Finance (strictly protect),agreed to chat for
over an hour regarding these and other issues. As part of a
faculty that consists of more than 70 instructors, with 2000
enrolled students in over 6 departments, these professors at
the College of Commerce and Economics have considerable
exposure to current thinking about Oman's place in the
regional and global economy.

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In the Dark on FTA
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3. (C) Both economists smiled when asked about their view of
the FTA and its impact on Oman. By and large, neither one
knew much about the FTA process or how far it had advanced
between Oman and the United States. They had heard rumors
and speculation, but no one from the government had ever
taken the time to consult with SQU. More broadly, there is
no systematic effort by the government to include academia in
decision-making; even the economic committees of the State
and Consultative Councils do not seek SQU's advice when
conducting studies on the national economy. This isolation
visibly frustrated the two academics, although they evinced
no bitterness.


4. (C) As for potential opposition to the FTA from entrenched
business interests, Dr. al-Shanfari dismissed this notion by
claiming that the local trading groups were already dealing
heavily in American products, and that the export base in
Oman was relatively weak and could not muster much in the way
of support or opposition. As for the government and its
readiness for free trade, both economists believe that the
Ministry of Commerce and Industry does not emphasize trade
nearly as much as it should.

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Troubles with Economic Strategy
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5. (C) According to al-Shanfari, Oman's economic development
strategy still focuses primarily on industry, despite the
poor results thus far. Most Omani industrialization involves
capital-intensive manufacturing and production that does very
little to address the human resource development needs.
Al-Lamki nodded as al-Shanfari lamented the government's
insistence on developing large-scale metal projects (i.e., a
proposed multi-billion dollar aluminum smelter and a $750
million iron and steel plant, both slated for construction
near the northern port city of Sohar) which will employ
relatively few Omanis and involve enormous start-up costs.
Regarding labor, the economists felt that the policy of
Omanization was fostering an unhealthy attitude toward
non-Omanis, an unintended consequence that could come back to
haunt the government if growth were to stall.


6. (C) Other problems include Oman's limited natural resource
endowment. Beyond the well-chronicled woes of the petroleum
industry (reftel),the Sultanate's natural gas supply is also
encountering difficulties in terms of quantity and quality
(NFI). These challenges are having a detrimental impact on
Oman's liquefied natural gas (LNG) production. Such
assertions track with comments from American oil company
representatives who feel that Oman is already overcommitted
in its long-term LNG supply contracts.

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Deflating Inflation
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7. (C) When asked about inflation in Oman and the prevailing
perception that prices are rising much faster than official
statistics indicate, the SQU professors explained that the
official numbers were correct -- to an extent. The inflation
rate is extremely low in Oman, but that is largely the result
of the basket of goods used in measuring the Consumer Price
Index. In real terms, claimed al-Shanfari, wages have been
decreasing in Oman, and therefore consumers are feeling the
pinch at the checkout counter and at bill-paying time more
than in the past.

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Whither Omani graduates?
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8. (C) Regarding SQU graduates from the College of Commerce
and Economics, Dr. al-Lamki stated that most female graduates
preferred to hold out for government civil service positions.
The males, in contrast, were increasingly looking to the
private sector, primarily the banks and the oil companies,
for employment opportunities. In the long run, al-Lamki
worried about the demographic bulge that is entering the job
market yearly. She cited statistics to illustrate her
concern: of 60,000 Omanis in secondary school, roughly
10-15,000 will drop out. Of the remaining 45-50,000, only
10-15,000 will go on to higher education. Finding jobs or
alternative educational options for the youth of Oman remains
the most pressing socioeconomic challenge confronting Oman,
according to al-Lamki.

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Comment
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9. (C) The view of the Omani economy from the ivory tower of
SQU is not particularly rosy. Both professors are working
hard to prepare a new generation of students for the
challenges of a globalized economy, yet the gap between their
academic position and the corridors of power in the
government is wide. Their admonition against emphasizing
capital-intensive development is falling on deaf ears; the
Minister of National Economy very recently announced over $9
billion of overall investment being pumped into the Sohar
region for petrochemical plants, an aluminum smelter, a new
oil refinery, a fertilizer plant, and a new power and
desalination plant. What remains to be seen is the effect of
such development on overall employment and the ability of
these industries to compete in a global marketplace. In the
meantime, we will aim to engage SQU and other academic
institutions more regularly during the FTA negotiation and
implementation process (perhaps the Omani government will
follow suit) in order to raise awareness about the agreement
and how it can benefit Oman.
BALTIMORE