Identifier
Created
Classification
Origin
05MUSCAT68
2005-01-13 10:09:00
UNCLASSIFIED
Embassy Muscat
Cable title:  

2005 INVESTMENT CLIMATE STATEMENT FOR OMAN

Tags:  EINV ECON KTDB MU 
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UNCLAS SECTION 01 OF 09 MUSCAT 000068 

SIPDIS

DEPT FOR EB/IFD/OIA, NEA/ARPI
DEPT PLEASE PASS USTR/JBUNTIN
USDOC FOR 4520/ITA/MAC/AMESA/OME/MTALAAT
USDOC FOR ITA/ATAYLOR
TREASURY FOR DO/GCHRISTOPOLUS

E.O. 12958: N/A
TAGS: EINV ECON KTDB MU
SUBJECT: 2005 INVESTMENT CLIMATE STATEMENT FOR OMAN

REF: 04 STATE 250356

UNCLAS SECTION 01 OF 09 MUSCAT 000068

SIPDIS

DEPT FOR EB/IFD/OIA, NEA/ARPI
DEPT PLEASE PASS USTR/JBUNTIN
USDOC FOR 4520/ITA/MAC/AMESA/OME/MTALAAT
USDOC FOR ITA/ATAYLOR
TREASURY FOR DO/GCHRISTOPOLUS

E.O. 12958: N/A
TAGS: EINV ECON KTDB MU
SUBJECT: 2005 INVESTMENT CLIMATE STATEMENT FOR OMAN

REF: 04 STATE 250356


1. Following is the text of the 2005 Investment Climate
Statement for the Sultanate of Oman.


2. ECONOMIC OVERVIEW

Oman's economy is based primarily on petroleum, which
accounted for about 66.9 percent of government revenue by
October of FY 2004. Oman's proven recoverable oil
reserves are estimated at 5.5 billion barrels. The main
producer of oil is the government majority-owned
Petroleum Development Oman (PDO, in partnership with
Royal Dutch Shell),which controls 90 percent of reserves
and the lion's share of total production. Oman's gas
reserves stood at 30.3 trillion cubic feet (tcf) at the
end of 2004, according to independent industry observers.
Some analysts believe gas reserves can reach 40 tcf in
the coming years, in light of efforts to encourage
companies actively to explore for gas. Oman's oil
production throughout 2003 averaged 819,500 barrels per
day (b/d),an 8.6% drop from the 2002 level of 897,400
b/d. By the end of October 2004, daily production
averaged 781,400 b/d, a 5% drop compared to the same
period of 2003. Occidental Petroleum is the second
largest producer in Oman, and its production is estimated
at around 45,000 b/d.

In 2003, the Omani government awarded a tender for the
construction of a third liquefied natural gas (LNG)
train, Qalhat LNG, to expand the existing Oman LNG plant
in Sur. Oman LNG began operations in April 2000 with two
3.3 metric ton per annum (MTPA) LNG production trains for
a total production rate of 6.6 MTPA. The expansion will
bring the Oman's total production capacity to 9.9 MTPA
and is expected to come online by 2006. Off-take of much
of the production from this plant has already been
contracted to Spanish and Japanese buyers. A September
2004 agreement guaranteed a long-term natural gas supply
from the government to Qalhat LNG and outlined the terms
of an investment partnership between Oman LNG, Qalhat
LNG, and the Spanish firm Union Fenosa. In June 2003
Oman LNG signed a six-year agreement with BP to supply
twelve LNG shipments over six years, beginning in 2004.
The Omani government is in the process of building its
own fleet of LNG vessels to facilitate spot sales. Two

Korean-built vessels already operate under Omani flag to
supply the Korean market with LNG. In May 2003, Oman LNG
awarded a tender to build an additional four LNG vessels,
which are currently under construction in Japan and South
Korea.

The government encourages the private sector to take on a
greater role in financing infrastructure projects. The
capital area and other population centers have modern,
well-developed communications, utilities, and road
systems. Additional investment is extending this
infrastructure to rural areas. The long-term "Oman
Vision 2020" development plan highlighted the need for
the Omani economy to diversify beyond its present
reliance on petroleum, through a process of Omanization,
industrialization and privatization. The government has
proceeded with several major privatization projects,
including power generation projects in Salalah, Barka,
Rusayl, and the Sharqiya region. In late 2001, a
consortium led by the British Airport Authority became
the strategic partner for Muscat's Seeb International
Airport and Salalah Airport. However, the consortium
dissolved in November 2004 following disagreement with
the government over delayed construction of new airport
terminals. Management of the airports has reverted to
the government, and new airport expansion plans are
underway. The latest plan envisions a second runway and
a new terminal with a 12 million passenger per annum
capacity at Seeb International Airport by 2008, along
with a new terminal capable of accommodating up to 2
million passengers per annum in Salalah. Other privately
financed infrastructure projects include a petrochemical
plant, a steel rolling mill, a fertilizer plant, and an
aluminum smelter in Sohar.

One of the most successful diversification projects thus
far is Salalah Port, opened in 1998. The container
transshipment port was originally established jointly by
private investors (40 percent),the Omani government (30
percent),U.S. Sea-Land (15 percent),and Maersk (15
percent); Maersk bought Sea-Land's share in mid-1999.
The port handled more than 2.2 million TEUs in 2004,
surpassing its 2004 target of two million TEUs. Aside
from being one of the largest in the region, Salalah Port
ranks among the most efficient container ports in the
world. It is currently undergoing a major expansion
plan, adding two new berths and extending its breakwater
to meet sustained increases in demand. The Omani
government formed its own company in 2004 to pursue the
establishment of an industrial free zone at Port Salalah,
possibly with a foreign partner.

According to the 2003 national census, the number of
expatriates in Oman is 559,000 - one-quarter of the
population. Despite government efforts to replace
expatriate workers with Omanis, Oman still depends
heavily on South Asian labor to fill jobs that require
physical labor, clerical work, or certain technical
skills. According to the government's recently published
Human Development Report, Oman's population is growing at
an estimated 3.3% annual rate, with 45.2 percent of the
national population younger than 20 years old and 56
percent younger than 24 years. (Note: this growth rate
is considerably higher than the 1.9% annual rate reported
in the 2003 national census. End Note.) More than
45,000 Omanis graduate from secondary school each year;
most are unable to find immediate work or continue with
higher education. The government encourages training for
Omanis as a means to spur employment, and the Ministry of
Manpower increasingly uses its authority to enforce
Omanization efforts, particularly at the lower end of the
wage scale.

Continued development and population pressures have also
contributed to a growing water problem. Aquifers are
being seriously depleted. There are increasing levels of
salinity in groundwater in coastal agricultural areas. A
Middle East Desalination Research Center officially
opened in 1997, with its headquarters in Muscat; initial
funding for this center came from Oman, the United
States, Japan, Israel, and Korea.

Oman is developing more light manufacturing industries.
In order to provide facilities for these efforts, the
Public Establishment for Industrial Estates manages
industrial estates throughout the country. More than 235
factories operate in industrial estates, with a total
investment of $1.3 billion. The original and most
developed is Rusayl Industrial Estate, located on the
outskirts of the capital.

A dramatic downturn in the Muscat Securities Market
(MSM),which lost nearly 70 percent of its value from
1998 to 2001, hurt many small and first-time investors
deeply and undermined confidence in the economy. The MSM
dropped from an all-time high of 509 points in February
1998 to 152 at the end of December 2001. Observers
attributed the sell-off to overzealous speculation,
combined with abnormally high equity valuations,
uninformed investors, and a lack of transparency.
However, in 2002 and 2003, the market began to recoup
some of its losses, ending 2003 at 272.7 - a 42% gain
over 2002. This momentum continued in 2004. In April,
the market crossed the psychological barrier of 300
points, ending the month at 306. The MSM re-indexed in
May 2004, going from a triple-digit base to a four-digit
one and reached 3,500 by early January 2005. AES Barka
Power Company, a subsidiary of the AES Corporation of
Virginia, recently floated $29.1 Million (35% of its paid
up capital) for initial public writing. According to
press reports, public writing mobilized capital equal to
seventeen times the amount of shares offered, showing a
strong demand in the Omani market for portfolio
investment. In early 2005, telecommunications giant
Omantel is scheduled to float 30 percent of its shares,
which will constitute another milestone IPO for the Omani
capital market. Dhofar Power Company in southern Oman, a
subsidiary of New Jersey-based PSE&G, will also undergo
an IPO in 2005.

Since 1998, the government has introduced numerous
measures to revive the market and regain investors'
confidence. The government announced a $260 million
bailout in November 2000, offering to aid "small
investors" and creating a national investment fund made
up of contributions from government pension funds and the
State General Reserve Fund, as well as offering
incentives for investment companies to merge. The
government's regulatory agency, the Capital Market
Authority (CMA),also took steps to improve transparency
in the market, including the enforcement of the
International Accounting Standard (IAS) 39 and the
establishment of new corporate governance standards.


3. OPENNESS TO FOREIGN INVESTMENT

Oman actively seeks private foreign investors, especially
in the industrial, information technology, tourism, and
higher education fields. Investors transferring
technology and providing employment and training for
Omanis are particularly welcome. Omani law relating to
foreign investment is contained in the Foreign Business
Investment Law of 1974, as amended. A Commerce Ministry
spin-off, the Omani Center for Investment Promotion and
Export Development (OCIPED) opened in 1997 to attract
foreign investors and smooth the path for business
formation and private sector project development. OCIPED
also provides prospective foreign investors with
information on government regulations, which are not
always transparent - and sometimes contradictory.
Nevertheless, despite OCIPED's efforts to become a "one-
stop shop" for government clearances, the approval
process for establishing a business can be tedious,
particularly with respect to land acquisition and labor
requirements.

With Oman's accession to the World Trade Organization in
October 2000, automatic approval of majority foreign
ownership (up to 70 percent) is available. Registration
of these joint ventures is treated in the same manner as
that common to all registrants. The foreign firm must
supply documentary evidence of its registration in its
home country, its headquarters' location, its capital
holdings, and its principal activities. If a subsidiary,
it must demonstrate its authority to enter the joint
venture. Except in the petroleum sector, where
concession agreements with the Ministry of Oil and Gas
determine the terms of investment, new entities with
greater than 70 percent foreign ownership are subject to
the approval of the Minister of Commerce and Industry.
As part of its WTO accession package, Oman is also
expected to allow 100 percent foreign ownership in
certain services sector, such as banking, law,
accountancy, and information technology.

In early 1999, the government amended its corporate tax
policy and lifted the requirement that foreign-owned
joint ventures include a publicly traded joint stock
company listed on the MSM in order to enjoy national tax
treatment. In 2003, Oman extended national tax treatment
to all registered companies regardless of percentage of
foreign ownership, i.e. a maximum rate of 12% tax on net
profit. Omani branches of foreign companies are treated
as foreign companies and therefore taxed at a maximum of
30%. Since Omani labor and tax laws are complex,
investors should consider engaging local counsel.

New majority foreign-owned entrants are barred from most
professional service areas, including engineering,
architecture, law, or accountancy. In 1996, existing
foreign-owned professional service firms were given
timeframes within which to obtain Omani partners (e.g.,
five years for accounting firms). An exception exists
for professional service firms with subspecialties of
critical importance to Oman. Wholly U.S.-owned service
firms present in Oman include Ernst & Young, KPMG, and
the law firm Curtiss, Mallett, Colt, Mosle, and Prevost.
Under Omani commercial law, wholly foreign-owned branches
of foreign banks are allowed to enter the market.

The permitted level of foreign ownership in privatization
projects increased to 100 percent in July 2004, based on
a Royal Decree providing an updated privatization
framework. By privatization, Oman refers not only to the
conversion of a state-owned or mixed enterprise into a
private sector firm, but also to the establishment of any
new firm providing a commercial service that had
previously been provided by the state (e.g.,
electricity). One approach to partial conversion will be
applied to the state-run telephone company, Omantel: the
government is planning to float 30 percent of its stake
in the company, while retaining the remaining 70 percent.

Industrial establishments with total capital of $52,000
or more must be licensed by the Ministry of Commerce and
Industry. In addition, a foreign firm interested in
establishing a company in Oman must obtain approval from
other ministries, such as the Ministry of Regional
Municipalities, Environment, and Water Resources.
Foreign workers must obtain work permits and residency
permits from the Ministry of Manpower and the Royal Oman
Police's Immigration Office.

Oman's investment incentives focus on industrial
development and include the following:

- Five year tax holiday, renewable once;
- Low-interest loans from the Oman Development Bank (now
available on a very limited basis, and only for small
firms);
- Low-interest loans from the Ministry of Commerce and
Industry;
- Subsidized plant facilities and utilities at industrial
estates;
- Feasibility studies supplied by the Ministry of
Commerce and Industry; and
- Exemption from customs duties on equipment and raw
materials during the first ten (10) years of a project.


4. CONVERSION AND TRANSFER POLICIES

Oman has no restrictions or reporting requirements on
private capital movements into or out of the country, and
there have been no reports of difficulty in obtaining
foreign exchange. The Omani Rial is pegged to the dollar
at a rate of 0.3849 Omani Rials to the U.S. dollar. The
Rial was devalued slightly in 1986 due to the collapse in
oil prices, although the government did not find the
devaluation productive. Late in 2001, Oman began
implementing a new law for the prevention of money
laundering, with updated regulations on financial crimes
being issued in July 2004.


5. EXPROPRIATION AND COMPENSATION

Oman's belief in a free market economy and desire for
increased foreign investment and technology transfer make
expropriation or nationalization extremely unlikely. In
any event, were a property to be nationalized, Article 11
of the Basic Law of the State stipulates that the
Government of Oman will provide prompt and fair
compensation.


6. DISPUTE SETTLEMENT

Oman is a party to the International Center for the
Settlement of Investment Disputes (ICSID). However, the
ultimate adjudicator of business disputes within Oman is
the Commercial Court, which was reorganized in mid-1997
from the former Authority for Settlement of Commercial
Disputes (ASCD). The Commercial Court has jurisdiction
over most tax and labor cases, and can issue orders of
enforcement of decisions (the ASCD was limited to issuing
orders of recognition of decisions). The Commercial
Court can also accept cases against governmental bodies,
which the ASCD was unable to do. In such cases, however,
the Commercial Court can issue - but not enforce -
rulings against the government. Many practical details
remain to be clarified.

Decisions of the Commercial Court are final if the value
of the case does not exceed U.S. $26,000. A Court of
Appeals exists for cases where the sum disputed is
greater than U.S. $26,000, and a Supreme Court was
established in mid-2001. Decisions of the Supreme Court
are final. However, a case may be re-opened after a
judgment has been issued if new documents are discovered
or irregularities (e.g., forgery, perjury) are found.
There is no provision for the publication of decisions.

Oman also maintains other judicial bodies to adjudicate
various disputes. The Labor Welfare Board under the
Ministry of Manpower hears disputes regarding severance
pay, wages, benefits, etc. The Real Estate Committee
hears tenant-landlord disputes, the Police Committee
deals with traffic matters, and the Magistrate Court
handles misdemeanors and criminal matters. Lastly, the
Shari'a Court deals with family law, such as wills,
divorces, personal and some criminal matters. All
litigation and hearings must be conducted in Arabic.

The Oman Chamber of Commerce and Industry has an
arbitration committee to which parties to a dispute may
refer their case when the amounts in controversy are
small. Local authorities, including "walis" (district
governors appointed by the central government),also
handle minor disputes. While Oman is a member of the GCC
Arbitration Center, located in Bahrain, that center has
yet to establish a track record.


7. PERFORMANCE REQUIREMENTS AND INCENTIVES

Since Oman's accession to the WTO in November 2000, it
has been subject to TRIMs obligations.

Under the Industry Organization and Encouragement Law of
1978, incentives are available to licensed industrial
installations on the recommendation of the Industrial
Development Committee. "Industrial installations"
include not only those for the conversion of raw
materials and semi-finished parts into manufactured
products, but also mechanized assembly and packaging
operations. Firms involved in agriculture and fishing
may also be included. Companies must have at least 35
percent Omani ownership to qualify for these incentives.
This law is expected to change soon to reflect recent
developments in foreign investment regulations.

In addition, companies selling locally produced goods are
given priority for government purchases, provided that
the local products meet standard quality specifications
and their prices do not exceed those of similar imported
goods by more than 10 percent. This incentive is
available to Omani-owned commercial enterprises, as well
as foreign industrial producers in joint ventures with
local concerns. The government offers subsidies to
offset the cost of feasibility and other studies if the
proposed project is considered sufficiently important to
the national economy.

Only in the most general sense of business plan
objectives does proprietary information have to be
provided to qualify for incentives.


8. RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT

Under Oman's foreign capital investment law, non-Omanis
are not allowed to conduct commercial, industrial, or
tourism businesses or participate in any Omani company
without a license issued by the Ministry of Commerce and
Industry.

According to Oman's commercial companies law, all actions
by private entities to establish, acquire, and dispose of
interests in business enterprises must be announced in
the commercial register, and may be subject to the
approval of the Ministry of Commerce and Industry.
Subject to the licensing and taxation previously noted,
foreign and domestic entities can engage in all legal
forms of remunerative activity. Government entities do
not compete with the private sector, and public policy
favors the privatization of public utilities.


9. PROTECTION OF PROPERTY RIGHTS

Real property rights are recognized and enforced in Oman,
and records are well kept. There is no contemporary
history of arbitrary seizures of land. Subject to
government approval, GCC nationals may own property
anywhere in Oman. The government actively seeks to
promote tourism, and a key component of the drive to
attract investment is the ability to sell villas and
estates in mixed tourist/residential developments slated
for construction. A new law by the Ministry of Housing,
Electricity and Water allowing foreign nationals to own
real estate within government-recognized tourism
complexes in Oman was issued in November 2004. This law
permits freehold ownership of residential property,
including full rights of inheritance according to the
laws of the owner's country of origin, as well as
residency status for landowners and their immediate
family members. The government is finalizing the
implementing regulations and preparing to designate the
zones within which the law will apply. The law does not
apply to commercial real estate, which cannot be owned by
non-GCC nationals.

Oman has a trademark law. Trademarks must be registered
and noted in the Official Gazette through the Ministry of
Commerce and Industry. Local law firms can assist
companies with the registration of trademarks. In May
2000, Oman revised the trademark law to be in compliance
with TRIPS.

Oman enacted a copyright protection law in 1996, but did
not announce enforcement mechanisms until a ministerial
decree in April 1998, which extended protection to
foreign copyrighted literary, technical, or scientific
works; works of the graphic and plastic arts; and sound
and video recordings. In order to receive protection, a
foreign-copyrighted work must be registered with the
Omani government by depositing a copy of the work with
the government and paying a fee. Since January 1999, the
government has enforced copyright protection for audio
and videocassettes, and destroyed stocks of pirated
cassettes seized from vendors. The government did not
extend protection to foreign-copyrighted software until
late 1998, when it declared that retailers must halt the
importation and sale of non-licensed software by July 1,

1999. Thereafter, the government stepped up efforts to
curtail software piracy in Oman, including raids on
businesses to ensure that Omani firms use no pirated
software. The Business Software Alliance continues to
work with Omani officials on improving enforcement of
anti-piracy provisions.

Enforcement of the copyright protection decree by the
Ministry of Heritage and Culture, the Ministry of
Commerce and Industry, and the Royal Oman Police has been
effective, as once plentiful pirated video and audiotapes
and computer software have largely disappeared from local
vendors' shelves. Nonetheless, under-the-counter sales
of unauthorized software and DVDs persist in various
locations, and authorities continue to grapple with
effective enforcement measures against such sales. In
late October 2003, 16 Omani companies signed the Business
Software Alliance (BSA) Code of Ethics. The Code of
Ethics declares that the signatories would neither commit
nor tolerate the manufacture or use or distribution of
unlicensed software and would only supply licensed
software to customers. In late December 2004, a
government raid of four unauthorized software resellers
in coordination with BSA resulted in confiscation of
pirated software. According to local satellite TV
representatives, the Ministry of Commerce is staging
sporadic raids on unlicensed distributors of pirated
satellite signals in response to industry complaints.

In mid-2000, the government introduced new, WTO-
consistent intellectual property laws on copyrights,
trademarks, industrial secrets, and integrated circuits.
Further, in October 2000 Oman issued new, WTO-consistent
intellectual property rights legislation to protect
patents and other intellectual property rights.

Oman has joined the World Intellectual Property
Organization (WIPO),and asked WIPO to register Oman as a
signatory to the Paris and Berne conventions on
intellectual property protection. Although not yet a
party to the WIPO Internet Treaties (i.e., the WIPO
Copyright Treaty and the WIPO Performances and Phonograms
Treaty),the government claims it will soon accede.


10. TRANSPARENCY OF THE REGULATORY SYSTEM

In 2003, the Telecommunications Regulatory Authority
(TRA) began functioning as a legal and regulatory body in
Oman. The TRA oversees the process of liberalization and
privatization of the telecommunications sector, and is
composed of four senior officials (one from the Ministry
of National Economy, one from Omantel, one from the Royal
Oman Police, and the Minister of Transport and
Communications, who serves as the chairman). In
addition, the new privatization framework law passed in
July 2004 provides for a new regulator for public
utilities that are being privatized in the power and
water sectors.

The government recognizes that its regulatory environment
can hamper investment and commercial activity. In
addition to the ownership and agency requirements already
mentioned, the licensing of business activities can be
time-consuming and complicated. The absence of a
particular clearance will stall the entire process. For
example, processing shipments in and out of the Mina
Qaboos Port can add significantly to the amount of time
it takes to get goods to market or inputs to a project.

Oman's tax laws can also impede foreign investment.
Although Oman amended its tax laws to allow national tax
treatment for joint ventures regardless of percentage of
foreign participation, branches of foreign companies are
taxed at 30 percent of income. Oman's labor laws, which
require minimum quotas of Omani employees depending on
the type of work, form another potential impediment to
foreign investment. The government's Omanization effort
has been the subject of criticism in the Omani private
sector, which often complains that it can harm
productivity and restrict hiring and firing policies.

Government red tape and long delays in official decision-
making are other frequent complaints among the local
private sector. Because decisions often require the
approval of multiple ministries, the government decision-
making process can be tedious and non-transparent.

The government has issued a series of regulations aimed
at increasing transparency and disclosure in the
financial market. The Capital Market Authority (CMA) has
ordered all public companies to comply with a set of
standards for disclosure. Under the requirements,
holding companies must publish the accounts of their
subsidiaries with the parent companies' accounts.
Companies must also fully disclose their investment
portfolios, including details of the purchase cost and
current market prices for investment holdings. The new
initiatives also require publication of these financial
statements in the local press. At the same time, the
Central Bank has also introduced new rules to limit the
level of "related party transactions" (financial
transactions involving families or subsidiary companies
belonging to major shareholders or board members) in
Oman's commercial banks. The new rules will help
increase transparency in financial transactions in local
banks and the MSM, and will help clarify the activities
of publicly traded companies.


11. EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT

There are no restrictions in Oman on the flow of capital
and the repatriation of profits. Access to Oman's
limited commercial credit resources is open to Omani
firms with some foreign participation. Joint stock
companies with capital in excess of $5.2 million must be
listed on the MSM. According to the recently amended
Commercial Companies Law, companies must have been in
existence for at least two years before being floated for
public trading.

The Sultanate has two loan programs to promote
investment. The Ministry of Commerce & Industry (MOCI)
administers a program designed to promote industrial
investment. Formerly interest free, the program now
charges 4 percent interest, with generous repayment
terms. MOCI loans will match equity contributions in the
Muscat capital area, or 1.25 times equity for other
locations. Projects with a high percentage of local
content or employing large numbers of Omanis are given
priority, as are tourism projects outside the capital
area. The Oman Development Bank also administers a loan
program to support development of smaller loans to
industry, agriculture, fisheries, petroleum, mining, and
services.

Foreigners may invest in the MSM, as long as this is done
through a local broker. Since the 1998 market downturn,
MSM statistics show that the percentage of foreign
investment in the MSM has remained stable at around 18
percent.

The legacy of the economic slowdown continues to impact
the banking sector, although most banks showed a
significant increase in profitability during 2004.
Corporate profitability declined significantly in 1999,
but has experienced a robust recovery in subsequent
years. The banking law issued in November 2000 allowed
more efficient control over the financial sector by the
authorities. Furthermore, early in 2003 the Central Bank
of Oman promulgated new rules and regulations to ensure
proper and efficient management of the banks. The effect
of this circular was enhanced by the implementation of a
Code of Corporate Governance, as well as amendments to
the Capital Market Law and the Commercial Companies Law
which stipulated that the boards of directors of all
jointly listed companies should appoint an internal audit
committee, an internal auditor, and a legal advisor.

Banking consolidation continued in 2004 with the
announced merger of Bank Muscat and the National Bank of
Oman, a move that would create a $6.5 billion
institution. Subject to final audits and approval by the
shareholders of the respective companies, this merger is
expected to become final by the end of March 2005.


12. POLITICAL VIOLENCE

Politically motivated violence is virtually unknown in
Oman. Since October 2000, there have been some
demonstrations, but these were generally orderly.


13. CORRUPTION

Article 53 of the Basic Law of the State, issued in
November 1996, compelled ministers to resign their
offices in public shareholding enterprises. As of 1999,
Under Secretaries (deputy ministers) were also required
to resign from the boards of any public companies. Most
major contracts are awarded through a slow, rigorous, but
generally clean tender process. Contracts awarded
through a ministry's internal tender process are subject
to fewer controls. Although Oman is not a signatory to
the OECD convention on combating bribery, Sultan Qaboos
has dismissed several ministers and senior government
officials for corruption during his reign. Oman has not
yet signed the UN Convention Against Corruption.


14. BILATERAL INVESTMENT AGREEMENTS

Oman and the United States signed a bilateral Trade and
Investment Framework Agreement (TIFA) on July 7, 2004.
This agreement established a U.S.-Oman Trade and
Investment Council, which met for the first time in
Washington in September 2004. Investment issues are
under active discussion in follow-up meetings, especially
in preparation for negotiating a Free Trade Agreement
(FTA) with Oman beginning in Spring 2005. These
negotiations will supplant previous discussions regarding
a Bilateral Investment Treaty, as an FTA will include an
investment chapter.


15. OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS

Oman is eligible for Export-Import Bank of the United
States (EXIM) financing and insurance coverage. In late
2003, the Overseas Private Investment Corporation (OPIC)
proposed an update to its existing 1976 bilateral
agreement with Oman to reflect current investment
realities. As of January 2005, the Omani government is
still reviewing the updated agreement.


16. LABOR

A new Labor Law was promulgated by Royal Decree in 2003,
providing additional protections for workers and raising
the minimum working age from 13 to 15. Implementing
regulations adopted in early 2004 clarified the role and
scope of workers' representation committees as outlined
in this law. In addition, the government is expanding
its Omanization drive to areas outside the capital of
Muscat, particularly in the retail, transport, and light
manufacturing sectors.

Oman relies heavily on expatriate labor, primarily from
India, Bangladesh, Pakistan and Sri Lanka, to perform
menial and physically taxing work as well as to fill
managerial positions. Omani labor law stipulates basic
practices to safeguard workers; employers set wages for
Omanis within guidelines delineated by the Ministry of
Manpower. The minimum wage for Omanis working in the
private sector, including salary and benefits, is 120
R.O. (about $312) per month. Work rules must be approved
by the Ministry and posted conspicuously in the work
place. The workweek is five days in the public sector
and generally five and one-half days in the private
sector. The labor law and subsequent regulations also
detail requirements for occupational safety and access to
medical treatment. However, non-Omanis in retail,
personal service outlets, construction, and petroleum
fields typically work up to seven days a week, depending
on their contracts.

"Omanization" - the replacement of expatriate labor by
Omanis - is a high priority for the government. Foreign
nationals may not be employed as technical assistants,
guards, light vehicle drivers, Arabic typists,
agricultural workers, forklift or mixer operators, or
public relations officers, unless the employer can show
that there are no Omanis available for the position.
Only Omanis are permitted to work as taxi drivers,
customs expediters, and fishermen. In 1999 and 2000, the
government "Omanized" (i.e., banned expatriates from
working in) a number of low-wage jobs, including
vegetable and grocery shopkeepers, water tank truck
drivers, gas cylinder truck drivers, plow operators, and
real estate agents. Through concerted training efforts,
the government has also sought to increase the number of
Omanis employed as gasoline station attendants, waiters,
barbers, and hairdressers, while allowing expatriates to
remain employed in such positions. The government
recently announced its intention to Omanize 24 more
occupation classifications over the next four years. The
first phase of the plan will include 16 occupation
classifications, mainly different varieties of
shopkeepers and repairmen.

In 1994, Oman became a member of the International Labor
Organization (ILO).


17. FOREIGN TRADE ZONES/FREE PORTS

Oman has no general provisions for the temporary entry of
goods. In the case of auto re-exports, a company can
import vehicles into the country for the purpose of re-
export and have duties refunded if it re-exports the
vehicle within six months. In 1999, the government opened
a new free trade zone at an interior border crossing
point with Yemen (al-Mazyounah). Oman is currently
planning to develop a free trade zone in Salalah,
adjacent to the international container transshipment
port that opened in November 1998. The government has
also expressed its intention to establish a free zone at
Sohar port, in conjunction with plans to expand the
existing port and industrial zone.


18. FOREIGN DIRECT INVESTMENT STATISTICS AND MAJOR
FOREIGN INVESTORS

Systematic information on foreign direct investment is
limited. As per Capital Market Authority statistics,
total investment in listed Omani companies with foreign
participation was $2.4 billion in September 2004, of
which 8.94% was foreign investment. Foreign capital
constituted 7.49% of capital invested in finance, 3.03%
in manufacturing, and 8.94% in insurance and services.

The largest foreign investor is Royal Dutch Shell Oil,
which holds 34 percent of Petroleum Development Oman, the
state oil company, and 30 percent of Oman Liquid Natural
Gas. Other companies, such as Occidental Petroleum, BP
Amoco, Novus Petroleum, Hunt, and Nimr have also invested
in the petroleum sector. Two U.S. firms, Gorman Rupp
(water pumps) and FMC (wellhead equipment),have entered
into industrial joint ventures with Omani firms. Both
joint ventures involve modest manufacturing operations.
Since 1999, Oman has witnessed increased foreign direct
investment through the privatization process. Major
foreign investors that have entered the Omani market
recently include PSEG Global (U.S.),AES (U.S.),and
National Power (U.K.). Dow Chemical of the U.S.
announced a joint venture with Oman Oil Company and the
Government of Oman in July 2004 to develop a large
petrochemical plant in Sohar.

BALTIMORE