ENHANCING ECONOMIC FREEDOM IN OMAN

UNCLAS MUSCAT 000906 SIPDIS SIPDIS STATE FOR NEA/ARP, EB/CBA FOR W.BEHRENS STATE PASS USTR FOR J.BUNTIN COMMERCE FOR ITA C.OBERG E.O. 12958: N/A TAGS: ECON BEXP BTIO ETRD TINT PGOV MU SUBJECT: ENHANCING ECONOMIC FREEDOM IN OMAN REF: 05 MUSCAT 1751 -------------- Summary -------------- ¶1. At a recent seminar, representatives from business, government, and academia discuss how Oman could improve its economic freedom ranking. Participant viewpoints on business regulations, free trade, and government size, among other topics, will be incorporated into an action plan for review by the Council of Ministers. End Summary. -------------- Economic Freedom Revisited -------------- ¶2. On June 4, Econoff attended an Omani Center for Investment Promotion and Export Development (OCIPED)-sponsored seminar entitled "Making Oman the Economic Freedom Zone of the World: the Challenges and Opportunities in Economic Liberalization." OCIPED hosted the event to gain insight from business and academic leaders on how Oman could improve its economic freedom ranking. (Note: As reported reftel, Oman and Lebanon were joint winners of the 2005 Arab Economic Freedom Award. End Note.) ¶3. Salim al-Ismaily, Executive President of OCIPED, remarked that the economic freedom index served as a useful evaluative tool for the government, given that higher degrees of economic freedom are generally associated with higher GDP per capita and gross investment per capita figures, as well as higher scores on the United Nations Development and political stability indices. Manal al-Abdawani, Director General of Planning at the Ministry of Commerce and Industry, voiced her support for strengthening Oman's ranking, noting that the Ministry actively pursues those policies that aid business development. -------------- Simplifying Business Regulations -------------- ¶4. One key element of economic freedom is the ease of starting a business. According to World Bank figures, it takes aspiring Omani entrepreneurs an average of 34 days to complete 9 procedures, quicker than the world average, but far behind the top ten average of six days to complete three procedures. Abdawani challenged this figure, noting that the Ministry's establishment of a one-stop shop reduced processing time to three days for sole proprietorships and seven days for limited liability companies. She remarked that the Ministry is working to further streamline this �A;process by having applications processed electronically. ¶5. Participants also focused on the minimum capital requirements for business start-ups. Currently, foreign entities must meet an Omani Rial (OR) 150,000 (USD 390,000) threshold, as opposed to an OR 20,000 (USD 52,000) threshold required for Omani businesses. Abdawani stated that the Ministry is evaluating options on how it can meet Oman's WTO commitments to treat companies with foreign ownership on an equal basis with local companies, while protecting small Omani enterprises such as barber shops and grocery stores. She cautioned, however, that the Ministry would not adopt policies detrimental to foreign investment. ¶6. One participant raised a concern that if the minimum capital requirements was lowered, Omani residency permits could be 'bought' for a mere 20,000 Omani rials. He also voiced concerns that deep-pocketed investors would be able to come in and swamp local Omani businesses. Abdawani replied that the Omani government could limit residency visas, but that it would be counterproductive to Ministry efforts to attract the foreign investment needed to spur job growth. ¶7. Beyond registration, Abdawani noted the absence of mentorship programs to assist aspiring entrepreneurs in establishing viable businesses. She noted that such agencies could guide start-ups in areas such as developing a business plan, obtaining financing, and testing the market. -------------- Challenging Freer Trade -------------- ¶8. Another key element to economic freedom is the ability of businesses to trade freely. Several participants pointed out that political barriers have frustrated efforts to realize a Greater Arab FTA and that restrictive immigration policies hindered the movement of people and money in the region. Others voiced the challenges they faced as Oman pushed forward on its free trade initiatives, noting that the government was not doing enough to make Omani products more competitive, market Omani products overseas, or provide assistance to those industries affected by changing market conditions. -------------- Downsizing Government -------------- ¶9. Participants also discussed the negative impact of Oman's government consumption figures on economic growth. One CEO responded that the government, traditionally the employer of last resort, needed to evaluate its efficiency in terms of personnel productivity. A Sultan Qaboos University professor commented that the government was bloated, since most government employees 'moonlight' in the private sector. Abdawani responded that the government should redefine its role according to how it could best optimize its expenditures but cautioned that any downsizing scheme be carefully planned, given that the last early retirement program resulted in the exodus of important senior government officials. -------------- Taking It to the Council -------------- ¶10. Ismaily closed the session by explaining that OCIPED would be incorporating participant feedback into a report to the Council of Ministers that outlines what steps the government needs to take to improve upon its economic freedom index ranking. Ismaily noted that while Oman had been recognized as the most economically free Arab nation, more needed to be done in order to remain competitive with its regional and global peers. GRAPPO