2008 OMAN INVESTMENT CLIMATE STATEMENT: PART II

UNCLAS MUSCAT 000100 SIPDIS SIPDIS STATE FOR NEA/ARP, EEB/IFD/OIA, EEB/CBA STATE PASS USTR FOR JBUNTIN COMMERCE FOR ITA THOFFMAN TREASURY FOR OTA VALVO E.O. 12958: N/A TAGS: EINV EFIN ETRD ELAB KTDB PGOV USTR OPIC MU SUBJECT: 2008 OMAN INVESTMENT CLIMATE STATEMENT: PART II REF: A. MUSCAT 99 ¶B. 07 STATE 158802 This is the second part of the 2008 Oman Investment Climate Statement. Part I was submitted reftel A. -------------- 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. For this reason, the government finalized regulations in 2007 allowing foreign nationals to own real estate within government-recognized tourism complexes in Oman, such as the Wave, Yiti, Sifah, and Blue City. 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 law does not apply to commercial real estate, which cannot be owned by non-GCC nationals. Oman will provide strong intellectual property rights protection under the U.S.-Oman Free Trade Agreement. The government is finalizing revisions to its industrial property and copyright laws to comply with these obligations prior to the Agreement's entry into force. Under its FTA obligations, Oman will provide increased IPR protection for copyrights, trademarks, geographical indications, and patents. Oman will also improve enforcement and protection of undisclosed test data from unfair commercial use. These revisions will build upon Oman's existing intellectual property rights regime, already strengthened by the passage of WTO-consistent intellectual property laws on copyrights, trademarks, industrial secrets, geographical indications and integrated circuits in 2000. Further, in October 2000 Oman issued new, WTO-consistent IPR legislation to protect patents and other intellectual property rights. Under Oman's TRIPs-compliant 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. Oman's copyright protection law extends 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. In October 2005, the government designated the Ministry of Commerce and Industry as the primary investigative authority for intellectual property issues, whose efforts are supported by the Royal Oman Police. To improve inter-ministerial coordination, a committee consisting of members from the Ministry of Commerce and Industry, Ministry of Information, Ministry of Heritage and Culture and Royal Oman Police meets regularly to review intellectual property concerns. Enforcement of the copyright protection decree by this committee has been effective, as once pentiful pirated video, audiotapes and computer software have largely disappeared from local vendors' shelves. For example, over the years, the government conducted a series of coordinated sweeps that netted over 40,000 counterfeited media products. 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. To assist government efforts, the private sector has been active in promoting awareness and enforcement of intellectual property rights. For example, in late October 2003, 16 Omani companies signed the Business Software Alliance (BSA) Code of Ethics, whose number has now grown to 40. The Code of Ethics declares that the signatories would neither commit nor tolerate the manufacture, use or distribution of unlicensed software and would only supply licensed software to customers. The government signed a three-year contract with Microsoft Corporation for the use of the company's licensed products in 2006, and in 2007, Microsoft reached agreement with several local companies to halt their distribution of unauthorized software. According to local satellite TV representatives, the Ministry of Commerce and Industry has staged sporadic raids on unlicensed distributors of pirated satellite signals in response to industry complaints, though the problem persists. Oman joined the World Intellectual Property Organization (WIPO) in February 1997, and registered as a signatory to the Paris and Berne conventions on intellectual property protection in July 1999. In 2005, Oman acceded to the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty. In 2007, Oman acceded to a number of intellectual property treaties, conventions, and protocols in accordance with the implementation of the U.S.-Oman Free Trade Agreement. The Ministry of Commerce and Industry, in coordination with WIPO, has conducted a number of seminars to raise national awareness of the importance of protecting intellectual property. Oman has also worked closely with the United States Patent and Trademark Office (USPTO) in the area of intellectual property rights protection. Several Omani officials have traveled to the United States for IPR training, and the USPTO has hosted a number of IPR enforcement seminars for government officials in 2006 and ¶2008. -------------- Transparency of the Regulatory System -------------- The government recognizes that its regulatory environment may hamper investment and commercial activity. In addition to ownership and agency requirements already mentioned, licensing of business activities can be time-consuming and complicated. The absence of a particular clearance can 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 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 in the local private sector. Because decisions often require the approval of multiple ministries, the government decision-making process can be tedious and non-transparent. 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. Chaired by the Secretary General of the Ministry of National Economy, the TRA's committee members include officials from the Royal Oman Police. The TRA is currently working with a consultant on plans to open its fixed-line sector to competition, with a view toward issuing new licensing requirements in 2008. These proposed regulations will be available for public review once drafted. In addition, the new privatization framework law passed in July 2004 provides for a new regulator for public utilities that have been privatized in the power and water sectors. The government has issued a series of regulations aimed at increasing transparency and disclosure in its financial markets. 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 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 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 Muscat Securities Market (MSM),and will help clarify the activities of publicly traded companies. Finally, the CMA has moved to shorten the time period companies have to file their financial statements after the close of the fiscal year from three months to two, shorten the time period in which companies have to hold their annual meeting after the close of the fiscal year from four months to three, and require that an internal audit be completed for joint stock companies with capital of over five million RO (USD 13 million). -------------- -------------- Efficient Capital Markets and Portfolio Investment -------------- -------------- There are no restrictions in Oman on the flow of capital and the repatriation of profits, and foreigners may invest in the MSM, as long as this is done through an authorized broker. 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. The commercial banking sector currently consists of 16 licensed banks (six domestic and ten foreign),with Bank Muscat being the largest. Most recently, the Bank of Beirut and the Commercial Bank of Qatar commenced operations in Oman. In addition, there are two government-controlled and one private lending entities. The sector as a whole has largely rebounded from the 1999 economic downturn, with banks posting healthy profits for 2007. 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 by amendments to the Capital Market Law and the Commercial Companies Law, which stipulate that boards of directors of all jointly listed companies must appoint an internal audit committee, an internal auditor, and a legal advisor. In November 2005, the government set limits on remuneration of boards of directors by amending the Commercial Companies Law through Royal Decree 99/2005. Under the decree and accompanying regulations, remuneration for a board of directors may not exceed five percent of a company's net profits, up to a maximum of 200,000 R.O. ($516,000),unless the company's Articles of Association provides for a higher rate. The regulations also require that company reports be published within two months of the end of the financial year, and that an ordinary meeting of the general assembly be held within three months of the end of the financial year. -------------- Political Violence -------------- Politically motivated violence is virtually unknown in Oman. Since October 2000, there have been some demonstrations, with the most recent occurring in May 2005, but these were generally orderly. -------------- 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) are also required to resign from the boards of public companies. Most major contracts are awarded through a slow, rigorous, but generally clean tender process. Oman advertises tenders in the local press, international periodicals, and on the Tender Board's website. Also, bidders are now requested to be present at the opening of bids, and interested parties may view the process on the Tender Board's website. 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. In one of Oman's biggest corruption scandals in several years, over 30 government and private sector employees, including the Under Secretary of the Ministry of Housing, Electricity, and Water, were convicted in October 2005 on counts of bribery and forgery, among others. Oman has not yet signed the UN Convention Against Corruption. In 2007, Transparency International ranked Oman 53rd best out of 177 countries in its "Corruption Perception Index," a noticeable decline from its 28th place ranking in ¶2005. -------------- Bilateral Investment Agreements -------------- After consultations with Congress, the United States began Free Trade Agreement (FTA) negotiations with Oman in March ¶2005. On January 19, 2006, U.S. Trade Representative Rob Portman and Omani Minister of Commerce and Industry Maqbool bin Ali Sultan signed the FTA. Following Congressional approval of the FTA in September 2006, the President signed the FTA into law on September 26, 2006. Sultan Qaboos signed the FTA shortly afterwards. The FTA will be brought into force once the governments of both the United States and Oman certify that respective regulations are in compliance with the provisions of the Agreement. The FTA supplants previous discussions regarding a Bilateral Investment Treaty, as the FTA includes an investment chapter. -------------- 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. An agreement has yet to be reached on the proposed updates. -------------- Labor -------------- Oman's 2003 Labor Law governs employee/employer relations in the private sector, and enumerates the protections afforded both Omani and migrant workers. The law sets the minimum working age at 15, provides clear guidelines on wages and working hours for Omani citizens, and specifies the penalties for noncompliance with the its provisions. In conjunction with the U.S.-Oman Free Trade Agreement, Oman made significant amendments to the 2003 Labor Law. The amendments and associated Ministerial Decisions allow for more than one union per firm, require employers to engage in collective bargaining over terms and conditions of employment, and specify guidelines for conducting strikes. The amendments also prohibit employers from firing or otherwise penalizing workers for engaging in union activity, and increase the penalties for hiring underage workers or engaging in forced labor. The minimum wage for Omanis working in the private sector, including salary and benefits, is 140 R.O. (about $363) 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. There is no minimum wage for non-Omanis, however. In addition, non-Omanis in retail, personal service outlets, construction, and petroleum fields typically work up to seven days a week, depending on their contracts. Oman relies heavily on expatriate labor, primarily from India, Bangladesh, Pakistan and Sri Lanka, to perform menial and physically taxing work. Expatriates also fill many managerial positions. However, 'Omanization,' the localization of labor, is a high priority for the government. The government has published Omanization rates per sector for the period running from 2006 through 2010 for each individual sector of the economy. Omanization targets are legally enforceable. The Ministry of Manpower will not issue a labor clearance for those companies that fail to hire qualified Omanis to meet the labor targets. In case qualified Omanis are not available, the Ministry may issue labor clearances pending future availability of qualified Omanis to fill such positions. The Ministry also assists companies in training Omanis for high-demand positions if the companies agree to hire them once trained. The sectoral committees revise hiring targets and the plan can be readjusted to meet market realities. Under the U.S.-Oman Free Trade Agreement, the Omani government may set Omanization targets of 80%, excluding managers, board members, and specialty personnel. In 1994, Oman became a member of the International Labor Organization (ILO). Oman has since ratified four of the eight core ILO standards, including those on forced labor, abolition of forced labor, minimum working age, and the worst forms of child labor. Oman has not ratified conventions related to freedom of association or collective bargaining, or the conventions related to the elimination of discrimination with respect to employment and occupation. -------------- Foreign Trade Zones/Free Ports -------------- The government is keen to establish free zones to complement the Sultanate's port development. Salalah's free zone is taking shape, as the Salalah Free Zone Company (SFZC) is working with the government to finish the first phase of the project, which includes the establishment of roads and utility lines, as well as the leveling of industrial plots. An incentive package includes a 30-year tax holiday, duty-free treatment of imports and exports, permission for 100% foreign ownership, and tax-free repatriation of profits. Additional benefits include a one-stop shop for business registration and a low 10 percent Omanization requirement. U.S.-based Octal Petrochemicals, India-based TVS Group, and government-supported Salalah Methanol are the anchor tenants. The government is also establishing a free zone adjacent to Sohar Port. In addition, the government opened a free trade zone at an interior border crossing point with Yemen (al-Mazyounah) in 1999. 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; duties are refunded if the vehicle is re-exported within six months. -------------- -------------- Foreign Direct Investment Statistics and Major Foreign Investors -------------- -------------- Systematic information on foreign direct investment is limited. As per Capital Market Authority statistics from October 2007, foreign participation equaled 24% in terms of shares held in the Muscat Securities Market. Foreign capital constituted 25% of the shares held in finance, 23% in manufacturing, and 22% 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, British Gas, and Nimr have also invested in Oman's petroleum and gas sectors. 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 AES (U.S.),Suez-Tractabel (France),Alcan (Canada),LG (Korea), Veolia (France),SinoHydro (China),and National Power (U.K.). Bechtel is constructing an aluminum smelter on behalf of Sohar Aluminum. GRAPPO