Oman’s economic freedom
Score is 67.7, making its economy the 43rd freest in the 2010 Index. Its score has improved by 0.7 point since last year, reflecting improvements in freedom from corruption and business freedom. Oman is ranked 4th out of 17 countries in the Middle East/North Africa region, and its overall score is above the world and regional averages.
Oman is a small, open economy in which the oil sector has been the most important engine of growth. The government has pursued reforms to diversify the country’s productive base and stimulate broad-based economic development. There is no personal income tax, and corporate taxes are low. Foreign investment is welcome in many sectors, although the approval process can be burdensome. The impact of the global financial turmoil on the financial system has been slight.
Overall economic freedom in Oman remains constrained by the state’s considerable involvement in the economy through public enterprises. High government spending is funded by a large state-owned energy sector. The judiciary is vulnerable to political influence.
Background Back to the top
Oman, an Arab monarchy, has been trying to modernize its oil-dominated economy without diluting the ruling al-Said family’s power. It is a relatively small oil producer, and production has declined steadily since 2001, although this decline was offset by high oil prices in the mid-2000s. To promote economic diversification, the government seeks to expand exports of natural gas; to develop gas-based industries; and to encourage foreign investment in the petrochemical, electric power, telecommunications, and other industries. It also places a high priority on its policy of “Omanization” (the replacement of foreign workers with local staff) to reduce chronically high unemployment rates. Oman joined the World Trade Organization in 2000 and signed a free trade agreement with the United States in 2006.
Business Freedom66.9 Back to the top
The overall freedom to conduct a business is limited under Oman’s regulatory environment. Starting a business takes an average of 12 days, compared to the world average of 35 days. However, obtaining a business license takes more than the world average of 218 days, and costs are high. Bankruptcy proceedings are lengthy.
Trade Freedom83.4 Back to the top
Oman’s weighted average tariff rate was 3.3 percent in 2008. Some prohibitive tariffs, import bans and restrictions, import licensing requirements, non-transparent standards and regulations, local preference in government procurement, problems with protecting intellectual property rights, and subsidies add to the cost of trade. Ten points were deducted from Oman’s trade freedom score to account for non-tariff barriers.
Fiscal Freedom98.5 Back to the top
Oman has low tax rates. There is no income tax on individuals, and the top corporate tax rate for most enterprises is 12 percent; foreign or unregistered companies are subject to a top corporate tax rate of 30 percent but are scheduled to fall under the 12 percent rate for domestic companies as of January 2010. Oil sales are subject to a special tax scheme. There is no consumption tax or value-added tax (VAT). In the most recent year, overall tax revenue as a percentage of GDP was 3.3 percent.
Government Spending57.4 Back to the top
Total government expenditures, including consumption and transfer payments, are relatively high. In the most recent year, government spending equaled 37.7 percent of GDP. Authorities are looking to increase the role of the private sector in telecommunications, water, and electricity.
Monetary Freedom64.8 Back to the top
Inflation has been high, averaging 10.1 percent between 2006 and 2008. The government controls the prices of a range of core goods and services through an extensive subsidy system and influences prices through state-owned enterprises and utilities, including electricity and water. Fifteen points were deducted from Oman’s monetary freedom score to account for policies that distort domestic prices.
Investment Freedom55.0 Back to the top
Foreign investment is allowed in many sectors, subject to government approval. The level of foreign ownership that is permitted varies with the level of capital committed. The “Omanization” requirement that only Omanis may work in specified occupational categories is an impediment to foreign investment. Regulations can be non-transparent and contradictory, and bureaucracy can be burdensome and time-consuming. Residents may hold foreign exchange accounts. There are no restrictions on capital repatriation, currency exchange, or transfer of dividends. Land ownership for foreigners is generally prohibited except in designated tourist areas and in industrial estates.
Financial Freedom60.0 Back to the top
Oman’s financial sector, which is regulated by the Central Bank of Oman, has adopted new bank supervisory procedures in recent years. A 2000 banking law limited investments in foreign securities, raised capital requirements, and granted the central bank the authority to reject candidates for senior positions in commercial banks. Since then, several banks have merged. New regulations that focus on ensuring efficient management of banks were also promulgated. The banking sector has 17 commercial banks, 10 of which are foreign incorporated. Most credit is offered at market rates, but the government intervenes in credit markets through subsidized loans to promote investment. The Muscat Securities Market is very active and is open to foreign investors.
Property Rights50.0 Back to the top
The threat of expropriation is low, but the judiciary is subject to political influence. Foreigners may hold title to homes inside specified tourism projects. Non–Gulf Cooperation Council nationals cannot own commercial real estate. Intellectual property laws on patents, copyrights, trademarks, industrial secrets, geographical indications, and integrated circuits are WTO-consistent, and enforcement has improved. Only the sultan, through royal decree, can amend the laws.
Freedom From Corruption55.0 Back to the top
Corruption is perceived as present. Oman ranks 41st out of 179 countries in Transparency International’s Corruption Perceptions Index for 2008, a decline from 2007. Although corruption is not considered a significant problem, several high-ranking government officials, including a member of the State Council, have been sentenced to between three and five years in prison for bribery, misuse of public office, and breach of trust in recent years.
Labor Freedom86.4 Back to the top
Oman’s labor regulations are relatively flexible. The non-salary cost of employing a worker is low, and dismissing an employee is not difficult. The labor laws enforce the “Omanization” policy that requires private-sector firms to meet quotas for hiring native Omani workers.