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Oman on a Mission

Capitalising on its advantageous geography Oman’s logistics sector is out performing others in the GCC, and is predicted to experience CAGR of 6.9% between 2015 and 2020. Melanie Mingas writes

 

Oman’s logistics sector has been the centre of a string of ambitious announcements over recent months, from the launch of the Sultanate of Oman Logistics Strategy (SOLS) 2040 in March this year, to ongoing road, rail and port mega-projects totaling $50bn over the next 15 years.

The transport and logistics sector accounted for around $8.81bn of Oman’s GDP in 2015 and figures published recently by Frost and Sullivan predict the sector’s growth will reach 7% by the end of Q4 with a compound annual growth rate of 6.9% to 2020. With an industrial minerals mining boom also on the cards, that figure could grow even further in the coming years as demand for transport infrastructure increases in tandem.

Despite being the second largest country by land area in the GCC, Oman is a silent player when it comes to economic performance among GCC countries. Capitalising on its advantageous geographic position, ports contribute massively to the economic growth of the country with outbound port traffic increasing steadily in recent years.

Oman has three deep water and two industrial ports. Sea transport accounts for more than 80% of freight movement in Oman and is likely to grow by 4.8% in 2016, driven by the increasing intra-region GCC trade and demand from Asia, Europe, and Africa.

Sohar and Salalah Ports dominate the sea freight sector, with 80% of all freight moving through one of the mega-ports. The volume of goods loaded at Salalah Port more than doubled from 2009 to 2013, rising from 2970dwt to 6780dwt, according to figures published by Oxford Business Group.

When it comes to rail the entire GCC has seen its plans derailed and in May of this year, Oman’s Department of Transport announced that its projects would too be delayed.

“The ministry of transport and communications has not cancelled the project but only delayed it as other Gulf countries have decided to stop work on the project,” Mohammed Al Shuaili, director of the Minister of Transport and Communications Office told Times of Oman in an interview at the time.

According to Oman Rail, the estimated total length of the Oman National railway network is 2135km. It was to be divided into several segments linking Oman’s borders with the UAE to Muscat, as part of the GCC Railway Network and also to the southern parts of the country – Port of Al Duqm, the Port of Salalah and the Yemen border.

The railway was planned to be double track, non-electrified and designed to serve mixed freight and passenger traffic at speeds of 120 km/hr and 220 km/hr respectively.

Oman’s plan to link all its ports fronting the Indian Ocean to the GCC Rail network would have positioned the country as a true gateway to the Gulf; goods could be offloaded much sooner than if they were shipped to ports inside the Gulf.

How things will play out now the project has been thrown into turmoil remains to be seen, however Oman has just completed the preliminary design of its entire planned rail network, which aims to link the ports, economic, industrial and commercial areas and also areas with potential urban growth.

Despite the construction of a new 680km road linking Oman to Saudi Arabia, inefficient and time-intensive road travel cannot compensate for the potential business lost to ports inside the Gulf, although for transport between Oman and Saudi Arabia benefits are expected.

Oman’s rail network was always going to be challenging considering the size and geographic diversity of the country; in fact the $15bn, 2,444km project was one of the most challenging rail schemes in the region. To connect Oman’s major ports and cities, including Muscat, Sohar, Duqm and Salalah, in addition to linking with the UAE’s Etihad Rail project and the wider GCC rail network, the Omani railway would pass through mountains and cross deserts.
The project remains crucial if the Sultanate is to pursue its plans for a multi-modal, integrated transport network and become a true regional gateway.

Gopal R, global VP of the supply chain and logistics transformation practice at Frost and Sullivan says: “Oman’s logistics industry has the potential to be one of the key logistics centres in the region. The emphasis on domestic output is creating scope for substantial cargo volume growth to and from Oman and this can trigger enhanced connectivity and network, which would then lead to path of transforming the logistics industry to support trade for other countries as well.”

Uniting the plans

The Sultanate of Oman Logistics Strategy (SOLS) 2040 is headed by Oman’s Minister of Transport and Communications, Dr Ahmed bin Mohammed bin Salim al- Futaisi, and unites the Sultanate’s ambitions through a public/private sector working group, comprising of a number of diverse stakeholders.

Initiated by the Supreme Council of Planning (SCP) in 2013, the task force of ten Omani executives from the private sector, government and the academic world has been working together with 65 specialists from all relevant sectors, divided into different working groups to develop SOLS 2040.

One of six objectives specified by the ministry is to achieve a high level of regional and international competitiveness in the transport, logistics and communications sectors.

It is under this strategy that Al Futaisi established the Oman Global Logistics Group. Announced last month, the government owned entity will invest in ports, free zones, railway, maritime and land transport companies, according to reports in The Times of Oman. The holding firm will be the government’s development arm and will play a key role in creating major growth opportunities to significantly raise the contribution of the logistics sector to the gross domestic product.

Tenders issued under SOLS can be accessed via www.motc.gov.om and Etendering.tenderboard.gov.om

“The aim is to synchronise investment and development objectives and therefore exploit the asset’s capabilities and potential in order to maximise the return on investment,” said a ministry release.

FDI will play a key role in the strategy and with 70% corporate ownership available to foreign investors, Oman continues to attract a large amount of foreign investment. Investment and other paths to economic diversification are further supported by new tax laws, a Free Trade Agreement with the US, new privatisation laws and aims to create a more market friendly environment.

Another key pillar in the attraction of new industry stakeholders is the country’s international recognition when it comes to its competitiveness as a business destination.

Last month, the World Bank’s Logistics Performance Index ranked Oman 48th globally, up 11 places on the previous Index. Similarly, in 2014, Oman had an LPI score of 3.0, which increased to 3.23 in 2016, reflecting major improvements in logistics quality, customs, logistics infrastructure and competence of the country.
It was the best performance of any nation in the GCC, or even wider Middle East and it’s a pattern that has repeated for the last few years.

Oman’s ranking in logistics quality and competence improved by 35 places to number 38 from 73 in 2014, while the country climbed 23 places in logistics infrastructure to number 34 from number 57 two years ago.
The sultanate also saw major improvements in customs climbing from 74 in 2014 to 61 in the latest report, while for tracking and tracing it jumped to 57th place from 80th.

rsz_shutterstock_396711163Re-writing the landscape

The evolution into a logistics-centric economy is well underway but far from complete and a number of projects will require completion before Oman can consider its ambitions achieved.

One of those projects is the integrated logistics hub in South Al Batinah Governorate; the first of its kind in the Sultanate.

In March, the company’s acting CEO, Ahmed bin Said al Azkawi, said the South Al Batinah Logistics Area (SABLA) project – rebranded recently as ‘Khazaen’ – will spearhead the Sultanate’s ambitions to evolve into a logistics-centric economy.

He was quoted as saying: “The project started out as a government initiative to support the development of Oman’s logistics infrastructure, to transform logistics into an economically viable sector, and attract investors in all aspects of logistics activities.

“Our vision is to be the centre of the logistics industry in Oman and we intend to achieve this by creating a city meticulously designed with world class infrastructure that caters not only to the growth of logistics-linked activities but also stimulates investment in indirect support elements, including industrial, commercial and residential.”
Plans for the project were first announced some years ago. Covering an area of around 90 million square metres, the project will feature dedicated zones earmarked for multimodal connectivity, light industries, value adding activities, commercial services, warehousing and logistics, urban and residential developments, hotels and leisure areas.

Preparation of the site is also underway for the establishment of Oman’s first ‘dry port’. The proposed inland port will serve as a mid-point for shipping containers and other freight plying between Muscat and Sohar Port.

In Q1 Oman Logistics Company invited investors and developers to submit proposals or Expressions of Interest outlining their interest in either investing in the hub, or partnering with the company, in executing specific projects
Outlook

While the future is certainly bright, threats do exist in the form of inefficient logistics infrastructure, especially outside urban areas, and a shortage of skilled logistics labour as factors that could hold back the sector’s growth. Labur could prove particularly troublesome considering that a workforce of 80,000 will be required to fill the sector’s jobs by the end of this decade and the 24% unemployment rate in the country at present, mostly comprised of Omani nationals.

Growth could be challenged by some major factors like surging competition mainly from the UAE and Saudi Arabia, according to predictions from Frost and Sullivan.

Competition also exists in other countries with similar portfolio and investment scenarios for logistics service, the inefficient logistics infrastructure (especially, in sub-urban areas) limiting the potential cost and time efficiency of the logistics operations, and shortage of skilled labour relating to logistics services to support the growing requirements of the market.

Andrew Long, CEO of HSBC Bank Oman told the Times of Oman in an interview: “The Sultanate’s measures to overcome the issues in the market are the right thing to do. The Omani government is making every effort to rethink how to spend, where to spend, when to spend money; they have cut back its budget, they are looking to funding sources.

“We are still in economic difficulties, but still we are growing much faster than many countries. The government’s activities are the right thing which gave encouragement, but it doesn’t make easy to overcome the issues,” he continued, concluding: “The decision to invest in development of the infrastructure like ports, roads and airport are the correct one to develop the logistics industry. The infrastructures are placed and now they have to deliver.”

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