MUSCAT: Oman’s industrial sector is expected to continue on a long-term upwards trajectory, with a host of value-added processing projects now under development across the country, despite rising domestic power demands and falling world commodities prices have led to a dimmer short-term forecast.
Weaker oil prices are set to have a significant impact on Oman this year, pushing both the budget and current accounts into a possible deficit, according to a report by the US-based Institute of International Finance (IIF) released in March. This will be partly offset by growth in the non-oil sector and possible cost-cutting measures by the government.
The non-oil sector, driven in part by industry, is pegged to lead growth in 2015, with non-hydrocarbon GDP forecast to rise by 4.8 percent, compared to a 4.5 percent increase for the broader economy according to the IIF report. These figures fall short of the 7.2 percent non-oil growth estimated for 2014 and 10.8 percent recorded in 2012.
From the start of this year, Oman has doubled gas tariffs for industrial producers, with the move expected to squeeze margins for operators. However, the higher prices may spur a move towards greater efficiency, which could benefit the sector over the long-term.
Manufacturers also fear higher fuel expenses will have a negative ripple effect, latest report from Oxford Business Group (OBG) reveals. “There will be pressure on the government to reduce subsidies, which may lead to an increase in input costs,” S. Gopalan, the CEO of car battery manufacturer Reem Batteries & Power Appliances, told OBG. “This could lead to a cascade effect across the supply chain.”
Furthermore, a tighter business environment may act as a catalyst for operational efficiencies, which could offset more costly inputs. “Industry can thrive in Oman, but only in highly-automated and capital-intensive sectors, and not in labour-intensive sectors,” said Gopalan. “Technology, in this regard, could play a big role to maximise output with less labour.”
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