Oman builds industrial outpost in desert to escape oil trap

Oman builds industrial outpost in desert to escape oil trap

Vehicles operate at a port in Oman's Duqm Special Economic Zone. — Reuters

DUQM, Oman — On a stretch of barren coast 550 km (345 miles) south of the capital Muscat, workers at a ship repair yard swarm over cargo vessels from around the world, labor that will help to determine Oman’s fate in an era of cheap oil.

The yard, owned by the government’s Oman Drydock Co and operated by South Korea’s Daewoo Shipbuilding & Marine Engineering Co, is far from the country’s industrial areas in the north.

But it’s at the center of the biggest single economic project in the history of Oman, part of efforts to wean the country off exports of crude oil and gas and diversify into downstream industries before the country’s limited financial and oil reserves begin to run out.

The government is spending billions of dollars to develop the area around the remote fishing village of Duqm into a sprawling business zone, aiming to attract companies that will create tens of thousands of jobs.

In addition to the ship repair yard and its adjacent port, the Duqm Special Economic Zone will include an oil refinery, a petrochemical complex, manufacturing operations and warehousing and logistics facilities.
A fish processing district will become the focus of Oman’s fishing industry. A tourism area aims to bring in hard currency from foreign visitors.

The strategy — spend lavishly on infrastructure, jump-start key industries with state funds and lobby the private sector to participate — carries substantial financial risks. But it is a key plank of economic policy in Oman, a thinly populated country of just 4.4 million people that lacks the deep pockets of neighboring oil exporters such as Saudi Arabia and the United Arab Emirates.

“We are diversifying beyond hydrocarbons,” said Saleh Hamood Ali Al-Hasni, the executive in charge of handling investment applications at Duqm. “We have to create jobs for the people and attract foreign direct investment.”
Other Gulf Arab oil exporting states have cut spending on infrastructure and development projects in the past 18 months as low oil prices have strained their finances.

Oman’s finances have also been hit hard, but it does not have as much time as its neighbors. Its financial reserves are estimated in the tens of billions of dollars rather than hundreds, and its proven oil reserves will last only 15 years at the current rate of production, oil company BP estimates.

So the government is continuing to spend heavily on Duqm and other, smaller projects to move the economy beyond crude oil. Total state investment spending rose 5.5 percent from a year earlier to 2.81 billion rials ($7.3 billion) in the first 11 months of 2015, even as the government ran a budget deficit of 4.07 billion rials, the latest official data shows. — Reuters