External Factors Affecting Projects

1.1 The purpose of this briefing paper is to introduce the possibilities of tendering for projects in the Middle East and more specifically Oman. Oman's recently exploited oil wealth and subsequent government expenditure, under the direction of Sultan Qaboos, has had the effect of catapulting the country into modernisation bringing rapid material and social change. However, the country is now trying to build up its industrial and commercial base in an effort to get away from its almost total reliance on oil. 

1.2 Although Arabic is the official language, English is widely spoken in business circles, with many Omani businessmen having been schooled in the UK. Unlike some of its stricter Muslim neighbours, Omani Arabs are an exceptionally friendly people and reasonably tolerant of westerners and their culture. 

2. BACKGROUND

2.1 Oman has a very rich history with Britain becoming an integral part of that history since the 1700's. The Sultanate of Oman currently occupies the south-eastern corner of the Arabian Peninsula with a land area slightly larger than that of the UK. However, that was not always the case. At its peak in the 19th century, Oman had control of an area, which stretched from as far south as Zanzibar, Mombassa, Somalia and, until as late as 1958, as far north as Pakistan.

2.2 Unusually for the time, Britain did not colonise Oman but established favourable trading, legal and religious rights without establishing formal relations. This continued until the late 18th century when new strategic realities altered the balance of power in the region. The British government signed a series of treaties to firm up its relationship with Oman and its leaders allowing them a commercial and financial freedom that other Gulf leaders could not hope to match. The Royal Navy provided a peace that allowed trade to thrive and the British Army helped prevent the coastal based leaders from being overthrown by tribes from the interior. Treaties of peace, friendship and navigation were constantly signed right up until 1951.

2.3 Although Oman was not a colony or protectorate, Britains involvement was very subtle yet powerful. Effective political control was established by political consul at the Omani court and the presence of the Royal Navy based nearby. 

2.4 Oman's great wealth was mainly generated by its trading from its African colonies in ivory and slavery, so much so that the country capital was moved to Zanzibar. However, when Britain enforced its anti-slavery policy in the middle of the 19th century, Oman began to suffer an economic slump. There then followed a power struggle within the ruling royal family and Britain was forced to split the Omani empire in two, with one brother ruling the richer African colonies around Zanzibar and the other the poorer regions of Oman and the north.

2.5 Since the middle of the 18th century up until today, the British have provided most of the officers and training for the Omani armed forces. It has also prevented the overthrow of the ruling family on many occasions and was used to quell insurrections by tribes from the interior, most recently in 1973. 

2.6 With the ruling families growing dependence on British 'outsiders' to remain in control and the countries continual decline into political and economic stagnation, came an ever-escalating deterioration of relations with the people. This came to a head in 1970 when the Sultans son, Qaboos, led a bloodless coup against his father. It was denied that the British had had any involvement however, the fact that Qaboos had recently trained at the Royal Military Academy at Sandhurst and British officers commanded the Oman army at the time seems to suggest differently.

2.7 Sultan Qaboos has subsequently led his country out from a backward position, modernising Oman's semi-feudal economy and repealing his father's oppressive social restrictions. Although Britain formally withdrew from the Gulf region in 1971, it has still maintained an uncommonly strong relationship with the country of Oman.

3. POLITICAL CLIMATE

3.1 Oman is not a democratic country with absolute power in the hands of Sultan Qaboos. There is no constitution but the Sultan rules based on the advice of an appointed cabinet and council, all of whom are directly appointed by the Sultan himself. There is no legislature or any political parties and the country has limited freedom of speech.

3.2 Under the leadership of Sultan Qaboos, Oman has entered the Arab League and the United Nations.

3.3 The judicial system in Oman is largely based upon Sharia law. The word sharia denotes an Islamic way of life that is more than a system of criminal justice. Sharia is a religious code for living, in the same way that the Bible offers a moral system for Christians. Most Muslims adopt it to a greater or lesser degree as a matter of personal conscience. Sharia law in Oman does not invoke the severe punishments of stoning, lashes or the severing of a hand as some countries do. The law is mainly used to govern areas such as inheritance, banking and contract law.

3.4 The Iranian revolution and invasion of Afghanistan by the Soviet Union in 1979 led the Sultan to realise how vulnerable the country was militarily in being able to protect its oil wealth. In 1981, partly in response to these concerns, the 

Gulf Co-operation Council (GCC) was formed with 5 other like minded and worried countries, Kuwait, Bahrain, Qatar, Saudi Arabia and United Arab Emirates. The purpose of this organisation was to provide a unified regional defence as well as co-ordinate policy on trade and economic issues. Although various members of the GCC have increased their military capabilities, the region is still reliant for its protection by western powers.

3.5 In 1989 a Co-operation Agreement was ratified between the GCC and European Commission (EC) whereby GCC and European Union (EU) foreign ministers would meet once a year at a Joint Council/Ministerial Meeting to facilitate trade relations with the EU. This agreement was also intended to strengthen stability in this strategic part of the world. Working groups were established in the fields of industrial, energy and environment co-operation and expanded in 1996 to include university, business and media co-operation. 

3.6 The Co-operation Agreement contained a commitment from both sides to enter into negotiations on a Free-Trade Agreement between the GCC and EC – a Free Trade Agreement overview is detailed at Annex A. These negotiations have been hampered with the EU council insisting that, prior to signature, the GCC must establish an agreed Customs Union. A GCC Customs Union was finally agreed and signed at the annual GCC summit in November 2002 with its full introduction across GCC countries from January 2003. The Customs Union:

3.6.1 Converts all 6 GCC countries into a single customs zone whereby all duties, fees, taxes as well as any other charges or procedures that hinder trade between GCC countries are removed. 

3.6.2 Maintains a common external policy on foreign imports, implementing a 5% import duty on imported goods, on the principle of payment on the first point of entry into the GCC.

3.6.3 Maintain a common internal policy on goods and commodities produced in any GCC country where they are to be treated as national products and not subject to custom tariffs when moved between member states.

3.7 With the way now open for a satisfactory conclusion to the Free-Trade Agreement, a successful conclusion should cover not only trade in goods but also trade in services, government procurement, intellectual property rights etc. 

3.8 In international politics, Sultan Qaboos tends to follow a moderate line oriented towards compromise and peace. He has managed to maintain friendly relations with post-revolutionary Iran and diplomatic ties with Egypt after it signed a peace treaty with Israel. In 1993 he also welcomed Yitzhak Rabin, the Israeli Prime Minister, during a brief visit and remained a supporter of the Israeli-Palestinian peace process throughout the late 1990s, following the Oslo Agreement. Most recently, Sultan Qaboos allowed Omani military bases to be used as a stepping stone for British and American forces to launch and recover from attacks on Iraq during the 2nd Gulf conflict. 

4. ECONOMIC CLIMATE

4.1 Oil exploration began in the gulf during the 1930's and 40's with oil first being discovered in Bahrain and Kuwait. World War II delayed any further exploration and development of oil fields and it was not until well into the 1950's that it recommenced. Oil was not discovered in Oman until 1964, and then only small reserves have been found. Oman did not begin exporting oil until 1967.

4.2 Oman's economy is dominated by the oil industry and accounts for almost 50% of the countries Gross Domestic profit (GDP). Omani crude oil is extracted and processed by the Petroleum Development Organisation (PDO) which is 60% government owned and 34% owned by Royal Dutch Shell with the remainder by other oil companies. Oman is not a member of OPEC.

4.3 Omani citizens enjoy good living standards but the future is uncertain with oil reserves likely to last less than 20 years. The Omani government is keen to pursue policies that will allow the country to diversify its economy and allow them to rely less on these diminishing oil reserves. However, the country is rich in other mineral resources such as copper, chromium and gypsum but these have yet to be exploited. Areas for economic diversification are likely to lie with oil refining, petrochemicals, fertilisers and plastics, and cement as well as shipbuilding and repairs.

4.4 In 1970 there was only 10km of paved roadway and 1 700km of unpaved track in the country. Since Qaboos has come to power, he has substantially improved this situation and there is now over 7 000km of paved and 25 000 of unpaved road and track. Attention is currently being given to widening existing highways and linking towns and villages of the interior with local road schemes.

4.5 There is no railway system in Oman. There are several seaports and an international airport close to the capital and the country has a large array of airfields, mostly dirtstrip, which the Omani Airforce use to distribute aid or assistance to outlying or hard to reach areas in the interior.

4.6 The Sultanate of Oman became the 139th member of the World Trade Organisation (WTO) on 9 November 2000, allowing it to access a Multilateral Trading System. 

"Oman's forthcoming accession is a new vote of confidence in the WTO", said Mr. Moore. "No nation, large or small, can secure its future alone, and the Multilateral Trading System provides a stable and predictable framework for economic engagements between nations and for the business community. That in turn promotes growth, employment and prosperity".  The WTO Director-General Mr Mike Moore on signing the protocol of Accession. 

4.7 Oman is committed to set-up monetary union in 2005 with its GCC partners and for the establishment of a single currency in 2010.