Oman - After Qaboos

Challenges and Opportunities

The death of the Middle East’s longest serving ruler, Sultan Qaboos bin Said Al Said of Oman, was announced on 10 January 2020, ending his nearly 50-year reign over the country. Qaboos, who had no children, did not publicly appoint an heir. Instead he named a successor in secret sealed letters left in royal palaces in the capital Muscat and Salalah, Oman’s second city. According to the Omani authorities, they named his cousin Haitham bin Tariq Al Said.

The choice of Sultan Haitham, an experienced UK-educated civil servant of 65, over other younger candidates, signals continuity in a country that saw unprecedented growth and stability under Qaboos. Haitham is a former secretary general for the Ministry of Foreign Affairs and Oman’s long-serving Minister of Heritage and Culture.

Qaboos’ Legacy

Qaboos seized power from his father in a bloodless palace coup in 1970. During his rule, he transformed Oman from a poverty-stricken, ultra-conservative and reclusive nation into a modern, outward-looking and prosperous state. In 2010 the UN ranked Oman as the country that had developed most over the previous 40 years.

Qaboos did this through heavy investment in large-scale infrastructure projects and development programmes, building schools, hospitals, modern medical facilities and laying thousands of kilometres of paved roads. At the same time, he issued numerous decrees aimed at attracting investors from abroad.

In terms of foreign policy, Oman under Qaboos diverged from other Gulf states. With regional peaceful coexistence at the heart of his doctrine, Qaboos maintained good relations with all. This included traditional foes such as Iran, Saudi Arabia, Qatar and even Israel (though Oman does not maintain official diplomatic relations with the country). By doing so, Oman established itself as an important regional diplomatic facilitator, having most prominently hosted the secret talks that led to the 2015 international agreement over Iran’s nuclear programme – given that Qaboos was one of a very small number of foreigners with a hotline to Iran’s Supreme Leader,  Oman’s mediation capability is now in question. Moreover, in recent years, Oman steadfastly avoided being dragged into the increasingly bellicose and interventionalist stance of its powerful neighbours Saudi Arabia and the UAE, opting out of their military campaign in Yemen and economic boycott of Qatar. Regional observers are asking whether Oman may now be forced to move closer to its Gulf neighbours under its new ruler.

Corruption, Sluggish Economy and ESG Concerns

Qaboos’ legacy is not unblemished. In common with other countries in the region, the intertwined business interests of the political elite under the late sultan led to graft at all levels of government and widespread mismanagement at state-owned enterprises. Corruption, particularly in public procurement, continues to be a concern for those seeking to do business in Oman. The Sultanate scores a middling 52 out of 100 on Transparency International’s Corruption Perception Index for 2018.

With more modest oil reserves than its neighbours, Oman has sought to reform its economy and transition it away from hydrocarbon revenues towards a services and knowledge-based economy, with a focus on tourism and industrialisation. However, its various initiatives to diversify the economy have yet to yield many concrete results. The Sultanate remains heavily dependent on oil and gas, with hydrocarbons generating between 68% and 85% of government revenues. Moreover, the slump in oil price in recent years has dealt the economy a severe blow: the country has struggled with high youth unemployment, increasing deficit and international debt.

Corruption and economic malaise brought Omanis to the streets to protest in 2011 and 2017, albeit these demonstrations were much smaller in comparison with those experienced in other countries in the region. Qaboos responded by shuffling his cabinet, prosecuting several high-ranking officials, increasing wages and introducing new public sector jobs. However, with unemployment persistently high and Oman’s diversification programmes underperforming there is still much to be done to turn the country’s economic fortunes around. The Big Three credit rating agencies all recently gave Oman’s credit their lowest investment-grade rating.

Oman’s human rights record has not been the subject of significant attention. This is more to do with its generally low international profile than a particularly positive reflection on the human rights situation. Civil and political rights in the country are tightly controlled, and freedom of expression is curtailed, with arrests and detentions of journalists and activists common. At the same time, migrant workers are exploited under the work sponsorship law. Recently, the major Duqm Port project on the country’s southern coast has come under international scrutiny for the treatment of foreign construction workers on site, while human rights organisations have reported on the widespread abuse of domestic workers in the country.

Is Sultan Haitham Up for the Challenge?

The late Sultan Qaboos, therefore, has left Oman in the hands of his cousin at a particularly delicate moment. In the first few years of his reign, the new sultan will have to assure Omanis – and especially the discontented youth – that he is capable of pulling the country out of its economic stagnation and carrying through the bold socioeconomic reforms set forward by Qaboos.

Crucial to this effort would be convincing foreign investors that Omani tourism, manufacturing and other non-oil sectors are a smart and safe choice for their investments. To do this, Haitham must help those seeking to invest in his country mitigate regulatory and reputational risks by taking steps to curtail corruption and mismanagement in government and at state-owned entities. To beat strong competition from neighbouring countries in the Gulf, Haitham could make Oman stand out by taking bold steps towards improving the country’s human rights record and alleviating the ESG concerns which Western investors are increasingly prioritising in their global investments.

Qaboos clearly thought Haitham was up to the task. Most notably, he had appointed him chair of the steering committee of Vision 2040, Oman’s most recent and most ambitious diversification initiative which sets the country’s socioeconomic strategy over the next two decades. In his first speech as ruler last Sunday, Sultan Haitham pledged to follow in Qaboos’ footsteps in terms of an independent, non-interventionalist foreign policy. A key to maintaining this independence will be taking fast and decisive action to restore confidence in the country’s economy.