Oman and the European Union share common interests in a number of political, economic, commercial and security fields. Oman’s strategic location and links to key international trade routes are of great importance to European interests in the region. In September 2018, Brussels and Muscat signed a cooperation agreement, in addition to the one signed by the European External Action Department and the Omani Ministry of Foreign Affairs, with the aim of strengthening political dialogue and cooperation in sectors of mutual interest.
Sultan Qaboos Brought Light and Modernity to Oman
Oman shares with the EU the challenge of maritime piracy, which is one of the most pressing security issues that both sides face in the Indian Ocean. Since 2008, Oman has been an important partner in Operation Atlanta, the EU Naval Force mission to combat piracy on the coasts of Somalia, the Horn of Africa and the Gulf of Aden.
Oman’s policy of being open with the world and balanced between the poles on opposing sides of regional conflicts — especially those represented by the Islamic Republic of Iran, Saudi Arabia and the United States — is similar to many EU policies in the Middle East. Muscat has highlighted its role in many regional and international issues, with Omani diplomacy complementing EU efforts to preserve stability and security in the region in ways that serve European interests.
Oman is considered a major logistical center for the Middle East, with its three major ports of Sohar, Duqm and Salalah, as well as a number of economic, marine and land “free zones.” With the aim of establishing an integrated infrastructure system for Oman, the General Authority for Special Economic Zones and Free Zones was launched in August to supervise the Special Economic Zone in Duqm and the free zones in Mazyouna, Salalah and Sohar.
An attractive environment for foreign direct investment (FDI) was created with the coming into force of the Foreign Capital Investment Law in January this year that allows foreigners to own 100% of investment projects as well as granting tax exemptions and customs duties. Moreover, the law does not set a minimum investment capital, facilitates procedures for establishing investment projects, grants extended rights to the use of investment lands and permits the transfer of capital to investor countries.
In addition, Oman is the fifth safest country in the world and the third in the region, according to a recent report by Numbeo, which adds to investor confidence. In the first quarter of 2020, FDI reached over 15 billion Omani rials ($40 billion). With money coming from Iran, Kuwait, China, Saudi Arabia, South Korea, numbers from the National Center for Statistics and Information indicate that American and British capital constituted the highest share of FDI. The EU, however, has seen low investment rates in the country, with only the Netherlands coming in at roughly 304.7 million rials.
The Vice President of the European Investment Bank (EBI) Vazil Hudak, during the International Investors Forum held in Muscat in 2019, spoke of the strengths of EU investment in Oman and the “huge” opportunities it offers. EBI is the largest financial investment institution in the world, with assets of more than €600 billion ($726 billion) and annually lends out nearly €70 billion. The EU could deepen its bilateral cooperation with Oman, directing EIB investments to achieve sustainable economic development in Oman, particularly after the economic crisis caused by the COVID-19 pandemic.
In the long term, Oman has paid attention to improving its economy by diversifying sources of income and raising the contribution of non-oil sectors to the gross domestic product. Oman was the first of the Gulf Cooperation Council (GCC) countries to develop plans to reduce its dependence on oil and diversify its economy. As a result of these policies, in 2020, Oman achieved nearly 3 billion rials in profits in the non-petroleum sector that made up 28% of the total contribution to the GDP, an increase of 6% over 2019.
Despite the COVID-19 pandemic and accompanying lockdown measures that put strains on the economy, Oman has sought to avoid withdrawing from its sovereign reserves estimated to be worth $17 billion and moved toward setting policies to cut spending and adopt a short-term fiscal balance plan for the next four years with the aim of improving the economic situation and raising the country’s credit rating.
The EU is currently witnessing difficult times as a result of the pandemic and the severe economic effects associated with it, coinciding with the UK’s exit from the European Union at the end of the year. In light of the circumstances, commercial and economic interests between Oman and the EU should expand into joint action, moving forward on pending agreements, including the free trade agreement that the two sides used to manage collectively through dialogue between the GCC and the EU. These negotiations were hit by apathy due to a lack of agreement over customs tariffs and the continuing blockade of Qatar since 2017. But talks on bilateral free trade agreements between Oman and the EU countries have become crucial to removing trade barriers and spurring economic growth.
Tourism and transport sectors were among the most affected by the COVID-19 pandemic globally, with analysts predicting that tourism recovery will take up to two years, and air transportation estimated to take anywhere from two to six years. In 2018, the tourism sector contributed 2.6% to the country’s economy and was one of the five key sectors that Oman’s Ninth Five-Year Plan focused on. Given the damage inflicted on the sector during the pandemic, recovery should be stimulated by easing travel procedures. On December 9, Omani authorities issued a decision to exempt citizens of 103 countries (including the EU) from entry visa requirements for 10 days with the aim of stimulating transport and tourism after the pandemic.
On the European Union side, the decision to exempt Omanis from the Schengen zone is still under consideration despite the ongoing talks between the two sides over the last years. An easing of entry requirements for Omanis will contribute to enhancing tourism traffic between the two sides.
The cooperation and partnership in times of crisis creates opportunities for broader ties and paths toward economic sustainability, political stability and security for countries. The European Union is an important partner for Oman and can take advantage of the sultanate’s fortunate geographical location. The advancement of Oman-EU relations is an important factor for both sides, especially in the post-COVID-19 era.
*[Fair Observer is a media partner of Gulf State Analytics.]
The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.
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