Master Of Business Administration Economics Essay
The report is based on the global perspective of the country OMAN. The main objective of to identify and study international opportunities available to the country. The country’s economy, demographics, climatic and environmental conditions, its natural advantages, its political and legal characteristics, government attitude to international trade and its globalization is clearly dealt with theoretical context.
This report not only features country’s present condition but also reflects its future in international business with other countries. By referring to its political and economical characteristics, Oman’s objectives in doing international trade is also been covered.
Finally, it describes Oman’s attitude toward globalization, the challenges which the country is facing regarding it and also recommends certain measure which can boost national economy, while improving international business relations.
(a) Global Competitiveness Report Review
The Global Competitiveness Report analyses national competitiveness and reflects individual countries economic environment and its ability to grow potentially. It can be analyzed through 12 pillars of competitiveness which includes 113 variables. Importance of each pillar totally depends upon countries developmental stage (“World Economic Forum”, n.d.).
Oman
Oman lies in efficiency driven stage and has moved to 34th position from 41st position among 139 countries thus improving its global competitiveness index. As compared to last year report, Oman seems to be more competitive due to slight increase in its index score from 4.5/7 to 4.6 /7. This improvement helps country to reform its economic growth rapidly by diversifying from hydrocarbon sector and moving towards its substantial growth (World Competitiveness Report, 2011).
When sub-indexes were analyzed it was seen that Oman lies at 24th position with 5.41 score at basic requirement, at 48th position with 4.30 score at efficiency enhancer and at 47th position in innovation and sophistication with score of 3.87 (Appendix C) (World Competitiveness Report, 2011).
Source: World Competitiveness Report. [2011]. Stages of Development In Oman.
Twelve pillars of Competitiveness
First pillar: Institutions
Oman did very well in the institution sector and attained 16th position thus enhancing its position in Global Competitiveness Report, 2010-2011.
Second pillar: Infrastructure
Oman’s infrastructure is ranked 21st for overall infrastructure which includes 10th position for road quality and 33rd position for quality of port and also achieved 41st position in air transport infrastructure (GCR, 2011).
Third pillar: Macroeconomic Environment
In basic requirements, Oman’s has been regarded for having one of the best macroeconomic environment, being at the 3rd position basically for its government budget balance (Muscat Daily, 2010) thus showing tremendous improvement (Appendix D).
Fourth pillar: Health and Primary education
According to GCR – 2011, Oman is far behind in the health and primary education sector, attaining 99th position in health sector. Malaria incidence and HIV prevalence is ranked no. 1. Whereas, Primary education enrolment rate is too low.
Source: CIA World Fact-book
Fifth pillar: Higher education and training
In higher education and training sector Oman was ranked at 63rd position. It was seen that the quality of the education and institution’s management were enhanced as compared to last year (GCR, 2011).
The e-government project will also help in exchange of information both for universities and school, thus ensuring transfer of knowledge.
Sixth pillar: Goods market efficiency
Oman is at 25th position for goods market efficiency.
Seventh pillar: Labour market efficiency
In labour market efficiency, Oman didn’t show any improvement, being at 36th position and was considered as one of the biggest problems for doing business in the country (GCR, 2011).
Eight pillar: Financial market development
Oman ranks 30th in the financial market development index.
Ninth pillar: Technological readiness
Due to substantial progress in information and communication technology (especially in e-government initiatives), Oman attained 59th position for technological readiness. Muscat and its surrounding areas are to develop permanent communication channels for investors and business community because of e-government projects (GCR, 2011).
Tenth pillar: Market size
Market size is considered as it helps to determine economies of scale and Oman lies at 73rd position.
Eleventh pillar: Business sophistication
When considering sophistication factors, Oman lies at 45th position in business sophistication thus, playing vital role in productivity.
Twelfth pillar: Innovation
Oman ranks 47th in overall innovation where it attained 11th rank in gov’t procurement of advanced technology products.
(b) Country Size Theory
LOCATION & SIZE
Oman is a 1700 km long coastal plain at the southeast tip of the Arabian Peninsula lying on the Arabian Sea and the Gulf of Oman. It has an area of 212,460 square kilometres and a coastline that totals 2,092 kilometres. The bordering countries of Oman are United Arab Emirates, Saudi Arabia, and Yemen. Topography of the country is varied as it has mountains in north and south, gravel and sand dessert in central plains with coastal plains (InfoPlease, n.d.).
POPULATION
According to above report, Oman’s population is estimated approximately 2.9 million, in which 50% of the people resides in the capital city Muscat (UN World Population Prospect, 2008).
Source: International Monetory fund – 2010 World economic outlook
Referring to Oman’s history, majority of the population is Sunni Muslim whereas some important number of people follows Ibahism. It also consists of some families of Hindu origin. Besides this, huge number of expatriates (unskilled) is commonly seen in gulf countries, generally from Asia (Nations Encyclopedia, n.d.).
CLIMATE
The climate of Oman is generally arid or semi-arid, depending upon its region. It is found to be hot and humid during summers in coastal areas and hot and dry in interior regions. But in southern Dhofar region and higher lands, climate remains moderate throughout the year. Rainfall occurs during winter (November – April), seasonal summer monsoon (June – September) in the southern parts causing temperature change. Average annual rainfall is estimated around 62mm, 20mm (internal regions), 300mm (mountain regions) (AquaStat Survey, 2008).
RESOURCES AND NATURAL ADVANTAGES OF OMAN
Oil and Gas are the major natural advantage of Oman like other gulf countries and makes up a large proportion of GDP. On an average, Oman produces 1/10th of volume per well that of Saudi Arab (Nations Encyclopedia). Total oil production in year 2009 is 816.15 (thousands barrels per day) and total consumption was 115 (thousands barrels per day).
Source: US Energy Information Administration, 2010
Oman holds the largest oil reserves of any non-OPEC country in the Middle East and also substantial reserves of natural gas, being the leading exporter regionally. Oman has total proven reserves of 5.5 billion barrels of oil. Country’s reserves are mainly found in the north and central onshore areas (US Energy Information Administration, 2010).
Gas is also one of the major advantages for country’s economy. Oman has proven reserves of natural gas amounting to 30 trillion cubic feet (Tcf). Oman has entered into various projects with overseas companies to produce natural gas (Nations Encyclopedia, n.d.). Natural gas exportation of Oman has expanded the economy away from oil, but it will be depending upon its hydrocarbon sector in foreseeable future (US Energy Information Administration, 2010).
Source: CIA World Factbook
Source: US Energy Information Administration, 2010.
Other natural resources include copper, chromium, gypsum and limestone. Copper has been mined in Oman for thousands of years (MBendi Information Services, 2010).
Fishing is also substantial for Oman’s economy but the main problem arises in the pollution of water. Fish stock is approximately found to be 4.77 million.
Agricultural production played a vital role in the country’s economy before the discovery of oil. Dates makes up the country’s major agricultural export. Coconut palms and bananas are also grown. Fishing sector along with agriculture, accounts for highest non-oil export revenue (MongaBay, n.d.).Oman does not have any forest regions but the country imports wood products like Sawn-wood (Bryant, n.d.).
(c) POLITICAL AND ECONOMICAL CHARACTERISTICS OF OMAN
Political Outlook
Oman is an absolute Monarchy and since the middle of eighteenth century, the sultanate of Oman is ruled by the Al Bu Sa’id family. It does not have any political parties. Qaboos Bin Sa’id Al Sa’id is the current sultan and has control on important issues. Legal system of Oman is based on Ibadhi school of Islam. In 2008 Nov, a law against human trafficking was passed and made National Commission for Human Rights (BTI report, 2010).
Economic outlook
Oman has achieved substantial level of economic growth in a short period of time. Today, oil and gas are the main access to country’s economy and also receives its revenues from mainly petroleum products enabling dramatic expansion over the past 40 years. Oman has a small economy where tax regime is flexible and faces low inflation.
In rural areas, economy is still characterized by migrant workforce having less skills whereas at national levels, foreign labours mainly drive economic growth of the country (Oxford Analytica, 2010).
In 2006 Government focused on seventh 5 yr. plan to reduce its dependence on oil and foreign labour thus spending more on industrial and tourism related projects for income (Global Edge, n.d.).
Government’s Objective and Attitude towards International Trade
Government of Oman’s policy is to establish national economy dependent on private enterprise in competitive environment which does not include monopolistic practices. To carry out socio-economic development, it is essential to build durable and strong private sector to support growth of commercialization. The economic diversification policy of the government emphasizes on agriculture, fisheries, tourism, mining, light industry, and now, petrochemicals and other heavy industries. For this government has announced privatization plan.
The main objective is to double per capita income, balance Government finances, developing human resources and upgrading Omani skills using advanced technology (Oman Info, n.d.).
Country majorly depends on its oil and gas resources have sustained their prices therefore helping to build its budget, trade surpluses and foreign national reserves. Petroleum sector is the major source of foreign investment. The main investing countries are the U.S.A., UAE, Japan and China (Global Trade, n.d.).
Country’s main objective is to reduce the oil and gas sector‘s contribution to GDP to 9% by 2020. The government is looking for private foreign investors to invest in industrial sector, data technology, tourism, transportation, higher education. Due to the global financial crisis, the investment and development of projects slowed down in recent year (Economy watch, 2011).
Political Unrest
The country was recently disturbed by the protests in the Middle East in early 2011 (on the streets of Sohar) where protestors demanded a hike in their salaries, giving them employment opportunities. As a result, sultan assured for 50,000 jobs and also gave each person $390 p/m to those seeking employment.
Oman has also liberalized both politically and economically recently. Now there are new economic sectors accounting to greater share of country’s GDP.
Export and Import
Since ancient times, Omanis are trading frankincense, dates and limes. This resulted in good relations and cultural exchange between the countries. Currently, Oman is a member of many economic blocs (Omanet, 2010).
Goods are exported widely in many countries and are promoted through seminars and exhibition. According to 2008 report, total export of Oman is estimated to be US$33.9 billion which includes mainly petroleum, re-exports, fish, metals, textiles, whereas total import is estimated to be US$13.32 billion which includes machinery and transport equipment, manufactured goods, food, livestock, lubricants (Appendix G) (Global Finance, 2011).
(d) EFFECTS OF GLOBALIZATION – OMAN
Socio-Economic Development
Oman followed a developmental path and has seen a rise in GDP per capita year by year. The Sultanate not only focused on infrastructure, education but also on diversification, industrialization and privatization and market liberalization. It has also planned socio-economic transformation along with stable financial environment in the privatization plan. The sultanate of Oman is first among the Arab countries to adopt program for private sectors.
To reduce oil sector’s contribution in GDP by 9% by 2020, Oman supports foreign investment in the field of natural gas, tourism, IT and higher education (Globalization101, 2010).
IT and Telecommunication
The Sultan has always embraced globalization with open arms and as a result, the country ended its isolation and moved towards global development fostering information and communication technology development. The globalization phenomenon affects national interest, identifies culture across the world and also stabilizes images of countries.
Environment
Oman is considered of having one of the most green government in the world, maintaining best record in environment conservation, pollution control and ecologically. Not only this, Oman’s natural resources consist of natural gas and oil which makes its economy. Solar energy density of Oman is also one of the highest in the world, ensuring development of electricity for domestic usage as well as for export (Globalization101, 2010).
Market based competition
The government of Oman has introduced a law to encourage foreign investment and to offer incentives to both private and foreign workers. Government has ensured free and fair competitive economy. It enacted free trade agreement with United States in 2009 (BTI Report, 2010).
Oman has been ranked at 65th position in ease for doing business. U.S and Oman signed a Free Trade Agreement and thus attracts many U.S investors. It promotes foreign investment in manufacturing, tourism, education and IT (Global trade, 2010).
Challenges and Recommendations
Depletion of Oil
The foremost challenge of the country is to shift it’s over reliance on oil revenues to maintain economic advantage. As Oil reserves are diminishing and it can be stored only near about twenty years, therefore it is important for the government to rely on other sectors and natural resources for nation’s economy.
Prioritization
There is a need to increase political participation in order to develop economy of the country. Firstly, human resources should be developed in order to compete internationally with competitors. Secondly, effective use of human and natural resources should be made by Oman’s private sector.
Basically, Oman should use its strategic location, its natural resources, promote economic development and diversification and finally distribute the profits equally among citizens.
Resource Efficiency
Oman should focus on using human resources efficiently for the national development and for this government has even tried to understand its human resources objectives by reaching economic sustainability, growth, diversifying income and developing private sectors.
Education
Low performance and results in education industry is also a concern for the country’s overall development and reflection of image globally. Focus should be made in initiating personal and critical perspective. Youth should participate in social and political activities on both local and international levels (Globalization101, 2010).
