Can Oman sustain long-term growth on fixed oil production?

Can Oman sustain long-term growth on fixed oil production?
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Published March 2nd, 2014 - 08:18 GMT via

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Oman can no longer afford to sit on its past laurels and hope natural resources will continue to support it indefinitely
Oman can no longer afford to sit on its past laurels and hope natural resources will continue to support it indefinitely
The news that Oman will produce a steady production of 750,000 barrels a day of oil for the next ten years is highlighting the challenges facing the economy on a long-term prospect. The candid response of the Minister of Oil and Gas last week when he faced the members of the Shura Council in a televised discussion on the production of oil was commendable. It is a sombre reminder of the limitations of fossil fuels. 
However, the decision not to overproduce is based on controlling the income of the country to make sure oil production lasts as long as possible. The Oil Minister's analysis was not sugar coated and it is a clear signal that the government must urgently mobilise a diversification programme to find an alternative source of income.   
What is in the mind of the educated Omanis at the moment is how the government can balance its books on a fixed income for the next 10 years by producing a flat amount of oil. The global economy is very unpredictable. The demand for oil depends on the energy needs of consumers across the world. If the economists work out the theory that the international oil prices will increase every year then Oman will not have to worry too much in the next decade. But working on the probability of oil prices climbing all the time is precarious.  
Then, there is the issue of inflation escalating which we have become accustomed to for the last five years. The biggest concern while basing the economy on the production of oil without any growth is the steady population rise at a rate of three per cent a year. 
The second concern is the growing demand of the infrastructure sector. There is also that big question of financing the ever expanding public sector which is taking up thousands of new employees every year. 
Funding the welfare system of free education, medical and subsidies is already taking more than a quarter of the annual budget and growing annually, too.  
The revelation last week that crude oil production is a finite resource has not surprised many. But, hopefully, it has put some sense in our heads to face the economic realities and the challenges the country has to go through in the next decade and beyond. 
The writing on the wall is clear just in case anyone is reading it wrong. Oman will continue to produce oil at an assured rate for only the next 10 years and at a less predictable rate for 15 years after that. Two and half decades from now, will we struggle to balance the books because the country's place as an oil producer could be in jeopardy?
This is where the emphasis of the private sector shouldering the responsibility of expanding growth and creating employment for the nationals must be stressed. History suggests that the private sector will continue to play safe, as it did for the last 40 years, by leaving everything to the government. 
With the new economic realities dawning on us, the government must stop pussyfooting or supporting private companies. The burden is practically draining the resources. It has been a practice of the government for many years to draw upon its financial reserves to pay for the arrears. It is the arrears caused due to an imbalance of business contributions between the public and private sector. 
For the record, Oman was producing about 920,000 barrels a day in 2001, almost the same amount it is producing now. Its output dwindled to 740,000 barrels per day a few years later, only to return to the same peak of its heydays more than a decade later to what it is now.
The historical volatility of oil revenues must resurrect the diversification effort that was started in the 1980s and stalled 15 years later. Self-employment on a greater scale is one way to take the pressure off the faltering economy but the remedies must go deeper than that. The validity of introducing a variety of taxes and cutting down on crippling subsidies to help the government pay for its bulging expenditures should be taken seriously. 
Oman can no longer afford to sit on its past laurels and hope natural resources will continue to support it indefinitely.
© Muscat Press and Publishing House SAOC 2014

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