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Economic Growth and Tourism in the post oil Omani economy: A strategic

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Citation: Belwal, R., & Belwal, S. (2010). Economic growth and tourism in the post oil Omani economy: A

strategic analysis. Journal of Tourism Challenges and Trends, (3.1), 165-187.

ECONOMIC GROWTH AND TOURISM IN THE POST OIL OMANI ECONOMY: A STRATEGIC

ANALYSIS

Rakesh BELWAL1

Shweta BELWAL2

Abstract

Oil and natural gas has been the major engine of economic growth in Oman. Over dependence and emphasis

on oil has somehow crippled the development of other sectors in the past. At such a time when Oman

realizes the depletion of its natural resources to certain extent and the presence of all pervasive recession -

causing the lowest ever crude oil price, pondering on alternatives is an expected move. While thinking on the

probable alternatives that could fuel the economic growth in the post- oil- Omani- economy, Tourism emerges

as one of the most attractive alternatives on which Oman could rest. Following a desk research approach this

study reviews secondary data which are then subjected to three major tools of strategic analysis viz. PESTEL

framework, Porter's Diamond Model, and SWOT. The analysis reveals that Oman is at cross roads where

there is a need to look for areas which could contribute to her economic development and growth. Tourism

and real estate are probable sectors which can help mitigating the problem. There is a need for a strong

private sector, skilled human resources, and competencies to keep abreast with the technological progress.

To capitalize upon tourism, Oman needs to build a strong repository of product/service offers that appeal to

both foreign and domestic tourists. Among the major strengths are Oman’s political stability and leverage

created by Oil sector. Lowly developed non-oil sectors; absence of a strong private sector; and scanty tourism

infrastructure are the major weaknesses. The opportunities such as increasing potential global visitors; job

opportunities for locals; and a chance to establish tourism as the main driver of growth and development in

post- oil-Omani-economy are too be cashed in view of the most potential threats viz. competition, diminishing

oil revenues, and global recession. Success will depend upon how Oman ventures amid the forces of external

and internal environment.

Key words: Tourism, Policy, Strategy, Analysis, Porter’s Diamond

Introduction

Oil is the critical economic contributor to most of the GCC countries and it is estimated that oil will

exhaust itself in 20 years (Balakrishnan 2008, 62-91). Oil and natural gas sector has been the major

engine of economic growth in Oman. Over dependence as well as emphasis on oil has somehow

crippled the development of other sectors. At such a time when Oman realizes the depletion of its

natural resources to certain extent and the presence of all pervasive recession-causing the lowest

ever crude oil price, pondering on alternatives is an expected move. While thinking on the probable

alternatives that could fuel the economic growth in the post-oil-based Omani economy, Tourism

emerges as one of the attractive alternatives on which Oman may venture. Omani government has

expressed its intentions in support of development and marketing of tourism from time to time. How

1 Associate Professor, Sohar University, Faculty of Business, Sohar, Sultanate of Oman

2 Assistant Professor, Sohar University, Faculty of Business, Sohar, Sultanate of Oman



tourism would stand in comparison to other gulf economies, in particular, or the rest of the world, in

general, is yet to be explored. Neighbouring economies such as UAE, Yemen, etc. have already

recognized tourism as a driver of economic growth. This paper analyzes whether Oman too gets

benefits of diversifying into tourism.

Conceptual framework and methodology

Here, it is important to look into the profile of Omani economy and the contribution of various

sectors to it. Tourism, so far, has not made any significant contribution to the GDP. Capitalizing on

Tourism, therefore, opens a room for exploration. The major aim of this study is to conduct an

exploratory study to gain insight into the importance of tourism in the post-oil Omani economy. The

study draws out meaningful conclusions after assessing the strategy of diversifying into tourism

using three basic tools of strategic analysis viz. PESTEL, Porter’s Diamond model, and SWOT. By

resorting to a detailed review of secondary data and by subjecting the acquired information to the

selected tools of the strategic analysis, the study derives some important insights for stakeholders

who seek diversification into tourism. It is important to note that the tools of strategic analysis that

were primarily applicable for an industry are being used for the country (e.g. Oman Inc.) in this

paper. The conceptual framework for this assumption is based on the fact that unlike other parts of

the world, countries in the Gulf are more-or-less similar in their political, social, geographical, and

economic aspects and are less diverse. They compete among themselves within the broader Gulf

umbrella and act in a unified manner in their external dealings. The free access granted to citizens

within Gulf Co-operative Council (GCC) appears as if the Gulf is a nation and the GCC countries

are the individual enterprises competing within and outside the consortium. When tourism as a

strategy is concerned, it has been advocated to attract tourists to the Gulf (Wagner 2001).

Therefore, we take the tourism industry of the entire Gulf in particular and Middle East to some

extent as the scope to this analysis, and perceive Oman as a competing enterprise therein. The

following section gives a brief account of the basic tools used in this study.

Tools of Strategic Analyses

PESTEL is a major environmental analysis tool that is predominantly used to assess the business

environment of any organization. PESTEL framework categorizes factors into: political, economic,

social, technological, environmental and legal (Johnson et. al. 2006, 30-32). as cited in Evans and

Richardson 2007, i-iii). The framework is presented in Fig 1:

Fig 1: The PESTEL Framework

• Political: could include changes in government, such as a new Prime Minister, and

resultant policy changes.

• Economic: includes changes in public spending, interest or exchange rates, and the

climate for business investment.

• Social: includes changes in lifestyles, attitudes, buying habits or demographic changes,

such as extended life expectancy and the growth of the “grey” market.

• Technological: may include new products and services, or new approaches to research

and development activity.

• Environmental: the impact of green policies to minimize the effects of climate change.

• Legal: includes new legislation, such as the introduction of the minimum wage or

changes in Health & Safety legislation.

Source: Evans and Richardson (2007)



Porter’s Diamond model of competitiveness postulates that the study of firms and industries is not

sufficient to explain competitive advantage; rather competitiveness of nations is also important

(Porter 1990). Diamond model mentions four broad attributes: factor conditions; demand

conditions; related and supporting industries; and firm strategy, structure and rivalry; which

influence the competitive environments of local business firms through diverse interactions (See,

Fig. 2). According to Porter (1990,73), "the important role of the interaction among the determinants

means that the likelihood of achieving and sustaining advantage in an industry depends in part on

how effectively the interactions work in a nation". Further to these four attributes, Porter also

recognizes ‘chance’ and ‘government’ as exogenous factors affecting competitive advantage. By

creating favourable public policies and supporting investment and performance, governments can

play significant role in aiding competitive advantage.

Fig. 2 Porter’s Diamond Model of Competitiveness

Source: Porter (1998)

SWOT stands for strengths, weaknesses, opportunities, and threats that a business enterprise

should consider in order to draw up any major strategy. To pursue the best opportunities, a

company must analyze its markets and capitalize on the attractive opportunities by matching its

strengths, by overpowering the weaknesses, and by proactively dealing with the threats (Kotler and

Armstrong 2008). The factors used in such analysis are expressed in Fig. 3.

Fig. 3: Determinants of SWOT analysis

Internal Strengths Internal capabilities Resources Positive situational factors

Weaknesses Internal weaknesses Negative situational factors

External Opportunities Favourable factors that company can exploit

Threats Unfavourable external factors or trends

Positive Negative

Source: Kotler and Armstrong (2008)

FACTOR

CONDITIONS

FIRM STRATEGY, STRUCTURE AND

RIVALRY

DEMAND

CONDITIONS

RELATED AND SUPPORTING

INDUSTRY

Chance

Government



Review of Literature

These sections attempt to cover the review of existing data/ literature from two perspectives. The

first section attempts to review overall Omani economy and the contribution of various sectors

therein. The second section explores Oman in terms of tourism potential. The information secured

from the two perspectives has been used in the strategic analysis.

Review of Omani Economy

Ministry of National Economy (MONE) projects Oman as a liberal state and a growing economy, full

of economic opportunities. The country occupies a distinct strategic location and is politically stable

and committed to set stronger democratic mechanisms that encourage freedom, equal opportunity

and private and foreign investments (MONE 2008, 1-16; EIU 2008, 1-23). Oman is inarguably better

off than many other states in the Middle East, and is stable until economic and political crisis arise

simultaneously (Katz 2004, 43-55).

Tab. 1 indicates that Oman has been enjoying consistently favourable trade-balances over last

seven years. The contribution of Oil and Gas ranged between 75- 84 % of the exports over these

years. In the year 2007, oil and gas (crude oil, liquefied natural gas, and refined oil) accounted for

75% (58%, 12%, and 5%) of the merchandise exports. The contribution of non-oil and re-exports

was limited to 14% and 11% respectively (Fig. 4).

Tab. 1 Merchandise Imports and Exports for Oman from 2001-2007 (in Mn R.O)

Particulars 2001 2002 2003 2004 2005 2006 2007

Merchandise Imports 2,281.30 2,420.80 2,615.00 3,381.90 3,449.30 4,244.40 6,161.50

Recorded imports 2,229.30 2,309.10 2,527.00 3,312.70 3,394.00 4,190.10 6,144.20

Merchandise Exports 4,257.90 4,295.60 4,689.50 5,144.90 7,186.90 8,299.50 9,493.90

Crude Oil 2,934.80 2,858.30 3,187.30 3,490.90 5,071.10 5,528.30 5,553.50

Refined Oil 28.5 38.3 61.4 61.5 88.3 47.4 466

Liquefied Natural Gas 451.2 410.7 535.9 634 888.4 1,144.60 1,180.40

Non Oil 265.8 261.6 304.1 420.3 555.3 812.5 1,290.70

Re-exports 577.6 726.7 600.8 538.2 583.8 766.7 1,003.30

% of Oil and Gas of Exports 80.2 77 80.7 81.4 84.2 81 75.8

Total Trade Exchange 6,539.20 6,716.40 7,304.50 8,526.80 10,636.20 12,543.90 15,655.40

Trade Balance 1,976.60 1,874.80 2,074.50 1,763.00 3,737.60 4,055.10 3,332.40

Source: Compiled from Statistical Yearbook 2008, Issue 36, October 2008, Ministry of National Economy, Sultanate of Oman



Fig. 4 Structure of Merchandise Exports for Oman –Year 2007

Source: Statistical Yearbook 2008, Issue 36, October 2008, Ministry of National Economy, Sultanate of

Oman

Fig. 5 indicates that there has been a continuous growth in Oil & Gas and other exports during

2003-2005 where 9,493.90 million Omani Rial of total merchandise export was realized.

Fig. 5. Export-Import Profile of Oman

Source: Derived from Statistical Yearbook 2008, Issue 36, October 2008, Ministry of National Economy,

Sultanate of Oman

Tab. 2 gives a detailed account of non oil merchandise exports and re-exports of Oman by

Standard International Trade Classification (SITC). While trade dominates for items falling in section

7, 3, 5, 6 and 0 categories (in descending order), a closer observation (ignoring re-exports) reveals

that section 3, 5, 6, 7, and 0 indicate a need for ‘in house production and export of goods’. On this

basis the scores indicates an automatic ranking of probable future growth sectors when sorted in

descending order of their total value (See Tab. 2).

Tab. 2 Non Oil Merchandise Exports and Re-Exports of Oman by SITC in 2007

Section No. Section / Division

Value R.O. (000)

Non Oil exports

Re-Exports Total

7 Machinery and Transport Equipment 179705.1 884402 1064107.0

3 Mineral Fuels, Lubricants and Related 377754.3 1742.4 379496.7

5 Chemicals and Related Products 278642.1 8375.2 287017.3

6 Manufactured Goods Classified chiefly by 197036.6 20403.9 217440.5



material

0 Food and Live Animals 138156 16961.8 155117.8

8 Miscellaneous Manufactured Articles 28088.2 45458.2 73546.4

2 Crude Materials, Inedible except Fuels 47843.3 6403.2 56246.5

4 Animal & Vegetable Oils, Fats & Waxes 34772.3 1071.4 35843.7

1 Beverages & Tobacco 3521 12129.2 15650.2

9 Other commodities and transactions 5212.5 6385.8 11598.3

Total 1290731.4 1003333.1 2296065

Source: Aggregated from Statistical Yearbook 2008, Issue 36, October 2008, Ministry of National Economy, Sultanate of Oman

Oman has exhibited a satisfactory economic performance with a nominal GDP growth of 13% (or

5.2 % estimated real GDP growth) in 2007 (EIU 2008, 1-23). Growth in mining (more than 42%),

construction (almost 35%), wholesale and retail trade (almost 32%) stood higher than other sectors.

While there was only 6% growth in crude-oil production, hotel and restaurant sector secured a

higher growth of 10.7% (EIU 2008, 1-23). Daily average production of oil which was 774 Mn BBL in

2005 fell to 738 Mn BBL and 710 Mn BBL in 2006 and 2007 respectively (MONE 2009). With the

ongoing economic reforms taken by the government, there have been a reduction in debt burden

and a steady increase in the share of manufacturing (Raffer 2006). Non oil sectors emerged as the

engines of growth in the Sultanate’s GDP in Q3 2007 (MONE 2007). The aforementioned facts

indicate the attractiveness of tourism sector and the possibility of its contribution to other sectors

such as ‘wholesale & retail trade’ and ‘transport, communication and storage’. Therefore, a closer

scrutiny of the tourism sector and the assessment of its potential become important. The following

section attempts to address this issue in detail.

Review of Tourism Potential

Tourism that firmly anchors on consumption rather than production based growth has largely been

considered a lead sector, globally, for Local Economic Development (LED) (Rogerson 2002, 143-

167). The sector is popularly known as ‘smokeless industry’ and has many direct and indirect

benefits to offer. According to Sinclair (1998, 1-51), the major effects of international tourism on

developing countries are favourable balance of payment, income multiplier, and employment

effects. While tourism receipts are one of the important sources of foreign currency, tourist

expenditure and associated investments result in induced income generation in the host economy

and leads to several direct and indirect effects -where employment in formal and informal sector is

the most visible one (Sinclair 1998, 1-51). According to Ball and Stobart (1998, 228-238), the

relationship between tourism and LED extends beyond the conventional notion of jobs,

diversification, and income; and provides a valuable self-appraisal opportunity, raises awareness of

local economic potentials (to local authorities and linked agencies), and boosts the local policy

machine. For communities seeking economic improvement, boosting tourism can not only support

jobs in construction, restaurants, hotels and transportation but could be a mighty engine of growth

(Nober 2005, 51-52).

Paylor (2007) claims that-

“Oman is fast emerging as a prime tourist destination, especially for travellers trying to escape the

Northern Hemisphere winters. Not only does it boasts spectacular scenery and a comprehensive

range of leisure and adventure activities, it is much less commercially advanced than neighbouring

Dubai and therefore perceived as being less spoiled."



Oman offers more of "real Arabia" with her fascinating culture and sceneries different to Dubai

(Richardson 2005). Mark Senior, destination marketing manager, Gulf Air expresses that Oman

“has all the right ingredients for a relaxing beach holiday or a stimulating city break, all with the best

of authentic Arabian hospitality" (Machan 2003). Lauded for its stunning scenery and friendly

people, Oman emerged as Vogue magazine's pick destination for the year 2008 (Oxford Business

Group 2008i). National Geographic Adventure, popular American magazine, also featured Oman as

a world class destination in its latest edition (Times of Oman 2009). These expressions indicate that

Oman has a rich tourism potential, which can be utilized to fuel economic growth. Oman has

somehow positioned itself as a the most attractive holiday environment in the Middle East with its

delightful coastline of coral, cliff and beach, wonderful interior topography of mountains, desert and

wadi and the winning temperament of native population (O'sullivan 2003).

In context of nature, the country witnesses good sunshine and clear sky conditions. The climate is

soothing during six months and extremely hot during the rest. While several open air tourism

activities such as star gazing and camping could be planned during the former; threats emerging

out of the latter can be contained by a cautious design of indoor activities. Oman’s vast sea-cost-

stretch has potential for shore-based tourism products, however vulnerabilities associated with

sudden cyclones cannot be ruled out.

EIU (2006, 1-23) Country Report reveals a considerable growth in the country’s tourism sector in

2005, where the total number of visitors reached 1m mark, up from 887,000 in 2004. Growth in the

number of nights spent by tourists witnessed an increase of 24% (amounting to 5.6m) and the total

number of hotel rooms increased by 6%. The general indicators of hotel activities in Oman indicates

that though there was a decrease in the number of guests (1584501 to 1501316) visiting in 2007

than the year 2006, but an increase was recorded in the numbers of nights spent (1882973 to

2149797) and in revenue (112.6 m to 124.1 m Rial) (Statistical Yearbook 2008). Europe and Asia

were the prime sources of generating visitors to Oman after Arabian countries. To attract more

visitors, Oman needs to develop a strong product line of tourism products.

Oman has a rich number of museums that could be a prime source of attraction to visitors.

However, the proportion of visitors to the eight large museums to total number of visitors to Oman

was observed less than 5% (Statistical Yearbook 2008). In addition to museums, there are more

than two dozen castles and forts in her seven governorates (Statistical Yearbook 2008). Hotels and

Motels are the supporting blocks to tourism activities. The distribution of hotels across the nine

governorates is not homogeneous across Oman especially for the five, the four and the three star

hotels. Leaving the Muscat governorate, only 2, 10, and 6 five, four, and three star hotels

respectively exist for tourists and this confines tourism to a single governorate. The government of

Oman is working persistently to bring Oman to the global tourism map. To ensure self reliance,

government is targeting a minimum of 80% of jobs to be filled by Omanis in the tourism sector,

envisaging Tourism’s contribution to GDP reaching 3% (with annual growth target of 7% in real

terms) over the course of the current five-year plan (2006-10). To start with, joint ventures with

Orascom of Egypt, Saraya of Lebanon etc have been made for the construction of additional large-

scale facilities. There are plans for more tourism activities for attracting business visitors to hold

conventions (EIU 2006, 1-23).

Countries in the Middle East have started giving importance to tourism for increasing revenue. Amid

the rapid decline in oil sector and pressure for structural reforms, Yemen is also contemplating a

diversification into tourism to mitigate her economic risk (Business Monitor International, 2007). The

other Gulf countries offer Oman a mixed bouquet of threats and opportunities either in the form of

potential generator of visitors or snatchers. Every country in the Gulf perceives tourism as one of



the potential diversification moves. Bahrain, Kuwait, Qatar, Saudi Arabia and UAE- all pose threats

as well as benefits and have something common and unique to offer.

Bahrain and UAE distinctly gain in organizing Formula 1 Grand Prix wherein tourists spend as high

as 1723 USD in a single day (Oxford Business Group 2008a). UAE, a home to the world-popular

seven-star hotel and other luxury locations, has an upper hand in business, stopover, and event

based tourism. Her different constituent states such as Abu Dhabi, Ajman, Dubai, Ras Al Khaimah ,

and Sharjah complement and supplement tourism activities and market destinations primarily to

Europeans who have higher capacity to pay (Oxford Business Group 2008b; Oxford Business

Group 2008c; Oxford Business Group 2008d; Oxford Business Group 2008e; Oxford Business

Group 2008f). The growth in luxury expansion is more rapid in Middle East followed closely by Asia,

where Dubai in particular topped global markets in luxury chains, upper-upscale chains and luxury

independents category with as high average daily rates as ADR 362.12 (Johnson 2008, 30-32).

Dubai's efforts towards diversification can be seen in the form of creation of Jebel Ali Free Zone for

manufacturing and warehousing, Dubai International Airport Free Zone for services; Dubai Internet

City for IT and Dubai Media City for local and international publishers, broadcasters, advertisers

and marketers (O'sullivan 2003). Likewise, Qatar capitalizes on MICE (meetings, incentives,

conferences, and exhibitions) with a focus on business travellers to the country (Oxford Business

Group 2008g). Saudi Arabia gains almost 51% of its visitors from pilgrimage and aims to target the

non religious market by diversifying into tourism (Oxford Business Group 2008h).

However, Middle East is not free from disturbances and insecurity problems. While the conflict

between countries such as Israel and Lebanon is going to affect tourism there (Manson 2006),

Oman can attract visitors interested in the Middle East. Such efforts could bring benefits to Oman.

The case in point is the Arabian Experience Destination Services launched by Gulf Air to put

Bahrain, Abu Dhabi and Oman on the tourism map which resulted in 20% increase in passengers

from the UK en-route to the Gulf in 2003 (Machan 2003). Like UAE, Oman has already ventured

into an estimated $15,000 million Blue City project, located about 100 kilometres northwest of

Muscat along the Al-Sawadi seafront and has signed a memorandum of understanding with New-

York- based Alfa International to invest in an estimated $700 million beachfront resort (Journey of

Light) close to the Wave-Oman's first freehold $800 million integrated tourism complex (MEED

2005; Oxford Business Group 2008i). The industrial policy looks upon Tourism as the basic support

sector for comprehensive development and provisions tax holidays and interest free long term loans

to tourism projects (MONE 2008).

Tourism infrastructure in the country, however, needs some attention. Globally, Oman is not a well

known tourist destination. Oman draws most of its visitors from the GCC states, most of them

simply drive across the border for a very short stay. Tourism initiatives of Oman are constrained by

shortcomings such as poor tourism infrastructure, support services and activities; limited

promotional exposure; too much bureaucracy and major dependence on ‘sun, sea and sand

marketing’ (AME Info 2004). At a time when aviation in Gulf is growing fast, the Seeb international

port of Oman has reached close to its capacity of 5 million. Seeb has just a single 3585 m runway,

only one terminal building, and no attached gates. Plans are underway for parallel channels that will

increase capacity to 12 million and 48 million by 2010 and 2050 respectively (Paylor 2007). Oman

still has dependence on other airlines such as Gulf Air for international flights. Public transport

infrastructure is not adequate from the perspective of tourism to offer tourists a comfortable,

economic and safe journey. The network of roads connecting major tourism destinations also needs

planning and development.



Oman is looking at the possibilities in the areas of historic, cultural, wildlife, and ecological aspects,

holiday and recreation, emerging as a MICE venue, as well as hosting indoor and outdoor sports

events such as golf - US $44 billion emerging market (http://www.etbmice.com). It's Travel and

Tourism Competitiveness Index (TTCI) has improved in 2009, still it has to compete with UAE,

Qatar, and Bahrain to secure better place in the Gulf (WTTC 2009a). Oman needs strong emphasis

on Travel and Tourism based human, cultural, and natural resources to develop that

competitiveness. Oman needs to strive for strategic alliances with global airlines, travel agents,

financial institutions, to ensure seamless connectivity and well integrated tourism infrastructure.

Analysis and Discussions

This section covers the analysis of Tourism from the perspectives of three major tools PESTEL,

Porter’s diamond Model, and SWOT.

PESTEL Analysis

Political: EIU (2008) country report finds Oman in good ties with the US, the UK and with her nearer

neighbours in the Middle East. Oman's foreign policy strives to develop and maintain good relations

with neighbours, following an internationalist outlook, a pragmatic approach to bilateral relations,

and a resolution to cooperation and peace rather than conflict (Ministry of Foreign Affairs 2009).

Oman is politically stable and has officially joined Inter-Parliamentary Union indicating a hope

towards democratic openness in place (EIU 2008, 3). To this effect, the Majlis al-Shura (a

Consultative Council) has been established which considers tourism as crucial for diversifying the

economy and creating employment (EIU 2006).

Economic: The new economic measures and legislative changes are designed to make the

economy more competitive and encourage private, particularly foreign, investments (MONE 2008,

8). The state intends to reduce its dependence on public spending and encourages non-oil

revenues, private sector investment, competitive environment, and efficiency (MONE 2008, 24 -

36). Oman is focusing on liberalizing interest rate and maintains an official dollar-pegged exchange

rate of OR 0.3845: US $1 (unchanged since 1986) with free convertibility and no restrictions or

controls on repatriation of capital and profits (MONE 2008, 19). “Nevertheless, after three decades

of intensive development efforts, Oman still faces a host of challenges stemming mainly from the

fact that the economy is reliance on oil which is a non-renewable dwindling resource subject to a

high degree of price volatility." (MONE 2008,10). Trade surpluses of Oman are eroding by a

widening non-merchandise deficit. The increase in the expatriate population and consequent rise in

labour’s remittances are expected to broaden such deficits more (EIU 2008, 1-23).

Social: The reform program of 2008-2009 intends to diversify the economy away from reliance on

hydrocarbons and to create employment opportunities for the young generation (EIU 2008, 1-23).

Tourism and real estate are the probable sectors which can work in tandem for construction of new

attractions and reconstruction of coastal areas damaged by the extreme weather conditions.

However, the role of private sector is to be boosted, participation of which is currently at a low level.

Omanisation drive of the government is expected to bring mixed benefits. While it would help

developing and employing the local people at one hand, it may increase expenditures such as

higher cost of employing locals and the additional rights they enjoy over expats, on the other (EIU

2008, 1-23). There might be a possibility of brain-drain of trained local staff to six member blocs of

Gulf Co-operation Council (GCC) common market (EIU 2008, 1-23). High rate of inflation claimed to

touch an average of 10.2% in 2008 can affect common man’s budget and create some social

tensions.



Technological: The major policy areas of vision 2020 envisage the development of human

resources, skills and competences to keep abreast the nation with the technological progress

(MONE 2008, 17). Oman had made a comprehensive Free Trade Agreement with the U.S. in 2005-

2006 which provide a powerful stimulus to trade, investment, services, and technological up-

gradation (MONE, 2008, 51). MONE (2008, 65) report states that while Oman focuses on

infrastructure and capacity building projects in the short-term, it aspires to become the regional hub

for IT enables services and researches on the long. The privatization planned in the services sector

can bring state-of-the art technology with the entry of global players. The report states that special

priority will be given to research and development activities in the public and the private sector

(MONE 2008, 40). Knowledge Oasis Muscat (KOM) -a technology park has been created in

Muscat which houses blue-chip companies and is dedicated to supporting technology-oriented

businesses. However, the telecom sector in Oman is relatively undeveloped as the fixed-line and

broadband penetration levels are low, barring the growth in mobile subscription (Budde Report

2008).

Environmental: Environmental concerns of Oman are well expressed towards public and

organizations. The state is concerned towards environment, its protection and prevention of

pollution (MONE 2008, 40). Article 7 of the foreign capital investment law envisages provisions to

review the environment, health, safety and other standards during the construction and operation

stages of any project (MONE 2008, 70).

Legal: A host of laws such as Foreign Investment Law, labour Law, and other laws including the

Commercial Law, the Agency Law, the Copyright Law, and the Corporate Income Tax Law, have

been introduced, revised, and updated. These laws pursue the provisions of the Basic Law of the

State (introduced in 1996) which highlights the supremacy of the law and guarantees freedom and

equal opportunity to all the citizens (MONE 2008, 8 - 11). The Capital Market Authority is in place

since January 1999. It focuses on restoring investor confidence and laying the foundation of an

adequate regulatory, legal and institutional framework for public joint stock companies with respect

to the issues, subscription, regulation, monitoring company affairs, and review of financial

statements (MONE 2008, 88).

Porter’s Diamond Analysis

Government’s Role

Oman government is considerably stable in the Middle East. Government promotes Oman as a liberal, open, and distinctive state committed to ensure better democratic mechanisms, equal opportunities, and foreign investments (MONE 2008, 1-16 EIU 2008, 1-23). Results producing macroeconomic reforms are in place that focuses on tourism and real estate (MONE 2008, 1-117). Foreign policy is suitable for attracting tourists from GCC or western countries (Ministry of Foreign Affairs 2009) and the industrial policy looks Tourism as the basic support sector and grants tax and financial incentives (MONE 2008, 1-117). Oman government is committed to 'Oman Vision 2020' that envisions for the diversification of economy through Omanisation, industrialization, and privatization. The government has allocated approximately $1.7 billion for new development-projects in 2009 and is expanding its light manufacturing sector through industrial estates, housing more than 333 projects with a total investment of over $6 billion (US Department of State 2009). Specifically for promoting tourism, the government plans to construct 10 resorts and a convention centre, acquire long-range aircrafts, build additional airports, terminals, and runways (US Department of State 2009).

Factor conditions



Human Resources: Oman attach significant importance and focus to human resource development

(HRD) to induce quantitative and qualitative improvement in all fields of general and technical

education, the labour market, and private sector development where women are given equal

opportunities (MONE 2009 b). Despite significant improvement in HRD, the low level of productivity,

the reluctance of Omanis to join certain professions, the weaknesses and inadequacies in basic

education, excessive dependence on expatriate labour force, and variations in working hours,

official holidays etc., are still major challenges (MONE 2009 b). While the number of expatriates

working in Oman's private sector in 2007 was around 638,000; only 131,775 Omanis were formally

working in the private sector (US Department of State 2009). Oman's population is growing at an

estimated 3.3% annual rate, with 56 percent of the national population younger than 24 years (US

Department of State 2009) and there is enough scope and challenge for their grooming into

productive resources. Oman's HRD Strategy (1996-2020) addresses most of these challenges

(MONE 2009 b). Significance of Travel and Tourism in job creation is growing. Travel and tourism

(T&T) direct industry jobs in Oman accounted for 2.2% (24,000 jobs) of total employment in 2009,

whereas T&T economy employment was 7.1% (76,000 jobs) of the total employment (WTTC

2009b).

Capital Resources: Travel & Tourism Capital Investment for Oman is estimated at OMR277.6 mn

(US$722.0 mn) or 6.6% of total investment in year 2009, which is expected to reach OMR589.4 mn

(US$1,533.0 mn) or 8.0% of total by 2019. This investment amounts to only 1.5% of total travel and

tourism capital investment for the Middle East, which is US$ 47,005.8 mn for 2009, or 11.9% of total

regional capital investment (WTTC 2009). This indicates that Oman is lagging in terms of

capitalizing on tourism.

Physical Resources: Oman is in possession of a rich amount of physical resources required to

undertake tourism activities. While various implemented and proposed projects of Government

bode well for development of good infrastructure, domestic production of oil and gas adds value to

related activities. The distinct geographical advantages have already been cited earlier. The role of

agriculture is not that prominent, however its traditional canal (falaz/wadi) system, fishing, and other

traditional activities based on donkeys and camels can be positioned as natural/rural tourism

products.

Infrastructure: Oman considers Transport and Communications sector as an essential building

block for the country's basic infrastructure. The road network links extensively to all parts of the

sultanate (MoTC 2009. Plans are underway to upgrade the country’s airports and ports, and to

augment the over-ground transport network with the development of a national and regional rail

network (Oman Infrastructure Report Q2 2009). The telecom sector has witnesses a good growth,

with penetration of mobile phones reaching almost 100% (Belwal and Belwal 2009). The

government has taken initiatives to break its monopoly in this sector (ITU 2009). However, prices of

telecom services are a bit higher and ban on VoIP (voice over internet protocol) exist. E-commerce

infrastructure, needed to support online transactions, is also well developed amidst the presence of

modern banks and well adopted system of electronic cards. To utilize high-end tourism market,

there is a need for developing the meetings, incentives, conferences and exhibitions (MICE)

market. There is a need too for strengthening the knowledge society and the interactions of industry

with scientists and researchers. After the KOM initiative, establishment of The Research Council

(TRC) is a major initiative taken by the government (see www.trc.gov.om). To sum up, economy of

Oman is largely dependent on basic and generalized factors and a move to advance and more

http://www.trc.gov.om/



specialized factors, infrastructure, as well as production and process technologies (e.g. IT) is

necessary to secure better competitive advantage.

Demand Conditions

Demand conditions, according to Porter (1998), comprise size of the home market and

sophisticated and demanding buyers. It involves compound issues such as size of domestic and

international market, economies of scale, demand for products and services, other industrial sector,

and external demand.

Tourism products are as diverse as the destinations themselves and are substitutes. The basic

need of leisure can be manifested with different wants and desires and makes the demand highly

uncertain. Middle East, as a whole, offers attractive destinations to international and domestic

visitors. Tourism in the Gulf is so far restricted to Dubai. Though Oman has also secured a

favourable place, it has not emerged as a popular destination till now. Since the existence of

demand is not very well pronounced in the home and the international markets, there is a need for

recording tourism related data for development of databases and analyses. Demand conditions,

though favourable, are not well catered and need planning, organizing, and marketing of tourism

products/services and devising integration among supply-chain partners for securing better

economies of scale. Oman needs to offer a unique selling proposition (USP) with a customized

marketing and a higher content of personal selling.

Related and supporting industry

The presence of related and supporting industries provides benefits of innovation, upgrading, and

information flow and shared technology development and creates advantages in downstream

industries (Porter, 1998). Intermediaries, hoteliers, airlines, wholesales are the major group of

suppliers for Tourism industry locally and globally. Experts claim that “travel management in Middle

East is about three to five years behind Western Europe in terms of policy compliance and

consolidation” and find that “key to a successful travel management program was partnering with

the right suppliers through a Travel Management Company (TMC)” (TTG 2008, 30). Oman

witnesses the presence of individual entities (such as travel agents, tour guides, car rentals, hotels,

banks, airlines, etc.) but with a low degree of integration. One can witness plenty of ticketing

agents/ travel agencies, but not much interaction and coopetition at the micro level. Oman

witnesses a low level of industrial clustering in tourism and a little existence of related and

supportive industry, upstream and downstream industry, relationship among firms, and trade links.

Gaps exist in the coordination of global sourcing or in the efficient management of global supply

chain due to absence of global partners and integration.

Firm Strategy, Structure and Rivalry

This determinant according to Porter (1998,107) refers to “the conditions in the nation governing

how companies are created, organized, and managed, as well as the nature of domestic rivalry”.

Despite the government's efforts and supportive policies on tourism, investment in the tourism

sector is still low. Government departments lack synchronization with the private sector. Domestic

rivalry is missing and geographic concentration is lacking. Furthermore, among all the GCC

countries Oman occupies the lowest rank in ‘ease of doing business’ and ‘trading across borders’

ranking of the World Bank (World Bank 2009). Rivalry exists at the national level. Characterized by

almost similar products (such as desert safaris, sea beaches, Arabian culture and heritage), high

exit barriers, and excess capacity; the agencies in the Gulf can resort to price competitions and

advertising slugfests. According to Porter (1979, 137-45), a focus on selling efforts in the fastest

growing segments of the industry or on market areas with the lowest fixed costs can reduce the



impact of industry rivalry, which needs to be identified while devising the tourism products and

services. Though Oman “government” is supportive of diversification into tourism, the actual gain

under “chance” events will depend on the joint efforts (interactions) of government, private sector,

and society towards shaping a favourable “diamond” that provides competitive advantages over

other GCC states.

Fig. 6 Porter’s Diamond for Oman’s Tourism Industry

CC

Factor Conditions Human Resources

Excessive dependence on expatriate labor force

Low skills of native population Capital Resources

Improving GDP and tourism contribution into it

Investments in Big tourism projects

Physical Resources

Rich amount of basic factors

Need to focus on advanced and specialized factors

Infrastructure

Improving telecom, IT and road infrastructure

Knowledge

Low level of research and

extension activities is needed.

Related Industry

Absence of a strong private sector

Low degree of integration among individual players

Missing coopetition among firms at micro level

Low level of industrial clustering

Almost low existence of related and supportive industry and trade links.

Gaps in the efficient management of global

supply chain.

Chance

Chance factors cannot be

predicted; however, the more

favorable the diamond the

better would be control over

chance events

Firm Strategy, Structure…..

Low investment in tourism sector

Government’s lack of synchronization with the private sector

Domestic rivalry among firms missing

Lack of geographic concentration

Oman’s low ranking in ‘ease of doing business’ and ‘trading across borders’

Demand Conditions

Demand conditions are

favorable for both domestic

and foreign tourism

Existence of demand not

very well pronounced

Lack of proper tourism

database

Need for planning,

organizing, and marketing

Government

Government is politically stable and is committed to boost the tourism sector

FACTOR CONDITIONS

FIRM STRATEGY, STRUCTURE AND RIVALRY

DEMAND CONDITIONS

RELATED AND SUPPORTING INDUSTRY

Chance

Government



It would be important to note that the role of foreign collaboration and foreign firms is very crucial in

tourism industry. Moon et al (1998, 135-50) in their double diamond model argue that both

domestically owned and foreign owned firms are necessary for building sustainable value which

comes from geographic configuration and location advantages present in several countries. Oman

needs to concentrate on international activities to gain competitiveness. Fig. 6 also represents the

generalized double diamond model where the dotted lines outside the core domestic diamond

denote the international dimension.

SWOT Analysis

The findings from the SWOT analysis have been tabulated in Tab. 3 as follows:

Tab. 3 SWOT Matrix

Strengths Weaknesses

Internal Capabilities Internal weaknesses

Political stability and a will to boost tourism Weaker non-oil sectors and their integration with tourism development.

Demonstrated ability to take on and support big tourism projects

Absence of a strong private sector creating synergy in efforts

Resources

Scanty tourism infrastructure in terms of aviation, hotels, road, public transport.

Natural ,historic and other rich destinations and diversity

Lack of established or planned tourism products and their differentiation and tie ups with global tourism operators

Oil rich economy capable of committing any resources to tourism development

Domestic tourism opportunities ignored

Positive situational factors Less skilled local population and excessive dependence on expatriates

Liberal, hospitable, friendly, modern and peaceful place in the Middle East

Negative situational factors

Growing hotel and restaurant sector Absence of specialized Educational Programs the area of hospitality and tourism

Ties among GCC countries to cash business opportunities

Geographic condition- excessively hot climate for almost 6 months a year

Not overdeveloped or crowded

Opportunities

Threats

Favourable factors that company can exploit

Unfavourable external factors or trends

Increasing interest of global visitors to Gulf region.

Dubai , Yemen’s and other Middle Eastern country’s efforts to promote tourism

Easy availability of skilled expatriate staff to launch initial projects

Unprecedented decline in oil revenues which may affect the government to commit resources to tourism in future

Creation of jobs for local population and development of skilled human resources

Depleting oil resources and reduction in oil production

Forging ties at various levels among the GCC countries to attract tourists by generating leads

Global recession

Establishing tourism the main driver of growth and development in post oil Omani economy.

Conclusions



Amid the dwindling oil prices and the global inflation, countries in the Gulf have started looking for

the greener pastures. Oman also is at a cross road and is looking for diversification into areas

fostering economic growth and development. The outcomes of strategic analyses reveal that

Oman’s is one of the prominent and politically stable countries in the Middle East. However, her

overdependence on oil and the low crude-oil prices threatens her future economic growth. The

government of Oman is committed to boost tourism and employment by diversification of the

economy. Tourism and real estate are the probable sectors for diversification. Although the role of

private sector is currently low, privatization and Omanisation efforts are currently underway. Free

Trade Agreement with U.S., focus on infrastructure and capacity building projects, and IT related

initiatives provides leverages, but special priority is to be assigned to research and development

activities in the public and private sector. The State highlights the environmental concerns and the

supremacy of law that guarantees freedom and equal opportunity to all the citizens. Measures to

ensure investor confidence and adequate regulatory, legal and institutional frameworks for public

joint stock companies exist to support the business activities.

Porter’s Diamond Analysis indicates that Oman government is committed to development in tourism

sector and attaches significant importance to human resources development. The country has an

excessive dependence on expatriate labour force. Despite having abundant physical resources,

T&T investments are very low and the demand for tourism is not very well pronounced. The industry

lack geographic concentration and integration among domestic players. Collective initiatives are

needed to make the existing “diamond” more favourable to gain competitive advantages over other

GCC states.

Finally, the SWOT analysis reveals that among the major strengths are Oman's political stability

and will to boost tourism, demonstrated ability to take on big tourism projects, and being an Oil rich

economy capable of committing any amount of resources to tourism development. The most

pronounced weaknesses are insignificant non-oil sectors; absence of a strong private sector; scanty

tourism infrastructure; ignorance of domestic tourism opportunities; and lack of specialized

educational programs in tourism. Among the opportunities are increasing potential of global visitors;

easy availability of skilled expatriate staff; and job opportunities for locals in post oil Omani

economy. The most potential threats are competition from countries such as UAE, Yemen, and

others in the Middle East; depleting oil resources and reduction in oil production leading to an

unprecedented decline in oil revenues; and the global recession. The research find Oman

committed to diversify into tourism, with a higher priority. All the three tools used in this analysis

establish tourism as a prospective route for diversification. Success will depend upon how Oman

ventures amid the forces from external and internal environment.

Research Limitations and further areas of research

The study is based on secondary data sources, so the outcomes might be affected by the views

and prejudices of the researchers. It would have been better if opinions of the ministry, tourism

facilitators, and the tourists visiting to the region were secured, this would have given greater depth

to the coverage. Future researches can be targeted to identify the reasons for the scarce and non

homogeneous distribution of tourism infrastructure in Oman and of gaps that aims to answer why

the proportion of visitors to museums and forts out of total visitors to Oman is low, what caused the

reduction in the number of visitors but increase in the nights spent, and what form or combination of

tourism in general would benefit the country, what measures are to be taken to start with and which

countries to be targeted for supporting a sustainable up-scale tourism.



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