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Oman_GDP_15_Sep

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					                                                                                          Economic Report



Subject             :   Oman Economic & Strategic Outlook
                            GDP

Prepared by         : Global Investment House “Global”
Date                : August 2009

   Global : Oil and gas activities accounted for 51.3% of total GDP in 2008
   Global : Oman GDP growth rate at 44.0% for 2008
   Global : Final consumption accounted for 54.7% of GDP on average over the
              period 2003-07

Global Investment House – Kuwait – Oman Economic & Strategic Report- Omani economy has
been on a high growth trajectory since 2003 culminating in hefty growth of 44.0% in nominal GDP for
2008. On nominal terms, GDP crossed the RO20bn landmark for the first time in history to stand at a
record level of RO23.05bn by the end of 2008. This is the fifth consecutive year of GPD growth with
the Omani economy growing at a 2003-08 CAGR of 22.7%. In real terms GDP reported a CAGR of
7.0% over the same period. According to official figures real GDP is estimated to have grown by 13.0%
in 2008 to stand at RO11.32bn. As a result of the robust economic growth over the period, GDP per
capita followed the same trend reporting a CAGR of 17.6%. Per capita GDP increased significantly
from US$9,190.4 in 2003 to US$20,648.6 by the end of 2008.

High GDP growth rates were mainly backed by the oil boom over the period 2004-08. This could be
depicted from nominal GDP growth rate that continued to follow the same trend as Oman crude oil
price. Both oil production and prices hiked during the year by 6.85% and 55.1% respectively. As a result
Oman crude oil price was a huge contributor for GDP growth during 2008 as it reported an average
level of US$101.1/b for the year 2008, as compared with US$65.2/b for 2007. Similarly, oil production
increased to 0.79mn b/d by the end of 2008 up from 0.71mn b/d reported for 2007.

GDP growth versus Crude oil prices growth
     60.0%
                                                                                                        55.1%
                                     46.2%
     50.0%
                                                                                                        44.0%
     40.0%

     30.0%      23.7%
                                                           22.1%
     20.0%                           25.3%                                 13.1%
                                                      19.1%
     10.0%          14.5%
                                                                                   6.2%
      0.0%
                    2004              2005                 2006               2007*                 2008**

                                 Nominal GDP Growth Rate           Growth in Oman Crude Oil price


*Provisional, **Preliminary
Source: Central Bank of Oman, IMF, Ministry of National Economy & Global Research
The share of oil sector in Omani economy increased in the year 2008. Oil and gas activities contributed
76.0% to the overall government revenues while contributing 51.3% to the total GDP in 2008 as
compared to 45.2% in 2007. The recent surge in average Omani crude oil prices is a predominant factor
supporting the increased share. Oil contribution to GDP has increased over the period 2003-05 from
42% to 49.4%, before declining to 47.6% in 2006 and 45.2% in 2007. The decline in oil sector
contribution in 2006 and 2007 was due to a combination of a decline in oil production levels by 4.7%
and 3.8% and increasing contribution of non-oil sectors as diversification plans started bearing fruit.
Entering the year 2008, oil sector GDP contribution picked to a record level due to skyrocketing oil
prices supported by increased production levels.

Generally, non-oil sector experienced double digit growth rates over the period 2004-08. On CAGR
basis, non oil GDP reported 18.5% of growth over the period 2003-08 to increase from RO4.8bn to
RO11.2bn. By the end of 2008, non oil GDP reported a significant growth of 27.9% on top of 18.5%
growth reported last year. It is important to note that non oil GDP growth continued to surpass oil
GDP growth for 2006 and 2007 mainly due to diversification plans combined with the decline in oil
production. However, entering 2008, oil GDP grew much more rapidly by 63.5% as compared with
27.9% growth in non oil GDP thus increasing its share in GDP to 51.3% versus 48.7% for non oil
GDP.

Latest available data for GDP by type of expenditure revealed the fact that Oman economy is mainly a
consumption based economy as final consumption accounted for 54.7% of GDP on average over the
period 2003-07. Moreover, it is important to note that private consumption was the dominant
contributor to GDP accounting for 34.4% on average as compared to 20.3% for government
consumption. However, more important was the fact that Gross Fixed Capital Formation (GFCF)-a
measure of the level of investment in the economy- has been growing rapidly over the period to report a
CAGR of 27.5% as compared with 14.6% of growth for final consumption. This reflects the fact that
mega projects and diversification plans are in effect. Moreover, it is important to note the level of capital
expenditure and investments in any economy depicts to a great extent the sustainability of growth within
the economy as well as ability to create new job opportunities for the increasing population. Within
GFCF the two categories of “Building and Construction” and “Machinery plant and Equipments”
accounted for 22.5% of total GDP on average for the whole period. This reflects the high level of
capital expenditure within the economy. Finally, net exports contributed for 19.1% of total GDP on
average for the period thus indicating the dominance of exports over imports for the whole economy.
This could be traced back mainly to the increase in oil exports over years.

Looking forward, GDP growth is expected to slow down to report 1.9% of growth for 2009, according
to preliminary estimates. Such estimates are based on the sharp decline in oil prices by the end of 2008
and early 2009.




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