Optimism in Oman

Introduction

In keeping with the other Gulf States, Oman’s development strategy is set out in a series of five-year plans instigated by the government. A recent report confirms that, since the first five-year plan, which was launched in 1976, the country has developed economically, socially and physically, with progress particularly linked to a number of petrochemical and industrial mega-projects, collaboratively securing the country’s wealth and increasing GDP 35 times since 1970.

This year marks the first year of the country’s eighth five-year plan. It will reinforce the government’s plans to pursue reforms that lead to a diversification away from oil and gas. It will promote non-oil exports, which will play a more important role as new industrial projects come on stream. Tourism will play a key part in diversifying revenue and will become the Sultanate’s primary economic driver by 2020. This will, of course, have major implications for the construction industry.

Raising the profile

The value of Oman’s construction industry in 2010 was estimated to be US$3.7 billion. According to the Oxford Business Group, the annual rate of growth between 2010 and 2014 is expected to be 5.8%, and sectors within the industry – particularly cement production – should continue to enjoy some of the largest gross margins of all the GCC countries.

The predicted growth rate in Oman’s construction industry between 2010 and 2014 will be 5.8%. The most significant of the current development projects will focus on the capital, Muscat, where 24 mega projects will be undertaken across the city, with a remit to “enhance the quality of life for residents and visitors”. The plan is to develop, a “cohesive, inclusive, safe, healthy and vibrant city with opportunity for all”. The projects will include development of the waterfront corniche areas in collaboration with a number of prestigious international design firms from Scandinavia, France and Australia.

Good for cement

Last year, as a result of the government’s initiatives on infrastructure projects, the demand for cement grew by 7.5%, but plummeting sales caused by the worst recession in decades in neighbouring UAE states overshadowed prospects in Oman. It therefore did not look very optimistic for the cement industry when the first quarter results were announced in April, as oversupply continued to put pressure on the country’s two cement manufacturers. First quarter pre-tax profits at Raysut Cement fell 35% due to an 8% fall in revenue from sales, even though the company sold 12% more cement. The company stated that the drop was mainly attributable to severe competition in the domestic market and the export markets, which had an impact on both volume and price. Oman Cement Company saw its first quarter profits after tax fall by 42%. Company Chairman Abdullah Abbas Ahmed said that “demand continued to be good in view of the government spending on infrastructure projects”, but added that UAE excess supply will still keep prices low. Analysts at the time remained optimistic as domestic demand looked set to grow by 7% this year as a result of government spending on infrastructure projects.

Raysut Cement Company (RCC), Oman’s largest cement producer, has been very active during the past year. In January it acquired 100% of Pioneer Cement Company for US$172 million. The Ras al Khaimah-based company has a cement production capacity of 1.7 million tpa. In June, it acquired 50% of Oman Portuguese Cement Products Company, a company that produces ready mix concrete, and precast concrete products. The acquisition fulfils RCC’s ambition not only to be in the cement manufacturing industry but also to be involved in the concrete business. RCC has increased production at the Salalah plant to 3 million tpa following the commissioning of a new grinding unit earlier this year, so together with the Pioneer acquisition, the company has increased its capacity to 4.7 million tpa. The grinding system was supplied by Sinoma Technology & Equipment Group Co. Ltd. RCC also operates in Yemen with two cement receiving terminals in the East and South of the country, through 49% ownership of Mukalla Raysut Cement Company.

At the end of July, the company reported that it had added a second wholly owned ship, Raysut 2, to its fleet to augment the company’s ability to serve its growing export market. The ship is a pneumatic self-discharging cement carrier owned by Raybulk Navigation, a wholly owned subsidiary of RCC. Raybulk is due to begin commercial operations this year. The 16 000 t capacity carrier is said to be significantly larger than the company’s maiden acquisition, Raysut 1, owned by Raysea Navigation, another wholly owned subsidiary of RCC, which launched commercial operations this year. Both vessels, together with two other leased cement carriers, will help to support RCC in its plans to emerge as the pre-eminent cement supplier in the wider region. RCC would now hope to strengthen its ability to reach potential export markets in East Africa and the Indian sub-continent. The company currently ships bulk cement to its storage and packing terminals in Muscat and Sohar in the Sultanate, and to Mukalla and Aden in Yemen. Potential markets are Indian Ocean islands, Madagascar, Mozambique, Sri Lanka and India. RCC always has been an export-oriented business due to its easy access to the state-of-the-art Salalah Port. Hence, the export market is very important for RCC and represents a significant part of its total sales. In the first six months of this year it exported an estimated 480 000 t, against domestic sales of 769 000 t.

Oman Cement Company recently announced that it would be expanding its cement grinding capacity to meet increased demand spurred on by the boom in infrastructure projects. The company has signed a US$37.57 million deal with CNBM International Engineering, China, to upgrade the clinker grinding unit. It is expected to be completed by February 2012. This is the latest in a series of upgrades undertaken by the company in recent years. Earlier this year the company commissioned the second phase of its third clinker production line, boosting clinker production by 4000 tpd and raising the capacity to 8500 tpd. Following the commercial launch of the new kiln, which produced 191 840 t of clinker during the first half of 2011, the company has now ceased to import clinker. The project was awarded to Sinoma. Oman Cement also took the opportunity to upgrade its packing plant by installing two Rotopackers and four autopac machines from Haver/Beumer.

Conclusion

Spectacular events involving revolutions, uprisings and the downfall of dictators across some North African countries and parts of the Middle East are rapidly changing the political and social landscapes of the region. Compared to the chaos seen in many of the countries, Oman has emerged relatively unscathed with some minor disturbances, but with firm promises from the country’s ruler, Sultan Qaboos bin Said, for political reform, the creation of 50 000 new jobs and unemployment benefits. The government’s thrust over the next five years will be to develop sectors involving tourism, industry, agriculture and fisheries.

All this makes for promising prospects, but there is concern, and it relates to the succession, as the Sultan has no heirs. The American author, Robert D Kaplan, writes, “Oman’s system of absolute monarchy as it presently stands will not work any better than it currently does because it is impossible to imagine another monarch who will rule adroitly over the decades as Qaboos has. Thus, the population is genuinely concerned”.

This is an abridged version of the full article from Paul Maxwell-Cook, which was published in the October 2011 issue of WORLD CEMENT. To read more download the issue now (subscribers only).

Read the article online at: https://www.worldcement.com/africa-middle-east/27092011/optimism_in_oman/