Oman looks to the future with a keen eye on the past

Things have changed quickly in Oman. Forty years ago, the gates of Muscat were locked every night. Locals carried torches to light their way and knives to ensure their security. There were three schools in the entire country.

Sultan Qaboos bin Said, the ruler of Oman, has transformed the country since his ascension to the throne in 1970.

Visitors love Oman for its authenticity. Nowhere else in the Gulf evokes so viscerally the dramatic and beautiful landscape romanticised by Sir Wilfred Thesiger, the legendary British explorer and author. Locals love their land, perhaps for a different reason: the fast pace of reform and rising standards of living. Things have changed quickly. Forty years ago, the gates of Muscat were locked every night. Locals carried torches to light their way and knives to ensure their security. There were three schools in the entire country.

Oman has plunged itself into the modern global economy, as have many other developing countries. But it has done so without abandoning its heritage or destroying its environment. The man who orchestrated this balanced surge, Sultan Qaboos bin Said, came to the throne in 1970. Omanis have set aside next year to celebrate his accomplishments. At the outset of Sultan Qaboos's 40th anniversary of his ascension to the title, Oman looks in good shape. Its economy withstood the global financial crisis. Oil producers have arrested a decade of falling output and actually achieved bigger yields in recent years.

And in a region where economic diversity is the holy grail, Oman has emerged as an early favourite to succeed. Its plan to develop a tourism sector is as good a strategy as any in the Gulf, and there are favourable early returns. There are challenges, but for this year the focus is on the positive. Last year Oman's economy grew by about 3.5 per cent, the second-fastest growth in the GCC, the IMF says. Expansion this year was projected at varying rates but almost all forecasters expected a better year, and some at a rate exceeding 5 per cent.

Although it is the tourism industry that holds great potential for the future, Oman's fortunes are still largely determined by oil. The sultanate has not been blessed with the enormous deposits found elsewhere in the Gulf, and its geology makes extraction more difficult and costly. However, production is increasing and much of it has come from the Mukhaizna field, where Occidental Petroleum is injecting steam into heavy-oil reservoirs to ease its flow upwards.

To date, Occidental and its partners have invested more than US$1 billion (Dh3.67bn) in enhanced oil recovery techniques, making Oman a leading centre for innovation in what is sure to be a growing market. Oman's success in enhanced oil recovery cuts right to the heart of the energy debate worldwide. Peak-oil theorists do not believe that production declines can be reversed, whereas their opponents have long touted the power of technology to pull out more of the hydrocarbon underneath the earth's surface.

The question is whether the techniques successful here can be replicated elsewhere, or whether its geology makes this a unique situation. Outside the energy sector, Oman faces challenges. The country's banks suffered little direct exposure to the toxic securities originating in the US that brought on the financial crisis in late 2008, but the collapse in oil prices and increased uncertainty is keeping them cautious.

Access to credit has tightened. But concerns about asset quality were minimal, as the ratio of non-performing loans in the system was pegged at about 3 per cent. The crisis has also pushed local employment down the priority list, as the "Omanisation" campaign to get Omanis working is reportedly being pursued with less fervour for now. In the tourism sector the outlook is less clear. Estimates pegged tourist arrivals at 1.1 million in the first half of last year, up 200,000 from the same period in 2008. Foreigners are discovering Oman's charms, and in increasingly larger numbers.

The sultanate has almost 2,000km of pristine coastline, mountains and canyons and, in its south-west corner, the coolest region in the Gulf during the summer season. But while the arguments for Oman's tourism potential remain valid, some of its plans may need to be rewritten, largely due to external factors. Several major property projects, now threatened with postponement or cancellation, were envisioned as drivers of future growth. They were aimed at many of the same high-end travellers and local spenders as other property projects across the region.

The Blue City mixed development on the eastern coast has bogged down amid slow sales and cash crunches. Yet other developments continue apace and hotel occupancy rates remain high - signs that there are still plenty of unrealised gains to be made in the sector. Clearly the financial crisis has exposed some concerns about Oman's long-term plans. For now, the government's solution is an expansionary budget and a firm adherence to the plan to modernise, without leaving the past behind.

It has already shown dividends. Muscat's is a decidedly low-rise skyline, nestled comfortably around the foothills slicing through the capital. Forty years after Sultan Qaboos took over, the boulevards are green and flowery, and the buildings are painted in light colours that underscore the natural beauty rather than overpower it. Muscat looks like the result of a detailed and tasteful vision put to life. And that result is why Omanis are so excited to mark the 40th anniversary of Sultan Qaboos' rule.

Oliver Cornock is the regional editor of the Oxford Business Group.