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Oman and Yemen Country Risk Report Q4 2016

  • July 2016
  • -
  • Business Monitor International
  • -
  • 59 pages

Core Views

Uncertainty over the health of Sultan Qaboos bin Said al-Said, whohas governed Oman since 1970, is bringing the succession questionto the fore. We see major risks in the succession process. Governanceis set to become more unpredictable in the future, and theOmani political system – with the Sultan enjoying all-encompassingpowers – is largely unsustainable in its current form.Tightening liquidity conditions, public spending cuts, and weak exportgrowth will present headwinds for Oman's economy and corporatesector over 2016. Growth will weaken to 2.3% in real terms, comparedto the annualised rate of 3.5% recorded between 2010 and 2014.The fall in oil prices will leave Oman posting budget and current accountdeficits for years. While the country can rely on the debt andloan markets for the time being, the need to implement new taxesand curb spending will test the regime's popularity.Oman is well positioned to benefit from improvements in Iran's relationswith the West. The relaxation of international sanctions on Iranwill provide an upside factor for Omani exports and investment inflows.The escalating tensions between Iran and Saudi Arabia threaten toundermine Oman's long held position of regional neutrality. Althoughthe country's careful balance between Tehran and the rest of the Gulf islikely to be maintained as long as Sultan Qaboos bin Said is in power,his successor could struggle to navigate the same middle ground.Government efforts to attract Omani nationals to the private sector('Omanisation') will continue to meet with limited success.

We expectthe government to adopt a more flexible approach over coming yearsto accommodate the concerns of companies amid a weakeningeconomy. In the long term, improvements in education will be a moreeffective driver of job creation than strict 'Omanisation' targets.Dropping the rial's peg to the US dollar would provide little benefit tothe Omani economy, and is not our core scenario. Nevertheless, therisk of a forced devaluation will grow throughout the coming years,given the deterioration in Oman's fiscal and external dynamics andthe country's low foreign reserve buffers.Core Views

We expect the formation of a fragile federalised state in Yemen. This will take time, and the country will remain fragmented over the coming years. Political and social instability will continue for many years. The divisions between the internationally recognised government and the Houthi rebels show no signs of being solved. The economic outlook is bleak, with growth remaining negative over the next three years. Our core scenario sees business activity continuing to be negatively impacted by civil unrest, while persistent attacks on hydrocarbon infrastructure will weigh on exports.

Table Of Contents

Oman and Yemen Country Risk Report Q4 2016
BMI Indices - Brief Methodology 5
BMI Index - Oman6
BMI Index - Yemen..7
BMI Index League Tables 9
Executive Summary - Oman 11
Core Views.11
Chapter 1.1: Economic Outlook - Oman.. 13
SWOT Analysis 13
Economic Growth Outlook . 14
No Escaping Slower Growth..14
GDP By Expenditure Outlook. 15
TABLE: GDP GROWTH FORECASTS..15
TABLE: GOVERNMENT CONSUMPTION FORECASTS15
TABLE: PRIVATE CONSUMPTION FORECASTS..15
TABLE: SELECTED INFRASTRUCTURE AND INDUSTRIAL PROJECTS16
TABLE: FIXED INVESTMENT FORECASTS.16
TABLE: NET EXPORTS FORECASTS..16
Fiscal Policy And Public Debt Outlook 17
Debt Reliance To Cover Fiscal Deficits17
Structural Fiscal Position. 18
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES..19
TABLE: FISCAL AND PUBLIC DEBT FORECASTS..19
Monetary Policy.. 20
Rising Rates In Coming Months To Dampen Inflation20
Monetary Policy Framework 21
TABLE: MONETARY POLICY FORECASTS 20
Chapter 1.2: 10-Year Forecast - Oman. 23
The Omani Economy To 2025 23
The Next Episode: Shifting Away From Oil23
TABLE: LONG-TERM MACROECONOMIC FORECASTS.23
Chapter 1.3: Political Outlook - Oman.. 25
SWOT Analysis 25
Domestic Politics.. 26
Balancing Act To Remain Mainstay Of Foreign Policy..26
TABLE: POLITICAL OVERVIEW..26
Long-Term Political Outlook.. 27
Royal Succession: Who Is Next In Line?27
TABLE: FRONTRUNNERS FOR THE SUCCESSION..28
Chapter 1.4: Operational Risk - Oman.. 31
SWOT Analysis 31
Operational Risk. 32
TABLE: OPERATIONAL RISK32
Market Size And Utilities 33
TABLE: MIDDLE EAST AND NORTH AFRICA - MARKET SIZE AND UTILITIES RISK. 33
Labour Costs .. 38
TABLE: EMPLOYING WORKERS IN OMAN..38
Executive Summary - Yemen..43
Core Views.43
Key Risks ..43
Chapter 2.1: Economic Outlook - Yemen 45
SWOT Analysis 43
Economic Growth Outlook.. 44
Little Hope For Economic Recovery..44
TABLE: KEY ECONOMIC INDICATORS..44
External Trade And Investment Outlook 45
GCC Support To Prevent External Crisis45
Chapter 2.2: 10-Year Forecast - Yemen 53
The Yemeni Economy To 2025.. 47
Bleak Outlook As Energy Exports Contract.47
TABLE: LONG-TERM MACROECONOMIC FORECASTS.47
Chapter 2.3: Political Outlook - Yemen 55
SWOT Analysis 49
Domestic Politics.. 50
War Will Continue, Little Scope For Peace Agreement.50
TABLE: POLITICAL OVERVIEW..50
Long-Term Political Outlook.. 52
Little Scope For A Unified, Functioning Yemen.52
Chapter 3: BMI Global Macro Outlook 55
Global Macro Outlook. 55
Brexit Risk Casts A Long Shadow..55
TABLE: GLOBAL ASSUMPTIONS..55
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %56
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %..57
TABLE: OMAN - MACROECONOMIC DATA and FORECASTS.59
TABLE: YEMEN - MACROECONOMIC DATA and FORECASTS..59

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