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Oman and Yemen Country Risk Report Q2 2016

  • January 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 the international sanctionsregime on Iran will provide an upside factor for Omani exports andinvestment inflows.The escalating tensions between Iran and Saudi Arabia threatento undermine Oman's long-held position of regional neutrality.Although the country's careful balance between Tehran and therest of the Gulf is likely to be maintained as long as Sultan Qaboosbin Said is in power, his successor could struggle to navigate thesame middle ground.Government efforts to attract Omani nationals to the private sector(known as 'Omanisation') will continue to meet with limited success.We expect the government to adopt a more flexible approach overthe coming years to accommodate the concerns of companies amida weakening economy. In the long term, improvements in educationwill be a more effective 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 buffersCore Views

We expect the formation of a fragile federalised state in Yemen, and thepolitical situation will remain highly unstable over the coming decade.Political and social instability will continue for many years. Thedivisions between the internationally-recognised government andthe Houthi rebels shows no signs of being solved.The economic outlook is uninspiring, with growth remaining sluggishover the next five years. Our core scenario sees businessactivity continuing to be negatively impacted by civil unrest, whilepersistent attacks on the country's hydrocarbon infrastructure willweigh on exports.

Table Of Contents

Oman and Yemen Country Risk Report Q2 2016
Executive Summary - Oman 11
Core Views11
Chapter 11: Economic Outlook - Oman 13
SWOT Analysis 13
Economic Growth Outlook 14
2016 To Be A More Difficult Year14
GDP By Expenditure Outlook 15
TABLE: BMI - OIL PRICE FORECASTS, ANNUAL AVERAGE FRONT-MONTH (USD/BBL) 15
TABLE: COMPONENTS OF GDP (% OF TOTAL)16
TABLE: GOVERNMENT CONSUMPTION FORECASTS16
TABLE: PRIVATE CONSUMPTION FORECASTS16
Fiscal Policy And Public Debt Outlook 17
Cuts, Borrowing And Privatisation17
TABLE: SELECTED INFRASTRUCTURE AND INDUSTRIAL PROJECTS17
TABLE: NET EXPORTS FORECASTS17
TABLE: FIXED INVESTMENT FORECASTS17
Structural Fiscal Position 20
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES20
Monetary Policy 21
Rising Rates To Fuel Further Deflation21
Monetary Policy Framework 22
Chapter 12: 10-Year Forecast - Oman 23
The Omani Economy To 2025 23
Next Episode: Shifting Away From Oil23
TABLE: LONG-TERM MACROECONOMIC FORECASTS23
Chapter 13: Political Outlook - Oman 25
SWOT Analysis 25
Foreign Policy 26
Caught In The Middle Of Regional Tensions26
TABLE: POLITICAL OVERVIEW26
Long-Term Political Outlook 27
Royal Succession: Who Is Next In Line?27
TABLE: FRONTRUNNERS FOR THE SUCCESSION28
Chapter 14: Operational Risk - Oman 31
SWOT Analysis 31
Operational Risk 32
TABLE: OPERATIONAL RISK32
Trade Procedures And Governance 33
TABLE: MIDDLE EAST AND NORTH AFRICA - TRADE PROCEDURES AND GOVERNANCE RISK 33
TABLE: IMPORT AND EXPORT DOCUMENTS34
TABLE: TRADE PROCEDURES BREAKDOWN34
Vulnerability To Crime 35
Executive Summary - Yemen 39
Core Views39
Key Risks 39
Chapter 21: Economic Outlook - Yemen 41
SWOT Analysis 41
Economic Growth Outlook 42
Deep Recession Ahead As War Continues42
TABLE: KEY ECONOMIC INDICATORS42
GDP By Expenditure Outlook 43
TABLE: PRIVATE CONSUMPTION FORECASTS43
TABLE: GOVERNMENT CONSUMPTION FORECASTS43
TABLE: FIXED INVESTMENT FORECASTS44
TABLE: NET EXPORTS FORECASTS44
Fiscal Policy And Public Debt Outlook 45
Huge Deficits Despite Large Cutbacks In Spending45
Structural Fiscal Position 46
Chapter 22: 10-Year Forecast - Yemen 47
The Yemeni Economy To 2025 47
Bleak Outlook As Energy Exports Contract47
Chapter 23: Political Outlook - Yemen 49
SWOT Analysis 49
Domestic Politics 50
Peace Deal To Remain Elusive50
TABLE: POLITICAL OVERVIEW50
Long-Term Political Outlook 51
Federalised State To Emerge Amid Protracted Instability51
Chapter 3: BMI Global Macro Outlook 55
Global Macro Outlook 55
Unfinished Business In 201655
TABLE: GLOBAL ASSUMPTIONS55
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %56
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 56
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %57
TABLE: OMAN - MACROECONOMIC DATA and FORECASTS59
TABLE: YEMEN - MACROECONOMIC DATA and FORECASTS59

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