Import substitution key to boost industries
Manufacturing was touted as one of the major sectors that can help strengthen diversification plan of Tanfeedh.
MUSCAT: Substituting imported goods with Omani manufactured products is key to strengthen the Sultanate’s manufacturing sector, according to industry experts.
Manufacturing was touted as one of the major sectors that can help strengthen diversification from hydrocarbon industry proposed by Tanfeedh, the national plan for economic diversification, late last year. Experts believe the country’s $30 billion import market is an ideal place to begin.
“Oman must look at replacing imported materials with ones manufactured in the country to help develop factories in the country,” Dr. Ali Al Sunaidy, the Minister of Commerce and Industry, stated while addressing audience at an Omani Industry Day event last week.
Tanfeedh’s initiatives
His comments follow a trajectory parallel to one of Tanfeedh’s initiatives, the mass scaffolding production, which specifically targets replacing mainly UAE manufactured scaffolding parts with units fabricated in Oman. The factory is expected to be setup in the SoharFreezone and aims to tap into the OMR19.7 million import market that has been growing at 20 per cent compounded annual growth rate over the past five years.
Constituted primarily of petrochemicals, cement, aluminium and cable industries, the manufacturing sector in Oman is functioning at record production levels but analysts believe that the Sultanate must venture into new markets by identifying goods that can be profitably produced.
“Import substitution would be a good start. This would require identification of key imports and current market demand to start with, to then ascertain which manufactured goods Oman can deliver domestically at a competitive level,” Michael Armstrong, regional director at the FCA and ICAEW said.
A major challenge faced by Oman’s manufacturing industry is a strong US dollar. Omani rial, similar to other GCC countries’ currency, is pegged with the dollar. With the latter being at historically high levels, Omani exports are likely to be hit as a stronger dollar, and hence rial, makes imports to Oman cheaper and exports expensive, thereby making it difficult to establish a competitive advantage. However, as the GCC countries make up a major portfolio of countries that export goods to Oman, issues concerning the peg do not remain relevant when targeting import substitution as imports from the region are unaffected by currency fluctuations.
According to Kanaga Sundar, Head of Research at the Gulf Baader Capital Markets, Oman must focus on import substitution for now to grow its manufacturing sector without having to deal with tough international markets and currency peg challenges.
“Currently, it is very hard to compete with international players as only the currency peg can toss the game away from Oman’s factories. This is not even considering cost of production and other issues. There are many imported goods that can be produced in Oman instead,and at very competitive prices. This will create jobs, increase GDP and, more importantly, pave the way for exporting goods to other countries in the future. But for now, concentration must be on innovative solutions to replace what is imported,” he further said. > B3