Business At OMAN:: Obstacles: Perception vs reality

There are few countries which can match the strides taken by Oman on social and economic indicators. This has propelled the Sultanate into a high income country in a short span. But the World Banks Doing Business index which tracks the ease of doing business across 183 economies ranks Oman below the GCC average. OER speaks to a cross section of industry leaders to delve into the obstacles facing businesses in Oman. Visvas Paul D Karra reports with Mayank Singh

In an EESE (enabling environment for sustainable enterprises) Assessment for the Sultanate of Oman, the International Labour Office (ILO) has found that 70 per cent of firms believe that Omans regulatory environment makes it difficult for small businesses to compete with large businesses. This discovery was made during a survey conducted by the ILO among 150 respondents from a cross section of the industry including company owners, CEOs, directors and general managers of private sector firms. The survey focused on policy areas such as entrepreneurship; culture; competition; enabling legal and regulatory environment; good governance; information and communications technology; education, training and lifelong learning/skills and education; adequate social dialogue/social protection and work force relations. One of the important themes which also emerged in this ILO survey is that young Omanis do not start a business precisely because of the difficulty in doing business in Oman. So clearly there are a number of issues and challenges being faced by businesses in the country. One of the most obvious challenges is the lack of clear information. For example, most Omani investors or entrepreneurs are not aware of the classification of what could constitute a small business. No doubt, statistics are available in the Directorate General of SME Development about Small and Medium Enterprises (SMEs). For the records sake, there are around 121,000 SMEs operating in Oman constituting more than 90 per cent of the economic activity and around 20 per cent of the GDP. Mainly, the projects of these enterprises are in the wholesale, retail and foodstuffs sectors which represent 41 per cent of the total projects, while the industrial and contracting projects represent 17 per cent and 31 per cent respectively. From a policy perspective, while the importance of private sector development and entrepreneurship (read SME development) are acknowledged in the eighth five-year plan (2011-2015), there is no separate policy framework drawn up for promoting entrepreneurship culture or SMEs in Oman. Action on this should be a priority, says the ILO in its EESE Assessment. The same sentiment has been echoed by a well known consultancy firm which prepared an executive summary for the directorate general for the development of small and medium enterprises, Ministry of Commerce and Industry (MoCI). The report summarises that there is a lack of an SME policy framework and national strategy which is coupled with the fact that the existing policy framework is not conducive to SMEs. Due to this, there is minimal coordination and alignment of SME programmes leading to a stunted growth of this vital cog of the economy.

Ground realities According to Qais Al Khonji, director, Al Khonji Group, SMEs are the backbone of any economy and contribute a lions share of the revenues generated, but in Oman there are quite a few obstacles which are hampering SMEs from performing at an optimal level. And even though the government has been trying its level best to minimise the obstacles and help SMEs to flourish, Qais believes that more can be done. Qais points out one challenge which SMEs in general face is marketing of new products. Any SME company which starts operations needs help in creating awareness about its products or services. But this is not easy especially in a market like Oman. Marketing is the biggest challenge that any small businesses face and we require more marketing support for a better kick off, says Qais. And this support can come from any quarter. It could be as simple as family and friends promoting your product. For example, friends and family members could buy an SME product or make use of a service and spread the news around through the word of mouth. The other notable obstacle and a macro-economic factor which works against SME growth and development is the prevailing market conditions in the Sultanate, underlines Qais. Since Oman is a very small market it is a tough challenge to garner the requisite numbers in terms of buyers. Further, most Omani people are more inclined towards saving money and spend only where necessary. In such a situation, buying luxury products or services is very minimal. So it is really tough for upcoming SMEs or fledgling companies to penetrate the market without hand-holding by the government or any other competent body. Hassan Mohammed Juma, managing director and founder of Mohammed Juma Sultan Co, says when you begin a business many people look at you with skepticism and little respect. Today the situation may be better but seven years ago, the concept of entrepreneurship was not flourishing. Being an entrepreneur at that time meant that you could catch hold of an expatriate and give him your license and take RO500 from him as returns at the end of every month. That was how you ran a business, says Hassan.

Starting problems According to the ILO assessment, poorly designed regulations and unnecessary bureaucratic burdens on business put limitations on enterprise start-ups and can lead to informality. In some areas, Oman has progressively improved the business environment through greater liberalisation and measures aimed at reducing regulatory burdens. It has primarily focused on reducing costs and time required for starting a business and on simplifying tax procedures. But it seems these measures are not enough. There are many challenges that face SMEs and one of the main challenges or obstacles would be to start the business itself, says Khaula Hamoud Al Harthy, executive director, Lima Contracting and Trading. Citing her own example, Khaula says, If I were to take myself as an example, although I have been working in our company which is a small and medium enterprise (a family business) and have been involved in it for the past 8 years, I would still face many challenges if I had to start a new business of my own. Some of those are lack of experience, guidance from the right authorities, and lack of enough skilled manpower in the chosen field of business. So most of the challenges come up when you want to start a business. Adds Khaula, Since many people dont know how to start a business, to compound the complications, we dont have a properly activated one-stop-shop which would help us to start a business. I think there is a communication problem between the citizens expectations and the government initiatives, which unfortunately has discouraged a

number of people from setting up new businesses. I do believe that things would change for the better in the coming future since the government has realised the importance of SMEs and their impact on our national economy, therefore their plan would be to support existing SMEs and encourage new ones to come up.

Regulatory lacunae Hassan says that that one of the big challenges for SMEs in some cases is the non-compliance with the system, be it by the people or the government staff. Everyone follows their own judgments, creates hurdles for business. For example, a government employee may be giving clearance for certain imported products with his own understanding of the regulation. But the next person who comes after him refuses to give a clearance for the same product. We try to object but then we later realise that the earlier person was actually at fault for not following the system and using only his judgment. Another obstacle is the lack of accountability among the service providers, be it in the private sector or government. I believe that all large service providers should have KPIs for their employees. If an employee receives 100 applications for processing per day, and if he or she complains of being overloaded, then what is the benchmark for this overload? Are you overloaded because last night you were watching a football match and today morning you dont feel like working or is there any other reason?, adds Hassan. The subject of Omanisation continues to be the pinprick and pet grievance for most of the organisations, but another regulatory problem boils down to understanding the requirements of a business for the right manpower and in the required numbers. If someone is running a B2B business, they can have a small premises as a representative office and dont need as much space as that of a bank because most of the staff are out in the market doing business. A number of times such an organisation is refused to be given the required number of labour clearances because it has a small premises. The regulators should understand the nature of the business and how much staff they require, Hassan adds. Basically, the whole SME sector is still in a nascent stage although it is supposed to be the backbone of the economy. Both the Oman Chamber of Commerce and Industry (OCCI) as well as MoCI are involved in developing the SME sector, says Khaula who is a member of the SME department of the OCCI which has just been founded. Right now we are working on some kind of a definition for the SMEs which would help us to move forward. The committees main goals are to help out SMEs in getting the financial support, get the government to support the SMEs through simplifying the process of setting up a business, to raise awareness of the importance of SMEs within our society, and to encourage the setting up of more SMEs, Khaula adds. Education and entrepreneurship One of the areas in which the government should focus their energies is educating the youth of the country to become entrepreneurs. This move, while seemingly aimed at the grassroots will provide the much needed impetus for bringing about a shift of culture from being sleeping partners in expatriate-driven SMEs to active contributors to the economy of the country. Qais suggests that the government represented by both the Ministry of Education and the Ministry of Higher Education has to take an initiative to introduce entrepreneurship courses in grades 11 and 12. He further feels that the ministry of higher education should adopt a new concept of establishing an entrepreneurship academy to foster and inculcate the values of becoming an entrepreneur. Oman has a wide range of separate initiatives to provide entrepreneurs with necessary skills and help them with

financing, yet these often seem supply-driven and lack cohesion, says the ILO survey which suggests that there is a positive view of entrepreneurship from young people (41 per cent sharing this view). However, a large sample of enterprises surveyed (43 per cent) believe that only a small minority of young people have the right skills to successfully run a business. Education is where the whole culture shift has to spring from. On this front, MoCI has taken a number of steps to stir up entrepreneurial traits in Omani youth by promoting entrepreneurial clubs in schools and colleges. Says Salah bin Hilal Al Maawali, Director General, SME Department at MoCI, we have been working with many stakeholders concerned with SMEs to develop a strategy for SME sector. Presently, the DG of SME department, set up in 2007, has been providing training support to the existing and potential entrepreneurs of SMEs through structured programmes. The directorate-general conducted around 76 training programmes covering a wide range of topics including marketing, finance and general management. Many entrepreneurs and academicians participated in these training programmes. In order to bring awareness about the support services available for the SMEs, the directorate-general has prepared a compendium called, Directory of Services for SMEs in Oman. This provides detailed information of the various programmes and services offered by different government and private sector agencies in the Sultanate including the funding options available from the major financial institutions.

Government perspective From the governments point of view, it has identified two main obstacles for the growth of SMEs. The first obstacle is the expatriate entrepreneurs who are running a large number of small and medium enterprises. Salah has disclosed that in a study conducted by the ministry, it has been found out that 60 per cent of the 1.3 million expatriates in Oman are owners of businesses under the sleeping partner tactic. These are the people who dont implement new technology or new systems and dont provide proper services or employment to local talent since they are too expensive by way of salaries. On the other hand, you have Omani graduates from schools, colleges and universities in the age bracket of 18-26, who would like to start their own business. But they dont have patience, or an understanding of the nature of business, and they dont have the knowledge of technology and still want to make money as fast as possible. In order to overcome these impediments, the ministry through the DG of SME department, has created incentive packages for Omanis to implement technology, train and give them a better environment for starting their own businesses. As part of our hand-holding gestures, we have several initiatives like doing business from home, loan bank guarantee, a PEIE business centre and a business diagnostic centre to help entrepreneurs start their own ventures. This diagnostic centre will help them to identify the business, develop the business plan and identify the right kind of financing, Salah says. The scheme for starting a business from home is the simplest and most effective, Salah discloses. Anyone who wants to start a business can register themselves with MoCI by paying three rials for three years and begin their business. After three years, the SME is required to do a formal registration with the OCCI as well the MOCI. It cannot get any better or simpler than this, says Salah. The ministry is also working closely with the Tender Board for a mechanism to give benefits to SMEs through Article 36 which mentions that Omani products have to be taken even if they are priced at 10 per cent higher rate. This way local products, goods and services will be given preference and revenues generated for the smaller companies.

Apart from manufacturing sector, the services sector has been identified as one of the key thrust areas in which SME development will be encouraged by MOCI. Work stoppages Talking about difficulties facing businesses in Oman, large companies in manufacturing and the oil and gas sector have been facing real time problems like labour unrest, high turnover of employees etc. There have been instances of work stoppages in various companies in Sohar and Muscat recently. If such problems continue then the ramifications would be very bad as new investments will be impacted and old investors will try and withdraw. There is a loss of productivity and this has to be made up by other workers.

Dr Bhaskar Dutta, CEO, Jazeera Steel Products Company, says, the problem is that people only want benefits, bonus, increments etc and they are not interested in work. Almost every company in Sohar is facing similar issues. Absenteeism is galore. During the recent three day holidays of Al Isra wal Miraj (June 14 to 16), 40 people were absent a day before the holidays and probably another 40 were absent a day after the holidays. They come back and fill up an emergency or sick leave application. Further, there are no procedures that are being followed, either by the workers or the junior officials in the Ministry of Manpower (MoM) for solving matters. If some workers go and make a random compliant to the MoM, then the junior officials of the MoM start harassing us based on those complaints. We have certain grievance procedures in our company and if people are not happy, they have to follow this process, but this is not happening. When we raise constructive issues like work culture, tackling absenteeism the MoM officials brush them aside saying that in such instances you need to follow the law. With this indulgence, the workers think that they can do whatever they want, says Dutta.

NTI BizPro Awards 2012 were presented to young achievers after a rigorous filtering process by KPMG. Mayank Singh and Visvas Paul D Karra report

Higher operating costs When production levels are affected due to such work stoppages, the results can be disastrous. With the current salary levels and Omanisation percentages, the operating costs of businesses in Oman are somewhere between the Asian and European countries. Our costs are 15-16 per cent higher than Asian countries and 5 per cent less than European countries. Any further increase in costs which is not compensated by an increase in productivity can be disastrous for the industry. Says Alok Bhargava, CEO, Voltamp Energy, We are competing against MNCs and Asian countries and if there are further cost increases we will not be able to compete. In fact, any further increase in manpower costs, which is not compensated through government policies, can be disastrous for the manufacturing industry and FDI will be impacted. But I am confident that things will settle down quickly. Continuing further, Bhargava says, We increased salaries last year, but now workers are asking for RO350. Our minimum salary is RO255, we have an insurance cover for all our workers and Voltamp has implemented a fiveday week. We have been under pressure from MoM sometimes to hire more Omanis. For a high tech factory like ours at Sohar, it takes at least three years before an untrained person can really add to productivity. Though we have taken 36 per cent Omanis and want to increase it to 40 per cent, the company will need to invest in them for three years, before they reach acceptable levels of productivity. Therefore, initially our costs will be high and need to be compensated in some way by the government.

Manpower issues Ramesh Mani, CEO, Majan Glass Company, says that getting Omanis has become difficult since February 2011 and he wants the MOM to be a bit more flexible. When the government announced 50,000 jobs a lot of people went away to the army and the government. The day the government announced that it will provide a RO150 unemployment allowance, a number of workers from Majan Glass wanted to resign and avail of those benefits. So it was difficult to fill up the 35 per cent Omanisation level and without fulfilling this mandatory criteria, the company was not being given labour clearances, so it was a dual edged sword. Says Mani, Being a continuous process industry, we could not shut down our plant as the plant produces two million bottles a day. We should have been treated leniently but it did not happen. The choice was either to run the plant or to shut it down. We interviewed 120 Omanis and offered jobs to them, but out of them only five or six stayed back. We went in for contracted labourers to run the plant, but we had people from the MOM coming and conducting raids in the industrial estate and finding faults. For example, the MoM officials came and fined us for people who were multitasking. We have bottles being made and if an Omani worker does not turn up, we need someone to pack the bottles and if an expat worker with a different designation substitutes for an Omani worker, we get fined. Two of Majan Glass workers were fined RO1000 each and the MoM officials took away their labour cards for 15 days. This left a bad taste in the mouth. Then the chairman of Majan Glass took up the issue strongly, and Mani too met the DG of the MoM and finally the company start getting labour clearances. It was a situation that could have been handled more intelligently. Excerising rights unfairly Ensuring labour rights is pre requisite for any country to ensure an equitable growth. However the pace of reforms in Oman have been too quick to sink in. Collective bargaining is a standard practice in any industrialised country but workers in many factories in Oman are not mature enough to use it in legal manner. They have become emboldened and they think they can demand anything and would get it, says Sundeep Mudgal, general manager, Taghleef Industries Oman. Actually, it is unfair to expect that workers would use their new found rights in a mature manner so quickly. It is the government and confederation of industries who need to show a more balanced approach in these matters. They need to caution workers to respect law and find a way to work with company managements. It has been seen many times that they have given one-sided support to workers demands. Our company was on the brink of a strike earlier in this year, thankfully we resolved it by a long negotiation with workers union, adds Mudgal. Promoting an entrepreneurial culture is about making people especially young people aware of the potential of setting up and running a business as an alternative to employment in government and the private sector. Even though there are challenges, overall, there are a number of initiatives to promote entrepreneurial culture and, together with broader government initiatives to foster private sector development, there should be no shortage of opportunities for budding entrepreneurs. It is upto the younger generation to rise up to the challenge and contribute to the country.

BOX 1 SNAPSHOTS OF OBSTACLES Marketing is the biggest challenge many small businesses face Lack of support from family and friends to buy new products and spread the news Big companies dominating market and smaller businesses not getting share of projects Administrative issues like bureaucratic delays in registrations etc. Oman is small market and poses tough challenge to sell products and services People are more of savers and spend only on necessities and buy few luxury products Labour regulations and lack of clarity in Omanisation policy Multi-tasking not allowed in manufacturing units Lack of proper awareness and education about entrepreneurship Factory workers not mature enough to use the power of collective bargaining in legal manner With the current salary levels and Omanisation percentages, operating costs are going up Work stoppages in various companies could have ramifications on new investments

BOX 2 ILO SURVEY ON ENABLING ENVIRONMENT FOR SUSTAINABLE ENTERPRISES ASSESSMENT ILO survey on enabling environment for sustainable enterprises assessment Peace and political stability: 15 per cent of survey respondents said that political instability/uncertainty was affecting their business a lot while 48 per cent said the instability was affecting their business to some extent Good governance: Most firms believe that corruption and bribery hinders the performance of Omani firms while female-owned or female-run firms felt corruption and bribery had a very negative impact on firms performance. Social dialogue: The current situation in terms of workplace relations and the related legislative frameworks in Oman is fluid. Recent legislative changes have enabled the freedom to establish labour unions in all firms and the right to bargain collectively, but it appears that these legislative changes have led to some confusion Enabling legal and regulatory environment: 70 per cent of firms believe that Omans regulatory environment makes it difficult for small businesses to compete with large businesses Nearly 40 per cent of firms felt that business required dealings with the Government can be too bureaucratic and could be improved Fair competition: Competition policy remains a concern for the business community. Nearly 1 in 2 firms describe competition policy and legislation in Oman as not efficient or only sometimes efficient in preventing unfair competition. Firms in the manufacturing sector in particular are concerned about fair competition Entrepreneurship culture: The survey results suggest that there is a positive view of entrepreneurship from young people (41 per cent sharing this view). However, a large sample of enterprises surveyed (43 per cent) believe that only a small minority of young people have the right skills to successfully run a business NOTE: This primary data collection consisted of 150 face to face interviews with a cross section of firms, of varying sizes and sectoral activities from across the country. The survey was conducted by Arabian Research Bureau, under the aegis of the ILO.