US embassy cable - 05MUSCAT165

C O N F I D E N T I A L SECTION 01 OF 02 MUSCAT 000165 
 
SIPDIS 
 
STATE FOR EB/TPP, NEA/PI, NEA/ARPI 
STATE PLEASE PASS USTR/JBUNTIN AND JFENNERTY 
USDOC FOR 4520/ITA/MAC/AMESA/OME/MTALAAT 
 
E.O. 12958: DECL: 01/30/2015 
TAGS: ECON, ETRD, EINV, ELAB, EPET, EIND, SOCI, PINR, MU, Economic Affairs 
SUBJECT: ECONOMISTS' FTA FRUSTRATIONS, CONCERN FOR FUTURE 
(C-NE4-01168) 
 
REF: MUSCAT 27 AND PREVIOUS 
 
Classified By: Ambassador Richard L. Baltimore III. 
Reasons: 1.4 (b) and (d). 
 
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Summary 
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1. (C) Two Omani economics professors recently discussed with 
Econoff the upcoming free trade agreement (FTA), the state of 
the Omani economy, and prospects for Omani college graduates. 
 The academics displayed a subtle but unmistakable sense of 
frustration and isolation in their university setting, 
particularly re their exclusion from any sort of voice in the 
FTA process.  Contrary to government pronouncements on the 
state of the economy, the economists described their 
pessimistic view of diversification and growth in Oman.  The 
two scholars predicted there would be very little internal 
opposition to the FTA from business groups, primarily since 
the export sector is relatively weak and underdeveloped and 
the domestic market already welcomes a host of American 
products.  End Summary. 
 
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Getting a Fresh Perspective on FTA 
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2. (C) Econoff recently visited Sultan Qaboos University 
(SQU), outside of Muscat, to discuss the upcoming FTA 
negotiations and the state of the Omani economy in an 
academic setting.  Dr. Asya al-Lamki, Assistant Dean for 
Research and Postgraduate Studies at the College of Commerce 
and Economics, and Dr. Hatem al-Shanfari, Professor of 
Economics and Finance (strictly protect), agreed to chat for 
over an hour regarding these and other issues.  As part of a 
faculty that consists of more than 70 instructors, with 2000 
enrolled students in over 6 departments, these professors at 
the College of Commerce and Economics have considerable 
exposure to current thinking about Oman's place in the 
regional and global economy. 
 
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In the Dark on FTA 
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3. (C) Both economists smiled when asked about their view of 
the FTA and its impact on Oman.  By and large, neither one 
knew much about the FTA process or how far it had advanced 
between Oman and the United States.  They had heard rumors 
and speculation, but no one from the government had ever 
taken the time to consult with SQU.  More broadly, there is 
no systematic effort by the government to include academia in 
decision-making; even the economic committees of the State 
and Consultative Councils do not seek SQU's advice when 
conducting studies on the national economy.  This isolation 
visibly frustrated the two academics, although they evinced 
no bitterness. 
 
4. (C) As for potential opposition to the FTA from entrenched 
business interests, Dr. al-Shanfari dismissed this notion by 
claiming that the local trading groups were already dealing 
heavily in American products, and that the export base in 
Oman was relatively weak and could not muster much in the way 
of support or opposition.  As for the government and its 
readiness for free trade, both economists believe that the 
Ministry of Commerce and Industry does not emphasize trade 
nearly as much as it should. 
 
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Troubles with Economic Strategy 
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5. (C) According to al-Shanfari, Oman's economic development 
strategy still focuses primarily on industry, despite the 
poor results thus far.  Most Omani industrialization involves 
capital-intensive manufacturing and production that does very 
little to address the human resource development needs. 
Al-Lamki nodded as al-Shanfari lamented the government's 
insistence on developing large-scale metal projects (i.e., a 
proposed multi-billion dollar aluminum smelter and a $750 
million iron and steel plant, both slated for construction 
near the northern port city of Sohar) which will employ 
relatively few Omanis and involve enormous start-up costs. 
Regarding labor, the economists felt that the policy of 
Omanization was fostering an unhealthy attitude toward 
non-Omanis, an unintended consequence that could come back to 
haunt the government if growth were to stall. 
 
6. (C) Other problems include Oman's limited natural resource 
endowment.  Beyond the well-chronicled woes of the petroleum 
industry (reftel), the Sultanate's natural gas supply is also 
encountering difficulties in terms of quantity and quality 
(NFI).  These challenges are having a detrimental impact on 
Oman's liquefied natural gas (LNG) production.  Such 
assertions track with comments from American oil company 
representatives who feel that Oman is already overcommitted 
in its long-term LNG supply contracts. 
 
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Deflating Inflation 
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7. (C) When asked about inflation in Oman and the prevailing 
perception that prices are rising much faster than official 
statistics indicate, the SQU professors explained that the 
official numbers were correct -- to an extent.  The inflation 
rate is extremely low in Oman, but that is largely the result 
of the basket of goods used in measuring the Consumer Price 
Index.  In real terms, claimed al-Shanfari, wages have been 
decreasing in Oman, and therefore consumers are feeling the 
pinch at the checkout counter and at bill-paying time more 
than in the past. 
 
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Whither Omani graduates? 
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8. (C) Regarding SQU graduates from the College of Commerce 
and Economics, Dr. al-Lamki stated that most female graduates 
preferred to hold out for government civil service positions. 
 The males, in contrast, were increasingly looking to the 
private sector, primarily the banks and the oil companies, 
for employment opportunities.  In the long run, al-Lamki 
worried about the demographic bulge that is entering the job 
market yearly.  She cited statistics to illustrate her 
concern: of 60,000 Omanis in secondary school, roughly 
10-15,000 will drop out.  Of the remaining 45-50,000, only 
10-15,000 will go on to higher education.  Finding jobs or 
alternative educational options for the youth of Oman remains 
the most pressing socioeconomic challenge confronting Oman, 
according to al-Lamki. 
 
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Comment 
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9. (C) The view of the Omani economy from the ivory tower of 
SQU is not particularly rosy.  Both professors are working 
hard to prepare a new generation of students for the 
challenges of a globalized economy, yet the gap between their 
academic position and the corridors of power in the 
government is wide.  Their admonition against emphasizing 
capital-intensive development is falling on deaf ears; the 
Minister of National Economy very recently announced over $9 
billion of overall investment being pumped into the Sohar 
region for petrochemical plants, an aluminum smelter, a new 
oil refinery, a fertilizer plant, and a new power and 
desalination plant.  What remains to be seen is the effect of 
such development on overall employment and the ability of 
these industries to compete in a global marketplace.  In the 
meantime, we will aim to engage SQU and other academic 
institutions more regularly during the FTA negotiation and 
implementation process (perhaps the Omani government will 
follow suit) in order to raise awareness about the agreement 
and how it can benefit Oman. 
BALTIMORE