Investment Climate

Economic Overview

Oman's economy runs on petroleum.  Total recoverable proven reserves are now
estimated to be about 4.8 billion barrels; the level of these reserves has
been steadily rising.  Current production is 800,000 barrels per day, the
result of a gradual increase in production over recent years.  The main
producer of oil is Petroleum Development Oman (PDO), which is majority
government owned.

In addition to oil, the government is beginning to develop its natural gas
reserves.  These stand at proven exportable deep reserves of 7 trillion cubic
units (tcus), although they are expected to be as high as 14 tcus.  Oman's
overall gas reserves are often reported at 20 tcus but this amount includes
reserves not yet proven as well as others difficult to export.  In May 1994,
the government announced that it had chosen to give priority to a USD 9
billion liquefied natural gas (LNG) facility to be located on the coast
southeast of Muscat.  The government will continue to review a usd 5 billion
undersea gas pipeline to India but the LNG project will be given priority.
The government hopes that construction of the LNG facility and required
infrastructure can begin within the next year, with the first exports of lng
by 1999.  The construction phase of this huge project, in particular, should
boost Oman's economy for the latter half of this decade.

Government investment in infrastructure projects continues.  The capital area
and other population centers have modern, well-developed communications,
utilities and road systems.  The 1991-1995 development plan calls for
additional investment in infrastructure outside the capital area and this
focus will continue in the next five year plan (1996-2000) currently being
drafted.

The government is also emphasizing the training and employment of Omani
workers.  Oman currently depends heavily on expatriates, primarily from South
Asia, to fill jobs which require physical labor, clerical work and certain
technical skills.  However, Oman's population is growing at a rate of
approximately 3.8 percent and half of the population is age 15 years or
younger.  These pressures will lead to further government emphasis on
Omanization.

Continued development and the population pressures have also contributed to a
growing water problem.  Wells in several villages in Oman's interior have
dried up and groundwater aquifers are being seriously depleted.  There are
increasing levels of salinity in groundwater in coastal agricultural areas.
Sultan Qaboos, for the first time, has publicly highlighted the need for water
conservation.  In the context of the multilateral talks which are part of the
Middle East Peace Process, Oman has proposed that a desalination research
institute be established in the Sultanate.

The government is proceeding with a policy of trying to diversify the economy
and government revenues away from heavy reliance on oil.  In addition to the
LNG project, Oman is developing light manufacturing industries.  In order to
provide facilities for these efforts, the Public Authority for Industrial
Estates manages a number of industrial estates throughout the country.  The
largest is Rusayl Industrial Estate, located on the outskirts of the capital.
There are over 65 factories operating at Rusayl with a number of others
currently under construction.  Other estates are located in Salalah in the
southern Dhofar region and in Sohar up the coast from Muscat.  Others are
planned for Nizwa, Buraimi and other locations.

Section A:

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Openness to Foreign Investment
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The government's emphasis on income diversification has opened the country to
foreign participation in the economy, particularly in the form of joint
ventures.  Oman is actively seeking private foreign investors, particularly in
the industrial field.  Those investors who allow technology transfer and
provide employment and training for Omanis are particularly welcome.  Omani
law relating to foreign investment is contained in the Foreign Business
Investment Law of 1974.  The current Minister of Commerce and Industry is
backing a number of laws and regulations aimed at attracting foreign
investment but few have yet come into effect.

Oman's labor law and the Oman tax law also affect a foreigner's ability to do
business in Oman.  Since there is no complete body of regulations codifying
these laws and many government decisions are made on an ad hoc basis,
investors should consider engaging local counsel.  Recent changes in the tax
law have, for the first time, required Omani companies to pay taxes on
profits.  The taxes levied against foreign companies and joint ventures were
not changed and remain markedly higher than those charged to solely
Omani-owned firms.

Foreign investment in Oman is allowed only through joint stock companies or
joint ventures.  In both forms, majority Omani ownership is generally
required, although joint venture industrial projects may be up to 65 percent
foreign.  For firms with foreign participation, the general requirement is
that paid up capital must be at least USD 390,000.  The Ministry of Commerce
and Industry can, upon application by the interested parties, reduce that
requirement to usd 78,000.  An Omani stock exchange, the Muscat

Securities Market, began operation in 1989.  However, nationals of the Gulf
Cooperation Council (GCC) states are the only foreigners who may invest in
traded equity shares.  Nevertheless, it is possible for foreigners to invest
in Omani shares in the various public companies which the government is
gradually privatizing.

Industrial establishments with a total cost of USD 52,000 or more must be
licensed by the Ministry of Commerce and Industry.  In addition, a foreign
firm interested in establishing a company in Oman must obtain approvals from
other ministries, such as the Ministry of Regional Municipalities and
Environment.  Foreign workers must obtain work permits and residency permits.

In terms of entry requirements, business visitors must obtain in advance
permission to enter the country.  This can be done either by applying for a
visa at an Omani diplomatic mission abroad or by obtaining a No Objection
Certificate (NOC).  Local hotels can apply for NOCs for their guests, usually
for a fee, and local businesses may also apply for them for sponsors.

Oman's investment incentives focus on industrial development and include the
following:

-  Five year renewable tax holiday
-  Low interest loans from the Oman Development Bank
-  Interest free loans from the Ministry of Commerce
     and Industry
-  Subsidized plant facilities and utilities at the
     industrial estates
-  Ministry of Commerce and Industry supplied
     feasibility studies
-  Exemption from Customs duties on equipment and raw
     materials
-  Occasional imposition or increase of protective
     customs tariffs on similar imported goods

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Conversion and Transfer Policies
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Oman has no restrictions on capital movement into or out of the country.  The
government has established one offset program connected to a British sale of
naval vessels to Oman.  Interestingly, there are no restrictions on the
nationality of joint ventures established under this program.  The first joint
venture set up was one with a U.S. company.

The Omani rial is pegged to the dollar at a rate of 1 Rial Omani to USD 2.60.
The rial was devalued in 1986 due to the collapse in oil prices.  The
government, however, did not judge the devaluation productive.  It is not
likely that another will occur in the near future.

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Expropriation and Compensation
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The dollar value of U.S. investment in Oman is small.  To the knowledge of the
U.S.  embassy, there have been no investment disputes involving American
companies over the past several years.  There was one case in which an
American firm selling goods in Oman was sued by its former agent and was
ordered to pay a settlement.  This was not, however, a dispute over an
investment but over compensation for ending an agency agreement.  Oman's
belief in a free market economy and desire for increased foreign investment
and technology transfer make expropriation or nationalization extremely
unlikely.  Currently, Oman is moving more towards a free market economy with
its modest privatization program.

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Dispute Settlement
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Oman is not a member of the International Center for the Settlement of
Investment Disputes.  The ultimate adjudicator of business disputes in Oman is
the Authority for Settlement of Commercial Disputes (ASCD), an independent
judicial body.  The Chamber of Commerce and Industry has an arbitration
committee to which parties to a dispute may refer their case for less formal
and smaller matters.  Minor disputes are also handled by local authorities
such as walis, the district governors appointed by the central government.

The ASCD was originally founded to provide a settlement mechanism more in
keeping with international standards than traditional Islamic law.  Nearly all
international investors use the ASCD exclusively.  The ASCD is composed of
seven members:  a chairman appointed by the Sultan, a representative appointed
by the Minister of Commerce and Industry, a local merchant appointed by the
Chamber of Commerce and Industry, and three judges trained in law.

The ASCD has the jurisdiction to decide cases directly or to arbitrate
whenever the contesting parties agree in writing to submit claims to
arbitration.  The contesting party may be the government of Oman or one of its
administrative units.  Like most governments, Oman retains the right of
immunity.  While there is no established mechanism for petitioning the
government to waive immunity and appear before the court, some governmental
bodies have in the past been persuaded to accept the jurisdiction of the ASCD
as the most equitable method of settling a dispute.

Decisions of the court are final if the value of the case does not exceed USD
26,000.  A court of appeals exists for cases where the sum disputed is greater
than USD 26,000, but its decisions are final.  There exists, however, the
right of review after a judgment is issued in cases where new documents are
discovered or irregularities (forgery, perjury) found.  There is no provision
for the publication of decisions.  The Authority sends the opinion only to the
disputing parties.  The fees for filing a claim are 5 percent of the value of
the claim with a maximum of USD 26,000 and a minimum fee of USD 26.

Business representatives generally feel that the ASCD's use of general
principles of equity in deciding cases not directly covered by Omani
commercial law is fair.  The ASCD is generally considered to be fair to
foreigners.  There have been complaints, however, that powerful businessmen
with the best legal representa- representa have an unfair advantage.

Oman also maintains other judicial bodies to adjudicate various disputes.  The
Labor Welfare Board under the Ministry of Social Affairs and Labor hears
disputes regarding severance pay, wages, benefits, etc.  The Real Estate
Committee hears tenant-landlord disputes, the Police Committee deals
essentially with traffic matters and the Magistrate Court handles misdemeanors
and criminal matters.  Lastly, the Sharia Court deals with family law, such as
wills, divorces, personal and some criminal matters.  All litigation and
hearings must be conducted in Arabic.

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Performance Requirements/Incentives
-----------------------------------

All enterprises operating in Oman are expected to comply with Omani laws.  The
law applies equally to all business representatives.  Matters such as the
replacement of expatriate workers with Omanis, the development of Oman's image
as a quality producer, and protection of the environment all affect government
regulations on firms.  The government recognizes, however, that the market is
the most efficient business regulator.

Under the Industry Organization and Encouragement Law of 1978, incentives are
available to licensed industrial installations on the recommendation of the
Industrial Development Committee.  "Industrial installations" include not only
those for the conversion of raw materials and semi-finished parts into
manufactured products, but also mechanized assembly and packaging activities.
Firms involved in agriculture and fishing are also included.

Companies must have at least 35 percent Omani ownership to qualify for these
incentives.  In addition, companies selling locally produced goods are given
priority for government purchases, provided the local products meet standard
quality specifications and their prices do not exceed those of similar
imported goods by more than 10 percent.  This incentive is available to
Omani-owned commercial enterprises, as well as foreign industrial producers in
joint ventures with local concerns.  The government offers subsidies to offset
the cost of feasibility and similar studies if the proposed project is
considered sufficiently important to the national economy.

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Protection of Intellectual Property Rights
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Oman has a trademark law.  Trademarks must be registered and noted in the
Official Gazette.  Local legal firms can assist companies in registration of
trademarks.

Draft laws covering patents and copyright protection are under consideration
by the government.  The proposed patent law is based on standards set by the
Gulf Cooperation Council.  Some local agents have successfully defended
copyrights against pirates by invoking provisions of the exclusive agency
agreement law.

Oman is not a member of the World Intellectual Property Organization (WIPO)
but has coordinated with it in drawing up its draft laws.  The government has
not yet addressed the issues of the protection of trade secrets or of
semiconductor chip layout design (no semiconductors are currently manufactured
in Oman).

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Regulatory System:  Laws and Procedures
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Although the government officially supports the free market, the regulatory
environment it fosters hampers investment and commercial activity.  In
addition to the ownership, visa and agency requirements already mentioned,
general licensing of business activities can be time-consuming and
complicated.  The absence of a particular clearance will stall the entire
process.  For example, processing shipments in and out of the Mina Qaboos port
can add significantly to the amount of time it takes to get goods to the
market or inputs to a project.  Oman is also moving forward with a variety of
environmental regulations but enforcement of the rules is incsistent.

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Efficient Capital Markets and Portfolio Investment
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As noted earlier, there are no restrictions in Oman on the flow of capital and
the repatriation of profits.  Access to Oman's limited commercial credit
resources is open to Omani firms with some foreign participation.  Joint stock
companies with a capitalization of more than USD 360,000 must be publicly
traded on the Muscat stock exchange, providing an alternative means to raise
capital.

The government has two loan programs to promote investment.  The Ministry of
Commerce and Industry runs one designed to promote industrial investment.  The
loans are interest free, with long repayment terms.  Projects with a high
percentage of local content or employing large numbers of Omanis are given
priority, as are tourism projects outside the capital area.

The Oman Development Bank also administers a loan program to support
development of industry, agriculture, fisheries, petroleum, mining and
services.  Various limits and terms are ascribed, depending on the type and
size of the project.  For most types of projects, the interest rate is six
percent in the capital area and four percent outside the capital area.

Individuals who are not nationals of the GCC are unable to invest directly in
the Muscat Securities Market.  However, a portfolio investment fund was
recently established in which non-GCC nationals can invest.

Oman's banking sector is stable.  Several Omani banks connected with the BCCI
scandal have recovered.  The Central Bank has raised the capital adequacy
requirements for the sector so that they meet internationally-agreed
standards.  Three bank mergers have reduced the number of banks in what is
still a somewhat over- banked market.  Because there are still too many banks,
most are small.  The five largest have combined assets of USD 2.1 billion.
The sector suffers from some level of non-performing, largely consumer loans.
It is impossible to determine the overall level of these loans but they
clearly constitute a drain on the sector's profitability.

Regarding cross-shareholding and hostile takeovers, Oman is a small country.
Most major businessmen and senior government officials are well-known to each
other.  These individuals are shareholders in a broad range of commercial
ventures and serve on a variety of Boards of Directors.  This system is not
intended to restrict foreign investment.  In such a small community of
interwoven relationships, the concept of a hostile takeover is both unknown
and unlikely.

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Political Violence
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Politically-motivated violence is unknown in Oman.  There appears to be no
growing politicization which would make civil disturbances likely.

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Section B:  Bilateral Investment Agreements
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There is no Bilateral Investment Treaty between the U.S. and Oman.

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Section C:  OPIC and Other Investment Insurance Programs
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Oman is eligible for Export-Import (EXIM) Bank of the United States financing
and there are several projects which have used EXIM financing.  Oman has an
agreement with the Overseas Private Investment Corporation, but OPIC has not
been active in Oman for a number of years.

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Section D:  Labor
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Oman relies heavily on expatriate labor, primarily from India, Pakistan and
Sri Lanka, to perform menial and physically taxing tasks.  The Omani labor law
stipulates basic practices to safeguard workers.  Wages are set by employers
within guidelines delineated by the Ministry of Social Affairs and Labor.
Work rules must be approved by the Ministry and posted conspicuously in the
work place.  The workweek is five days in the public sector and generally five
and one-half days in the private sector.  The labor law and subsequent
regulations also detail requirements for occupational safety and access to
medical treatment.

The replacement of expatriate labor by Omanis is a high priority for the
government.  Foreign nationals may not be employed as technical assistants,
guards, light vehicle drivers, Arabic typists, agricultural workers, forklift
or mixer operators or public relations officers unless the employer can show
that there are no Omanis available for the positions.

In 1994, Oman became a member of the International Labor Organization (ILO).
In June 1994, Oman's Minister of Social Affairs and Labor headed the
Sultanate's first delegation to the annual ILO conference in Geneva.

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Section E:  Foreign Trade Zones/Free Ports
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Although there have been government discussions in the government about
establishing free trade zones in Oman, none has been established so far.

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Section F:  Capital Outflow Policy
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As noted above, Oman places no restrictions on capital.  There are no
government incentives for Omani investments in developing countries.

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Sections G and H:  Foreign Direct Investment
Statistics and Major Foreign Investors
--------------------------------------------

No systematic information on foreign direct investment is available.  The
largest foreign investor is probably Shell Oil, which holds 34 percent of the
shares of Petroleum Development Oman, the state oil company.  Other companies,
such as Occidental Petroleum, Japex, Amoco and Elf Aquitaine, have also
invested in the petroleum sector.  In addition, a few foreign firms, including
two U.S. ones, have entered into industrial joint ventures with Omani firms.
The two U.S. firms are Gorman Rupp (water pumps) and FMC (wellhead equipment).
Both joint ventures will involve modest manufacturing operations.