TOGY talks to
A critical role in OmanAugust 14, 2018
Chee Khian Lee, CEO of the Special Economic Zone Authority at Duqm (SEZAD), talks to TOGY about the need to build in-country expertise, the factors investors are looking for in Oman and the country’s future as a logistics hub. SEZAD is an initiative by the Omani government to help turn Duqm into a maritime and logistics centre.
SEZAD is an initiative by the Omani government to help turn Duqm into a maritime and logistics centre. SEZAD offers a competitive investment climate on par with other freezones in Oman and the region. Companies willing to invest will be exempt from Customs duties on imports and exports and excused from corporate tax for up to 30 years.
• On building ICV: “You can build on existing knowledge and grow from there into other areas. One sector leads to another. That’s why you need to support in-country manufacturing. You can encourage investment, since it will cause a multiplying effect. You see that every project bands everyone’s interests together.”
• On attracting investors: “The most important thing is that rules and policies must be certain and very clear. This allows companies to work out the costs in a transparent way. Businessmen like certainty when they budget. They see that the whole market is very volatile. They cannot see the whole market or know how it will be. Whatever they can control, they control. They know the market risks, so they try to manage them.”
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What is your assessment of the government-led initiatives to diversify away from hydrocarbons exports?
We are seeing some results. Instead of just selling oil and gas, the country has decided to enter the downstream with petrochemicals through the development of the Duqm refinery and Khazzan tight gasfield. There are many upcoming projects. It’s a wonderful time for Oman, especially if they are able to implement their strategy instead of just selling oil and gas, which only provides cashflows.
By building your own in-country expertise, you enhance your technical capability and you can explore other options in the future. You could have a large line of finished products. Once you have entered the petrochemical industry, you have to make yourself very competitive because you are competing with many others in the GCC region.
Many investors will come here to look at the feedstock, the raw materials, which is critical. Being close to the raw materials reduces the costs of logistics and allows you to have a competitive advantage.
What is the current investment climate for your planned projects?
We are seeing some potential investors that are interested in the downstream industry. For example, we have a factory producing polyester, which is feedstock for them. Thus, they foresee a future in petrochemicals. They want to come here and, logistically speaking, their market is also around this region and it fits into their investment criteria. They want to be near the market, and the logistics have to be very competitive before people will consider it.
How do you evaluate the government’s initiative with ASYAD to develop the country as a logistics hub?
It is the right move because the government is in a better position to co-ordinate and understand the overall strategy. Otherwise, things can become segmented and devoid of a clear picture. The issue is how to communicate with all the stakeholders and convince them to work together. Therefore, ASYAD is the right first step.
When it comes to ports, where do you see the risk of cannibalisation?
Every port has advantages and disadvantages. For some companies, it might be better to use a specific port, even if it is not the closest, because it’s easier or more efficient for a fully loaded vehicle to get there because of the geography. So, it’s not cannibalisation; they are supplementing each other. For example, from Sohar to Duqm it is 700 kilometres. That means that Sohar is nearer to the Gulf region and Duqm is a bit nearer to the Indian gas market. It’s generally a different market. Salalah is nearer to the African market.
There is a high level of interest from the Chinese; Pakistan is a market of 200 million people and just the west coast of India has 500 million. We are also located very near to the African market; that business doesn’t have to go to Salalah. If you have a strong base for manufacturing, the demand doesn’t cause cannibalisation. Every port has a critical role to play.
Do you see Oman becoming a logistics hub in the GCC region?
Oman has an advantage. We have the waterway; we have a long coastline and unhindered access to the Indian Ocean. From there, you can go to Asia. There will be other competing ports, but I think here we are performing very strongly in oil and gas, so we need to heighten our competitiveness in this area. Every country must have a competitive advantage. I think that we can go into downstream, the petrochemical industry and finished products.
We need to find a niche that goes beyond the GCC, as it has only a few hundred million people. The next [possibility] is the East African market, which is fairly large.
What type of challenges are you facing in attracting international investors to Oman?
There are a lot of challenges. The most important thing is that rules and policies must be certain and very clear. This allows companies to work out the costs in a transparent way. Businessmen like certainty when they budget. They see that the whole market is very volatile. They cannot see the whole market or know how it will be. Whatever they can control, they control. They know the market risks, so they try to manage them.
There are tariffs for exporting goods and services. When you set up your base in Oman, the country of origin becomes Oman and you have an export advantage when it comes to GAFTA [Greater Arab Free Trade Area] countries.
Other factors that influence the decision are the changing economic environment and shifts in manufacturing bases on a global level.
Given regional competition and capital liquidity on an international level, how do you incentivise investment in the free zone?
If you try to encourage investors to come in, you have to demonstrate how business friendly you are. You need to provide a good experience for the investor when they visit, help them and make sure they do not feel frustrated. When they come here, they are going to put millions of dollars at risk. They have a certain set of economic objectives to fulfil, and they see market opportunities.
Investors are a special breed of people, and much depends on the class of investor. If the investment is something like a refinery or petrochemicals, they have a team of lawyers, investment bankers and specialised personnel to help them evaluate the risk. They understand the market and they want to know if government thinking is in line with theirs. They want to know how the government can solve their problem.
They have five or six GCC countries they can choose from, and the policies are almost the same. Hence, you need to capitalise on strengths. An investor wants to know what’s in it for them. Here, access to water and power and the cost of land all enhance competitiveness, but the policies may not be business friendly.
What is your assessment of the capabilities of the labour market?
The most important thing is to be business friendly. Subsequently, all your labour, rules and regulations have to be business friendly. Whether you are competitive or not, you will accept regulation and have a hire-and-fire policy. Right now, there isn’t one. People are competitive when they know that if they don’t work, they’ll be fired. Right now, firing someone is very difficult.
What specific strategy do you have for developing in-country value?
My idea is to cluster some of the petrochemical refineries together. Where there are service providers, the petrochemical industry will come in. There’s an economy of scale, and the whole country will benefit. If there’s only one customer, you are at the mercy of that customer. But if there are more, you can encourage more SMEs to come in. There’s competition and the whole country will benefit, as well as the big client.
You can build on existing knowledge and grow from there into other areas. One sector leads to another. That’s why you need to support in-country manufacturing. You can encourage investment, since it will cause a multiplying effect. You see that every project bands everyone’s interests together.
What would be the role of logistics and other industries in further consolidating the hydrocarbons value chain?
Logistics will be naturally supported by infrastructure development and greater connectivity. It’s a natural sequence of development. Once we do that, there will be enough business for other sectors to enter, and this includes tourism. This whole process will take about 15 years.
Once you’ve made your oil transaction, you need shipment and trade financing. This stimulates other areas such as insurance and collateral management to come in to structure increasingly complex transactions. It’s the natural sequence of events.
You need to get the right people with the right skillset to come and train them at the proper time. Once a city is connected, you need IT. IT and administrative capacity become very important. At this moment, the government finds it difficult to invest in such areas because the cost of the benefit is not justified. But, as things progress, it may be viable one day, and the government will invest.
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