Oman Country Risk Analysis (1993–2021)
Author: Abdolreza Iesvand Heidari,
Date: Sep 27, 2024
Oman, a strategically located country in the Middle East, has historically maintained a relatively low-risk profile. This analysis examines Oman's country risk evolution from 1993 to 2021, considering global events, economic trends, and political stability. The provided chart reveals a general downward trend in Oman's country risk over the period. This decline can be attributed to several factors:
- Political Stability: Oman has maintained a stable political environment, with a hereditary monarchy and a relatively peaceful domestic landscape. This stability has been conducive to attracting foreign investment and fostering economic growth.
- Economic Diversification: Oman has made significant efforts to diversify its economy away from oil and gas, reducing its dependence on a single commodity. This diversification has enhanced the country's resilience to global economic fluctuations.
- Sound Economic Policies: Oman has implemented prudent economic policies, including responsible fiscal management and a gradual liberalization of its economy. These policies have contributed to a favorable investment climate.
Based on annual data from 15 macroeconomic variables and using risk methods, Oman's country risk has been modeled. The analysis shows that Oman is classified as a low-risk country. Global MetaRisk, as a specialized institution in assessing country and business risk levels, aims to provide investors with a clear perspective on country risk.
Oman, with a population of approximately 5.28 million, is located in the Middle East, neighboring Saudi Arabia, the UAE, and Yemen. In recent years, many investors have sought to enter Oman to develop their businesses. Oman's risk assessment is significant for Global MetaRisk because of its proximity to the rapidly transforming Saudi Arabia.
According to Global MetaRisk’s analysis, Oman's risk level is rated at BBB: Good credit quality; moderate risk of default. While Oman is an import-dependent nation, this presents significant opportunities for investors, with returns that could be considerable. For example, according to World Bank data, Oman imported approximately $32 billion in 2021, which is a notable figure for a country with a population of 5 million.
Oman’s economy, a hybrid of a free market and state-controlled sectors, is highly dependent on oil prices. As a result, international market shocks, particularly in commodities, significantly impact its businesses. This is evident from the increased risk level during the 2008 financial crisis, as reflected in the model. The 2008 crisis caused a dramatic escalation in risk, driven by fluctuating oil prices and the global financial downturn, which heavily impacted Oman's oil-dependent economy.
In risk management, a one-dimensional view of a country or business is insufficient. The collective influence of various factors impacting the target variable must be considered when modeling risk. For instance, while Oman has experienced economic growth volatility, such as a -3.4% decline starting in 2017, overall, based on Global MetaRisk’s analysis and multiple risk dimensions, Oman remains a low-risk country and region.
Key Influences on Risk:
- Oil Dependence: Oman’s economy is heavily reliant on oil exports, making it vulnerable to price fluctuations. Global shocks, such as the 2008 financial crisis and the COVID-19 pandemic, have exacerbated these risks.
- Global Economic Conditions: Events like the 2008 crisis and the 2020 pandemic caused significant external pressure on Oman’s economic stability, which is reflected in the increased risk levels.
- Domestic Policy Response: Oman’s efforts to diversify its economy and manage debt were insufficient to significantly mitigate risk, especially during periods of external economic shocks.
Oman's country risk has consistently remained at a low level, reflecting its stable political environment, economic diversification, and sound economic policies. While geopolitical risks and global economic challenges persist, Oman's resilience and proactive measures have enabled it to maintain a favorable investment climate. The country’s ongoing efforts to diversify its economy and improve its infrastructure further strengthen its position as a stable and attractive destination for foreign investment.
