30 May Interview with HE Abdulsalam Al Murshidi, President, Oman Investment Authority
What key factors have led to Oman’s recent economic growth?
There are several factors that contributed to the recent rebound in growth. In addition to higher energy prices, including natural gas, we tried to create additional value from natural resources and diversify our economy. Given that we have sold most of our gas through long-term contracts, extra efforts were made to get additional income by utilizing diversions and swap opportunities of some cargos to maximize the return from those cargoes and leverage higher gas prices.
Moreover, high energy prices were not the only contributor to the economy’s swift recovery. Many reformative actions have taken place since His Majesty took over, including severe measures with cost-cutting, which were increased year by year, and introducing value-added tax. Meanwhile, the slowdown of activities due to the COVID-19 pandemic gave us time to reconsider our strategies, laws, regulations, and our stance on foreign direct investment. The international business community has taken notice, which is reflected in the renewed appetite for doing business in Oman. However, we must continue taking steps to improve the ease of doing business in the country. All these changes happened over a short period, and the next challenge is to practice what we preach, and we are confident that we are going in the right direction.
How does Oman Investment Authority (OIA) differ from other national funds around the globe?
We are one of the few global funds with more than one mandate, role, and responsibilities. Our overall mission is to save for future generations and develop the national economy. However, in reality, we have around five different mandates. We aim to enhance the return on our investments while at the same time jumpstart the economy by introducing new projects and contributing to developing sectors. In addition, we aim to create employment and increase the country’s gross domestic product. Moreover, we are mandated to pay annual dividends to the Ministry of Finance to help support the annual budget. Occasionally, these mandates are aligned, and sometimes they contradict each other. For example, saving for future generations requires being a long-term investor whilst we are also expected to contribute annually to the Ministry of Finance, which means our planning cannot be focused only on long-term investments but also on short-term investments that are easier to liquidate whenever required. Keeping this balance is more of an art than a science due to uncertainty.
Changing the mindset of our upper layer is crucial and our largest challenge. We used to operate under a model where projects were government projects. They served the national agenda and were not necessarily supposed to make profits. For example, food projects were established at a time when food security was a significant concern. Profitability was not the top priority from day one. Our mandate now is to make these entities profitable or at least more sustainable. We can no longer subsidize any product or company. We must deliver what we promised to the people and foreign investors.
How has OIA worked to satisfy all its different mandates while achieving its goals?
Presently, we have split OIA into two separate funds: the Future Generations Fund and the National Development Fund. The Future Generations Fund is designed for our long-term investments, and we hope to not withdraw anything from it and keep it for the future. In contrast, the National Development Fund is primarily assets we inherited when OIA was formed in addition to some local investments we used to have. Our current mandate is to turn these companies around and exit some of them as part of the privatization policy but we cannot achieve that goal if these companies are not performing well. Our first step is, therefore, to get these companies ready for initial public offerings or invite strategic partnerships through private placement. This is handled on a case-by-case basis.
Our complex mandates have made our team very skilled. We need to be multi-disciplined because of the different sectors we work in, from services to environment, manufacturing, oil and gas, agriculture, food, logistics, ports, and aviation. While many of these companies have the potential to be profitable, the COVID-19 pandemic did not help. We took over during this time. Each of these entities had an independent board of directors that tailored companies to the size they thought suited their sector. This led to double standards and a lack of corporate governance on a national level.
Our first move was to introduce one set of appropriate guidelines that reflected the national agenda without affecting the ability of individual companies to maneuver and deliver their best performance. Achieving this balance has been tricky. We wanted to identify minimum requirements for good corporate governance when it comes to tendering or procurement. With regard to remunerations, we wanted to equate salaries sector by sector. We identified best practices and norms in our region.
How has OIA’s overreaching Rawabet program helped the authority reach its goals?
The Rawabet program’s goal was to link OIA to its subsidiaries so they would complement each other. The program was designed to fill in gaps and create linkages that can benefit the entire ecosystem. This way, when it comes to procurement, for example, they will have a much stronger base for negotiation. Production from one company can also be used as a raw material for another. The Rawabet program puts all these working parts together. It has now been extended to connect companies to government units that create policies to give them input and mitigate negative impacts of future legislation. Our mission is to introduce corporate governance, new skills, guidelines, and policies for more than 160 national companies. Without the Rawabet program, meeting our goals would have been extremely difficult; it is crucial to our success.
What efforts is OIA making to move its subsidiaries towards private sector ownership?
At the end of the Vision 2040 strategy, we are supposed to hand over all companies under our umbrella to the private sector. This will happen in steps. The preferred road is initial public offerings (IPOs). We have already had two IPOs, and there is more in the pipeline. We will also perform private placements, which involve going to the stock exchange and finding strategic partners. This is more of a two-step exit. The first step is a pre-IPO with a strategic partner. We expect the private partner to add value to our financial performance, which will then be followed by an IPO. In the next five years, we are planning to exit 30 companies, depending on their readiness. We do not plan on exiting companies that are not ready. This may seem ambitious because the average time a company takes to reach the IPO stage is around 18 months. To handle this, we have formed a team. Their role is to make sure our subsidiary companies tick all boxes to be IPO-ready.
OIA has pledged to invest $4.95 billion towards new projects in 2023. What vehicles is OIA using to meet this target?
One of the key performance indicators for our companies includes developing at least one new project. We encourage the companies not to take more than a 40% share in any project and offer at least 60% to foreign investors or locals within the private sector. It is important that we start from day one as a private-sector player. If the project attracts foreign partners or local business entities, this gives us more comfort that the project is economically viable. Once we have diversified shareholders with local and international players, our ability to leverage these assets will be higher. Global and regional banks give higher equity ratios for projects with more than a single shareholder. We do not encourage our companies to have 100% ownership of these new entities, even in the mineral sector. The mineral sector is a sensitive area, as we need to be sure not to simply give away our natural resources. However, once we want to enter commercial production, we offer projects up for private sector investors, including foreign participation.
How has OIA worked to build up in-country value and support the growth of small and medium-sized enterprises?
Another key performance indicator for our companies is to push research and development and local involvement. For example, our fishing projects moved from traditional fishing towards aquaculture projects. We pushed local companies to perform operations using robotic divers and equipment that measure oxygen levels and monitor leakages, including the use of artificial intelligence. Our companies trained them to operate these devices. We did not employ and train our staff but instead hired a local diving team and encouraged them to start their own small and medium-sized enterprise. They were given a contract to enable them to buy equipment and gave them the tools to succeed. There was a time when $0.80 of every $1 made was sent outside Oman; if this ratio could be further reduced, it could provide countless business opportunities for local players.
What has OIA done to help Oman meet its goal of having 30% of its electricity capacity come from renewables by 2030?
We take sustainability and clean energy efforts on board when developing projects and plans. Our energy company, Nama Group, has stopped investing in new projects using fossil fuels and natural gas. All projects from now on will either utilize solar or wind energy. Additionally, OQ has formed a new segment called OQ Alternative Energy. We are leveraging renewables to attract foreign investors and build local renewable energy projects that produce green hydrogen. The Ministry of Energy and Mineralsmonitors these goals and has encouraged even the most minor activities to go green.
How significant is the US market in OIA’s global investment portfolio?
The lion’s share of the funds we invest in are based in the United States. We also have a few direct investments, but our strategy now is to reduce these unless they have an Omani angel in a way that will contribute to developing key sectors in the local economy.One such company is a US-based entity that converts sugar into protein or synthetic meat, where our agreement includes building a manufacturing line in Oman. The reason we have invested heavily in the United States in addition to attractive returns, is for technology transfer. We have invested in Silicon Valley companies, including SpaceX and battery manufacturers. We also invest in Europe and Asia and recently invested in India. We have a footprint in over 36 countries, some small and some quite significant.
What factors make Oman an attractive place for US foreign direct investment?
We need to see more American investors entering Oman. We kept Oman hidden for a long time and we need to work on promoting our nation. Our region has larger economies that naturally attract the attention of public investors. However, we must still remind potential partners of the good value propositions we offer, including our free trade agreement with the United States and our investment-aligned policies. Anything manufactured in Oman is welcome in most countries; we have no restrictions. Additionally, our geographic location makes Oman an excellent platform to service the Indian subcontinent and East Africa, a market of around 1 billion customers surrounding us. Oman is a very safe location. We also have a 40% surplus in electricity production which is ready to be utilized immediately. We also offer a stable financial and banking system. Investors also benefit from a robust taxation regime. Oman is a perfect destination for partners to service both the Omani economy and the region.