Times of Oman
Nov 28, 2015 LAST UPDATED AT 07:11 PM GMT
Capital flight: Who’s to blame?
February 17, 2013 | 12:00 AM

Muscat: The 'flight' of hundreds of millions of rials from Oman every year is draining the economy of vital investments, but who is to blame?

According to official figures, expatriates in Oman sent home OMR2.774 billion in 2011, up 26 per cent compared to the preceding year. Further, the figures for 2012 have not yet been finalised, but it is expected to increase by at least 10 per cent to OMR3 billion.

But what are the sources of the big money drain? Not from labourers who toil in the sun all day. They only get a pittance every month and make up a staggering 40 per cent of the total expatriate community in the country, and send home very little.

Wheeling and dealing
In fact, the outflow of rials is due to the wheeling and dealing of ordinary citizens who have their names registered in the commercial registry as 'business owners', but let expatriates own those businesses, thereby hampering the economy.

The two-way private arrangement allows Omani sponsors to be paid 10 per cent for the sponsorship, while the expatriates take the rest. The reality is that this arrangement is not registered in the Ministry of Commerce and Industry.

Common sense dictates that the sponsor-owner relationship is illegal, but the authorities have turned a blind eye to it for over four decades. These arrangements control over 50,000 small retail businesses — from building construction and restaurants, to vehicle repair workshops that are scattered throughout the country. This practice enriches expatriates, as their cash is sent to their home countries, instead of being invested in Oman.

Under the OMR10-billion government spending plan announced this year, the outflow of remittances may be starting to look uncomfortably large, with the stability of the global financial system threatened by the euro zone debt crisis. Which is why Oman should start using its monetary resources domestically to shore up local investments.

This is especially urgent since the government now wants to reduce its reliance on oil revenues and cut down its dependence on having an economic output produced by foreigners, most of whose money is not spent or invested within the Sultanate. On top of that, Oman's delicate balance of payments and uncontrollable remittances will eventually hurt the equilibrium of the financial system. 

 The question is: Should Oman introduce a cap on how much money an expatriate can send home? This move will help protect the economy by keeping at least a billion rials a year at home, to create much-needed jobs. Keeping all this money will create wealth for nationals who, in turn, will invest the money back in the country.

The 33 per cent cap on expatriate employment is a positive move, but it will reduce only four per cent of the 1.3 million foreign workers now working in Oman.

What measure should be taken to keep billions of rials at home?
The solution is to get Omani business sponsors running their own businesses and making sure the expatriates are only workers and not owners of the businesses. They can start with small to medium construction companies. This is the area where 'big money' ends up in the pocket of the expatriate, while so little is passed on to the sponsor. Thanks to easy bank financing, mortgages are readily available, fuelled by the construction boom, and this will keep money coming into the housing market, which at the moment keeps leaving the country through the hands of expatriate contractors whose names are not registered at the ministry of commerce.

Remittances will not slow down, but are set to increase annually, which will continue to hurt the economy.  To make it work, it needs a change of mentality from top to bottom, but that will only become a reality when there is a genuine commitment from both the private and government sectors.

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