Question

Regardless of the cause, low oil prices are hitting Oman hard. A massive 77 percent of the country's budget comes from oil revenue. As far back as 1990, Oman's leaders discussed the

importance of diversifying the economy to become less dependent on oil. Yet today the country has almost no manufacturing or agricultural production.

Tawfeeq al Lawati, a member of the executive committee of Oman's Shura Council or lower house of parliament, says the country plans to develop manufacturing, transportation and tourism A first step is to develop refineries to process oil into diesel and other petrochemicals. "We have a business plan," he said. "Rather than exporting an oil barrel for 100 dollars, adding value to it by refining it and having different derivatives, which could also lead to different chemical products." The government is also building a huge, modern port in Duqm, on Oman's central coast. Currently, ships exporting oil from Iran or Iraq must pass through the Straits of Hormuz. Ships carrying manufactured goods traverse the Straits in the other direction. In recent years, wars and political instability have closed the Straits. Al Lawati says the Duqm port could become an alternative shipping route.

Oil producers could store their product in Duqm and then load it onto modern tankers. Other ships could offload in Duqm and transport their goods by land to the nearby countries of the Gulf Cooperation Council, or GCC, such as United Arab Emirates or Qatar. "Oman could become a main logistics hub for the region," said al Lawati. "The government is upgrading the

infrastructure, the transportation, even the introduction of the railway and linking it with the GCC." Still, similar plans for economic development have been discussed in Oman for years. It remains to be seen whether they will be put into action.

1. Why government needs to reduce its dependence on oil industry? What steps are taken by Oman’s government to reduce its dependency on Oil Industry?

2-what is the impact of oil industry on the employment of labor force over last 4 years? What percentage of the total labor force is employed by the oil industry and what kind of unemployment has been created due to such situation?

3. "We have a business plan," Mr. AL Lawati said. "Rather than exporting an oil barrel for 100 dollars, adding value to it by refining it and having different derivatives, which could also lead to different chemical products." To implement this business plan, it requires huge investments; describe the impact on income of the country with the multiplier effects in this scenario. [definition of term 2+ relating concepts to situation 3= 5 Marks]

Answer 1

Answer-1- Oman government need to reduce it's dependence on oil industry because of following reasons :-

- Falling oil prices because of increased carrying cost of oil and very less consumption due to the pandemic in world.

-highly dependence on only one factor is not good for economy , it's better if it is distributed.

-in case of one major factor governing economy , employment is majorly dependent on it so in any case of downfall unemployment rate increase drastically.

Steps taken from Omans govt:-

-Developing refineries

- building a high port in durqm for the case of logistics and transportation

-introduction of railway and linking it with GCC

Answer -2- Impact of oil industry is huge in terms of decreasing unemployment in last 4 years as in 2018 GDP increased by 37.1 percent in oil industry only and due to this 76% of the employee in Oman are dependent on oil industry either directly or indirectly.

This kind of unemployment is known as structured unemployment ,this is a long term unemployment due to decline in a particular industry as the prices of crude oil has fallen globally.

Answer- Multiplier effect - Given change in a particular input(can be by the government) which causes a high change in terms of output and GDP.

In this statement Mr al lawati proposed a business a model in which he suggested that it's better to plant a refinery and add values to the crude oil and produce diversified products instead of exporting it only for basic prices , adding values to it will work as a multiplier which will increase the GDP and reduce the unemployment.