In 2006, an amendment to the Labor Law was issued that permits the establishment of trade unions in Oman. Since then, the number of labor unions in Oman has steadily increased. Currently, there are more than 55 labor unions across the Sultanate according to the General Federation of Oman Trade Unions (GFOTU). This represents a dramatic increase over 2007 and 2008 levels.
Trade unions are organizations of employees that work together to achieve common goals. In Oman, trade unions may work to defend employee rights, improve financial and social situations, and represent employees in work-related matters. The trade unions have also formed the GFOTU, which is an independent body that oversees labor unions in Oman established under the new law, and which promotes labor rights and the interests of unions.
As the number and visibility of labor unions increases in Oman, there are several issues for employers and employees to consider.
Employers should make themselves aware of the laws and what actions are permitted and prohibited with respect to trade unions. For example, it is unlawful for an employer to terminate an employee based on the employee’s membership or role in a trade union. In addition, employers may be subject to fines or imprisonment if they interfere with an employee’s right to carry out trade union activities.
Conversely, employers may look to trade unions as a resource for facilitating communication between the employer and the employee. Trade unions have the advantage of organization, which means an employer can communicate information about company policy, safety matters or other work matters to the union, which can disseminate this information to all employee members.
Employers have taken different approaches to the increase in labor unions in Oman. Some employers, seeking to gain the communication and policy benefits of labor unions, have actually sought to help employees form labor unions. Other employers have taken a more passive approach and waited to see the impact of the labor unions rather than actively promoting their formation.
Similarly, employees should consider the legal requirements for forming a union, as well as the rights and restrictions associated with trade unions under Omani law. For example, while trade unions have the right to bargain collectively or engage in peaceful strike action in order to improve their financial or employment situation, there are limits on what actions the employees may take. Specifically, employees planning to engage in a peaceful strikes must notify the employer at least three weeks prior to the date of the strike. Further, employees working at establishments that provide basic services to the public are not permitted to strike.
With the rapid increase in labor unions in the Sultanate, employers and employees should consult the law before taking any steps to form a union or before setting union-related policy. While labor unions can provide substantial benefits to both employers and employees, it is important to ensure that the correct laws and regulations are followed in order to achieve the maximum benefits.
Monday, June 29, 2009
Focus on: Labor Unions
Wednesday, June 24, 2009
Hot Topic: Microfinance
Visitors to Oman frequently remark about the hardworking and resourceful nature of their Omani hosts. The dedication and energy of the Omani people – Omani entrepreneurs and small businesses, in particular – may find new outlets thanks to the recent creation of the country’s first microfinance initiative (MFI).
The term ‘microfinance’ refers to financial services provided to low-income clients and may include savings, fund transfers and insurance. The best known form of microfinance is ‘microcredit,’ the practice of lending small amounts of capital to individual entrepreneurs and small businesses not served by traditional mechanisms of mainstream finance. While the loans are modest – sometimes as small as RO 80 – they can have a large impact, as banks do not typically lend to those with little or no cash income and few assets to serve as collateral.
Microfinance has been embraced by the international development finance community as a powerful tool for promoting entrepreneurialism and a key driver of economic growth. While microfinance has been popularized by the high-profile success of MFIs such as Grameen Bank in Bangladesh, the practice has gained only minimal traction in the Middle East. According to some estimates, only 15 percent of the demand for microfinance in the Middle East is currently being met.
The introduction of microfinance to Oman could mean that entrepreneurs and small businesses will find access to new fundraising opportunities at relatively affordable rates. If successful at supporting new enterprises, this effort could spur economic growth and job creation in Oman.
Oman is home to a wide array of small businesses that could serve as potential clients for MFIs. Particularly, makers of textiles and handicrafts stand to benefit, as do fishermen and those making a living in agriculture. Oman’s strong tourism sector also gives rise to numerous entrepreneurial opportunities that may be taken advantage of through the financial support microfinance provides. A further potential market for microfinance in Oman is women entrepreneurs. In other countries, women have generally been the main focus of MFI because studies have shown they are less likely to default on their loans than men.
But while the future of MFIs in Oman holds much promise, there have been problems and criticisms of MFIs in other countries. One problem faced in other countries is the difficulty of providing microfinance services to customers living outside of urban areas, as the low population density makes it difficult to meet the costs of a retail branch. Oman will face similar challenges, as some of the greatest beneficiaries of microfinance would be those living in the interior where population density is low and retail branch costs would be high.
Another issue is how Omani law will be applied to MFIs. Currently, it is likely that MFIs will be treated the same as other financial institutions in Oman and be subject to the same laws and the oversight of the Capital Market Authority and the Ministry of Commerce and Industry. It is also possible, however, that laws could be tailored to make it easier for MFIs to operate in Oman, and to respond to the unique needs and problems of these institutions and their clients.
Another problem that has emerged in other markets is how to evaluate potential borrowers’ credit in an environment where traditional metrics are not easily applied. Luckily, the first credit bureau in Oman was recently introduced, which should make it easier for MFIs to evaluate borrowers’ credit.
The Omani market presents unique issues for MFIs, though the untapped market of the interior as well as the recent introduction of credit bureaus provide encouraging evidence that they have the potential to succeed. Therefore, many in Oman are justifiably excited for new business opportunities on the horizon.
Monday, June 1, 2009
Focus On: Copyrights and Fair Use
Under the Law of Copyright (Royal Decree 65 of 2008), it is necessary to obtain the permission of a copyright owner in order to use, copy, publish, or broadcast a copyrighted work such as a book or audio recording. However, the Copyright Law does provide certain narrow exceptions to this rule which permit the use of a copyrighted work without the author’s permission.
For example, in the following circumstances it is permissible to use the copyrighted work without the owner’s permission:
Although the above uses are permitted without the owner’s permission, the user of the copyrighted work must still mention the source of the work and the author’s name. Further, the above uses are permitted only if they do not conflict with the copyright owner’s normal exploitation of the work.
Friday, May 29, 2009
Focus On: Corporate Governance
There is widespread confusion in Oman about the applicable standards for companies with respect to transparency and conflicts of interest. A conflict of interest arises when a person has an interest that may compromise his reliability. For example, if company A is negotiating a contract with company B, and a director of Company A has a close relative working at Company B, this would be a conflict of interest. The director has a duty to act in the interests of his company, but he has a personal interest that may conflict with that duty. Even if there is no improper result, conflicts of interest can sometimes give the appearance of impropriety. For this reason, the government of Oman has issued several regulations related to conflicts of interest, or related party transactions, as they are also known.
In Oman, there are different laws and regulations applicable to different company structures. Specifically, there are different requirements for publicly traded companies (SAOGs), closely held companies (SAOCs), and limited liability companies (LLCs).
For SAOGs, Article 108 of the Commercial Companies Law states that members of the board or related parties shall not have any direct or indirect interest in the transactions or contracts concluded in respect of the company except when such transactions or contracts are in accordance with the regulations issued by the Capital Market Authority.
The Capital Market Authority has issued the Code of Corporate Governance (Circular 11/02) which defines related party transactions and the disclosure rules that apply to such transactions and contracts.
For SAOCs, the applicable rule is provided in Ministerial Decision 92 of 2003 titled “Rules regulating the Election of Board of Directors and the liabilities of Board Members”. These rules state that the Ministry of Commerce & Industry shall investigate violations that undermine the rights of shareholders in a closed joint stock company that are committed by members of the board of directors.
Sometimes, corporations operating in Oman are concerned about which standard applies, and particularly whether they need to comply with the Code of Corporate Governance. In some instances, there have been attempts to force SAOCs to comply with the Code. The Code of Corporate Governance only applies to SAOGs in Oman. SAOCs do not fall under the requirements of the Code of Corporate Governance because they are not publicly listed. Similarly, LLCs are not subject to the requirements of the Code of Corporate Governance.
Tuesday, May 26, 2009
Hot Topic: Red Tide Legal Issues
In recent weeks, the Omani coastline has been significantly affected by red tide, a biological phenomenon that occurs when the rapid growth of algae overtakes a water column.
Red tides, also known as algal blooms, are common along the coastlines of the Arabian Gulf between the months of March and September. Red tides are generally considered to be a natural phenomenon, though many scientists contend that human activity such as pollution or global warming can increase their likelihood or exacerbate their severity.
The red tides result in red or green colored seawater, unpleasant odors, and low underwater visibility, making the water an unpleasant place for beach goers. Severe red tides, however, are more than just a nuisance. The proliferation of algae blocks out sunlight and results in a lack of dissolved oxygen in the water, causing the death of marine organisms and the destruction of ecosystems.
As has been seen in Oman, the environmental disruption caused by red tides can have a serious impact on businesses relying on the waters for economic activities.
Perhaps the most direct consequence felt by businesses has been the killing of massive amounts of fish. In 2001 and 2002, 27 tons of dead marine life came ashore along Sur, Batinah and the south of Oman. The recent red tides have also resulted in large amounts of dead fish washing ashore in Muscat. Such destruction has a detrimental impact on fisherman and fisheries in Oman.
Additionally, the red tides significantly affect tourism. The red tides are toxic and cause skin irritation rendering the water un-swimmable. Resorts in the area routinely warn their guests to stay out of the water during red tides. Further, the blooms have resulted in the destruction of coral reefs and the killing of whales and dolphins.
Algal blooms also have a serious impact on industries relying on the use of sea water, and are known to have caused temporary industrial shutdown. In Oman, the red tide has caused a temporary halt at the Qalhat LNG plant as well as the Sohar Aluminum plant. Similarly, other Omani plants in Sohar must remove foam from the sea water before it comes into contact with their systems and equipment. Removing the foam, which is caused by algal blooms, increases costs materially.
Red tides also raise complex legal issues, most of which hinge on the question of causation. Of particular concern to businesses is whether legal rights exist for those parties facing adverse economic effects. The answer to this question relies on whether red tides are caused by the activities of any particular person or legal entity. If so, it must be determined whether such entity has breached a duty to refrain from such activity or applicable environmental laws.
While red tides are widely considered to be natural phenomenon, many scientists believe the frequency and severity of red tides are influenced by human activities, including pollution and the dumping of raw sewage, that raise nutrient levels in the waters. If direct causation, for example by the unlawful dumping of raw sewage, can be determined, liability for damage caused by red tides could possibly be found against the violator.
Assuming the red tide is caused by pollution, Oman has environmental laws in place that would hold the polluter liable. Specifically, the Environmental Law, provided in Royal Decree 114 of 2001, provides criminal penalties for introducing harmful pollutants into the natural environment of Oman. If the pollution involves the discharge of a pollutant into wadis, sewage systems, catchments feeding the underground water or rain water disposal networks, or falajs and their channels, the penalties are more severe.
In addition to fines and imprisonment, polluters are also required, at their own expense, to repair the damage to the environment by restoring it to the previous state. If the red tide in Oman is caused by a polluter, the clean up and compensatory costs could be enormous.
Currently, however, it is not clear what causes the red tide and there is no hard evidence that it is caused by polluters in Oman. Therefore, perhaps more important than liability is the matter of mitigation and prevention. In Oman, this responsibility is imposed on the Ministry of Environment and Climate Affairs (MECA). MECA has set up a warning system involving the placement of buoys outfitted with sensors for continuous measuring of over 13 determinants of water quality.
Friday, May 22, 2009
Doing Business in Oman FAQ: Local Partners
Can a company, as opposed to an individual, satisfy the minimum 30% local shareholding requirement for an Omani limited liability companies (LLC)? This question arises when a foreign company wishes to establish an LLC in Oman, but must find a local partner in order to fulfill legal and procedural requirements.
Under the Foreign Capital Investment Law (Royal Decree 102/94) (the “FCIL”), there is a mandatory requirement that at least 51% of the shares of a limited liability or joint stock company be held by an Omani natural or juridical person. Although this provision of the FCIL has never been amended, pursuant to Oman’s WTO obligations, companies with only 30% Omani shareholdings are allowed to incorporate without the need for any special approval.
Typically, the 30% requirement is satisfied by an individual Omani owner, often one who offers local expertise to the new LLC.
The answer to whether a corporate entity could satisfy the requirement depends on whether the Omani company is 100% Omani owned or whether it has some non-Omani owners If the Omani company is 100% Omani owned, then it can satisfy the minimum 30% Omani shareholding requirement for the LLC. If it has a single non-Omani owner,
however, it cannot.
This answer may be different if the foreign shareholder is from a country that has a free trade agreement with Oman (such as the U.S. and Singapore). In that case, the result depends on the industry in which the company operates and other factors.
Wednesday, May 20, 2009
Hot Topic: States of Emergency in Oman
The recent outbreak of the H1N1 virus commonly known as “swine flu” has caused massive disruption to many countries, including widespread school, business and government closings. Globally, many travelers have faced restrictions, heightened screening procedures and even quarantine. In Oman, passengers at Muscat International Airport are now being screened for increased body temperature which can be a sign of the virus. All of this leads to the question of what laws would apply if Oman were to experience a pandemic of H1N1 or another public health emergency.
Last year, the government issued the Law on State of Emergency, Royal Decree 75 of 2008, which would come into effect if a public health or other disaster happens in Oman. In particular, the law sets out the circumstances under which the government may declare a state of emergency, who makes the declaration and what additional authority the government may exercise in order to respond to the emergency.
First, the law provides that the state of emergency may be declared when the security and public order is subject to a dangerous situation. This may include any situation posing a threat to society or state security. Examples of such situations include:
The state of emergency declaration is made through a Royal Order specifying the emergency situation, the area covered and the date of effect.
Second, the law requires the National Security Council to issue orders to protect safety and public order. It also provides additional authority to the government to respond to the emergency. For example, during the state of emergency the National Security Council may issue orders to the Royal Oman Police to take the following emergency response measures:
The law provides that the government will give reasonable remuneration if it temporarily acquires property or utilizes the services of any person to respond to the emergency.
Lastly, the law states that the Royal Oman Police shall have the authority to implement the orders issued by the National Security Council. If circumstances warrant, the National Security Council may present recommendations to His Majesty Sultan Qaboos Bin Said to use the services of the Sultan Armed Forces to execute the orders.
Oman has not been subject to any widespread outbreak of H1N1 virus, nor has a Royal Order declared a state of emergency since the law was issued in 2008.
Monday, May 4, 2009
Focus on: the Salalah Free Zone
On June 20, 2006, the Sultan of Oman, Qaboos bin Said, promulgated Royal Decree No. 62/2006 creating the Salalah Free Zone (SFZ), furthering progress toward the Sultanate’s goal of being a desirable and advantageous place to do business. A ‘Free Zone’ is a territorial carve-out in which business-friendly laws may be instituted to promote foreign direct investment, trade, entrepreneurship and business development.
The 19 million square metre SFZ is endowed by the government with world-class infrastructure and support services providing start-to-end-function facilities for both multinationals and start-ups. Other advantages include close proximity to the ‘Super Hub’ port at Salalah, one of the world’s largest container terminals. Strategically positioned on the Indian Ocean, the port at Salalah accommodates the world’s largest container ships, is equipped with the world’s largest container-handling cranes, and can handle up to 4.4 million TEU/year.
Apart from its strategic location and well-developed infrastructure, a whole host of other investment-friendly incentives are available to businesses operating at SFZ, including a competitively low initial cost of setting up, and a one-stop-shop arrangement for licenses, permits, visas, customs clearances, etc. Businesses at SFZ will even be able to participate in existing export guarantee arrangements provided to Omani companies by Omani financial institutions.
The specific activities permitted in the free zone are:
The array of special incentives offered includes:
Businesses may apply for the following kinds of licenses from the SFZ:
It should be noted that for all types of businesses located in SFZ, sales in Oman must be carried out through a distributor or any company based in Oman that holds a valid trade license with the same business activity.
Wednesday, April 29, 2009
Doing business in Oman: Alternative Energy
A study on renewable energy sources commissioned by the Authority for Electricity Regulation (AER) has found that the level of solar energy density spread throughout Oman is among the highest in the world, capable of generating more than enough electricity to meet domestic requirements and allowing for the export of any surplus. It also identified wind energy potential in coastal and mountainous areas of Salalah comparable to inland Europe where large numbers of wind turbines are operational.
The study has recommended the creation of a national authority to administer clean development mechanisms to assist renewable energy investment and policies. The international consultant conducting the study also assessed the potential of biogas, geothermal and wave energy.
Many private sector entities have shown interest in supporting solar and wind energy initiatives. Rural Areas Electricity Company SAOC, responsible for power generation and distribution in remote parts of Oman and the largest consumer of diesel in Oman, will identify locations for solar/wind energy pilot projects possibly as hybrid systems. Solar power, because it is an intermittent energy source, requires a backup supply, which can partially be complemented with wind power. Oman Power and Water Procurement Company SAOC will also conduct competitions for large-scale renewable energy projects.
The price of electricity generated using domestically produced gas is highly subsidized. Despite technological advancement and increased efficiency, renewable energy generation continues to be highly capital-intensive. Consequently, private sector initiatives will also need government support in terms of subsidizing the electricity price for domestic consumption; land concessions for installation and operation of generation plants; and tax and customs exemptions. Given the long-term benefits of using renewable energy and the dire need to reduce the reliance on depleting hydrocarbon resources, going solar may prove to be the most cost effective solution for averting an energy crisis and for reducing Oman’s carbon footprint.
Monday, April 27, 2009
FTA Alert: GCC-South Korea FTA
Leaders from the GCC and South Korea recently held talks in an effort to finalize a GCC-South Korea Free Trade Agreement (FTA) by the end of this year. The GCC is South Korea’s second largest trading partner, just after China. The FTA is expected to result in a 400% increase in South Korean investments in the UAE, with similar increases expected in Oman.
Oman and South Korea have enjoyed particularly strong ties over the last several years and the FTA will bring great benefits to both countries. Oman exported $5 billion in oil and gas to Korea in 2006, while importing $350 million in Korean products and services in 2006. Korean exports to Oman grew 219% from 2004 to 2006, as Omani exports to Korea grew 207% in the same period.
Further evidence of the strengthening relationship between Oman and Korea can be found in last month’s launch of the Oman-Korea Friendship Association (OKFA). The OKFA will promote friendship and social ties between Oman and Korea. The founding members of the OKFA include senior members of the Suhail Bahwan Group, Oman Trading Establishment, Oman Oil, and Towell Auto Centre, among others.
The FTA will enable both Oman and Korea to further their existing strong relationship and will likely result in greater Korean investment in Oman.
