December 2015 Issue 11. Vol 1

DGM Message Executive Summary Economy Fed Rate Hike Market Update Oman’s Prospects Feature Story Travel Corner News

DGM MESSAGE ... 3

EXECUTIVE SUMMARY ... 4Oman taps options to counter oil price drop

ECONOMY ... 6The year of the non-oil sector

FED RATE HIKE ... 10Fed defies global fiscal turbulence with rate hike

MARKET UPDATE ... 12GCC stocks likely to stay in the red until end-2015

OMAN’S PROSPECTS ... 14Outlook positive as Oman taps bonds market

FEATURE STORY ... 15World’s most expensive gems: A cut above the rest

TRAVEL CORNER ... 1710 Outstanding destinations worth visiting

NEWS ... 19

R VELTRAV

ovA ut abcu

VOu

RO

da

oru

ldFE

lU

mTU

rltt

CLOutsta

h iOOu

FEATUmos

th

COta

worth vis

NNNNEENEEEE

w

W

52

CONTENTS

3

DGM MESSAGEDear Valued asalah Client,

As Bank Muscat asalah Priority Banking reflects on 2015, a year fraught with challenges, we stand ready to embrace 2016 as a landmark year, in light of many positive macroeconomic indicators.

Throughout the recent oil-price crisis, Oman has enjoyed the second highest GDP growth in the GCC. In the banking sector, healthy fundamentals were noted as the Sultanate’s commercial banks achieved a robust 10.04% growth in total credit, at OMR 18.17 billion, for the first nine months of 2015 as against OMR 16.51 billion during the same period in 2014.

New strategic policies by the Oman Government, which will be announced in 2016, hold the key to the country’s sustained economic growth. For example, a 30-year roadmap for the tourism industry is under consideration, providing the government’s economic diversification agenda a much-needed boost.

The country’s focus on mega industries also remains intact, as state-owned Oman Oil Refineries & Petroleum Industries Co. (Orpic) is set to sign USD 5 billion worth of contracts to build the Liwa Plastic Industries Complex in Sohar. Meanwhile, several multi-national developers are competing for the Sultanate’s largest-ever independent water desalination project, which will be developed in two locations on the Batinah coast, namely Barka and Sohar.

In light of the current financial climate, the challenges emanating from lower oil prices remain a matter of priority. However, for Oman and other oil-producing nations, the objective remains the same – to avoid any slowdown in growth by pushing ahead with the prevailing economic diversification strategy.

With the proper mix of funding options, challenges in financing higher fiscal deficits envisaged under the scenario of lower oil prices are expected to be tackled efficiently.

In this end-of-year edition of our newsletter, we subject the Middle East and North Africa (MENA) region to our customary fiscal analyses, concentrating on GCC states, which share common challenges. We also include a must-read feature on the world’s most expensive diamonds and valuable gems.

The asalah Priority Banking team continues to bring exciting offers to you and your families with the new asalah Entertainer App 2016 with a larger number of offers than ever before, including the complete Travel Product. All clients will receive their unique activation codes via email in January 2016. Stay tuned and remember, the more you redeem, the more you save.

We welcome your feedback on the contents of this publication and we look forward to furthering our relationship with you.

With regards,

Ali Said AliDeputy General Managerasalah Priority Banking

4

EXECUTIVE SUMMARY

Oman taps options to counter oil price drop

As hydrocarbon reserves shrink, governments look at alternatives to help raise funds in order to fuel the country’s future growth.

The oil and gas sector has served Arabian Gulf countries well since the lucrative energy resource was first discovered in the region nearly eight decades ago. However, the consistent drop in oil prices over the past 17 months has, undoubtedly, dealt a heavy blow on the oil-producing nations.

In a recent report, Moody’s noted that GCC economies’ fiscal and current account balances will remain under pressure if oil prices continue on its downward slope. The ratings agency lowered its price assumption in 2016 for Brent crude oil to USD 43 from USD 53 amid concerns of prolonged oversupply. Brent has been trading at USD 37 per barrel as of Decem-ber 2015.

Thanks to years of oil prices at USD 100 per barrel, regional governments were able to beef up their foreign exchange reserves, enabling them to weather the initial shock of the price drop.

While not immune to the recent market challenges – and having to contend with the impact of US Federal Reserves’ first rate hike in a decade – Oman remains one of the region’s bright spots, owing to its low external debt that has made it an attractive destination for foreign investors.

The International Monetary Fund (IMF) expects Oman’s GDP to expand 4.6% in 2015 and 3.1% in 2016, the second-high-

est GDP growth in the region following Qatar’s 7.1% and 6.5% during the respective forecast periods.

Over the years, the Sultanate has also strengthened its non-oil sector, which now represents a bigger share, or 56%, of the national GDP – compared with 43% during the pre-global finan-cial crisis era, according to IMF data.

Oman’s trade and current account balance is still in surplus, with foreign reserves standing at USD 16.3 billion at the end of 2014, the Kuwait-based Kamco Investment Company reported.

But the low oil price environment remains a dark cloud hanging over Oman’s head and the IMF has called on the government to speed up efforts to implement economic reforms such as subsidy cuts and the introduction of taxes in order to secure its fiscal future.

Omani authorities, however, are mindful of the dangers of depleting its wealth reserves and have announced plans to privatise the state-owned Oman Oil Refineries and Petroleum Industries Company (ORPIC) in an initial public offering later in the decade, Kamco reported.

“ORPIC estimates that its operations represented about 6% of Oman’s total GDP in 2014 and booked EBITDA of USD 215 million in the first half of 2015,” the company said.

Because of its strong macroeconomic fundamentals, the Sultan-ate has several options to raise funds. It has started tapping the bond market in order to finance its investment plans along with drawdowns from its reserves.

“The central bank has issued OMR 500 million of sovereign bonds on the domestic market in 2015 as against a plan of OMR 600 million. The most recent issuance, OMR 300 million in early August [2015], was oversubscribed by 20.1%. Oman could increase its bond issuance programme in response to the higher than expected deficit,” Kamco added.

ECONOMY

6

Depressed oil prices have shrunk the region’s income, but other industries and a spate of reforms are supporting the economy.

The year of the non-oil sector

Gulf states had to contend with lower crude oil prices this year, but they still managed to push through a number of key reforms and proceed with infrastructure projects to keep the economy humming along.

With oil prices currently trading at around USD 37 per barrel compared with slightly below USD 100 per barrel for much of last year, Gulf economies were widely expected to post lower economic growth this year. But they have surprised on the upside, as the GCC is collectively expected to post a 3.3% growth in 2015, just a shade under the 3.4% recorded in 2014.

In fact, countries like Oman, with expected growth of 4.4% this year and Qatar with 4.7% have seen their GDP trending higher than 2014, according to estimates by the International Monetary Fund (IMF).

With oil and natural gas prices languishing at levels last seen years ago, it was left to the non-oil sector to pick up the slack. Qatar’s non-oil economy is set to soar 9.5%, while Oman and Bahrain will see a 4.5% jump in 2015, IMF estimates show. The UAE will also post a respectable 3.4% jump, while Kuwait non-oil sector is forecast to crack 3%. Saudi Arabia, the region’s largest economy, will also witness a 2.9% growth in the non-oil sector.

In short, the GCC’s non-oil sector saved the day.

ECONOMIC DIVERSIFICATION

The Gulf states have been on a decades-long plan to diversify away from their hydrocarbon riches, and while there is still some way to go before they can wean themselves off hydrocarbon revenues, their efforts have started to bear fruit.

The GCC also benefitted from the economic activity associated with USD 2.8 trillion worth of projects already under way. Management consultancy Deloitte expects projects worth another USD 172 billion will be awarded this year.

“Government spend on infrastructure and capital projects is expected to continue in order to achieve their strategies for diversification and is expected to drive the demand and growth of the building construction material industries in the GCC region,” Deloitte said.

In addition, preparations for major events such as the FIFA World Cup 2022 in Qatar and World Expo 2020 in Dubai, are generating healthy project activities that will act as a catalyst for the other planned, mixed-use and infrastructure projects, “not to mention the significant

57

focus on development of downstream industries that will further aid the growth of the building construction materials industry,” Deloitte noted.

REGIONAL REFORMS

The low crude prices have also obliged Gulf states to review their social commitments, implement necessary economic reforms and introduce new legislations to jumpstart other parts of the economy.Several tax and non-tax measures have been introduced and the currently narrow tax base may be broadened, including through the possible introduction of a value-added tax beyond 2016 if low oil prices persist.

“Fuel subsidies could be reduced,” according to the Institute of International Finance. “The 5.5% annual growth in domestic consumption of petroleum products in the past 15 years could be reduced, allowing a higher volume of oil exports.”

In August, the UAE scrapped fixed gasoline prices in favour of a system linked to global oil prices. This could be achieved by gradually raising the domestic prices of petroleum products, which are among the lowest in the world, to international levels.

“Oman is expected to introduce new taxes and increase some, suspend government-financed projects that do not have an impact on the economy’s growth, reduce subsidies and increase certain tariffs and fees,” according to Moody’s Investor Service.

In addition, all the Gulf states are rationalising projects, seeking greater productivity and efficiency in project development and pooling

in resources within various ministries and agencies to find cost-savings in key infrastructure undertakings.

That theme will likely continue in 2016, even if low crude prices edge up.

LOWER FOR LONGER OIL PRICES

For all their efforts, Gulf economies will continue to be beholden to crude oil prices, which are unlikely to move up unless the excess inventories that are sloshing around in storage in oil depots, tankers and strategic reserves subside.

The International Energy Agency (IEA) said it may take oil prices another five years to recover to USD 80 per barrel, which suggests a period of “lower for longer” crude oil prices.

But there is a silver lining for Gulf producers. With multi-billion dollar projects in high-cost jurisdictions such as the United States, Canada, Arctic, Russia and Africa being cancelled, the stage is set for low-cost producers in the Gulf to build the next phase of projects.

The IEA’s latest World Energy Outlook expects regional producers to increase their market share by 2020 and beyond, as high-cost producers in challenging geologies struggle to make their projects feasible.

Virtually all the Gulf producers are paying attention to the new development. Key OPEC producers are embarking on expansion of their crude oil production, while Oman is keen on developing its natural gas resources.

Among OPEC countries, “Saudi Arabia, Kuwait, Qatar and the United Arab Emirates are the countries best able to weather a period of reduced revenues, all having accumulated a significant financial buffer that includes large foreign currency reserves,” according to the IEA.

“None has given a signal that upstream investment may be significantly constrained by the new price environment, indeed Kuwait and the UAE have been eager to underline that their

7

expansion plans [remain] on track.”

Despite their focus on maintaining market share and determination to invest in additional production, Gulf states will bear the cost of low crude oil prices in the short term.

While Kuwait and Qatar's budget breakeven price for oil is forecast to be under USD 60 per barrel in 2016, the UAE needs USD 65 per barrel to balance its budget. Saudi Arabia (USD 90 per barrel), Oman (USD 91) and Bahrain (USD 104) would also like to see higher prices.

In addition, change is in the air in the global oil sector, as the world gets increasingly concerned about the impact of climate change on the environment. Policy makers are looking to impose greater burdens on the global oil sector to curb greenhouse gas emissions, which could have a long-term impact not only on supply, but also demand.

“If the pledges made by approximately 150 countries… are adhered to, global oil demand would plateau at around 100 million bpd by mid-century (compared to 91 million bpd),” according to Citibank. “The more ambitious aim of adhering to the carbon budget required to keep global warming sub 2� C implies global oil demand peaking mid next decade and then starting to fall.”

2016 BUDGETS

Amid the backdrop of more muted growth in 2015, Gulf policymakers are expected to rein in their spending.

“We expect aggregated government spending to decline by an annual average of 2% in 2015-2016, as compared to an annual increase of 15.5% from 2004-2014,” the IIF forecast.

In addition, the large fiscal surpluses

of the past decade will shift to large deficits, particularly in Saudi Arabia, Bahrain and Oman. The UAE and Qatar will record modest deficits, while the fiscal balance in Kuwait will remain in surplus, helped by the large investment income, which accounts for more than 10% of GDP, the IIF estimates.

In October, the UAE approved a slightly smaller federal budget for 2016, as a signal that the country is factoring in lower prices. The 2016 budget stood at AED 48.56 billion (USD 13.2 billion), with a zero deficit, compared to AED 49.1 billion (USD 13.34 billion) budget in 2015. The federal budget represents around 14% of the UAE’s overall spending.In addition to cutting or slowing spending on projects seen as non-essential, the UAE has been moving more aggressively than other Gulf Arab states to save money by reducing energy subsidies.

Oman’s policymakers are also expected to maintain a tight lid on spending, but would likely prioritise key projects that create jobs and help transition the economy.

The Ministry of Finance in Kuwait, meanwhile, has instructed other ministries and government agencies to “set their financial priorities” for the 2016/17 budget, which commences in April next year. The ministry reportedly requested all government agencies to take into account that the budget for the fiscal year 2016/2017 does not exceed the expenditure ceiling of the current financial year 2015/2016.

Media reports suggest Saudi Arabia is cutting as much as USD 100 billion from its budget for next year, while Qatar, which has warned its citizens not to rely too heavily on the state, is also anticipating a “realistic” budget for 2016.

“Our new budget in 2016 will be realistic and it will reflect the change in oil prices,” Finance Minister Ali Sherif Al Emadi was quoted by the media as saying. “It will take the fall in oil prices into consideration, so as to avoid a big budget deficit that may cause harm.”

Bahrain, which passed its 2015-16 budget in July after a six-month delay, also expects a significant deficit. A budget plan proposed by the cabinet in May envisaged spending of BHD 3.571 billion (USD 9.5 billion) in 2015, down from an originally planned BHD 3.708 billion (USD 9.83 billion) in 2014. Spending was projected at BHD 3.721 billion (USD 9.9 billion) in 2016.

Under this draft, the deficit was forecast to climb to BHD 1.47 billion (USD 3.9 billion) this year and BHD 1.56 billion (USD 4.13 billion) next year, from an originally planned BHD 914 million (USD 2.4 billion) last year.

After a period of strong growth over the past four years, Gulf countries will likely see slow growth in the near term, unless oil prices make a sharp recovery.

But even if commodity prices rise, the region’s effort to move away from dependence on hydrocarbon resources will continue uninterrupted.

8

10

FED RATE HIKE

With most of their currencies pegged to the dollar, the region braces for a rough ride; but strong fiscal position will likely keep its economy afloat.

US interest rates went up for the first time in nearly nine years, ushering in a new era of monetary policy amid great global economic uncertainty.

The US Federal Reserve Open Market Committee (FOMC) had been contemplating a rate hike over the past months and made its first tentative move towards higher interest rates in December with a 25-basis point increase.

Given that the Fed “lift off” was largely priced in, the market reaction ahead of chair Janet Yellen’s press conference was driven by the signals from the Fed’s “dots” projections and the accompanying statement. The “dots” were unchanged for 2016, suggesting the median projection is that the Fed will deliver four rate hikes next year.

25-bthw h aow s

tandm nth

platconc

ds highe2

t

he

mms

e

mmtn

mc

mmmt

e mm

hea

er

ating a

her s

n that tnGiven tG

The US FeCommittee

ting aade it

es poin

Given that triced in,

air Jan

n

proddrid

jdrivha

jve

e

phai

en ect

stat2

Global markets initially jumped on the news and the dollar soared, as the world’s most watched central bank said it expects the pace of rate hikes to be “gradual”.

“However, commodities markets remain downbeat,” the Institute of International Finance (IIF) said.

“The prospect of further USD strength, coupled with the ongoing supply glut in many sectors, has pushed commodities prices some 2.5% lower in the week the Fed announced its move, bringing losses for 2015 to over 25%.”

IMPACT ON GCC

Crude oil has been hit even harder, with Brent futures now under USD 37 per barrel.

Most Gulf states responded quickly to the Fed move. With Saudi Arabia, Oman, UAE, Qatar and Bahrain pegged to the greenback, and Kuwait pegged to a currency basket heavily weighted to the dollar, it was imperative that the regional monetary agencies take quick action.

Gulf currencies have been under pressure lately, as the price of crude oil has fallen to a six-year low, raising speculation that the regional economies may reset their peg to the US dollar.

Forward discounts at which Gulf currencies trade against the USD have been rising in recent months, but few investors were

Fed defies global fiscal turbulence with rate hike

11

expecting a devaluation or pressure on reserves, given the region’s strong financial position.

Saudi, Bahraini and Kuwaiti banks raised their interest rates by 25 basis points, in line with the Fed move, that suggest they remain committed to their exchange-rate pegs. The UAE Central Bank followed a day later.

After the Saudi central bank raised its reverse repurchase rate by 0.25 percentage point, the three-month Saudi interbank offered rate climbed 10 basis points in recent days to 1.37%, its highest level since January 2009, Reuters said.

“Higher policy rates will contribute to slower non-oil growth in the region, but their effect on economic activity will be minor compared with the dampening effect of lower oil prices,” according to Fitch Ratings analyst Krisjani Krustins.

Indeed, the Fed move comes at an awkward time for the regional economies as they look to stimulate economic growth that has been stunted by low oil prices.

Regional banks will raise lending rates, which would help their balance sheets. JP Morgan believes Saudi bank balance sheets are best positioned for net interest margins widening in a higher rate environment, followed by the UAE.

“Nevertheless, the combination of more expensive credit and more frugal governments will prevent a return to the growth rates of 2010-2014, when non-oil economies expanded at a real rate of 6% per year in the GCC on average,” Krustins noted.

In addition, the Fed rate hike would also boost Gulf stocks as investors look for markets that are not disrupted by currency volatility.

GLOBAL MONETARY POLICY DIVERGENCE

Although it was one of the most anticipated monetary policy events of the year, the Fed’s action has largely seen a muted reaction, as most investors are waiting to take positions in the New Year once they get a better assessment of the global economy.

With European Central Bank, People’s Bank of China and Bank of Japan leaning towards further monetary easing and weakened currencies to stimulate exports, there now seems to be a policy divergence between the world’s major central banks.

While the Bank of England and Bank of Mexico will likely raise interests in 2016, the list of hawkish monetary agencies is short, says PIMCO, the world’s largest bond fund manager.

However, “while central bank policies are likely to diverge in 2016, we expect the world’s major global economies to continue to converge in 2016,” PIMCO said in a note to clients.

The US economy has outperformed much of the developed world, but next year Europe and Japan expect greater economic growth; India, Brazil, Russia and Mexico are also projecting a faster pace of GDP growth for 2016.

The world’s largest economies have been growing at very different speeds since the financial crisis – with some even falling in recession – but the Fed move may see all the major contributors to the global economy finally pushing ahead at the same speed.

12

MARKET UPDATE

Indicators point to a lacklustre year-end for regional bourses, but analysts say considering current market conditions, the Gulf is still attractive.

November has been a mixed market for Gulf stock markets, with Saudi Arabia and Kuwait rising, while Oman, Qatar, the UAE and Bahraini markets lower.

But there is no doubt that all regional stock markets remain in negative territory, year to date. Dubai has led the losses, down 20%, with Qatar down 18.5%, Bahrain slipping 15%, and Saudi Arabia shrinking 16% each. Kuwait has notched up losses of 11.4% this year and Oman has suffered a 13% loss year-to-date.

While GCC policymakers are looking to bolster their economies with infrastructure projects, the protracted decline in crude oil prices is taking its toll on economic sentiment.

Saudi Arabia’s purchasing managers’ index, or PMI, saw non-oil private sector activity declining last month as output, new orders and employment all grew at weaker rates, according to Markit, which tracks business sentiment.

Similarly, the UAE’s non-oil private sector lost further momentum at the start of the fourth quarter, with business conditions rising at the slowest pace in two-and-a-half years, Markit added.

Ratings agency Standard & Poor’s has also decided to cut the credit ratings of Oman and Saudi Arabia, in a clear sign that the economic environment is moderating. Geopolitical tensions in the region are adding to the lukewarm sentiment.

Corporate earnings of Gulf states have

uaat thesin

t

fo tng a

sou

hqu

hheos fu

ly, im

quartera

an

fourn-

rrther m

ilost

t

rack

h

sbus

er

UAomUA

mr, wow

howe

-an

aker tracks bus

UAment

ith ow

-ha

atings

C

ecoa

edeandand

eRaR

d Secid

cond Son

Go

Raecid

Saono

Gea

been mixed, with some sectors surprising on the upside, especially in Qatar and the UAE, while commodity-related sectors are predictably in slow-growth mode.

In addition, pressure on some Gulf currencies are fuelling uncertainty, with money market rates rising as liquidity contracts on lower crude oil revenues.

MARKETS STILL ATTRACTIVE

But some analysts believe the regional markets may be in oversold territory.

S&P GCC Composite Index has fallen 17.5% year-to-date, compared to the 16% decline for the MSCI Emerging Market Index and just over 10% loss for MSCI BRIC Index.

Gulf stocks could benefit as investors reallocate funds and pick up regional stock at bargain prices.

Collectively, the GCC’s price-to-equity ratio is around 11.5 times,

GCC stocks likely to stay in the red until end-2015

13

making many Gulf stocks’ an attractive proposition. For example, the Bahraini index is trading at around nine times, while Oman is at around 10 times. The major markets of Saudi Arabia, carrying P/E ratio of 12.5 times and the UAE at 10 times also look increasingly enticing. In contrast, China’s P/E ratio is 14 times, and India’s stand at 18 times.

"There are broad-based buying opportunities, but stock selection is becoming key,” according to Hootan Yazhari, head of MENA and frontier markets equity research at Bank of America Merrill Lynch (BAML).

“We retain our bias for markets with robust macro, attractive valuations, consistent earnings delivery and/or superior earnings growth. These factors make the UAE our most preferred MENA market and Kuwait as our preferred GCC Frontier market.”

The sharp correction across frontier markets since the summer has also yielded strong opportunities across many other markets, including Saudi Arabia. In this context, BAML believes stock selection (rather than market selection) is becoming more crucial and advocate a focus on quality and mispriced opportunities.

The sense is that while Gulf economies are struggling, they are in far better shape fiscally than many of their emerging market peers in Latin America and Asia that are facing high debt and currency depreciation.

OIL REMAINS DEPRESSED

Brent crude prices have fallen nearly 30% this year, while the greater commodity index is down 13% year-to-date.

The commodity complex remains in bear mode, with prices across the board stuck in the doldrums.

“A strong US dollar, weakness in the Chinese economy and excess supply in several markets have continued to weigh on prices in recent months, with most major commodity prices now down by double digits this year,” TD Bank said.

With the US Federal Reserve likely to lift rates off their lower bound in December, the greenback is expected to continue its upward trend into early-2016. Meanwhile, oversupplied markets and disappointing economic data in China will also help to pressure industrial commodity prices lower. “That said, we suspect that the end is near, with most prices beginning to turn the corner by the second quarter of next year,” TD said.

With most corporations currently in planning phase for next year and a seasonal slowdown just round the corner, the markets are expected to remain subdued with expectations of low volumes in the relatively quiet period of December.

14

OMAN'S PROSPECTS

Low level of external debt has made the country attractive to foreign investors despite the challenging global economic conditions.

Market observers are upbeat that Oman will continue to gain access to the international bond markets despite Standard & Poor’s decision earlier to slash the Sultanate’s credit rating.

In recent days, Oman invited banks to participate in its USD 1 billion sovereign loan, according to Reuters, as the government examines a number of options to plug its budget deficit.

The country posted a OMR 2.93 billion (USD 7.63 billion) budget deficit in the first nine months of the year, but it has the luxury to tap credit markets due to its minimal overseas debt, which makes it attractive to foreign investors.

The latest loan preceded a OMR 250 million debut sovereign Islamic bond, which is being raised to finance public spending. The country is also looking to privatise state-owned assets and draw on the reserve fund to ensure it can navigate its way in the global economy’s choppy waters.

While the next year or so is probably going to be hard for most crude oil exporters, Oman’s effort to diversify and maintain strategic projects is expected to move in its favour.

The Institute of International Finance notes that Oman’s economic “prospects further out still remain bright.”

The country’s crude oil production has now touched one million barrels per day (bpd), while efforts to expand its natural gas

rds effoma

t

toO

ean’s

Who b

hear

e nW ehard for sg

to bea

at

rs

the nex

te

Whi

rsts wait tay in

er

rt yxmto

jtoo

rovour

teegts favit

e reseits way in t

ear ost

to roje

its favour.

tw

furn

hThnotenote

htee

he

urthterthr

he s t

rthe

T

output should start bearing fruit as early as 2017. In addition, the Sultanate is looking to spend as much as OMR 450 million to upgrade its telecom and Internet infrastructure, which will play a key role in its diversification push.

State-owned Oman Oil Refineries and Petroleum Industries Co (ORPIC) also sealed negotiations with preferred bidders for USD 4.5 billion worth of contracts to build a major plastics complex in the country, in a sign of continued economic activity.

Contracts with a combined value of OMR 100 million were also awarded for the new Muscat International Airport, as Oman ensures that major strategic projects get the attention they deserve.

The prudent rationalisation will go a long way in keeping Oman’s budget deficit in check, without freezing out economic momentum.

Outlook positive as Oman taps bonds market

15

FEATURE STORY

World’s most expensive gems: A cut above the rest

From blue diamonds to red rubies, rare gemstones exude brilliance that the rich and famous find very hard to resist.

In the 1950s, Arthur C. D. Pain, a British mineralogist and gem dealer, stumbled upon an orange-brown mineral in Myanmar. When it was confirmed that the complicated mineral composition was in fact a new species, he went ahead and named it after himself.

For years, only two examples of this rare Painite mineral were known to exist. This made Painite “almost priceless” at one point, with later estimates on its value placed at USD 50-60,000 per carat. It’s difficult to value such a rare mineral, particularly one that hasn’t been sold in the market before and so hasn’t gained a market value.

Likewise, the Kohinoor diamond, set in the Crown of Queen Elizabeth II – while not the world’s largest – may just be worth more than others if it ever was sold, because of its history and provenance. However, that also won’t appear on any list of the most expensive gems in the world, because it hasn’t (or can’t) be valued.

When flawless gems do come up for auction, however, headlines are made. Read on to discover the most expensive gemstones in the world.

Blue Moon Diamond: USD 48.5 millionA new world record was set in November 11, 2015, when Hong Kong tycoon Joseph Lau became top bidder for this flawless diamond, which was sold for USD 48.5 million at Sotheby’s. Promptly renaming it “The Blue Moon of Josephine”, after his seven-year-old daughter, Lau also

hon to dRea

au tionWh la

hW

vav

n, howeoto

auctadm

d.

flawless

ue

Whe

v dworld cad, bec

s g

o disco

ssve

dmstones st

t of theworld, beca

emr, he

discogemstones

e Mo

s

11La1

nA n11

nBluB

w2ew

au b, 2u

da

Blunew

201au b

di

purchased a 16-carat vivid pink diamond for USD 28.5 million just the night before at Christie’s – also naming it “Sweet Josephine” after his daughter.

GRAFF PINK: USD 46.2 MILLION

This 24.78-carat diamond previously held the record for the most expensive gem bought at auction, after London jewellery dealer Laurence Graff paid USD 46.2 million at Sotheby’s in 2010. The diamond’s former owner, jeweller Harry Winston, hadn’t put it on the market for approximately 60 years.

THE ORANGE DIAMOND: USD 35.5 MILLION

A definite selling point for some diamonds is their colour – as not all are crystal clear. This orange coloured diamond was the largest ever to appear at auction and broke the world record for the highest sale at USD 35.5 million. Weighing in at 14.82 carats, it was expected to raise USD 21 million. It also broke the world record for the price paid per carat for a coloured diamond sold at auction (at USD 2,398,151 per carat).

THE SUNRISE RUBY: USD 30.3 MILLION

Also selling at a record price, the Burmese Sunrise Ruby is set with diamonds and is from the private Cartier jewellery house collection. When it sold in May 2015, it tripled the previous record set by the Graff Ruby, broke the world auction record for the price per carat of a ruby (the Sunrise is 25.59 carats) and also became the most expensive Cartier jewel to have ever been auctioned.

THE BLUE BELLE OF ASIA: USD 17.29 MILLION

The world’s most expensive, record-setting sapphire is known as the Blue Belle of Asia, and fetched USD 17.29 million for Christie’s (bought by a private collector). Mounted on a diamond necklace, this Ceylon sapphire weighs in at 392.52 carats and was discovered in 1926.

AND FINALLY: THE PINK STAR DIAMOND

The Pink Star Diamond is a “Fancy Vivid Pink” diamond, weighing 59.6 carats. It almost raised USD 83 million at Sotheby’s in 2014 and would have been the most expensive gem in the world… if the bidder had been able to afford to buy the stone. The Sotheby’s auction was over in just five minutes, but the top bidder Isaac Wolf eventually defaulted on the payment, leaving the diamond in the hands of the auction house. According to research, pink diamonds are becoming increasingly sought-after as supplies in the Australian Argyle mine start to dwindle.

17

TRAVEL CORNER

Shake up your next travel itinerary with any of these uncommon, yet comparatively awe-inspiring landmarks around the world.

A bucket list tour of the world's most spectacular landmarks need not be restricted to traditional favourites such as the Taj Mahal and the Colosseum. Particularly in the Far East, a slew of new builds might well steal the thunder of the European and North American icons, many of which have reached saturation levels in visitor numbers.

Elsewhere, changes in travel habits mean that today's tourist is more willing to take the road less travelled in search of sites that are as spectacular as they are underrated – and often located in some surprising corners of the globe.

TOP TOWERS

While the 986-foot high Eiffel Tower remains the world's most visited monument and secures an obligatory cameo in any movie set in Paris, the iron-lattice icon increasingly looks like a 19th-century achievement.

For towers that take the breath away, head east. In China, Guangzhou's Canton Tower, completed in 2009, climbs in one elegant twist to 1,969 feet, a triumph of aesthetics and architecture. By night, the graceful tower on the south bank of the Pearl River lights up in an assortment of colours. By day, visitors can take an elevator ride to the top storey in just 60 seconds, with views over the city from the rooftop observatory. The tower is a short walk from Chigang Pagoda station on Subway Line 3.

Another vertigo-inducing attraction is Japan’s Tokyo Skytree, which reached

csul towrac

P

ae ecef

ees

ttic

mptwele an

coow

etics andu

R

aestcr

ea

t twist

d w

eleg

P

eFor to

p

rsI

owerd

nd

teto

etet d ar o

liow

rs Byrl R

olou

For towersIn C

ete1,96rchi

r onligh

colours. By evator

AJ

waro

eseroofroo

elee

offteco

walkoft

kS

a

eleecon

opalk f

Su

completion only in 2012 and is considered the tallest free-standing tower in the world at 2,080 feet. It has already established itself as Tokyo’s number one attraction with more than 170,000 visitors a day. Luckily, the visitor influx is spread among the surrounding complex called Skytown, which includes shops, restaurants and entertainment sites. Otherwise, visitors can ascend to the tower's observation deck, with views across to Mt. Fuji by day and magnificent sunsets over the city as night approaches. Take the metro to Oshiage Station and don't forget to look up on exiting the subway for one of the best photo angles of the tower looming above.

Moscow's Ostankino Tower was built in 1967 to commemorate the 50th anniversary of the October Revolution. Today, the 1,772-foot tower, the tallest structure in Europe, dominates the skyline of a very different city. The tower serves primarily as a broadcasting antenna, but it is possible to reserve in advance and join tour groups of up to 90 people for a guided visit. To pass security checks, visitors need to show a passport, however.

10 Outstanding destinations worth visiting

18

POLITICAL BUILDINGS

London's Houses of Parliament and Washington D.C.'s Capitol Building inspire awe as much through the political power behind them as through their architecture. However, in Bucharest, Romania, the Palace of the Parliament is solely about the size. Completed in 1997 and a brainchild of the infamous Ceausescu regime, the palace is the largest non-military building in the world, packing in more than 3,000 rooms, many of which are empty. The only way tourists can view the palace is by guided tour, with a passport required for security clearance. The palace is hard to miss, but the nearest subway is at Izvor.

If travel bans to Cuba are eventually relaxed, one of the first stops for visitors will be Havana's El Capitolio. The seat of the pre-revolutionary government – but since allocated to the Cuban Academy of Sciences – the building is not only inspired by the US Capitol, but also exceeds it in size, topped off by a 300-foot cupola. The capitol's decadent, lavish interior is a throwback to the time when Havana was a thriving cultural bastion. Don't miss the Statue of the Republic, resplendent in bronze and gold leaf, which is the world's third largest indoor statue at 49 feet. ANCIENT WORLD

Until the desert sands reclaim the pyramids at Giza entirely, coach loads of visitors and throngs of hawkers already take some of the awe out of a trip to the site, the only surviving member of the Seven Wonders of the Ancient World.

Not so in Cholula, Mexico, home to the largest pyramid ever built. The Cholula Pyramid once measured 1,300 square feet and was a sacred site for Mexican civilization from 3 B.C. until its

abandonment in the 8th century. Spanish conquistadores added a church on the pyramid's apex in the 16th century, but the area was steadily left for nature to reclaim until a series of excavations in the 20th century.

In the Yucatan Peninsula (southeastern Mexico), within easy striking distance of the tourist areas of Cancun and Cozumel, Chichen Itza is much better known, with more than a million tourists a year. Few places offer a better insight into Mayan civilisation, in particular the curious arrangement of the 98-foot pyramid, Temple of the Warriors, and the Great Ball Court. For those who thought pyramids were a uniquely Egyptian trick, the Mayan temples offer an enchanting education.

Although travel to Libya involves its own risks, few sites illustrate the rise and fall of empires as potently as the Leptis Magna ruins at Khoms, roughly 81 miles from Tripoli. Spanning 1,000 BC to the 7th century, the city was once one of the most important trading cities in Africa, part of the Roman Empire, and modelled in the style of Emperor Severus. Numerous organised tours explore the desert city of neoclassical arches, marketplaces, amphitheatres and mosaics, with a fraction of the crowds attracted by similar sites in Greece and Italy. SUPREME STATUES

Explorers in search of the world's tallest statue must venture to Fodushan Scenic Area in east China where the Spring Temple Buddha towers 420 feet above the surrounding countryside. It's not easy to get to and barely registers a mention in many guide books, but perhaps that is part of the appeal. Visitors can take a taxi from the nearest city, Pingdingshan, and approach the statue through a traditional Chinese temple, which also hosts the world's largest and heaviest bell, at 116 tones. Emerge from the temple and the copper-cast Buddha awaits, as striking in appearance and grace as the Statue of Liberty, but completed in 2008 only.

Likewise, the statue of Cristo Rei in Lisbon, Portugal instantly evokes Christ the Redeemer in Rio. Hardly surprising, as the 260-foot statue was inspired by its smaller Brazilian counterpart. Finished in 1969, the statue's outstretched arms reach out to the Portuguese capital below. As a result, the observation deck has some of the best views of the city.

For modern travellers willing to explore new destinations, or experienced tourists with galleries of landmarks already in their photo album, these underrated, lesser-known locations give a fresh impetus to sightseeing, without the crowds in most cases.

Oman Oil plans to boost production despite low prices

Oman Oil's exploration and production division plans to invest up to $4 billion over the next five years to boost output despite low oil prices, the state-owned company's chief operating officer said on Monday."For us, low oil prices are an opportunity. We have ambitions internationally to acquire companies and enter joint ventures," COO Suleiman al-Zakwani told reporters at a petroleum technology conference in Doha- Reuters Read More >>

Chinese firm plans $20m pipe factory in Sohar

Well-known Chinese steel mill Jiangsu Changbao Steel Tube Co says it plans to set up a manufacturing facility in the Sultanate specialising in the production of steel piping and related goods for the domestic and regional oil and gas industry.

Headquartered in the Yangtze River Delta region of China, Jiangsu Changbao's Board of Directors said it has endorsed a proposal to establish the plant in Sohar Freezone adjoining the Sultanate's main commercial gateway and industrial port on the Batinah coast. An investment of around $20 million is envisioned in the project, the company noted in a statement- Oman Daily Observer Read More >>

Oman's tourism sector on path to more growth, shows report

Oman's tourism sector is set for more growth, with direct benefit to the economy project for the coming years. The focus remains on involving the local community in building the sector as it is developed to strengthen the economy.

The government has identified tourism as a sector with strong growth potential and a key source of jobs for Omani nationals, while a steady increase in arrival numbers is demonstrating growth in Oman's tourism industry, according to a new report from the country's National Centre for Statistics and Information (NCSI)- Muscat Daily Read More >>

Rail network declared public utility Project

His Majesty Sultan Qaboos yesterday issued a Royal Decree No 49/2015 declaring the second phase of the Railway Project as a Public Utility Project.

Article 1 of the Decree states that the second phase of the Railway Project to connect the area of Hafait in the Governorate of Al Buraimi with the area of Fahoud in the Governorate of Al Dhahirah, as specified in the memo and diagram attached to this Decree, shall be considered a public utility project - Oman Daily Observer Read More >>

Oman to privatise three state-owned companies

Oman will privatise three state-owned companies next year, according to a Reuters report, which quoted Finance Minister Darwish Al Balushi.

Gulf governments are expected to consider privatising state assets as they seek to raise cash at a time of lower oil prices, which have hit their revenues.

Oman posted a budget deficit of OMR2.68 billion in the first eight months of this year, against a OMR205.7 million surplus a year earlier, because of lower oil export prices.

Al Balushi early this year said the planned privatisation programme of a number of state-owned firms was under preparation and would be carried out in the next three years, after getting necessary approvals - Times of Oman Read More >>

19

NEWS OMAN

ome

unity ye s. T

enhe

reea

urne

Oir

an st

s tma

The focu

gt

year

n

sbenefit t

adirec

grow swth,

mtom

t tusbu

ngthen gt

man'sgrowth, s

m she

rembu

strengthen t

e gove

M

numO

trstrOmn

asOma

rheTh

mana

tron

umbma

bdm

ind

Therong

ni mb

nd

20

Gulf states agree on key issues for implementing VAT, UAE official says

Gulf states have agreed on key issues for implementing value-added tax in the region, an official from the United Arab Emirates finance ministry said on Monday, moving the six nations closer to introducing direct taxation for the first time.

The agreement was reached at a meeting of representatives from Gulf ministries a few days ago, Younis Haji al-Khouri, undersecretary at the UAE ministry of finance, told reporters on the sidelines of a media event - Reuters Read More >>

Despite low oil prices, Gates looks to Gulf in anti-poverty campaign

Low oil prices and tight budgets in the Gulf are making it harder to raise money for a fund tackling poverty in the Muslim world, but a growing culture of philanthropy may draw in wealthy regional donors, billionaire campaigner Bill Gates said.

The Microsoft co-founder is visiting the Gulf seeking donations towards his foundation's planned $2.5 billion fund, which will work to reduce poverty and disease across 30 countries in the Middle East, Africa and Asia.

The fund is a joint project with the Jeddah-based Islamic Development Bank , which has committed $2 billion in loans financing if the Gates Foundation raises $500 million in donations - mostly from the wealthy oil-producing Gulf states - Reuters Read More >>

Saudi construction market pushing through investments

Saudi Arabia is likely to remain the dominant construction market in the GCC for the foreseeable future with an estimated $200 billion spend in construction projects planned over the next two years. "This development is expected to spur continued growth among stakeholders in the Kingdom's construction market, especially for local businesses. Equally important, as the sector develops, more

employment opportunities should open up for Saudi nationals and further contribute to the country's continued push for economic growth," said Ibrahim Al-Moaiqel, director general, Human Resources Development Fund ( HRDF ), which was established to intensify Saudization within the private sector under the Nitaqat program, touted to be one of the world's largest quota-based labor policies - The Saudi Gazette Read More >>

UAE scores highest in 2015 Arab Knowledge Index

The UAE received the highest scores in the 2015 Arab Knowledge Index, proving to be one of the most knowledgeable countries in the Arab world. The Arab Knowledge Index, launched at the Knowledge Summit 2015 today, monitors the status of knowledge in the Arab world. The report offers decision-makers, experts and researchers information on the status of knowledge in Arab countries, helping them implement development policies for building knowledge societies as well as regional and national programmes of world-class standards - Gulf News Read More >>

QP projects on track, eyeing expansion to widen its global reach

Qatar Petroleum (QP) has said it has not stopped any long term projects and is looking towards expansion to better position it internationally, according to its top official.

Moreover, the country's oil and gas behemoth, which will soon join the Oil and Gas Climate Initiative (OGCI) for better environment, is seeking a "reasonable" carbon dioxide pricing as part of clean development mechanism (CDM)."In QP we have not stopped any long-term projects that are on our plans. Actually we are going to be expanding and we are looking for QP to be present internationally in a much bigger way," QP president and chief executive Saad Sherida al-Kaabi told the 9th International Petroleum Technology Conference (IPTC)- Gulf Times Read More >>

GCC

DISCLAIMER

This Newsletter is strictly for information purposes only and shall not be relied upon by any party for whatever purpose, and theinformation herein does not represent the views of bank muscat. While every reasonable care has been taken to ensure the accuracy or completeness of the information contained in this Newsletter, bank muscat SAOG and its employees make no representation or warranty,whether express or implied, and accept no responsibility for its accuracy or completeness. As such, bank muscat accepts no liabilitywhatsoever for any direct or indirect loss arising from any use of this Newsletter or its contents.

Nothing in this Newsletter is intended to be or should be considered as legal, regulatory, tax, financial, or other advice. You should consult your own professional advisors about issues mentioned herein that may be of interest to you as this Newsletter is published for generalinformation and does not have regard to the specific investment objectives, financial situation, and particular needs of any specific person.

The content of this publication (“Service”) is provided by Thomson Reuters (Markets) Middle East Limited (“We” or “Us” or “TR”) to be published by bank muscat SAOG exclusively. Neither We nor our affiliates guarantee the accuracy of or endorse the views or opinions givenby any third party content provider, advertiser, sponsor or other user. We may link to, reference, or promote websites, applications and/or services from third parties. You agree that we are not responsible for, and do not control such non-TR websites, applications or services.

The Service and Content are provided for informational purposes only. You understand and agree that the Service does not recommendany security, financial product or instrument, nor does mention of a particular security on the Service constitute a recommendation for you to buy, sell, or hold that or any other security, financial product or investment. The Service does not provide tax, legal or investment adviceor opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Neither We nor ouraffiliates shall be liable for any errors, inaccuracies or delays in the Service or any Content, or for any actions taken by you in reliancethereon. You expressly agree that your use of the Service and the Content is at your sole risk.

YOU AGREE THAT YOUR ACCESS TO AND USE OF THE SERVICE AND ANY CONTENT, COMPONENT OR FEATURE AVAILABLE THROUGHTHE SERVICE IS ON AN “AS IS” AND “AS AVAILABLE” BASIS. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, WE EXPRESSLY DISCLAIM ANY REPRESENTATION OR WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY REPRESENTATIONSOR WARRANTIES OF PERFORMANCE, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, ACCURACY, COMPLETENESS,RELIABILITY AND NON-INFRINGEMENT. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, WE AND OUR AFFILIATES DISCLAIMALL RESPONSIBILITY FOR ANY LOSS, INJURY CLAIM, LIABILITY, OR DAMAGE OF ANY KIND RESULTING FROM OR RELATED TO ACCESS,USE OR THE UNAVAILBILITY OF THE SERVICE (OR ANY PART THEREOF).

TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THOMSON REUTERS, ITS PARENT COMPANY, ITS SUBSIDIARIES, ITSAFFILIATES AND THEIR RESPECTIVE SHAREHOLDERS, DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ADVERTISERS, CONTENTPROVIDERS AND LICENSORS (COLLECTIVELY, THE “REUTERS PARTIES”) WILL NOT BE LIABLE (JOINTLY OR SEVERALLY) TO YOU FOR ANYDIRECT, INDIRECT, CONSEQUESTIAL, SPECIAL, INCIDENTAL, PUNITIVE OR EXEMPLARY DAMAGES, INCLUDING WITHOUT LIMITATION,LOST PROFITS, LOST SAVINGS AND LOST REVENUES, WHETHER IN NEGLIGENCE, TORT, CONTRACT OR ANY OTHER THEORY OFLIABILITY, EVEN IF THE TR PARTIES HAVE BEEN ADVISED OF THE POSSIBILITY OR COULD HAVE FORESEEN ANY SUCH DAMAGES.

+968 24 77 9999 asalah@bankmuscat.com www.bankmuscat.com/asalah