CONTEXT AND TRENDS One of the most signifficant developments for Oman's economy in the last 12 months was Sultan Qaboos' decision to reverse prohibition on Islamic finance in 2011. After years of Oman insisting its banking industry should remain solely conventional, the move represents a complete u-turn and was said to be driven by the need to make the banking sector more regionally competitive....
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CONTEXT AND TRENDS
One of the most signifficant developments for Oman's economy in the last 12 months was Sultan Qaboos' decision to reverse prohibition on Islamic finance in 2011. After years of Oman insisting its banking industry should remain solely conventional, the move represents a complete u-turn and was said to be driven by the need to make the banking sector more regionally competitive. "There is a lot of money, local money, going to places like Dubai and Saudi. The Omani banks can't afford to continue missing out on that," says one partner. Legislation governing takaful (Islamic insurance) and sukuk (Islamic bonds), in addition to a law from the Central Bank to supervise Islamic institutions are all close to being finalised. "Oman is always the last in the GCC (Gulf Co-operation Council) queue to do something but when they do something they do it with convection and vigour. Now there is a big flurry of Omani banks looking for licensing. There's a need there, customers are demanding it," says one partner. While banks scrap to secure approval to open Islamic windows, the first institution to be authorised, Bank Nizwa, is expected to begin selling Islamic products in 2012, after raising $158 million through an IPO to finance its Islamic banking arm. Although the new legislation is not in place, lawyers anticipate it will be enacted before January 2013. "They are amending the banking law it hasn't been enacted yet but it will be before the year's out." While implementing the laws necessary to enable the sale of Sharia compliant products is progressing well, one hindrance to the process is banks' inexperienced workforce. Staff will need to familiarise themselves with Islamic products and banks' will need to employ boards of Islamic scholars, who must approve transactions, before an Islamic finance market can truly develop. International institutions have wasted no time in taking advantage of this lucrative opportunity, a key example being HSBC's merger with Omani International Bank, which will be rebranded HSBC Middle East, in April 2012.
While this latest move will invariably see law firms focussing on developing or expanding Islamic finance competencies, the most important practice for firms based in Oman remains project finance. "Infrastructure, power and water are where we've been busiest," notes one partner. This driver behind these projects is the need to develop the country's economy and diversify away from its dependence on oil. Lawyers note there is also a drive to increase tourism. "There are a lot of state backed real estate projects – resorts, hotels. It's another way they see they can strengthen the economy," notes one lawyer.
The Sultan's need to invest in the country has been given fresh impetus by the ongoing unrest which began at the onset of the Arab Spring in March 2011 and continues, albeit sporadically, to date. Although not as severe as the protests that erupted in other Arab states, at least five protestors were killed at the outset and the discontent is still clearly being felt. The Omani population's grievances were not directed at the Sultan but at what they deemed corruption in the government. The world's longest ruling leader, Sultan Qaboos, took immediate action when the protest began in 2011; sacking ministers accused of corruption, devolving powers of certain ministries, raising public sector salaries and increasing the legislative powers of parliament. In June, however, when protests began at a state oil company over poor pay and benefits, the Sultan took a different approach, prosecuting 30 activists on defamation charges. Lawyers say the protests don't deter foreign investors, but feel further reforms might. In the immediate aftermath of the initial protests the government increased the number of Omanis a company must employ in addition to raising the minimum wage. "It's quite simple, it's increasing peoples overheads so it makes them think about going somewhere where it cheaper to run a business," says one partner.
MAJOR LATERAL HIRES
Graham Moaut
From: Minter Ellison
To: Al Busaidy Mansoor Jamal & Co
[Read about law firms' performance in this practice area]
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