BMI has become increasingly negative on the outlook for Omani new vehicle sales over the past quarter. Indeed, we now feel that the indicators that are positive to Oman's economic growth prospects, such as a growing population and increasing urbanisation, are actually putting a burden on its roads. Moreover, we feel that new measures to curb congestion mean that the poorest consumers will be priced out of the car market. As such, we now expect total vehicle registrations (all first time registrations of both new and second-hand vehicles) to fall by 24.3% in 2015, led by a 30% drop in passenger car registrations, as people find it increasingly difficult to afford car purchases.
From May 1, imports of used vehicles more than seven years old have been banned and, while Omani nationals can import any number of vehicles meeting these requirements, non-nationals are restricted to just one. This echoes earlier attempts elsewhere in the Gulf Co-operation Council (GCC) states to limit congestion by targeting the non-national community, such as Qatar proposing a limit on the number of driving licences that can be issued to ex-pats. Moreover, in a bid to regulate the second-hand import market, the Royal Oman Police (ROP) has also introduced a directory of prices for cars produced between 2000 and 2010, which will stop the practice of estimating a car's value in order to calculate the import tariff. This is largely expected to increase prices as the rate had previously been at the ROP official's discretion. Overall, BMI believes that this new import tariff - which will price many consumers out of the market - will have a devastating impact on what had until now been a thriving second-hand import market.
As we pointed out in relation to Qatar, however, such measures can only work if there are sufficient transport alternatives in place. BMI's Logistics Risk index is a good indication of how Oman faces the same limitations as Qatar. While Oman scores second highest in the region for the quality of its roads with 97.6 out of a possible 100, meaning car ownership would be the naturally most attractive option, it scores 0 in the rail category as it has no rail network.
A bus network is in place but still developing, leaving car ownership as the only really viable option. This is why the sultanate has the fourth-highest car ownership level among the GCC states, with around 230 cars per 1,000 people. We expect this level to remain relatively stagnant over the next couple of years, however, given the import restrictions and their impact on new registrations.
As we highlighted when the restrictions were first announced, the outperformers in Oman's car market will be the premium brands as those able to afford new cars will not be impacted. Moreover, those that can afford new cars are often at the higher end of the price spectrum. This is playing out so far, as total vehicle registrations fell 25.6% y-o-y in the first five months of the year, according to data from Oman's National Centre for Statistics and Information. In contrast, BMW reported growth of 29.0% y-o-y for H115 sales in Oman and Mercedes-Benz's authorised dealer , Zawawi Trading Company, reported growth of 18.0% y-o-y.
As well as these sector-specific issues, the wider macroeconomic backdrop also remains unconducive to new car sales over the near term. BMI's Country Risk team believes that Oman's economic prospects have weakened since global oil prices began their fall during H214 and we expect growth to be more limited than in recent years. The country has moved into a twin fiscal and current account deficit, raising pressure on the government to rein in public spending over the coming years. While Oman retains sufficient leeway to proceed with fiscal reform in a gradual manner and limit the drag on growth, the end of the expansionary fiscal stance pursued over the past decade will still have a negative impact on domestic demand. We project Oman's economy to grow by 3.2% in real terms this year and 3.0% in 2016, down from an annualised rate of 4.5% between 2009 and 2013.
On a more encouraging medium-term note for the sector, we generally expect private consumption growth to remain strong over the remainder of the current decade, with a host of structural factors supporting the outlook for consumer purchases. These include strong population growth amidst continued increases in the expatriate population; rising household incomes; and increasing urbanisation and female participation in the workforce.
Adding further medium-term support to new vehicle sales is the fact that Oman's fixed investment outlook also appears promising. The government has numerous projects in the pipeline, covering transport and utilities, as well as healthcare, retail, and tourism, among other sectors. This should benefit demand for new commercial vehicles in particular and helps to inform our belief that CV sales will outstrip PC sales over the coming period, although PCs will continue to account for the lion's share (over 75%) of all new vehicles sold in Oman.
On the production side, the recent thawing of relations between Iran and the Western powers could see Iranian carmakers look to establish a production and export facilities within Oman, a country with which Tehran has had longstanding trade and investment ties.
In May 2015, the Muscat Daily reported that Iranian carmaker Iran Khodro Industrial Group (IKCO) plans to set up a manufacturing plant in Oman. The proposal was reportedly made during a meeting between the CEO of the Oman Investment Fund, Hassan Ahmed al-Nabhani, and IKCO CEO Hashem Yekke-Zare'a, according to Iranian media reports. The proposed plant would have a semi-knocked-down production capacity of 20,000 cars annually, with 5,000 cars destined for the Omani market and the remaining 15,000 intended for sales in nearby market such as Yemen, Sudan, Ethiopia and Eritrea.