Young Omanis find business climate tough

Government initiatives favouring home-grown start-up companies encourage entrepreneurs, but lack of experience is hampering success.

MUSCAT // Facing a high unemployment rate, many young Omanis are starting their own businesses rather than entering a tough job market, but experts say inexperience forces many start-ups to fail.

The number of job-seekers grows yearly by up to three per cent. According to ministry figures, 5,647 nationals are looking for jobs. But economic experts say the figure is as high as 8,000, which is about five per cent of total Omani workforce. There were 156,135 Omanis working in the private sector by the end of November, according to the national economy ministry figures. Only a fraction of job-seekers decide to start their own businesses, but about 60 per cent of those close in their first two years, according to ministry of commerce statistics.

Abdulhameed Mohammed al Bimani, 24, set up his internet cafe, Youth World Internet, in 2006 with 1,500 riyals (Dh 15,000) after failing to find a job. Four years later his business is thriving, but Mr al Bimani is one of the few success stories among young entrepreneurs in Oman. "I started my business when I was only 20, financially backed by my relatives. I am now in the process of opening a second internet outlet in Muscat," he said. "But it was not easy when I first started."

Mr al Bimani opted to start his own business when he left high school at the age of 19, rather than go to university, after he was rejected by several companies to work as a computer assistant. The largest mistakes Oman's would-be entrepreneurs make include not having enough capital, not preparing feasible business plans, a lack of knowledge of the market they are entering and tight competition.

In the past three years, out of 224 businesses started by entrepreneurs between 18 and 24, about 140 had closed by the end of 2009. Mr al Bimani said nationals had the advantage of a wider network of customers through relatives and friends to run a successful business. Local contacts are a competitive "plus" that Omanis have over expatriates. "My advice is that they should use their local knowledge to move forward. Expatriates lack that information and young Omanis can capitalise on this."

The dismal record of these start-ups has raised questions about the effectiveness of a government-sponsored initiative launched in 2005 to encourage young entrepreneurs. Under the plan, loans with below-market interest rates were given through the state-owned Oman Development Bank (ODB). But business experts question the methods used in the initiative. "We have to remember some of them are just teenagers. It is a good age to start, but they lack experience. ODB must conduct entrepreneurship courses concentrating on business plans and executions," Talal al Rashdi, 41, a Muscat-based senior business consultant for Capital Trade Services, a private business consultancy, said.

"These kids don't know even how to keep proper accounts. Those who succeed get support from parents and other relatives." Under the government initiative, called Sanad (support), ODB grants a maximum loan of 5,000 riyals to people aged 18 to 24 intending to open a small business, with a repayment grace period of one year. After that, the recipient must repay the money over five years with an annual interest rate of just two per cent. The only condition is that the business must be wholly Omani - from employers to employees.

To help them, the government has banned a number of trades from expatriate business owners, granting exclusivity to Omani nationals. These include internet cafes, bookstores, mobile phone vendors, cooking gas suppliers, groceries and all handicraft shops. The ban was introduced in stages about 10 years ago by the labour ministry. Labour experts, though they agree with the spirit of the ban, said the government must consider easing the total restriction on expatriates from working in the banned trades.

"I agree that these businesses must be run and owned by Omanis, but the government needs to allow expatriates to work as employees in limited numbers. This way, they can assist owners in areas like marketing and doing accounts," said Mohammed al Rabeea, 48, an employment consultant based in Muscat. But government officials disagree, and say that barring expatriates from selected trades created more jobs for nationals.

"Omani owners must employ fellow Omanis. This is how we reserve jobs for certain occupations. If they recruit expatriates, then we are not protecting jobs for nationals," a manpower ministry official in the Omanisation department said. Consumers also say that young shopkeepers must learn business ethics, and one of them is to charge competitive prices. "Their competition is big retailers in shopping malls where consumers find cheaper products there. They must learn to set up their prices to attract customers to stay afloat. It is part of the learning curve for them," Khadija Alawi, a 40-year-old housewife said.

But Fareed Ashour, 23, proprietor of a fruit and vegetable outlet, said young owners cannot compete with large retailers, and consumers must support local shopkeepers to keep the economy at the lower rungs going. "Street shops like ours are part of the neighbourhood. Local consumers have an obligation to support us. After all, we charge just two to three per cent more than the big retailers, but you get friendly service and no queue," he said.