Oman has seen tremendous changes since Qaboos came to power. Virtually the whole country has been transformed as a result of advances in housing, education, health, and communication. Internal migration from interior rural areas to urban centers has also contributed to social transformation. The government responded by taking steps to minimize the dislocating effects of its programs.
The economy of Oman, heavily dependent on its production of 900,000 barrels of crude oil per day, was adversely affected when the price of oil dropped below US $10 per barrel in 1998, a 25-year low. In the first three quarters of 1998, Oman's GDP had dropped by an annualized rate of 8.5%, and Omani oil production had similarly fallen by 32% in the same period. In January 1999, the Omani finance minister announced that the country's budget deficit was expected to double within the year. Seeking to offset the loss in oil revenue through other sources, the government raised customs duties from 5% to 15%, corporate income tax from7.5% to 12%, and the cigarette tax from 75% to 100%, though it did not institute taxes on personal income or consumption. Oman is not a member of the Organization of Petroleum Exporting Countries (OPEC); however, in March 1999, Oman agreed with OPEC to reduce global oil production by 2.1 million barrels of crude per day until April 2000 in the hope of raising oil prices to US $18 per barrel and stabilizing the oil market. In October 1999, the Omani oil minister recommended extending global oil production cuts beyond the date originally proposed for their expiration.
In an effort to ease its dependence on oil, Oman has sought to diversify its economy. A new US $5 billion gas liquefaction plant south of Muscat enabled the Oman Liquefied Natural Gas Company to deliver on contracts with Japan and South Korea for liquefied natural gas. Other plans—for a power station, an aluminum processing plant, a steel mill, and petrochemical and fertilizer plants at Salalah and Sohar and the gas pipelines to fuel them—remained unrealized. While oil production constitutes less of Oman's GDP than was the case during the 1980s, oil is still the major source of revenue for Oman's government, which is the mainspring of the country's economy. Manufacturing still accounts for only 5% of the GDP.
The Omani government has moved toward greater privatization. At the successful new port at Salalah, a free zone was to be built solely by private investors. The private sector was financing a new airline to service Salalah, a tourist destination as well as a trade center. Legislation barring expatriates from certain sectors of the economy has encouraged private employment of Omani nationals, most of whom work for the government, and the industrial sector, comprised of 19% Omani nationals in 1995, was 28% Omani in 1997.