Saudi Arabia a lucrative battleground for management consultants

More than 90% of the revenues of the Saudi government is currently derived from oil. Under the reign of Prince Mohammed bin Salman, Saudi Arabia has launched ambitious plans to end its long term reliance on oil. To support the design and rollout of strategies and large complex programmes, the country’s policy makers and corporates are increasingly turning to management consultants – total fees paid to consulting firms in the Kingdom has grown by 12% to hit $1.3 billion.

Saudi Arabia has seen its healthy government budget surplus, of around 15% of GDP in 2012, fall by a total of 30% to around -15% last year. The intervening period, from around mid-2014, saw a massive glut in global oil and a nearly 60% drop in price; the ‘black gold’ accounts for 90% of government revenues. 

Under the new leadership of the Kingdom, led by Deputy Crown Prince Mohammed bin Salman, who among others heads the Ministry of Defence, Saudi Arabia has established a long term strategy that seeks to diversify the country’s government funding away from oil. One of the major hubs where planning for the country’s economic transformation is taking place is at the Al Khozama Center, located in the heart of Riyadh. The hub hosts state officials and a large cohort of top tier consulting firms such as McKinsey & Company and The Boston Consulting Group, which are taking an active role in developing plans for the country’s transformation. McKinsey, for instance, was hired to by Bin Salman to support ‘Vision 2030’, while BCG, has, according to the firm’s own statistics, to date worked on over 200 projects in the Kingdom.

“I wouldn’t underestimate the historical significance of this transition,” said Jonathan Woetzel, Director of McKinsey Global Institute, the research unit of the consultancy. “Because of the demographic pressure and the ticking clock on oil prices, Saudi Arabia’s change is being accelerated. A transition in the economic model that had been expected to take 10 or 20 years is now expected to happen in just 3 to 5 years.” 

Consulting fees
The diversification programme has been a considerable boon to the consulting industry as the country seeks external expertise across a range of topics related to the transformation. According to Source Global Research, the Saudi consultancy market has seen a fee increase of 12% over the previous year, with total income hitting $1.3 billion at the start of 2016.

"The focus is on Saudi like never before,” said Jodi Davies, General Manager of Source in the Middle East. “The opportunities for consulting firms are huge. Consultants are working to transform an entire country." 

In a bid to capitalise on the growing demand for advisory services, a range of players has entered the market to advise Saudi business and the government about strategy, management and transformation. McKinsey, which recently released a report on the diversification challenge the Saudi government faces (including a calling for $4 trillion in investment), leads the pack in terms of strategic work. The US firm, said to be the most prestigious consultancy in the market, has won the largest share of contracts from the ministries – and is, state consultants within the country, working on identifying opportunities to cut costs and boost revenue on a number of large scale projects. In a wide-ranging interview with The Economist in January this year, Prince Mohammed himself acknowledged that “McKinsey participates with us in many studies.”

According to the Financial Times, McKinsey’s presence is so dominant in the higher echelon of the Saudi’s government ranks that businessmen have sarcastically dubbed the Ministry of Planning as the “McKinsey Ministry.” 

McKinsey’s largest global rival, The Boston Consulting Group, is active in the country across a range of sectors and project types. BCG is, for instance, lending support to the development of a start a state-owned mortgage firm to provide a secondary market for home loans. The firm has enjoyed double digit growth in the country, and is actively expanding its Riyadh office, which opened in October last year. “The establishment of BCG’s office in Riyadh is a very positive development in the relationship, particularly as the Kingdom continues to diversify its economy,” said Abdullatif Al-Othman, chairman of the board of directors of Saudi Arabian General Investment Authority (SAGIA), during the inauguration of BCG’s 82nd global office.A.T. Kearney has been active in Saudi Arabia for years, and late 2014 relocated to a new office in Kingdom’s capital to meet growing demand. The firm holds a strong position in the Oil & Gas industry, with SABIC – Saudi’s largest listed company – one of the firm’s top and longest standing clients. Oliver Wyman and Strategy& both have offices in Saudi Arabia, with in particular the latter firm able to build on a strong heritage in the region. Strategy& has an established foothold in the Middle East, leveraging the leading position it already had under its Booz & Company era (prior to being acquired by PwC and the rebranding), operating from its offices in Beirut, Cairo, Doha, Dubai and Riyadh (2 offices).

Other consultancies that have a physical presence in Riyadh include Accenture, Arthur D. Little, Capgemini Consulting, Korn Ferry Hay Group and several of the larger US and Indian IT service providers. Several advisory firms do not have an on the ground hub in the Kingdom, yet service the Saudi market through operations in the region, with typically the United Arab Emirates (UAE), Jordan and Lebanon serving as the fly-out hubs. Bain & Company for instance has a base in Dubai, PA Consulting Group has three offices in the Middle East, while German origin Roland Berger operates from Lebanon and the UAE.

The large professional service firms, including PwC and Deloitte, are also enjoying strong regional growth. PwC’s Waddah Salah, the leader of its Middle East consulting business, acknowledges that the firm has recently won a number of contracts for government ministries. Deloitte has also become more active in the country, with its consultants drafted in from European bases to fly in and out of the Saudi capital. Ben Hughes, Dubai-based Director of Capital Projects at Deloitte, said: “There has been a huge flight of consultants to Saudi Arabia from Dubai, looking at all aspects of the economy. This is against the backdrop of lower oil prices, increased military spending and a new ruler.”

Heating competition
The rapid influx of consultants, in the slipstream of the buoyant market, means that – much like with the oil glut – supply is starting to outstrip demand. This is turning the lucrative market for management consultants into a battleground, resulting in firm competition for contracts. “Fees are very competitive, more so than in other parts of the Gulf Cooperation Council,” remarked Hughes. “It’s a buyer’s market. People are increasingly trying to undercut one another, and equally clients recognise their advantage in this regard.”