- Saudi Arabia is the fastest-growing large consulting market
- McKinsey estimates the kingdom needs $4 trillion investment
At the entrance to the usually quiet Al Khozama Center in the heart of Riyadh, a new security checkpoint has been installed. A guard stops visitors to ask, "which ministry are you with?"
Inside, the lobby is full of Saudis in traditional dress and expatriates in suits and ties, working on laptops and holding impromptu strategy meetings on large leather sofas. Huge Arabic-language posters hang on the walls featuring buzzwords such as empowerment, ambition, change, rationalization and sustainability. Offices have been outfitted for government agencies; the Ministry of Economy and Planning has set up shop at the top of the building.
This is the working hub of Saudi Arabia’s economic transformation. At the Al Khozama Center, state officials and firms such as McKinsey & Co. and Boston Consulting Group are in the final weeks of drawing up plans for the future of the country.
Just like a big company anxious to catch up with a changing world, the kingdom is bringing in the consultants.
Consultancies are set to earn 12 percent more in commissions in Saudi Arabia this year, the fastest growth among the world’s largest advisory markets, according to estimates from London-based Source Global Research, which tracks the management consulting industry. At $1.3 billion, the Saudi fee pool in 2016 will probably be 60 percent higher than it was four years ago, the data show.
"The focus is on Saudi like never before,” said Jodi Davies, general manager of Source Global in the Middle East. “The opportunities for consulting firms are huge. Consultants are working to transform an entire country."
The desert kingdom is responding to a crash in oil prices -- which it helped create by trying to squeeze out higher-cost producers, before the plunge deepened on China’s slump and Iran’s emergence from sanctions. As recently as late 2014, oil traded at over $90 a barrel; now it’s hovering around $35. The government of King Salman is cutting spending, delaying projects, tapping foreign reserves and issuing debt as it takes on a budget deficit expected to reach about 17.8 percent of economic output this year, according to Riyadh-based Jadwa Investment Co.
The government’s National Transformation Program will focus on ways to boost economic growth, create jobs, attract private investors and hold ministries more accountable, according to people familiar with the plan. The strategy, which could be due as soon as March, follows measures unveiled last year to reduce subsidies and cut spending.
Among the consultants at the Al Khozama Center was Gassan Al-Kibsi, a Yemeni national who leads McKinsey’s local office and its work with the Saudi state. The Massachusetts Institute of Technology graduate has been with the firm for 18 years, according to his LinkedIn profile.
McKinsey has won a larger share of contracts with ministries than some other firms, according to two consultants working inside the country. It’s identifying opportunities to cut costs and boost revenue, and working with the Ministry of Economy and Planning on large-scale projects, said the consultants, who asked not to be identified because the work is private.
In an interview with the Economist last month, Deputy Crown Prince Mohammed Bin Salman said McKinsey is working with the government on many studies. The New York-based firm declined to comment what contracts it’s working on. A spokesman for Saudi Arabia’s Ministry of Economy and Planning didn’t respond to calls and an e-mail requesting comment for this article.
In a December report, McKinsey said Saudi Arabia needs public and private investments of as much as $4 trillion to boost productivity and create jobs, and can’t afford to wait for oil prices to recover. McKinsey, which has worked in Saudi Arabia since 1957, has about 300 staff across the Middle East and Pakistan, according to its website.
BCG, Oliver Wyman
BCG, Oliver Wyman & Co. and Deloitte LLP are also active in Saudi Arabia, according to staff at those firms, working to help revamp the economy under the guidance of Prince Mohammed and his father, who took power in January 2015.
BCG’s Saudi business is showing "healthy double-digit growth," and the company will hire more staff for the Riyadh office that opened in October, said Joerg Hildebrandt, the Boston-based firm’s managing partner for the Middle East. At PricewaterhouseCoopers LLP, Waddah Salah, the firm’s Middle East consulting leader, says its Saudi office has taken on work for government ministries.
‘Flight of Consultants’
BCG is working with the country’s Public Investment Fund to help start a state-owned mortgage firm, similar to Fannie Mae and Freddie Mac in the U.S., to help develop a secondary market for home loans, people with knowledge of the plans said in November.
Prince Mohammed told the New York Times that month of plans to raise domestic energy prices, privatize mining and tax cigarettes. Officials are also weighing plans to sell stakes in state-owned entities from hospitals to airports. Even Saudi Arabian Oil Co., the world’s largest oil company, known as Saudi Aramco, may be put on the block.
“There has been a huge flight of consultants to Saudi Arabia” from Dubai, “looking at all aspects of the economy,” Ben Hughes, Dubai-based director of capital projects at Deloitte, said of his office. "This is against the backdrop of lower oil prices, increased military spending and a new ruler." Hughes said he spends one to two days a week in Riyadh, and that Deloitte drafts consultants from European bases to fly in and out of the Saudi capital.
The oil crash is causing a lot of "stress in the market, particularly among contractors and the construction supply chain," said Hughes, resulting in work with those companies to streamline operations. As well, “there’s a lot more action around initial public offerings and privatization, like the possible Saudi Aramco offering," he said.
The only hitch: “Fees are very competitive, more so than in other parts of the Gulf Cooperation Council," Hughes said. Given so many firms are pitching the government and Saudi companies, “it’s a buyer’s market. People are increasingly trying to undercut one another, and equally clients recognize their advantage in this regard.”
Globally, consulting fees grew 9 percent to $115 billion in 2014, the most recent period where figures are available from Source Global. The researcher says most of that growth came from the U.S., the world’s largest market, while the Middle East accounted for just 3 percent of the total. The researcher doesn’t provide a ranking of consultants in the region because most firms are private.
“I wouldn’t underestimate the historical significance of this transition,” said Jonathan Woetzel, director of the 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."