The consultants are flocking to Saudi Arabia.
The kingdom has spent US$1.25 billion on fees for management consultants this year, according to a report from Source Global Research, as it gears up to announce its National Transformation Plan on Monday. The NTP is a raft of economic reforms designed to insulate the Saudi economy from the impact of low oil prices.
The fall in hydrocarbons revenues has hit Saudi Arabia’s financial buffers and widened its fiscal deficit, meaning that the Gulf monarchy has realised that it must embrace new policies – which is proving a boon to the economic advice industry.
Spending on consultants grew 14.8 per cent in Saudi Arabia year-on-year. That makes the kingdom the largest and fastest growing market for consultants in the region. The GCC as a whole spent $2.7bn on consultants in 2015, up from $2.46bn the previous year.
“For consultants, [Saudi Arabia] currently represents the mother of all transformation projects,” said Edward Haigh, SGR’s director.
Jason Tuvey, an emerging markets economist at Capital Economics, said: “Saudi ministries have relied on western consultants and experts for many years to help with running the economy. It’s a way for the Saudi government to get outside authority for their plans. For consultants, there is plenty of work available.”
The consultancy McKinsey argues that the kingdom needs to create 6 million new jobs by encouraging $4 trillion of new investment into its non-oil economy by 2030, in a report published shortly before the Gulf state announced it would embark on an economic reform programme.
The four largest consulting firms, PwC, Deloitte, EY and KPMG – which have recently expanded their consulting businesses – have benefited most, earning $913 million in fees in 2015, according to the report.
As oil prices rose steadily from 2003 to 2014, Gulf states embarked on an infrastructure spending spree. Mega-projects from the Kingdom Tower in Saudi Arabia, to the Qatari stadium projects ahead of the Fifa World Cup 2022, and the UAE’s major airport developments, have provided plenty of business for consultants.
But with oil prices now at $43 per barrel, down from a high of $110 in the summer of 2014, the Gulf states are turning to consultants to help them trim their budgets as they enter an era of austerity. Privatisations, cuts to subsidies, reductions in social welfare payments and overhauls to sovereign wealth funds have all been considered, and consultants are advising on each of these changes.
Last December Saudi Arabia announced an austerity budget in which it would cut spending by 13.8 per cent this year.
Some elements of the NTP have been mentioned in deputy crown prince Mohammed bin Salman’s public statements.
Ministries have been told to cut their individual spending plans by 5 per cent each, on top of additional policy changes, Reuters reported in March. Prince Mohammed said this month that the kingdom would hope to generate more than $100bn per year by 2020 in new revenue from subsidy cuts, new labour market rules and the introduction of VAT. He also outlined a complex plan to transfer ownership of Saudi Aramco to the Public Investment Fund, a new sovereign wealth fund.
Follow The National's Business section on Twitter