June 19, 2024

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Consulting firms’ grip on Saudi economy sparks local misgivings

4 min read

In 2022 Saudi Arabia’s energy minister gave a rare public display of distaste for the role of management consultants who had become virtually indispensable to his own ministry.

“The institution has no cadre to keep it sustainable,” complained Prince Abdulaziz bin Salman, half-brother of Crown Prince Mohammed bin Salman, during a talk in Riyadh in November 2022. “No future outlook safeguarded by people who take it from start to finish.”

For most of its history, the energy ministry’s operations and planning have relied on a mix of employees seconded from state oil company Saudi Aramco and embedded consulting firms.

But some officials fear Saudi ministries have become over-reliant on western consultancies, from the Big Four of Deloitte, EY, KPMG and PwC to more specialist strategy consulting firms, as disgruntlement grows about the outsiders’ ever-growing role in running the country.

“I’ll be in a lot of meetings where Minister X or Deputy Minister X is presenting a strategy,” said one Saudi professional who has worked both in the government and at a top consulting firm. “And the first thing that they’ll say is: ‘Ahlan wa sahlan, welcome, and I would like to let you know that consulting firm Y prepared this presentation’ . . . They don’t even take ownership of it.”

Riyadh’s use of consultants has expanded since the crown prince’s 2016 launch of an ambitious programme to steer the Middle East’s biggest economy away from its dependence on oil revenues.

To meet demanding deadlines and tackle novel challenges, from creating a Red Sea tourist destination to establishing high-tech industries, ministries enlisted even more help from foreign consulting firms including McKinsey, Boston Consulting Group and PwC’s Strategy&.

That has helped the kingdom’s consultancy market swell to a record $3bn last year, roughly the size of Switzerland’s, according to Source Global Research, which expects it to continue expanding at a rapid pace.

The tight-knit relationships between Saudi Arabia and US strategy consulting firms have come under scrutiny in Washington this year, with the heads of McKinsey and BCG, as well as public relations consultancy Teneo and dealmaker Michael Klein, summoned to testify before Congress about the work they do for the kingdom.

Many Saudis privately grumble about the spending on foreign consultants, complaining that ministries and authorities are now simply “RFP machines”, a reference to the requests for proposals sent to consulting firms, which then bid for the work. Reliance on the firms has meant many government bodies established since the economic reform plan was launched in 2016 were designed to function with consultants in mind.

“There are a lot of places where their process has a budget line that can only be spent on a third-party vendor. So even if you have a good budget, you can’t hire people [on staff] using that money,” said the Saudi professional. “You can only do it through a third-party vendor, which means you’re going to get a consultant to do this thing for you.”

While the Big Four tend to work on implementing major government projects, Saudi entities such as the Public Investment Fund and other government authorities often turn to US “strat firms” such as BCG and McKinsey for ideas — including on where and how to invest.

Consultants argue that government spending on their services helps Saudi Arabia rationalise its massive expenditure on projects from the futuristic city of Neom to a vast entertainment complex in the desert outside Riyadh.

“They’re going to be spending say $10bn on a capital programme and need to ensure it’s money well spent . . . if that 1 per cent spend on consultants means the programme doesn’t run over by 10 per cent that is a rational expense — even if people in the ministry don’t necessarily see it that way,” said an executive at a big consulting firm.

As the price of oil has fallen, cost control has become critical to Vision 2030. With billions of dollars of spending at stake, the crown prince has led an effort over the past 18 months to decide which government projects would be prioritised when it comes to funding amid concerns about borrowing and liquidity in local banks.

Saudi officials are watching the spending numbers “super closely . . . it’s not slapdash”, the executive said.

Consultants are aware of local criticism. “People think we are super well paid, living the dream in Dubai, chilling on the weekends . . . and shafting the government out of zillions of dollars, with not a lot to show for it,” said another executive at a global firm.

However, they say Saudi Arabia’s long history with foreign management consultants has made its ministries tough taskmasters that get their money’s worth. “They know the tricks consultants play, and they expect you to be with them day and night,” said the second executive.

Several senior officials are themselves former consultants, including two deputy ministers for tourism who came from McKinsey. Of PwC’s 2,300 employees in Saudi Arabia, 56 per cent are Saudi nationals. But out of more than 100 partners, only 15 or 20 are Saudis because top domestic talents are often poached by the government, PwC’s Middle East chair Riyadh Al Najjar told local podcast Socrates.

While Saudi Arabia needs management experts, the kingdom matters more than ever for consultants.

The consulting market grew 18.2 per cent in Saudi Arabia last year, according to Source Global, against 13 per cent growth in the Gulf region overall and just 3.5 per cent globally.

“We think the consulting market is going to grow slowly in the next year or two,” said Fiona Czerniawska, Source Global’s founder and chief executive. In contrast, the Middle East consultancy market will increase “two to three times the speed of that . . . the Middle East makes a difference at the moment”, she said.

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