Cheap oil brings a gusher of con­sul­tants to Saudi Ara­bia

▶ ▶ Cheap oil means Saudi Ara­bia has to change. En­ter the con­sul­tants ▶ “There’s a lot more ac­tion around ini­tial pub­lic of­fer­ings and pri­va­ti­za­tion”

Bloomberg Businessweek (North America) - - Contents - Stefania Bianchi, Matthew Martin, and Vivian Nereim

A new se­cu­rity check­point has been in­stalled at the usu­ally quiet Al Khozama Cen­ter of­fice build­ing in the heart of Riyadh. A guard stops vis­i­tors to ask, “Which min­istry are you with?”

In­side, the lobby is full of Saudis in tra­di­tional dress and for­eign­ers in suits and ties work­ing on lap­tops and hold­ing im­promptu strat­egy meet­ings on large leather so­fas. Huge Ara­bi­clan­guage posters hang­ing on the walls are loaded with buzz­words: em­pow­er­ment, am­bi­tion, change, ra­tio­nal­iza­tion, and sus­tain­abil­ity. Govern­ment agen­cies have staked out of­fice space through­out the build­ing, with the Min­istry of Econ­omy and Plan­ning on the top floor.

This is the cen­ter of a new boom for con­sul­tants in Saudi Ara­bia. With crude trad­ing below $35 a bar­rel for most of 2016 so far, the king­dom, which de­rives 73 per­cent of govern­ment rev­enue from oil, is look­ing for a new busi­ness plan— or, as of­fi­cials call it, a Na­tional Trans­for­ma­tion Pro­gram, which could be un­veiled as soon as March. And much as when a big com­pany finds it­self ea­ger to catch up with a chang­ing world, firms in­clud­ing Mckin­sey and Bos­ton Con­sult­ing Group are lin­ing up to of­fer ad­vice for a price to the Saudi govern­ment and busi­nesses.

The coun­try is the fastest- grow­ing large mar­ket for man­age­ment con­sul­tants, which are set to col­lect fees of $1.3 bil­lion in Saudi Ara­bia in 2016. That’s an in­crease of 60 per­cent from four years ago, ac­cord­ing to es­ti­mates from Lon­don-based Source Global Re­search, a firm that tracks the in­dus­try. “The op­por­tu­ni­ties for con­sult­ing firms are huge,” says Jodi Davies, gen­eral man­ager of Source Global Re­search in the Middle East. “Con­sul­tants are work­ing to trans­form an en­tire coun­try.”

There’s ur­gency to the task. As re­cently as late 2014, oil traded at more than $90 a bar­rel. To ad­just to the sharp drop, the govern­ment has had to cut spend­ing, de­lay projects, tap for­eign re­serves, and is­sue debt to pay for a bud­get deficit that Riyad­hbased Jadwa In­vest­ment projects will reach al­most 18 per­cent of eco­nomic out­put this year. The new plan for the econ­omy, say peo­ple fa­mil­iar with it, will look for ways to at­tract pri­vate in­vestors and hold min­istries more ac­count­able. It’s also ex­pected to look for ways to di­ver­sify be­yond oil.

Among the con­sul­tants spot­ted at the Al Khozama Cen­ter was Gas­san Al-kibsi, a Ye­meni na­tional and Mas­sachusetts In­sti­tute of Tech­nol­ogy grad who’s lead­ing Mckin­sey’s work with the Saudi govern­ment, ac­cord­ing to one per­son

who at­tended meet­ings there. BCG, mean­while, is see­ing “healthy dou­ble-digit growth” in its Saudi Ara­bia busi­ness, says Jo­erg Hilde­brandt, man­ag­ing part­ner for the Middle East. BCG opened an of­fice in Riyadh in Oc­to­ber and plans to hire more staff, he says. Oliver Wy­man and Deloitte are also ac­tive in the king­dom, say ex­ec­u­tives at those firms. Mckin­sey de­clined to com­ment on its con­tracts. In a De­cem­ber re­port, it said Saudi Ara­bia needs pub­lic and pri­vate in­vest­ment of $4 tril­lion to boost pro­duc­tiv­ity and jobs, and couldn’t wait for oil prices to re­cover.

Some con­sul­tants are work­ing with com­pa­nies to re­duce costs. The oil crash is caus­ing a lot of “stress in the mar­ket, par­tic­u­larly among con­trac­tors and the con­struc­tion sup­ply chain,” says Ben Hughes, Dubaibased di­rec­tor for cap­i­tal projects at Deloitte. That com­pany is draft­ing con­sul­tants from its Euro­pean of­fices to fly in for Saudi projects.

Also, says Hughes, “there’s a lot more ac­tion around ini­tial pub­lic of­fer­ings and pri­va­ti­za­tion.” In Jan­uary, Deputy Crown Prince Mo­hammed bin Sal­man, son of King Sal­man, sug­gested that the gi­ant sta­te­owned oil com­pany Saudi Aramco could sell shares in an IPO. Of­fi­cials are weigh­ing plans to sell as­sets such as hospi­tals and air­ports.

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 and en­cour­age home­own­er­ship, peo­ple with knowl­edge of the plans said in Novem­ber. Saudi Ara­bia has one of the world’s low­est rates of mort­gage bor­row­ing.

One hitch for the con­sul­tants, says Hughes, is that so many are jostling for busi­ness that “it’s a buyer’s mar­ket.” Fees aren’t as rich as in some other coun­tries in the re­gion.

But there should be plenty of work to do. Saudi Ara­bia has a huge pop­u­la­tion of young peo­ple it needs to keep em­ployed. “Be­cause of the de­mo­graphic pres­sure and the tick­ing clock on oil prices, Saudi Ara­bia’s change is be­ing ac­cel­er­ated,” says Jonathan Woetzel, di­rec­tor of the Mckin­sey Global In­sti­tute, the re­search arm of the con­sult­ing firm. “A tran­si­tion in the eco­nomic model that had been ex­pected to take 10 or 20 years is now ex­pected to hap­pen in just three to five.”

“Con­sul­tants are work­ing to trans­form an en­tire coun­try.”

—— Jodi Davies of Source Global Re­search

The bot­tom line Con­sul­tants have de­scended on Saudi Ara­bia to of­fer ad­vice on cost-cut­ting, pri­va­ti­za­tion, even the hous­ing mar­ket.

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