Last month, government entities within Saudi Arabia were instructed to use domestic consultancies instead of foreign consulting firms – a market currently worth over $3 billion within the Kingdom. While global consultancy giants such as Ernst and Young and Price Waterhouse Cooper can offer experience and nous during a critical stage in Saudi Arabia’s economic transformation, there are three factors in play behind the decision to turn to local firms.
The most straightforward is security: Saudi Arabia’s economic reforms are an issue of national security and local consultancies may be more secure. As we have seen in the last few weeks in particular, foreign entities are seeking to actively undermine the Kingdom’s economy. Foreign consultants may have conflicts of interest, and even when their interests are aligned with Saudi Arabia, they pose a potential threat through accidental leaks of critical information. Based on similar reasoning, the UK recently suspended its solicitation of advice from the London School of Economics’ foreign academics.
The second factor concerns the role of consultancies. Could Saudi Arabia’s decision be reflective of broader dissatisfaction with the advice offered by foreign consultants?
A common view is that top global consultants have a tendency to lackadaisically copy-paste solutions from western domains to the Middle East, without taking the time to adapt their advice to local conditions. Moreover, some go further and accuse those companies of being unable to take into account the nuances of the Saudi Arabian economy and cultural landscape due to their lack of on-the-ground personnel.
But upon closer inspection, these claims don’t seem very plausible. The world’s premier management consultants all have permanent offices in Saudi Arabia, with Saudi nationals holding many positions including in senior management, ensuring an institutional appreciation of local issues. Moreover, contrary to popular belief, for the most part consultants aren’t actually paid to develop novel advice. Instead, they are paid to help the client implement ideas conceived by the client’s top management, through what amounts to an exercise in political grandstanding. This is why so many people complain that consultants are paid to tell clients what the clients already know anyway.
Why would anyone, including Saudi Arabia, pay such handsome fees for such an apparently superficial service? Because implementing reforms, especially bold ones such as Vision 2030, inevitably faces resistance from within organizations, and foreign consultants can help break that resistance. Bringing in external expects with global credentials and nominal independence can give ministers the political capital and support they need to implement reforms.
The decision to scale back the use of foreign consultants is therefore an indication that the Saudi Arabian government has overcome most of the bureaucratic opposition to Vision 2030 and no longer needs foreign consultants to overcome institutional resistance to reform.
At the onset, the implementation of Vision 2030 – entailing new approaches, detailed performance evaluations, and liberalization – faced institutional resistance. While foreign consultants initially helped overcome these barriers, the Kingdom’s public sector is now more likely to be committed to implementing Vision 2030. This is because King Salman has made many ministerial changes over the last five years, and the civil service has been infused with young, fresh blood. With the public sector on board, the needs for consultancies like McKinsey and Boston Consulting Group to back management up is now limited.
The final factor which has potentially contributed to the decision is the Kingdom’s aim to build the capacity of local think tanks, which will benefit from a renewed focus on domestic institution-building.
Since 2011, all the Gulf countries have come to understand the important contribution that think tanks make to foreign policy: domestically, they support policymaking; externally, they help lobby foreign governments, and shape the narrative in the mainstream media. Saudi Arabia has also realized that for think tanks to perform these roles effectively — especially influencing foreign perceptions of Saudi Arabia — they need to be financially independent of the government, as diverse funding is critical to perceptions of credibility. In 2013, the Saudi government established the completely autonomous King Abdullah Petroleum Studies and Research Center (KAPSARC). While KAPSARC is now highly productive, its success stems from a generous endowment – a model which is not a scalable way of developing a large ecosystem of think tanks.
As an alternative, the Kingdom can develop its think tanks through consultancy contracts rather than endowments. Some of the world’s leading research centers, such as the US-based RAND Corporation and UK-based Royal United Services Institute (RUSI), earn a significant share of their income from contract research for government clients, especially within their own country, while still retaining high levels of public credibility. In this commercial domain, they compete directly with traditional consultancies, especially the think tanks with an economics focus.
By guaranteeing the lion’s share of consulting contracts for local entities, it is possible that the Saudi Arabian government is hoping to boost the performance of its homegrown think tanks. For example, the Jeddah-based Gulf Research Center has a history of supporting policymaking, such as through its executive-learning program, and by performing contract research on issues pertaining to the Saudi economy. Demand for these services is likely to increase as governmental entities look for domestic alternatives to foreign consultants. Saudi Arabia can also benefit politically by encouraging local think tanks which engage in geo-strategic research such as Rasanah, the Riyadh-based International Institute for Iranian Studies.
While foreign consultancies have provided Saudi Arabia with useful services thus far, turning to local consultancies can confer significant benefits as the Kingdom undergoes a period of critical development.
Omar Al-Ubaydli is a researcher at Derasat, Bahrain. He tweets @omareconomics.