Saudi Arabia decrees public sector ban on foreign consulting firms

13 September 2019 Consultancy-me.com

The Kingdom of Saudi Arabia has issued a royal order banning the government’s use of foreign consultancies, according to a report in the Saudi Gazette.

Local media outlet the Saudi Gazette has reported a royal order has been issued in the Kingdom banning all government departments and agencies from engaging foreign consultancies unless in exceptional circumstances where no local expertise is available. At a worth of over $1.3 billion, Saudi Arabia’s management consulting market is by far the largest of the GCC, with public sector consulting contributing around a third of the $3 billion spend in the region.

Just a little over a year ago, the Saudi government had announced plans to consolidate its consulting contracts into single channels in an effort to speed up project delivery, trim budgetary waste and reduce the potential for corruption, with jumbo five-year contracts of as much as $1 billion or more reportedly up for grabs. Now, with the latest decree, it’s unclear the ramifications for foreign consultancies; what constitutes one, and where the line of expertise will be drawn.

The issuance of the new order has been confirmed by Saudi news outlet Al Arabiya English, which spoke with a senior government official who added that a communiqué from the Royal Court had been circulated in recent months directing public institutions across a wide range of sectors to seek local advisors before approaching foreign consulting firms. Yet, coming at a pivotal time for the future Saudi economy, the reasoning behind the dictate also remains hazy.

While the move is said to be in line with wider efforts toward Saudi nationalisation (locally Nitaqat, the Kingdom’s policy to improve the employment rate of Saudi nationals in the private sector), a blanket ban would presumably impact Saudi nationals employed with foreign consultancies – including country leaders of firms such as Alvarez & Marsal and Accenture among many others – casting doubt on nationalisation as a primary direct motive.

Saudi Arabia decrees public sector ban on foreign consulting firms

According to the Gazette, the new constraints on foreign consultancies follows a recommendation from the Experts’ Committee to the General Secretariat of the Council of Ministers, with the committee having studied the local consulting landscape with the participation of relevant authorities. The media outlet however noted a previous call for restrictions from the Shura Council, Saudi Arabia’s non-executive advisory assembly.

Significantly, the Shura Council is said to have at the time pointed to the dozens of national research centers operating under the umbrella of universities or the private sector which could take advantage of the Kingdom’s core consulting activity “involving huge amounts of money”, with the recommendations according to Al Arabiya directed at spending on foreign consultancies involved in formulating strategies to control expenditure and privatise government institutions.

Dating back to a few years ago, the total value of the contracts awarded to foreign firms at the time was around $3.3 billion, the Gazette stated, citing figures from the General Auditing Bureau – which in another recent royal decree has been renamed General Bureau for Auditing. In conjunction, King Salman also ordered the establishment of a National Center for Artificial Intelligence and an official body known as the National Data Management Office.

The latter decrees bring into focus the level of progress made toward the Kingdom’s economic diversification and modernisation agenda, but also the precarious timing of instituting a ban on foreign consultancies – undoubtedly instrumental in reshaping the Kingdom in recent years – when the local economy is poised at such a critical juncture, with the initial float of Saudi Aramco, the cornerstone of the Kingdom’s development plans, set to take place “very soon”.

Reports that American financial services giant J.P. Morgan is close to securing the advisory contract for the Aramco IPO may indicate the true extent of the ban on foreign consulting firms. McKinsey & Company (which has copped recent flack for its activities in the Kingdom) and Boston Consulting Group have for example been working on another crucial economic centerpiece, mega-development NEOM, while Deloitte is providing expert guidance on fintech and digital delivery, again a key plank of KSA's reform agenda. 


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