Corona sees Middle East consulting industry facing large drop in fees

Early indications suggest that consulting firms operating the Middle East will come under significant pressure due the coronavirus pandemic, with a possible 18 percent of revenues to be shaved from the regional market this year.

The Middle East consulting industry is staring at an 18 percent decline in 2020 revenues courtesy of the unfolding coronavirus crisis, erasing the past two years of gains. The gloomy forecast, based on early market analysis from specialist industry research and advisory firm Source Global Research, follows straight on the back of its recent GCC market report celebrating a near double-digit gain in 2019 to a worth of $3.3 billion with further acceleration expected to come.

Now, the larger Middle East region is looking at having $300 million wiped off its advisory books, and that’s just among the upper end of the market, with Source Global confining its research to consultancies with a headcount of 50 or greater serving companies with typical turnovers in excess of $500 million. In addition, while much remains highly unknown, the Middle East market may be especially susceptible due to the region’s particular make-up.

According to the firm, which has been quick to put together an early picture through advanced modelling and up-to-the-minute consultation with hundreds of leading consulting industry executives worldwide, four industry segments in particular face the greatest threat – including the services sector (such as to leisure and aviation), energy & resources, healthcare, and the public sector, all of which have a particularly concentrated focus in the region.

The latter, government and public sector spending, accounts for almost one third of the consultancy outlay across the GCC, at a worth of over $1 billion per year. While the global energy & resources and healthcare consulting segments are tipped to contract by a quarter or more this year, movement in the public sector – currently forecast to decline by 22 percent worldwide – is perhaps the biggest unknown, dependent on the response of individual nations.

Saudi Arabia, possibly the regional market’s most important current driver and now accounting for almost half of all GCC spend, grew by 12 percent last year to a worth of $1.6 billion on the back of the Kingdom’s ambitious diversification agenda, with public sector spending up by over 10 percent (despite the supposed ban on foreign-owned consultancies being granted public sector contracts). Effectively, the Saudi government’s response will have a huge bearing on the wider Middle East market.

More broadly, at the global level, Source reports that some firms are already reporting projects being put on hold as public sector time and money are redirected elsewhere, but others, especially as to longer-term technology projects, are continuing on for the time being – with the both the public and private sectors reluctant to forgo previous investments in this regard. Source Global also notes that the technology consulting segment may be one of the better insulated.

As might be expected, when it comes to service lines the immediate impact will be felt in areas requiring travel (while evolving, the Saudi Arabian market is still to a certain extent served from the regional consulting hub of Dubai), as well as in respect to projects requiring a high degree of in-house contact with clients, such as to change-related work and many aspects of operational improvement. Here, strategy projects should be among those least badly affected.

Yet, while the early forecast isn’t pretty for the Middle East consulting market, and is of course subject to an extremely fluid situation, the regional prospects still remain far brighter than for many international counterparts – and particularly so as compared to Europe. The current Source modelling altogether predicts some $30 billion dollars to be wiped off the $160 billion worldwide market – a drop of 19 percent – with Europe by far bearing the major brunt.

If the forecasts comes to pass, consultancies operating in Europe and Russia, the world’s second largest combined region behind North America, would lose a massive 28 percent of their revenues this year – equating to a hit of almost $23 billion from the current $45 billion take. North America, which at nearly $80 billion accounts for basically half of all global revenues, would lose 15 percent, or $12 billion, while the Asia Pacific appears to be on stablest ground.

Source Global is quick to reiterate that along with geographies, industry segments and service lines, the impact of the global coronavirus pandemic will also be felt differently among the consultancies themselves, with the larger players with broad service portfolios being the most likely to prevail. These advisory giants typically serve on lengthier projects, and have greater wriggle room to cut their rates, a luxury not available to firms with a smaller market share.

The upshot, the industry can likely expect a wave of consolidation, as in the words of Source the dominant firms “spot opportunities to acquire innovative, boutique firms at knock-down prices.” Still, the key for all firms large and small, contends Source, will be in their resilience and flexibility – a reasonably inherent industry characteristic which should see a brighter landscape in the final quarter of this year for those consultancies which demonstrate the ability to adapt.