Oman calls in McKinsey on refining and petrochemical industry integration

18 May 2018 Consultancy-me.com

Strategy and management giant McKinsey & Company has been working with Oman on plans to integrate the Sultanate’s refining and petrochemical sectors into a single entity, according to recent reports.

As the Supreme Council for Planning prepares to release the first draft of Oman Vision 2040 by the end of the year, which following the 2020 agenda outlines the future roadmap for economic diversification, the global strategy and management consulting leaders McKinsey & Company has been reported to be advising the government on integrating the nation’s refining and petrochemical sectors.

The Oman blueprint for economic diversification sits alongside the raft of national transformation programmes released across the GCC in response to the dive in global oil prices, including the Saudi Vision 2030, long held to have been devised by McKinsey, with a focus on breaking the local reliance on oil resources – which, according to Deloitte figures, in 2016 accounted for approximately 90% of Omani government revenues and more than 50% of the national GDP.

While Oman has in part sought to build its non-resource sectors with an increased focus on heritage, technological innovation (marked already by the advanced multi-million dollar regional cybersecurity centre unveiled by EY in the country last year) and tourism, with the latter to be supported by the newly opened Muscat International Airport designed to cater to up to 48 million visitor per year through future expansions, the nation has also looked to develop its petrochemical and petroleum refining sectors – such as with the $6.5 billion Liwa Plastic Industries Complex project (LPIC).Oman calls in McKinsey on refining and petrochemical industry integration planWith manufacturing identified as a priority sector in Oman’s diversification initiatives – expected to deliver 15% of the nation’s future GDP – the LPIC project is one of the focal points of the latest five-year phase of Vision 2020; its petrochemical refining activities projected to bring up to 3% of the manufacturing total alone. Featuring a pipeline-connected refinery, aromatics plant, steam cracker, and downstream polypropylene and polyethylene plants, the refinery and petrochemical facility is said to be one of the best integrated in the world.

Now, with the aid of McKinsey, the entire refinery and petrochemical industries of Oman are themselves set for integration, according to Reuters by way of an anonymous senior Omani government official. “The work is being carried out by McKinsey. It is not finished yet,” the source told the international news agency. According to the report, Oman has also been toying with the idea of privatising a number of state firms over the past years, as the Sultanate seeks to raise cash and enhance efficiencies during an era of low oil prices.

Industry Consolidation

A recent report on the Gulf petrochemical sector from McKinsey rivals The Boston Consulting Group, released in conjunction with the Gulf Petrochemicals & Chemicals Association (GPCA), noted in its recommendation of greater local consolidation that the accelerated consolidation trends within the industry globally have granted a competitive advantage to international rivals as activity in the Middle East greatly lags behind.

Consolidation, the report argued, could “build market leadership in certain segments, achieve portfolio coherence, increase cost competitiveness (including better integration of site networks) and support accelerated development of capabilities.” Mirko Rubeis, Partner & Managing Director at BCG, said in conclusion; “Multiple market developments – both internal and external – are reshaping the petrochemical industry in the Middle East. We believe that consolidation is an effective route to positive transformation for GCC producers.”

While Oman is the second smallest management consulting market of the GCC ahead of Bahrain, at an estimated worth of around $100 million, it has nevertheless grown at a faster rate in recent years than several of its Gulf neighbours. The Sultanate, however, still has one of the lowest female workforce participation rates in the GCC, ahead of only Saudi Arabia – and potentially soon eclipsed by the Kingdom as Saudi reforms come into effect and women hit the road.

Do consultants have a legitimising effect in the Middle East?

19 April 2019 Consultancy-me.com

Do the often kowtowing international consultants operating in the Gulf simply grant legitimacy to local rulers? The answer’s not so simple says regional expert Calvert Jones, who has conducted a fascinating research study on the local consulting industry.

Now valued at $3 billion annually in the GCC alone, the Middle East management consulting industry has exploded since the global financial crisis, growing at a heady 20 percent clip up until 2014 when the dive in global oil prices and attendant austerity measures briefly applied the brakes; ‘brakes’, in this context, meaning growth which at its lowest point in 2015 dropped to around 6 percent.

The slow-down was brief. With the plummet in oil prices spurring regional governments to act on economic diversification – captured in a range of ambitious national transformation agendas – together with the emergence of a range of digital advances now sweeping the public and private sectors, fresh impetus was given to the local consulting market; this year forecast to return to double-digit growth.

Of that $3 billion consultancy price tag – with close to half of it handed over in Saudi Arabia – the public sector accounts for approximately a third of the take, the vast majority of that paid to foreign consultancies and in particular the advisory wings of the Big Four and global strategy giants such as McKinsey and BCG. Scrutiny of these practices – especially in the wake of the Khashoggi killing – has also increased.

Copping much of the media flak, McKinsey for its part has backed itself as a force for good in the region, contributing greatly toward local economic, education and healthcare development. But the question remains, even if making a positive difference, do international consultancies confer legitimacy on authoritarian governments – “helping to prop up and even strengthen repressive, illiberal regimes?”Does the Middle East consulting industry have a legitimising effect?One person well-placed to address that question is Calvert W. Jones, an Assistant Professor in the Department of Government & Politics at the University of Maryland and author of ‘Bedouins into Bourgeois: Remaking Citizens for Globalization’. Jones spent 19 months between 2009 and 2017 conducting field research in the region, including into the consulting industry and the notion of conferred legitimacy.

According to Jones, some of the consultants she interviewed themselves expressed this concern, particularly when due a range of market factors they may have grown less inclined over time to voice too strong of an opinion. Yet, whether this is indeed the case is not so clear. Among other findings and areas of research, Jones conducted several experiments on the subject of legitimacy at universities in Kuwait, involving some 650 students.

“Conventional thinking about experts in politics suggests not only that experts rationalise governmental decision-making, but also that they confer legitimacy – meaning that the public may be more likely to support government initiatives when experts with the relevant knowledge, training, and experience are involved. In the Gulf, both experts and ruling elites tend to think along these technocratic lines,” she states in an article for the Harvard Business Review.

Experiments

While not addressing potential international legitimacy or other geopolitical or business and trade issues, Jones sought to test the idea of conferred legitimacy as to public opinion in the local polity. For the experiments, she asked participants to imagine that their country’s leaders were launching a major reform to improve either education or infrastructure, exposing them to a variety of mock news articles outlining the likely benefits from the government initiative.

In the first experiment, half of the reports featured reference to a team of top international experts assisting with the hypothetical reform, including their credentials and extensive experience elsewhere, with this detail absent from the remaining half. She found that subjects who read that experts were involved were far less likely to support the reform – indicating the ‘involvement of experts’ may have led to a significant drop in legitimacy. The results, however, are somewhat murky.

In the second experiment, Jones explored the impact of nationality on opinion, with otherwise identical reports on expert-advised infrastructure reform referring to either American, Chinese, or Kuwaiti advisers. She found two surprising results. Support for the reform did not differ significantly whether led by Chinese or Kuwaiti experts, but did however for the American-led reports, with subjects expressing significantly lower support.

The Chinese were also considered far more capable than their American counterparts, which may in itself provide a clue. “It’s not necessarily evidence of profound anti-Americanism, let alone a new love for Chinese experts,” Jones cautions; “Most likely, it reflects Kuwaitis’ longer experience with American experts, which includes their frustration with the lack of progress on various reforms.” The Kuwaitis, she suspects, are just far less familiar with Chinese consultants.

“This experimental evidence raises doubts about the ability of experts to rationalise and legitimise authoritarian rule,” Jones concludes. “Indeed, my research suggests that international experts can actually undermine legitimacy, potentially reducing domestic support for autocrats and weakening their regimes… In my experience, residents of these countries are increasingly critical of their governments paying hefty fees to foreign experts and consultants for little in return.”