Market Updates | 17th September 2021
The pandemic is accelerating the pace of change right across the professional services sector, amplifying pre-crisis trends as well as triggering entirely new ones. We’ll be keeping tabs on these over the coming months: We’ll be reporting back on what clients are telling us and how we see different segments of the professional services sector perform, as well as highlighting emerging opportunities and challenges. As always, we’ll be taking a fact-based approach. Our market sizing data comes from our unique model of the professional services sector, with more than $1tn of revenues broken down by sector, geography, and capability. Our forecasts are constantly updated to reflect the latest market data we have available from firms and their clients. Client data comes from our rolling programme of quantitative research and interviews.
Professional services in the GCC: Post-pandemic resurgence
In the last decade, the GCC region—encompassing Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE—has evolved into an important, if volatile, market for professional services firms. But what are its prospects going forwards?
Before the fall in the price of oil in 2014-15, we estimate that the professional services market in the GCC was growing in the region of 20% annually. A small market at the time, oil-rich governments sought to invest in and modernise their economies—and western professional service firms played a key role in helping them. Although this surge in activity stalled as the price of oil crashed, pockets of significant growth remained and, by 2019, the region’s overall growth rate had bounced back to 11%, above the global average of 8%. 2020 saw the pandemic impact the market in two ways: GCC economies suffered as travel restrictions and lockdowns created an uncertain environment for investors, but the crisis caused another, even more dramatic drop in the price of oil. By the summer of last year, the impact on demand for professional services was catastrophic—but it was also short-lived. Overall, the market contracted by 5% last year, slightly better than the global fall of 6%. This year, however, we expect the GCC to be the world’s fastest growing professional services market, with a forecasted increase of around 18%, near to the hay-day of 10 years ago. Growth in 2022 is likely to be more modest, as clients look to consolidate some of their expenditure this year, but we still expect the market to increase at above average rates between 2022-24.
This remains a relatively small market, worth an estimated $22bn in total: it’s less than 10% of the size of the European market, for example, and worth just 4% of the North American market. Put another way, it’s slightly smaller than the Nordics market. Why is it likely to generate comparatively high levels of growth?
A breakdown of the market by line of business highlights a key difference to those other markets: the size of the civil engineering market relative to the total market.
In the GCC, civil engineering (which, in our definition, focuses on the work done by qualified engineers—many civil engineering firms offer construction services, which we don’t include in our numbers) accounts for around 14% of the market, compared to around just 4% globally. This large share reflects not only the level of investment being made in infrastructure projects by private sector clients, but also the dominant role played by government departments and publicly-funded and/or owned entities in the region, through which so much of the money spent on professional services is channelled. Twenty-two percent of professional services work comes directly from the public sector in the GCC, compared to 10% globally.
Thanks to their strong relationships in the public sector, civil engineering firms gained a platform from which to expand in the region: It paved the way for them to provide economic and policy-related research, programme management, and other services that—in the past—weren’t a core part of their portfolio. As such, the region has boosted engineering firms’ attempts to diversify into more lucrative management consulting work. But the success of engineering firms isn’t just down to early wins in the public sector; it also stems from a chronic shortage of high-calibre expertise in the region—and to that extent, engineering firms were simply some of the first professional services firms to be in the right place at the right time, providing smart, well-educated people who were thin on the ground locally. Despite an influx of other types of firms, this problem hasn’t gone away, indeed travel restrictions have made it hard for clients to recruit new, full-time employees, meaning that they’re likely to rely even more heavily on professional services firms in the future.
More recently, regional issues about lack of capacity have been exacerbated by a growing need for more specialised skills in sustainability—and here, too, civil engineering firms have had an advantage. Interest in ESG issues isn’t confined to the Middle East, but it has been on the radar of GCC clients for longer, especially those in the public sector or funded by it. Post-pandemic investment in this area, which has already been considerable, is likely to grow sharply. Civil engineering firms, with their expertise in large infrastructure projects, urban design and building use, had more of the skills required to formulate and implement strategic initiatives in this area than management consulting firms, giving them a strong platform for future growth.
The experience of civil engineering firms in this market highlights three key areas of future growth: Strong public sector relationships; the ability of firms to help clients augment their own staff with smart, capable individuals; and expertise in sustainability. But to what extent will other types of professional service firms be able to leverage these opportunities?
The big technology, strategy, and consulting firms have all invested heavily in the region and can boast strong client relationships in the high-spending ministries and state-owned enterprises. However, consulting firms have relied more on flying in people, especially–but not exclusively–subject-matter expertise, so may not have the on-the-ground presence at the moment that the big civil engineering firms have. In this respect, the Big Four firms, whose audit business has to be supported by locally-based people, will do especially well. The challenge, then, will be around sustainability. As we’ve already noted in these updates, there’s already a global shortage of consulting talent, and that’s particularly acute in the comparatively new ESG space. With the prospect of large, game-changing ESG projects being bought by western-based multinational corporations, consulting firms may well choose to focus their already limited resources on bigger markets. That’s a risk that clients in the GCC are already acutely aware of: One client we spoke to said that his organisation feared only being able to access the “B team”, the people leftover as other, bigger markets take priority. A shortage of sustainability experts at a time when sustainability is therefore likely to play a pivotal role in the region takes us full circle and will give civil engineering firms the chance to reinforce their position. It will give them, too, a platform from which to exploit sustainability-related opportunities in other markets.
To take advantage of the forecast growth in this market, other professional service firms will need to invest in locally-based sustainability skills. Facilitating remote access to world-class experts in other parts of the world will help raise awareness and an understanding of ESG issues among clients and employees in the GCC, but it’s going to be critical to start now to build up the on-the-ground resources that will be required to help with the implementation of work in this area.