Financial consultancy business in the Gulf is facing dramatic change. In an exclusive interview with Joyce Njeri, Ian Gomes, KPMG’s Head of Advisory and Markets, reveals how the advisory firm is transforming itself in order to maintain its leadership position in the sector, by offering clients multidimensional solutions…
Ian Gomes, KPMG’s Head of Advisory and Markets, UAE and Oman
Q: What in your assessment are the most common consulting challenges consulting businesses are facing in today’s competitive marketplace?
A: In a constantly changing and challenging economic environment, the issues facing our clients are fluid and demand sector specific skills and solutions …. The days of the “generalist management consultant” are well behind us. Clients are also demanding more for less (fees) and are showing an inclination to link part of the fees towards successful outcomes – this means they want to see us also help them with the task of implementing many of our recommendations which is a change from the past when the consultant’s job ended on delivering the recommendations. Whilst we are still in a low growth environment, companies are more focused on directing their spending to the matters that either keep management awake at night, improve their profitability or driven by regulatory requirements.
The market is yet to mature fully to recognise value so a continuing challenge is the tendency of organisations, particularly their procurement functions, to expect consulting firms to operate at both ends of the price-value continuum, at the same time. Whilst they are sometimes willing to pay a premium for highly specialised skills, the procurement processes often put a higher emphasis on pricing thereby making it difficult for firms to always present their best skilled resources. Moreover, clients prefer their consultants not only to be based locally but also to embody the best in international experience, this puts significant pressure on pricing and margins. There is no question that consulting firms have to review and modify our operating models to meet this challenge. The war for talent may have slowed but good talent is scarce and certainly not cheap, even for consulting firms.
What are KPMG’s priorities and how is the firm responding to these challenges?
We are conscious we have to always be client and market relevant so we are making sure we have the right subject matter experts available to us within the region and we are able to deliver our solutions and expertise at the right price. To deliver value to our clients we are, amongst other things, focused on efficiency and thus have a strong focus on re-engineering our advisory businesses with smart operational models. To give you a few examples; many of our clients are worried about data security and digital threats or they are keen to improve their operational security so we have ensured the local market also has seamless access to our pool of over 300 highly skilled IT consultants within our Indian firm.
Similarly, our world class Restructuring and Debt Advisory expertise has been evident locally to both lenders and borrowers following our involvement as Advisors in the region’s largest restructuring assignment: this was only enabled by the firm moving highly skilled resources from London to the UAE. Recently, we also moved our global advisory head of Energy & Natural Resources from Russia to the UAE to bolster the local talent pool. Nothing is static in the market so nobody should be surprised to see us constantly evolving and changing our skill sets and focus but always seeking to be relevant to our clients and the local opportunities.
As the region experiences growth particularly in oil & gas, telecoms and financial services, what do you think is the future of consultancy in the region?
Let me touch on the subjects which are keeping us busy. Business performance, governance and profitability continue to be the primary drivers of our advisory businesses – all issues designed to enhance cost competitiveness, transparency and customer centricity. For those of our clients who are in a myriad of businesses (local conglomerates), there are additional issues, for example, common IT and HR platforms, central sourcing, capital allocation and working capital/cash management. Of course, in this economic environment, we also have our restructuring specialists busy helping bankers or companies that are either financially stressed or distressed.
Succession planning and the right governance model for the next generation are also high on the agendas of many of our owner managed business clients. Technology plays a central role across the board and here we are also able to leverage the state of the art facility we have in India for our clients to experience or jointly develop solutions and train their teams.
In government and quasi-government organisations, whether the public utilities, transport, financial services, oil and gas or telecommunications; these are all sectors where the firm is active and sees more opportunities. As the GCC economies come out of the global slowdown and enter a new phase of growth, we expect consulting spend to increase significantly in these sectors.
In the oil and gas sector, it will be driven by capacity expansion on the one hand and operational performance improvement on the other. In telecommunications, we expect the solutions to be around business models, growth and consolidation, customer and cost management. The financial sector is coming out of one of the longest periods of negative to slow growth – we are seeing increasing interest in customer management and performance improvement. Across all sectors of the economy, talent acquisition and management will be one of the top issues that organisations and their CEOs will have to deal with.
How has the advisory business evolved in the last 40 years that KPMG has been operating in the UAE?
When we started out in 1973, and for many years thereafter, nearly all of our revenues came from external audit services. Our advisory services were largely in the transaction support area and those services were delivered by auditors with relevant experience. About 20 years ago, we saw greater industry and functional specialisation creep into the firm and that has gradually evolved into full time consultants and advisory specialists. Today, we have three distinct clusters within Advisory which are Transactions and Restructuring, Management Consulting and Risk Consulting and together they deliver around 45 per cent of our total revenues. We now have over 700 client facing staff in the UAE, of which over 250 belong to our Advisory businesses.
Most of the markets in the Middle East region are yet to recover from the 2008/09 financial crisis. Companies continue to be cautious in spending as inflation and high taxes eat into their revenues. What is your take on the current market situation in the region?
The market is different from country to country in the GCC. In the UAE, there is indeed an improvement in results and investment activity has picked up across the board – this includes the real estate sector which was hardest hit during the recession.
Inflation remains under control in most countries as there continues to be minimal increase in demand over supply and excess capacity in most markets. Some markets have suffered as a result of the Arab spring though this has benefitted the UAE economy through increased tourism and retail activity. In several countries, we have seen significant government spend which is having a positive impact. For example, oil production in Libya is now at pre-revolution levels and this will undoubtedly see further investment in heavy infrastructure. Economic cycles are a fact of life and, undoubtedly, this will continue to be the case. One observation I would make is that the banking sector has been significantly more cautious than it was in past crises and, whilst small bubbles are likely, they will hopefully not be as extreme as investors absorb the painful lessons from the past.
What is your opinion about recent policies and laws around ceiling on fees charged by investment advisors?
Apart from liquidators’ fees in European jurisdictions, I am not aware of any caps imposed on fees charged by advisors. However, as I pointed out earlier, the tender and procurement processes, particularly within several governmental entities in the UAE, place a disproportionate weightage on price. Whilst this attitude may be changing in the more sophisticated entities that are also taking the technical qualifications more seriously, it does generally deter advisors from putting their best teams forward for government work whilst saving their most creative minds for the private sector who value unique solutions more highly.
The vast numbers of investment options makes it especially difficult for SMEs to choose suitable avenues which will be both tax efficient and deliver reasonable growth. Do you think enough is being done to address the broader issue of financial literacy and investment advice?
I assume you are asking whether investors are not investing in SMEs because of the wide choices available and whether there is sufficient education about SMEs available to investors.
There are dedicated investment funds that target SMEs and these have been crucial in the development of the middle market in many GCC countries. In the UAE, Khalifa Fund and the Mohammed bin Rashid Establishment for SMEs have been highly active.
The private sector is also active in the SME sector. For example, the recent purchase of Aurios by Abraaj Capital, a leading Private Equity house in the GCC, demonstrates that there is significant interest in the sector. A couple of years ago, Abraaj also set up the Riyada Enterprise Development Fund to target venture capital investments in Saudi Arabia. The ticket sizes may be small but more importantly these investments are part of a sector platform which provides a strong basis for improvement in the areas of governance, process improvements, procurement synergies, whilst providing a strong incubation to these nascent enterprises.
The PE market is dry currently with few major investments being made annually. As a result, PE houses have had to cast their nets wider and SMEs have been a target segment.
In order to encourage investments into this sector, several symposiums focus on entrepreneurship and venture capital. These are abundant in the Middle East region with several being held in the UAE annually.
In your opinion, how are country-specific legislations affecting the operations of KPMG’s string of legally independent local partnerships?
In most jurisdictions, audit is a regulated activity requiring a local license and compliance with local rules. This is understandable but it does not inhibit close and seamless co-operation by KPMG firms across national boundaries in the conduct of audits of global companies. Everything we do is client-centric if not designed to reduce our risks and this involves bringing the right KPMG people to help deliver solutions.
This necessarily involves close working with other KPMG firms in the GCC and alliances with firms with a critical mass of very specialised skills that help fulfil market expectations and needs. All our firms operate to the same quality standards and are subject to frequent compliance reviews. I should add that KPMG is not organised any differently from its peer group competitors. So, in short, I cannot think of any disadvantages to KPMG arising from local laws covering our operations.
