Rise in foreign consultancy firms a positive indicator: MoE
An increase in the number of foreign financial and management consultancy companies operating in the capital has been welcomed by the Ministry of Economy (MoE).
The ministry described the increase as a healthy and positive indicator and said it did not plan to impose any restrictions on the firms. It said the ministry's role was to provide a good working environment and ensure that foreign and national companies competed fairly.
Abu Dhabi-based consultancy firms had for some months been complaining about the presence of top foreign names such as Deloitte, Ernst & Young, KPMG, PricewaterhouseCoopers and McKinsey. The international giants have recently opened offices in the capital.
Officials of national companies said they had lodged complaints with the MoE in an attempt to prevent the foreign offices dominating the Abu Dhabi market. They said steps should be taken to support the national offices, which had suffered severely since the start of the international financial crisis as their volume of business declined.
But Ahmed Al Hosani, Director of the ministry's Commercial Registration Department, told Emirates Business: "The MoE largely encourages the entry of foreign consulting companies into Abu Dhabi.
"The MoE makes major efforts to attract foreign companies into the country and has no intention of imposing any restrictions on any foreign firm. It believes in the philosophy of a free market and fair competition between foreign and national companies."
Al Hosani underlined the value of foreign consultancy companies, saying they did not have large amount of capital or big staff but did have considerable experience.
"They provide consultancy services that are supported by international experience and have no equal in terms of quality."
He defended the selection of foreign consulting firms by many ministries and government bodies for the drawing up of economic and administrative studies. "These offices are the best and most efficient. I think the best will survive in the UAE market. The MoE does not favour one office over another. It selects the best office that offers long experience," he said. "I think the selection of foreign offices by the ministries is not based on nothing. The foreign offices have many things that the national offices do not have. The national offices should benefit from these foreign offices and we are in urgent need of them at the current time."
He said the MoE and other ministries did not award contracts for administrative restructuring programmes or economic studies to foreign offices directly. Foreign offices had been selected after tendering in competition with national and other foreign companies.
Ridha Muslim, Director-General of Abu Dhabi-based Truth Economic Consultants, said: "There is no fair competition between foreign and national consulting offices. Certain ministries have preferred to have studies drawn up by foreign offices, though these offices no longer specialise only in accountancy as was the case before. They also draw up organisational structure studies as well as economic studies and this has greatly harmed the national companies. The country is full of national offices that have considerable experience in consulting and accountancy, such as Talal Abu Ghazala Company and ourselves."
Muslim said he did not have statistics about the number of national offices that had been harmed by the influx from overseas or the number of foreign offices that had recently opened branches in Abu Dhabi. But he added: "The number of foreign consulting offices definitely increased last year, especially in Abu Dhabi.
"In the last three years, there has been an influx of foreign consulting offices that have a lot of experience and operate efficiently in their home countries but lack basic experience of the UAE market and the nature of the local society. That has been their failure, though there is demand from government establishments and companies which want to deal with them just because they are foreign."
Muslim stressed the importance of exercising caution when allowing foreign consulting offices to enter the country and ensuring they assist the development process.
The global economic crisis created an urgent need for more consulting offices. During the economic boom between 2004 and 2007 financial consultants were paid large amounts of money to work on projects.
Meanwhile, prices rose by 70 per cent as a result of inflation, which was not tackled effectively, and salaries were increased to keep pace. After the crisis struck, companies found they were in need of restructuring following the sudden economic changes. The market attempted to correct itself and government bodies had to re-organise economic sectors – especially the real estate industry.
Muslim said he was drawing up a scientific study of the performance of foreign consulting offices in the UAE, especially in the capital. He said the Abu Dhabi market currently accepted economic consultancy and feasibility studies from non-specialised bodies such as auditing offices. The term "economic consultancy" referred to the most important part of the country's economic activity, its economic development.
"The problem lies with the fact many foreign investors came to the country after the economic crisis and brought their consulting offices and studies from their original countries," he said. "This explains why foreign investment works via a special system, whether in terms of economic, engineering or real estate consultancy."
Demand for economic consultancy and feasibility studies in the country has risen by 33 per cent over the past three years, which is a natural result of the economic boom the country witnessed.
The number of engineering consulting offices is likely to increase by seven per cent annually and 70 per cent of the total number of economic consultancy offices concentrate on the real estate sector. The international economic crisis underlined the importance of high-quality economic studies.
Muslim said many national companies had complained to official bodies such as the MoE and the Abu Dhabi Department of Economic Development (DED) about unfair competition from foreign consulting offices. He urged the bodies, especially DED, not to grant licences to any new projects without accurate feasibility studies and unless all economic studies were completed.
He said that after international financial crisis, companies in the UAE, and especially in Abu Dhabi, found they needed to restructure to reduce costs and expenses. This coincided with the difficult conditions in the real estate market. As a result these firms felt an urgent need to obtain advice from economic consultants to help them pursue their new plans. This was the case before the economic crisis as investors and businessmen were not sufficiently aware of the benefits of economic consultancy and feasibility studies.
Muslim said it is necessary to lay ground rules regarding the fees charged for services as these varied greatly. The framework should satisfy all the consulting offices.
He said: "Some foreign offices charge Dh3 million for consultancy while a local office can provide the same service for much less. Currently, there is no agreement between economic consultancy offices over remuneration and each office has its own pricing policy.
"The United Nations Industrial Development Organisation has introduced guidelines related to the hours worked, while other bodies set their remuneration as a percentage of the total capital invested in a project."
Ahmed Mohammed Ali Maqtari, a board member of the UAE Accountants and Auditors Association and Chief Partner of Al Maqtari Auditing, agreed with Muslim. He said foreign companies held a monopoly in the auditing and economic consultancy markets.
"There are very few national consulting and auditing offices and they need support and help," he added. "There are more than 400 auditing companies in the country but only 35 are national companies while there are hundreds of foreign and Arab offices.
"Four international companies dominate the UAE and Gulf market – Deloitte, Ernst and Young, KPMG and PricewaterhouseCoopers. The situation of national companies and offices is very weak compared with that of the foreign companies.
"These international offices often obtain the auditing contracts for the biggest projects in the country, whether the projects belong to the government or the private sector. The MoE should support national consultancy offices as this will create benefits in the long term. In addition, there should be fair competition between foreign and national firms."
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