$9 billion South African business and management consulting market slows

01 November 2017 Consultancy.co.za 6 min. read
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The South African business and management consulting market is presently worth $9.3 billion, according to estimates from Consultancy.co.za. Based on figures from two analyst firms, South African consultants went through a bumper 2016, however, growth is expected to slow this year, on the back of national GDP growth that has been consistently slowing since 2013.

To estimate the size of the total consulting market of South Africa, Consultancy.co.za delved into data from two analyst firms that conduct research into sizing and dynamics of the consulting industry. The analysis shows that the industry has been increasing in size on and off over the past four years. 2013 was the last year that saw growth in South African GDP, at 2.5%, falling to 1.7% the following year. In situations such as this, consulting markets often go through brief upward surges, as clients bid to shield themselves from falling profits by seeking external expertise to assist in streamlining and cost-saving innovations.

In response to this decline in GDP growth, the business and management consulting market in South Africa grew from a value of $8.2 billion by 6%, to $8.7 billion in 2014. While progress stammered with a 2% drop in 2015, the industry boomed by 9% the following year, sitting at a value of $9.29 billion, currently.

South African business and management consulting market

GDP growth in the nation fell to 0.3% in 2016, and looks set to decline further, flirting with recession amid continued scandals surrounding governmental and corporate corruption. Allegations of corruption are exemplified by the now infamous Gupta case, which has implicated both KPMG and McKinsey & Company, as well as South African President Jacob Zuma. As a result, companies are acoss the board forecasted to scale back on spending for future projects, meaning they are less likely to hire consultants. At best, then, analysis of current trends suggests the consulting sector can expect growth of 2%, with stagnation more than likely.

Business and management consulting

The entire consulting market can be broken down into two major segments. The management consulting segment focuses on strategic and organisations consulting services, including implementation of plans and change initiatives. The business consulting segment is much broader, which includes all business related consulting servies, spanning finance, supply chain, logitiscs, technology and sales & marketing. According to Consultancy.co.za’s estimates, around three quarters of market is business consulting, which is roughly in line with similar ratios in other markets. In India for instance, business consulting is good for 77% of the entire industry.

South Africa’s business consulting market is hence valued at nearly $7 billion, which is offset against a management consulting market of nearly $1.4 billion. It is difficult for analysts to categorise the remainder of the market in a precise manner, as much work takes place at the intersection of both areas, leading to different market sizing estimates. In addition, analyst firms have different definitions of consulting and types of services, leaving around 15% of the consultancy market that can go both ways.

Business Consulting versus Management Consulting

The different market and service definitions also explain why the market valuation of analyst firms differ so much. For instance, the MCA, the UK industry’s organ, estimate the entire UK consulting industry to be worth £9 billion ($11.9 billion), while Source Global Research says Australia is worth $4.6 billion. If this was considered as apples for apples, this would mean that South Africa’s market was bigger, however, as a far less developed market, that is extremely implausible. The research models of Statista and ALM used for this analysis are much broader than the two aforementioned analysts, which use narrower definitions of consulting services (especially in business consulting) and more importantly, taking smaller definitions of the ‘market’. Source for instance only looks at revenue generated by firms with over 50 consultants, while Statista and ALM try to bring the entire market in picture, including work done by small firms, boutiques and broadly even independent consultants.

South Africa’s economy may presently be floundering, however it has potential for major growth in consulting in the future. Nearly 18 million households worldwide control more than $1 million in wealth each, and almost 23,000 of these are presently based in South Africa, as illustrated in a report from Boston Consulting Group.

South Africa remains one of the strongest economies on the African continent, meanwhile, with its business environment both being mature and diverse. A McKinsey report previously suggested that despite the country’s present slowdown, future growth in the economy is due to remain robust at 3.6% annually until 2030, while strategic investment is able to boost its annual economic output by 1.1%.