IMF boss right in calling out global consulting firms

Thursday March 14 2019

Among the highlights of this year’s World Economic Forum in Davos was the statement by the managing director of the International Monetary Fund (IMF), Ms Christine Lagarde, that many low-income countries commissioned high-charging consultancy firms to build strategic plans on behalf of government.

In fairness, the IMF boss was advising developing countries to desist from hiring consultants to write the common strategies for growth and prosperity because global goals adequately serve that purpose. In her reckoning, any government worth its salt ought to pull its development priorities from the 17 Global goals set at the United Nations because a huge amount of thinking and material support has gone into their creation. She added that it is therefore inefficient for developing countries to hire global consulting firms to rehash the goals and charge governments impressive amounts for it.


Ms Lagarde’s statements caused discomfort by specifically calling out these global firms which have huge practices whose divisions regularly provide this service. It should have been uncomfortable moment too for African governments that resort too liberally to hire global firms as an imprimatur for these plans. While there may be value in seeking knowledge and buying analytical expertise, this practice is questionable because it is often wasteful and of dubious value in respect of development planning.

Predictably, Ms Lagarde was criticised by people who thought it odd that her pronouncement contradict the ''privatisation'' ethos that the IMF is considered to promote.

I see no contradiction in supporting privatisation of services that governments struggle to provide while advising the same governments to be efficient and wise shoppers of any other service.


While it appeared as if Ms. Lagarde cited the Boston Consulting Group and McKinsey and their peers, the real message was for governments that buy advice on strategy to re-examine their own premises. That attempt to cast this advice as based on hatred of firms that provide services is unjustified.

Her argument is not that global consulting firms are not required, but that it is not good use of public money to hire them for drawing strategic plans. A cursory survey of the performance of the service that firms in Kenya and those based abroad sell to government makes it evident that Ms Lagarde did not go far enough.

Kenya’s Vision 2030 was the result of deep studies and advise by one of the firms that Ms. Lagarde mentioned. The strategy was accepted and adopted by the administration and followed by the formation of institutions established to implement that ambitious plan. These global firms hire very capable people and are therefore fit for the tasks, but it is clear that the contracts are often badly negotiated and leave countries with large liabilities and waste of scarce public resources.


Some revelations about the energy sector in South Africa and selected African countries show that in exchange for very lucrative contracts, these firms can often act against their own better professional judgment and to the detriment of taxpayers that pay for their services.

The most odious issue from the fad in hiring consulting firms to draw up development strategy is the practical utility of the strategic plans, which are often impressively put together and contain bold prescriptions for industrial and social policy priorities. Like Kenya’s Vision 2030, they are commended to government with expectations that the implementation would yield 10 percent annual growth rate in the Gross Domestic Product for at least a generation.

What is disturbing about these plans is that they do not suggest what state capacity is required to achieve them. This is essential because the historical record demonstrates that very few countries achieve and maintain these growth targets. It qualifies as a cruel joke to sell a $5 million plan to a low income country with the promise of ensuring the attainment of middle-income status, knowing too well that the odds are very low. Sector-level analysis often can be well done and this can be used to turn around sectors, but the cost-effectiveness of strategic planning at country-level is an unscientific endeavour.

With that knowledge, it is cynical to develop a plan and to take the pay upfront with no responsibility for any outcomes. Only a person of Ms Lagarde’s stature could call out these firms and ask them to place some ''skin in the game'' of writing national strategic plans.

If these firms truly believe their advice in the work related to nation-scale development, then perhaps they should take a share of their earned fees when Kenya attains middle income status in the year 2030. As it is for Kenya, they already took it in 2008. Ms Lagarde is right to call them out.

Kwame Owino is the chief executive officer of the Institute of Economic Affairs (IEA-Kenya), a public policy think tank based in Nairobi.

Twitter: @IEAKwame