Reasons for boom in asset management in traditional oil economies

The primary oil export economies in the world are in transition. The traditional view is that change is happening since their reserves are exhausting, and hence the need to diversify. While that is probably one of the key reasons, however, I don't think that is the whole story.

Traditionally, these economies operated like a combination of an export economy for their global customers, and a welfare state for their citizens. In earlier era, the world had a very simple operating model. These countries had the world's largest operating supplies of something that everyone wanted to buy. Like an Apple Store on the morning of a new iPhone launch, they decided how the queue should form outside their gates. But then things started to change.

The changing customer segments

On one hand, with increased globalization and resulting demand for energy by paying top dollar from emerging economies, has meant that the demand for their stuff has started increasing and diversifying. On the other, the goal of energy self reliance by their biggest customer (united states) has started to look real. This all makes the need to operate in an international environment more necessary. They need to operate more like a company with multiple trading partners.

But perhaps most importantly, new demographic, social and economic realities are having a critical impact on these economies.

The demographic shift

These countries now have a larger population of young people who are well connected and increasingly well informed, but do not have the professional skills or the inclination to join a global and mobile workforce. Since these economies were traditionally one dimensional, there are limited business opportunities for the workforce to get absorbed. This is leading to some discontentment.

The leaders in these economies are realizing that they need to diversify fast, to create a local economy for people to get absorbed. But this requires a bigger local economy that has at least surpassed a minimum critical mass. For this, there is a need for an infrastructure where professionals from other countries can come and contribute till the local population is ready to take over.

This has meant a widespread investment on local infrastructure. But this brings a different problem. Historically, these countries were providing a decent infrastructure free of cost. But with larger percentage of consumers, coming from non-citizens, this approach is no longer sustainable.

The need to recover costs

There is a need to levy user charges so that operating costs and limited capital costs can be recovered. Some form of user charges are also needed as a demand control measure, since historically the region has some of the largest wastage rates in the world.

Unfortunately, levying user charges is not as straight forward. How do you convince a consumer that what they are paying is only their fair share and are not subsidizing poor efficiencies in the service delivery organization.
Delivery organizations also need to prove that they are only adding new capacity when and where it is needed.
Also the service delivery organizations need to prove that any stuff they already own, is being operated and maintained to maximize its service life. To explain, service delivery organizations have to prove that there are no unplanned service disruptions and expensive repairs. Also, not to try repair things more expensively than the replacement, specially if the repair will not give the benefits in terms of overall costs.

How do you prove that the service organizations have done their part?

This is an interesting challenge for service delivery organizations trying to move to a new model. Luckily, the business of consultants has come up with the next best idea. There are an ever increasing alphabet soup of accreditations and certifications, that will prove to the regulators and eventually the leaders, that the delivery organizations are operating efficiently.

Now everyone is happy...