The SceneThe main dining room of the Hay-Adams Hotel, a stone’s throw from the White House and a favourite of Washington’s power players.
Kito: White Lotus
“I am a dedicated tea drinker,” de Boer says, before going on to reflect about tea drinking in India.
“My favorite place to buy tea was a small tea shop in Old Delhi called Aap Ki Pasand, run by one of the great tea connoisseurs of the world. Before he opened the shop, he was one of the highest paid people in Unilever because he had this rare skill to select and blend teas.”
Before our chat, de Boer had been in town to meet senior Trump administration officials and drum up support for his initiatives as head of mission of the Office of the Quartet. The meetings, he says, had been “productive” and “positive”, with several of the officials expressing surprise that an ex-McKinsey man was in the role.
“They get McKinsey,” de Boer says. “They know the firm, they respect it, and they see me as a guy who is not a diplomat and not talking about politics but who just wants to get stuff done, and I suppose that helps when I am making the case for our Palestinian economic development initiatives.”
As we settle down for tea, de Boer reflects on opening the India office, the “secret sauce” of Dubai, the “strategic value of time,” China vs India, the structural flaw in global capital allocation, and, ultimately, the work of the Quartet.
The India office
As soon as I was made a partner in London, in 1992, I wanted to join an emerging markets office. I felt we were on the cusp of the world changing, and the future lay in either China or India. I chose India.
At that time it was the end of the license Raj, and everyone thought we should be in Bombay because that’s where all the sophisticated businessmen lived. But I wanted to be in Delhi, for some fairly mundane reasons: I thought it was livable and the schools were good and I also thought, it’s still the capital and a big city.
I was the only non-Indian in a new market that didn’t know what consulting was, and certainly didn’t know who McKinsey was, so then it became a challenge to find a way to be relevant. Why would people pay the extremely high price if they didn’t even know us?
“From day one, I set a target of meeting with 100 CEOs in six months, no matter whether they were big or small, or what industry they came from.”
From day one, I set a target of meeting with 100 CEOs in six months, no matter whether they were big or small, or what industry they came from. Under the simple observation that you can only be ‘new’ for six months, you have about [that amount of time] to say: “Hi, I’m new in town, I’d like to meet you, tell me what I need to know”. That was very important. I met lots of people and that started a dialogue.
Why government matters
Being in Delhi made me understand the importance of government. Governing a country of a billion people was a bigger challenge than, say, optimising a soft drink company. These are things, in a way, that are blinding glimpses of the obvious. But, in a McKinsey culture, that was anathema because we had a policy of not serving governments because they didn’t have McKinsey-level budgets, and you could get into reputational trouble. Working for governments could get you into newspapers, and politics could make you struggle to have impact, so for a whole set of reasons government work was frowned upon.
“But being in India, it is crystal clear the most important issues are in government, not in the private sector.”
But being in India, it is crystal clear the most important issues are in government, not in the private sector. If you look at India, you cannot spend a day without being struck by poor infrastructure, pollution, poor health conditions, and the palpable suffering of many, many people. And you say, “there but for the grace of God, go I”; you can’t not come to ask the question: “What am I going to do about it?” To be privileged, educated, wealthy, but to not use it constructively makes you realise you do not have much choice.
Stumbling on the outsourcing revolution
I remember doing some early work on cost reductions for a client and we stumbled upon this shocking data of the [cost] comparison between an accountant in India and the US. All of this now is so obvious but, at that point, this is not where we were looking.
Our thinking was somewhat parochial. And then, we came across back office work and there was about a 100-fold difference in price in doing something in Poughkeepsie and in doing something on the outskirts of Delhi. An insane difference.
So, we said we better do this ourselves. We began to build our own back office and our clients saw that it worked.
One of the clients we were working for was exploring a cost reduction study in India and they ended up going from nothing to 30,000 people in a few years just doing back office for their global operations. It was like a tidal wave. It was a historic combination of lower costs and technology making it feasible.
If you talked to people 30 years ago about India, they thought of the bullock cart. Now, people talk of technology. We played an important role in that.
India vs China
When I chose India over China in 1992, it was a personal choice on where we wanted to live. But also, back then, it was not entirely clear which country was going to lift off faster. It sounds quaint now but in 1992 McKinsey Global Institute did a piece of work called the Flying Geese, comparing China and India, which were pretty much neck and neck at the time. Since geese fly in a V formation, the question became which was first: China or India? At that point we said China was at the head but that India was pretty much in the same place. Of course, now, there is no comparison. China is far ahead.
I’m not an objective person, as I know India but don’t know China. But I remain a big believer in the potential of India even though China has outperformed India in many ways. The analogy for me is that China is like driving on a well-made highway where they have forgotten to build the bridge. You can drive very fast, but suddenly you will discover there is no bridge and you’ll fall in. In India, you are driving along a bad road and you never go that fast, but all the bits are joined up.
“The challenge in India is not one of revolution, but evolution.”
In my mind, the bridge is from central planning to market-based capitalism. India is deeply flawed but it still works on a fundamentally capitalist system. Adam Smith rules the roost; sometimes he has his hands tied behind his back or he is asleep, but he is basically there. The challenge in India is not one of revolution, but evolution. [On the other hand,] China is still a communist country. That is the missing bridge. I do not see a path from one side of the valley to the other without falling into that gulf.
I’m wondering when we will come to that bridge. I may be wrong, but I look at China and see a lot of structural and systemic risk. My training as a strategy consultant means that I pay more attention to fundamentals than timing. I would be a lousy trader.
The big opportunity for India is to invest in infrastructure much in the way that China did. China showed that you can throw billions of dollars against infrastructure without thinking too much about it, and it will pay a good return. India can play that game, creating not just low-end manufacturing but more sophisticated end of services. I remain invested long-term in India because I continue to be a believer in its fundamentals.
Next step: “Figure out the Middle East”
As my time in India was coming to an end and I had just been named a director, I wanted to open a new office. The managing director said: “Figure out the Middle East”. The idea was to open a Middle East office, but where?
I knew nothing about the region and my starting point was to go to Egypt. We started doing pro bono work with the Ministry of Finance and decided that Egypt did not hold a good future for McKinsey, so we thought: Maybe Lebanon? That’s where Booz Allen [Hamilton] got many of their people from and we had a director who was Lebanese, so I went to Beirut with him. We met absolutely everyone in Lebanon, which is not difficult to do, but I just thought, this place is too small. Maybe they have good people here, but that’s playing Booz Allen’s game and I thought we needed to be different.
Next, we went to Saudi Arabia because they were the other obvious big market, but we thought it would be difficult to attract people to live there. [Finally,] we went to the UAE. I thought it was pretty clear we should choose Dubai mainly because of the airport and the airline. It was still relatively small but growing, and you could connect to places. There was something about the Dubai mindset that was appealing.
A rough start
I was on my own for six months, working out of a hotel in Dubai and, step by step, we got a team together. It was a tough time in the region. Oil was below $10 per barrel and many countries were haemorrhaging money. Debt to GDP in Saudi was 100%.
“Today, the Middle East and India are McKinsey’s two most successful startups.”
We also had another challenge: The tech boom in California. I couldn’t get people to come join our Dubai office because everyone wanted to go to Silicon Valley. And then, 9/11 happened and the Gulf War, so the first four years were very hard. It was touch and go whether we would make it. Today, the Middle East and India are McKinsey’s two most successful startups.
The telecom turning point
In the beginning, the firm didn’t like some of what we were doing in the UAE; they wanted us to focus on the oil industry and big global players. [Initially], they didn’t even want us to work for the airlines. Who is Emirates Airline, after all?
Editor’s note: Back then, Emirates Airline was a rising carrier, but hardly the household name – and one of the world’s largest carriers – it is today.
The turning point was telecom. Four years into the Middle East journey, we were running out of rope, and then, one of the smallest telecom companies in the Gulf asked us to do a strategic turnaround. Telecom is one of the most global industries, so it was easy to leverage the firm’s global capability. Telecom was our turning point. It created the reference clients that got our clients excited and brought to life what we could do.
“The city has arrived. There really is no question that it is here to stay.”
The Dubai turning point and strategic value of time
I did not own property when I lived in Dubai because I saw the national data and the level of mortgage debt worried me. After I retired from McKinsey and left Dubai, I bought an apartment because I am much more confident now about the fundamentals of Dubai. The city has arrived. There really is no question that it is here to stay. In 2008, people would ask: Will Dubai survive? Today, Dubai is more like any other regional high-growth city. It will have cyclical ups and downs, but they [the government] fundamentally improved the regulatory regime and enforcement regime in the banking system after 2008. The chances of a debt-driven speculative bubble are much less.
Living in an ancient culture like India and in Middle Eastern countries ruled by families with multi-generational memories and time horizons has helped me understand what the West often misses – especially the US – is the strategic value of time. In the US, there is a new president. He has about two years to get some stuff done before election fever starts again. He’s got less time to make a big impact on the US economy than he does to build a casino in Las Vegas.
In contrast, Sheikh Mohamed [bin Rashid], the Ruler of Dubai, and his people have developed a vision for what Dubai should be and could be. Initially, I didn’t always think this vision was realistic – and many thought it was ridiculous – but then he invests the time, money, and resources towards that vision and does not get too worried about the short-term ups and downs. He has proved the sceptics wrong time and time again.
The Dubai government has a secret sauce that no one else has been able to emulate: They do their homework; they don’t see no as an answer; they work in alignment to make things happen; and they work with speed, focus, and determination – and over time horizons – that I have not seen replicated anywhere else.
“The UAE as a whole is very important to the region. All polling shows that people in the region see it as an inspiration.”
The UAE as a whole is very important to the region. All polling shows that people in the region see it as an inspiration. The UAE is, in a way, what Europe may have seen in the US in the post-war years. This is where you want to go. This is where you want to be. This is the model that we want to have. It’s very important strategically to have a role model – an example to inspire and to emulate.
You are onto something with the emerg85 lab with your focus on cities. In my view, the heart of what we need to do in the emerge85 world is to get good governance at the city level.
That is something that has been exercising my mind. There are libraries full of books about politics and democracy, but always at the level of the nation state. But the nation state is a new phenomenon. Most nation states are new and fluid. What really matters is the city. There is very little information about the appropriate governance of cities and that should be an area of focus.
One of the reasons city states work so well is they provide strong leadership at the city level – leadership that is often lacking in hugely important cities like Mumbai and Cairo. One of the reasons China has performed so well is that they combined strong city leadership as well as strong national direction.
Accepting the Quartet job
When [Former US Secretary of State] Kerry asked me to take on the Quartet position, I initially said no. I was sceptical about the basic premise that we were on a path to an outbreak of peace. And I had a good life in Dubai, with my friends and at McKinsey. But, in the end, something shifted. I asked myself: Haven’t I been very privileged? I’ve been with McKinsey for 30 years. What difference would two more years make? At the end of my life, it wouldn’t sit well if I had chosen not to do this. To begin with, the debate was about whether I would say yes and, in the end, I realised I couldn’t say no. I have enormous respect for Kerry and if somebody of the calibre of the secretary of state asks you to do something, you think about it very seriously.
Just the facts
We have brought a facts-based approach to all that we do. By distancing the Office of the Quartet from politics and focusing on projects, we have been able to inch forward. I think that we developed a model that has legs to it and can be taken beyond Palestine. It takes a long time to get trusted by all parties. There is a very distrustful atmosphere. The reality is you can’t do anything unless you get the Israelis not to object to it, and getting the Palestinians to approve things is not to be taken for granted. You need to prove to them the importance of a project; it’s not just bringing money in. The project must address the Palestinian desire to build a stronger state and not [just be about trying] to buy them off with cheap jobs.
“I’m not a diplomat and, at McKinsey, the way we work with clients is that we bring facts to the table and we try to earn that trust and make it clear we are working in their best interest.”
I’m a McKinsey person. I’m not a diplomat and, at McKinsey, the way we work with clients is that we bring facts to the table and we try to earn that trust and make it clear we are working in their best interest.
One of the signature projects we wanted to develop was solar power in the West Bank. We went to the Palestinians and said we needed 40 hectares of land, and they said it must be in Area C. Then, we went to the Israelis and they said it must be in Area A, so our response was: Let’s get the facts.
Let’s map all of the West Bank: Areas A, B, and C. We created a geospatial map, putting 19 layers of data on it including topography and where the power lines are. We found eight plots of land in all three areas that fit all of the criteria and we sent the data to the Israelis and Palestinians. We settled on one plot of land that everyone agreed to, and it shifted a debate around politics and ideology to one of facts.
Gas for Gaza
The single biggest example of where we have made tangible progress is with Gas for Gaza. [In Gaza,] there are only about four hours of electricity per day. The power station runs on diesel and it is expensive and pollutes the air, so the thing to do is to take gas from the Israeli gas network, build a pipeline, and get it to Gaza. Theoretically this is very easy, but it isn’t just about transporting gas: You need to handle the politics, security, and logistics, and you need to create entities that can buy and sell the gas and [carry out] the environmental impact studies just like with any other project.
This is where trust-building comes in. In order to get gas to Gaza, we created a task force comprising all of the key players who needed to be part of the process. We have been working on this for 18 months, and no one would have believed that we could have gotten this far. I think in two years' time we will have that gas pipeline in place. This is very practical.
“A deep and profound” structural flaw in our world
There is a structural flaw in global financial capital flows that is profound, deep, and not being addressed properly. The world has never been so abundant in private capital. There is $250trn of it. Corporations have never had so much cash in their bank accounts. On the other hand, major corporations have never spent so little on capital investment, particularly in emerging markets. Foreign direct investment into the region has gone down about 50% since 2008.
There is an absurdity in our world when tech companies that make no money and have no prospect of making money issue multi-billion dollar IPOs with no shareholder rights, and the world does not think that risky. But if you want to build a solar farm in Jericho? That is somehow ‘dangerous’.
“What we need is to find a way of unlocking private capital to drive good social and political outcomes. I think that is an enormous challenge for our generation.”
Domestic banking networks in emerging markets tend to serve the established families and businesses. What we need is to find a way of unlocking private capital to drive good social and political outcomes. I think that is an enormous challenge for our generation.
You had mentioned Abraaj earlier. (Editor’s note: The Abraaj Group, a leading global growth markets investor, came up in conversation.) Abraaj is a great example of what is needed. They have one of the best networks and track records of building and investing in a pipeline of investible projects in markets most view as exotic and risky. We need 10, 20, 100 groups like this. We need a vast upscaling of the ability to deliver private equity into these markets so it becomes much easier for everyone else to invest. We need to create the pipeline of investment opportunities. That’s what we are doing with the Quartet work in Palestine, but what we need is global capability. What the world needs now is a private sector Global Marshall Plan 2.0.