Throughout the pan-Baltic region in 2023 there was an overriding sense of instability in the legal market. Although there have been projections of GDP growth in 2024, the legal markets across the region continue to grapple with several economic challenges, including the unpredictable cost of energy.
In Estonia, these challenges also include a rise in public debt, a rise in the country’s deficit, a swift reduction in investment, and low government debt. These factors all combined to produce a fall in trade with its main international partners. While 2024 looks brighter in terms of economic growth, this instability is a worry for firms. Investment arbitrations remain low and there has been a lack of large bankruptcies or restructuring matters in recent months.
Martin Simovart, head of global relations at Cobalt in Estonia, says: ‘There has not been a steep decline or a financial crisis, but the economic situation has rendered large-cap transactions rarer, and financing more unpredictable.’ The cost of borrowing money has been high, and transactions have become more complicated, which has necessitated a focus on litigation, restructuring and banking regulatory work, which has continued to take place.
Ants NÕmper, managing partner at pan-Baltic firm Ellex, comments: ‘We experienced a slowdown phase during a time when startups were booming in the country, attracting significant funds and investments. However, the economies of neighbouring countries were struggling, and since our exports were primarily directed towards Scandinavia, it adversely impacted overall investment. Fortunately, there is a positive trend emerging again now.’
More broadly, throughout the region, the global economic climate combined with the proximity to the Ukraine-Russia conflict has had a profound impact. Following the invasion in 2022, Lithuanian firms experienced upticks in areas including employment, spurred by an initial surge in business relocation and migration-related mandates from Ukraine and Belarus, and energy, as the nation sought to reduce its reliance on Russian imports. Also related have been spikes in disputes relating to state aid and procurement, in part arising from increased government and EU support, together with broader rises in the areas of sanctions, anti-money laundering, and construction, the last of which has been impacted by supply chain issues, increased costs of materials, and delays to delivery.
Although some of these areas have begun to stabilise, many of these local geographical tensions remain, only adding to wider concerns surrounding global economic uncertainty, inflation, and the increased cost of borrowing across the continent. Saulė Dagilytė, managing partner of Sorainen, notes: ‘The biggest change from two years ago is the level of corporate transactions compared to 2020-21, impacted by the war in Ukraine, inflation, and the wider economic situation. There is now more emphasis on dispute resolution.’
‘2023 has seen a bit of a recession in the Baltics, although some areas have been very active. The shift to sustainable energy renewables has seen lots of developments of solar and wind parks.’ Kristīne Gaigule-Šāvēja, WALLESS
Energy remains a core area of growth over the last year, driven by a sustained push from government and European groups to become self-sufficient and green. Despite some bottlenecks relating to grid capacity, Lithuania has seen a considerable rise in wind projects in particular. Upon reflection, Dagilytė observes that the increased workload, despite Lithuania being ‘quite forward-looking’, has nonetheless required firms to adapt to meet demand: ‘Five years ago, energy work was many times smaller – it’s now one of the biggest sector groups at our firm’.
Lithuania’s northern neighbour, Latvia, has also been impacted by the war in Ukraine combined with broader economic uncertainty. Kristīne Gaigule-Šāvēja, managing partner of WALLESS, a firm that has made considerable headway in the region since its founding in 2018, comments: ‘2023 has seen a bit of a recession in the Baltics, although some areas have been very active. The shift to sustainable energy renewables has seen lots of developments of solar and wind parks, with offshore and energy storage also being looked at.’
Given the deep geopolitical uncertainty facing the Baltic market, what stands out in the short to medium term is the need for firms to be flexible and adaptable moving forward. For Dagilytė: ‘Covid and the Ukraine war showed the need to be able to switch people to different areas to meet demand. The firms that will do well are the firms that can be agile, best adapt, and react quickly to changes. The best thing our businesses can do is be adaptable.’
There are certainly some difficulties moving forward, chiefly the ‘brutal’ fight for talent in a comparatively small legal market. AI and legal tech, albeit in their infant stages, are also seen as high priorities for investment moving forwards, with Dagilytė suggesting: ‘Those firms with the best tech tools in the future will have best growth potential. It will be a tool to help keep lean, agile and fast.’
A competition for talent has led firms to prioritise having focused and specialised team members. Simovart says: ‘Every team has a top specialist in the field, and the legal sector is developing regulations that are becoming more complex, so this is necessary.’ Indeed, Cobalt has developed strong relationships with universities in Estonia to develop internships and ensure that young talent is being identified at an early stage.
Overall, while the economic situation in the region appears a little muddied in places, the mood in Latvia, like in Lithuania and Estonia, appears broadly optimistic with the expected number of insolvencies not materialising to the extent previously feared. LB