Post-banking crisis, the world has generally divided fairly neatly into two camps with their clear economic narratives. On one hand there are the Western economies burdened by slow growth and creaking public finances. On the other, are emerging powers in Asia, Latin America and Africa – which have mostly surged ahead while Europe staggered.
Where the Middle East fits into this picture, however, remains undecided. As one of the most touted legal markets during the boom, the region’s resource-rich economy was driven by surging commodity prices, high inward investment and the growing status of Dubai as an international hub.
But the bursting of Dubai’s property bubble in 2009 quickly put pay to claims that the Middle East could simply ride out the global downturn. Then the Arab Spring uprisings in 2011 were a reminder of the internal tensions facing states attempting to maintain dynastic one-party rule.
Though the uprising impacted and unseated governments in Egypt, Libya, Tunisia and Yemen rather than the larger legal markets of the UAE and Saudi Arabia, it was enough to leave lawyers and business confidence in the region unsettled. Meanwhile, a bloody civil war has simmered for two years in Syria.
The question remains over which camp the Middle East will settle into in the years ahead – confident, resource-rich, high-growth economy or held back by the political and social tensions that have dogged these states for decades.
The best guess of advisers is that many local economies will make progress in 2013, leading to a renewal of projects and deals.
The biggest legal markets in the Gulf continue to attract top law firms despite familiar claims that Dubai and, to a lesser extent, Abu Dhabi, are over-lawyered. Indeed, major international advisers continue to make substantial investments in the UAE, with Cleary Gottlieb Steen & Hamilton unveiling its first office in the Middle East in September, while Baker & McKenzie sealed a pioneering deal to merge with local leader Habib Al Mulla in April. Even during 2010 and 2011, when the impact of Dubai’s restructuring and the uprising had hold of the local economy, firms including Linklaters, Bird & Bird, Eversheds and Wragge & Co were expanding in the region.
Not that expansion has been smooth. As entrants have continued to flood the region, many firms, including Simmons & Simmons and Trowers & Hamlins have retrenched locally. At the same time, there has been a continued churning of alliances between foreign and international practices, particularly in Saudi Arabia, with Herbert Smith Freehills (HSF) recently calling time on its exclusive alliance with Al-Ghazzawi Professional Association (GPA).
If the region is still attractive to serious international advisers, it remains a challenging market for those without strong local contacts or a major clutch of oil and gas giants to drive their practice.
Marked recovery
Whatever the reverses Middle East lawyers have faced in recent years, those that have been through the roller coaster of Dubai’s legal market in recent years agree that a relative recovery is taking hold and some even question the level to which Dubai’s fortunes sunk in the first place.
‘Dubai’s economic death was greatly exaggerated. It had a bit of a troubled time. We had a bit further to fall than most but never to the catastrophic levels that everyone seems to suggest,’ says Michael Kerr, regional managing partner of the Middle East at Dentons.
Ben Shorten, a project development and finance partner at Shearman & Sterling, remembers the effects of the Dubai downturn well. ‘It was interesting going to Dubai in 2010. There was much less traffic on the roads, you could get into restaurants easily as many expats had left,’ he says.
Dubai’s success and status as a safe haven during the 2008 global financial crisis caused a flood of law firms to set up in the state that year, including the now-defunct Dewey & LeBoeuf and Luxembourg-based Arendt & Medernach. In the preceding years, a string of international firms have pushed into the market alongside early entrants like Allen & Overy (A&O), Clifford Chance (CC) and Clyde & Co.
After the restructuring of Dubai World, the state-linked entity whose huge debts brought the emirate to the brink of collapse in 2009, there was a major rethink about the size of firms present in Dubai. DLA Piper announced two rounds of significant job cuts to its Middle Eastern practice as a direct result of the downturn. Most of these redundancies were in DLA Piper’s rapidly-assembled Dubai office, which only opened in January 2006.
The humbling of Dubai led to many claims that the attempt to forge a Western-friendly business hub was an unsustainable model given the emirate’s lack of resources and tiny domestic economy. However, Dubai has so far defied claims that the bursting of its construction-heavy bubble would fatally harm its global position as an advisory centre. And with the UAE’s economy expected to grow by around 4% this year, Dubai looks to have some momentum backing its recovery.
However, with tourism on the up, corporate activity rising substantially in 2012 against 2011 and even Dubai’s battered real estate and construction sector showing signs of life, the mood has improved considerably over the last two years. The familiar picture of congested traffic has even made an unwelcome return.
Likewise, much has been made of expansion at Dubai International Airport (DIA), which underpins the emirate’s strategic positioning and itself is a major contributor to the local economy. Following the launch of the flagship Terminal 3 in 2008, DIA is aiming to ultimately build enough capacity to handle 90 million passengers a year, well ahead of London Heathrow’s current capacity.
From a legal perspective, the union of Bakers and Habib Al Mulla, one of the leading independent firms in the UAE, will be taken as a sign of continuing confidence in Dubai. Forty-lawyer Habib has offices in Dubai and Abu Dhabi and has acted for clients that include HSBC, AXA, RSA, the UAE Ministry of Interior and the Dubai Real Estate Corporation.
The union – which will be known locally as Baker & McKenzie Habib Al Mulla – will be watched closely to gauge whether it can establish the US-based giant as one of the elite regional players.
‘Our clients have taken the news of the merger very positively and we have already seen an increase in client activity and discussions on how we can support their additional UAE needs, which are now extending regionally and globally,’ says Rob Morris, chief executive of Habib Al Mulla.
Aside from Cleary’s much-touted Abu Dhabi launch, last year also saw Berwin Leighton Paisner and Addleshaw Goddard both unveil new offices in Dubai. In March Linklaters made a high-profile hire when it recruited former Norton Rose partner Neil Miller from KPMG to join its Dubai arm as global head of Islamic finance.
Claims of a saturated market have so far done little to deter the influx.
Husam Hourani, managing partner of leading local practice Al Tamimi & Company, argues that the UAE benefited to a considerable extent from the Arab Spring as capital flew from surrounding nations into the politically-stable state. By a similar token, he argues the European debt crisis and bailout of Cyprus has helped bring in investment as major companies and investors shift out of Europe.
But there are some doubts about how much of a recovery is taking place in the UAE. ‘The capital market dropped substantially and has not recovered significantly as there is not enough motivation to do new IPOs in the market,’ says Hourani.
More positively, advisers point to the development of the Dubai International Finance Centre (DIFC), the emirate’s much-touted financial free zone, as bolstering confidence.
Advisers also highlight moves to relax rules on regulation of foreign-based funds – reversing a previous attempt by the local market watchdog, the Securities and Commodities Authority (SCA), to usher in tougher regulation. The liberalisation is seen as particularly beneficial for private equity funds, making it easier for them to market to regional investors and sovereign wealth funds.
Gary Youssef, managing director of legal recruiter Footprintlegal, comments: ‘There’s [been] a hell of a lot of money swirling around the UAE in private equity houses for the last two years that hasn’t been spent because they didn’t know where the market is.’
Another legislative reform being closely watched is the proposal to overhaul UAE company law to make it easier for foreign businesses to set up locally. Such a step would generate significant corporate work and advisers believe it would attract further substantial blue-chip investment.
However, many remain sceptical that the UAE will ultimately back major liberalisation allowing foreign companies to set up businesses without a controlling national stake.
‘It is currently not clear what, if any amendments to ownership percentages will make it through to the final version of law,’ says Jonathan Silver, head of the Middle East and North Africa (MENA) region at Clyde & Co. Likewise, Hourani believes that the current stipulation of 51% domestic ownership in companies will remain.
Such issues highlight the frustration many lawyers feel over the need for reform of UAE law, which is generally felt to have failed to keep pace with the development of the local economy and the sophistication of modern transactions. Much of the UAE’s commercial law is relatively old and based on versions of Egyptian law or other Middle East states.
There are, however, attempts to modernise the governance framework, with the UAE currently drafting laws to create a modern ‘twin peaks’ form of financial regulation, separating watchdogs into a business conduct body and a separate agency to police systemic market risk. The future of this draft law will be closely watched by advisers to gauge if the UAE can forge regulation to support its ambitions to create a world-class finance centre.
Those looking for a further boost to the region have raised the prospect of regional economies being upgraded by US-based investment analysis group MSCI. UAE and Qatar missed out last year on an expected MSCI upgrade in investment status, which could have supported flows of institutional investment, though opinion is divided on the practical significance of this.
‘Companies don’t care about the MSCI. It’s all about the realities of the market and it’s obviously a market for investment and high levels of activity,’ says Nasser Ali Khasawneh, managing partner of the Middle East practice at Eversheds.
Iraq – the reconstruction dividend
The push to rebuild Iraq’s infrastructure and exploit its oil reserves has attracted considerable interest from advisers in recent years despite the perilous security situation. Standout projects include Vinson & Elkins representing the Republic of Iraq Ministry of Oil in connection with the $17bn Basrah Gas Project to capture a large volume of natural gas in the country last year. The deal was led by corporate partners Christopher Strong and Ahmed T el-Gaili.
Key local firms are Iraq Law Alliance; Mena Associates, which has an association with Amereller Legal Consultants; and Al Tamimi & Company. Baker Botts, Norton Rose Fulbright, Cleary Gottlieb Steen & Hamilton, Eversheds and Vinson & Elkins have all done business in Iraq recently. Eversheds has had a presence in the jurisdiction since 2011.
`All of our lawyers in Iraq are Iraqi, it is one of our most profitable offices,’ says Husam Hourani, managing partner of Al Tamimi. The firm plans to open a second office in Erbil, the Kurdish region of Iraq.
`Iraq is a buoyant market – if you’ve got the right kind of relationships you can make a lot of money,’ says Gary Youssef, managing director of legal recruiter Footprintlegal.
Herbert Smith Freehills (HSF) has also shown some interest in the jurisdiction, although has not opened locally, preferring a `fly-in, fly-out’ policy according to Zubair Mir, head of HSF’s Middle East practice. But there is enough interest in the country to predict that the war-torn state will evolve into an established part of the regional economy.
Saturation point?
Despite a generally-improving mood, the debate continues among local advisers over whether the Dubai legal profession has reached saturation point.
‘Dubai may be over-lawyered but it is not over-lawyered with good, experienced lawyers and firms. There are only a handful of lawyers to whom I would refer my type of work in the event of a conflict of interest,’ says Christopher Mills, head of dispute resolution and regional board member at Clyde & Co in Dubai.
Craig Shepherd, a dispute resolution partner at HSF in Dubai, takes a similar line, stressing that Dubai’s position is underpinned by its cross-border clout.
Still, with a population of only two million and no shortage of established firms, the easy money days for advisers are long gone. ‘Unless you can show you’re head and shoulders above the rest you’re much of a muchness,’ says Jeremy Small, a director at legal recruiter JLegal.
Ironically, given the excesses of the local construction industry, property is one area in which there is reported to be demand for experienced lawyers, a result of heavy pruning of real estate teams during 2010 and 2011. There is also still considerable call for corporate partners with strong CVs.
Qatari riches
Despite the recent elevation of Abu Dhabi’s legal market, for many Qatar is emerging as a serious competitor to Dubai as a prime Western-friendly legal hub. Backed by huge oil reserves – which have given the country the highest GDP per capita in the world – and home to several large sovereign wealth funds, it is not hard to see the appeal.
‘It’s easier to start in Qatar. While it still has some issues, it is more welcoming,’ says Georges Racine, a partner at Swiss law firm Lalive, which has a branch in Qatar.
The World Cup is being held in Qatar in 2022 and this has sparked a rush to improve infrastructure. Lalive acted for Qatar Solar Technologies last year on the setting up of an international joint venture for the development of a $1.2bn greenfield polysilicon and ingot production plant in Qatar. Racine led the Lalive team on the deal. Lawyers based in the country are seeing an uptake in interest from engineering companies from locations such as the US, UK, Australia and Canada opening up subsidiaries. Racine has been advising the Spanish engineering and infrastructure company Acciona for over two years.
Herbert Smith Freehills (HSF) has a substantial presence in Qatar and some high-profile clients, including sovereign wealth fund Qatari Diar, Qatar Islamic Bank and Qatar National Bank. `Qatar is more plugged into the Gulf network than anywhere else,’ says HSF’s Craig Shepherd.
Eversheds is also active locally. The firm advised Barwa Bank on a $550m IPO and rights issue that went to market last month led by corporate partner Dani Kabbani.
DLA Piper also recently bolstered its presence in the country with the relocation of corporate partner Mel Sims from London to Doha.
Qatar is a major player in the region and its sovereign wealth funds such as Qatari Diar have been involved in some high-profile deals, such as the purchase of the US embassy in London in 2009, advised by HSF. The goal of turning Qatar’s finite resources of oil into investments with a greater potential for longevity looks set to generate substantial work for years to come.
Saudi power
If there remains some debate about how solid the foundations are for Dubai’s revival, by consensus the mood is more solidly upbeat in Saudi Arabia.
Its legal market is also not just restricted to deals regarding the country’s huge oil reserves. It has maintained an enviable level of activity in other areas, particularly through publicly-funded projects in the energy, infrastructure, real estate, healthcare, and education sectors. Clifford Chance, in association with Al-Jadaan & Partners, advised Saudi Airlines Catering on its $347m initial public offering (IPO) of 30% of the company last year. One of the largest Saudi IPOs of the year, the deal was led by partner Khalid Al-Abdulkareem for Al-Jadaan and Mike Taylor for CC.
As with many commodity-driven states, confidence has been further boosted by investment from resource-hungry China, a trend often dubbed as the New Silk Road. Economic growth is this year expected to top 4%.
Two years after King Abdullah originally announced a drive to improve infrastructure, a decree in April may finally put it into action. The Ministry of Finance was ordered to approve funds for infrastructure construction. This in part reflects a wider trend in the region for states to boost social spending to head off social unrest.
Despite the attraction of the Saudi market, there remains considerable pressure on international firms to build strong local links, both with clients and independent law firms. In a contact-driven market, there has been continued jostling between international law firms and formal and local legal alliances.
Tim Plews, head of CC’s Middle East financial services and markets practice, stresses the importance of working with locally-qualified counsel, even for the strongest foreign law firms. ‘You have to institutionalise the relationship; we have done since 1998. Every firm wants to be embedded but it doesn’t always happen. It can be determined by personality, culture, values.’
Sarosh Mewawalla, Middle East managing partner at Linklaters, picks up the theme: ‘You need a good combination of Saudi advice and international understanding of the market.’
Andreas Haberbeck, a partner at Saudi practice Hatem Abbas Ghazzawi & Co, argues that developing a local practice requires considerable investment. ‘It is simple business practice: you do not get anything for nothing.’
The alliance between CC and Al-Jadaan is one of the most well established in the country. The pair secured a pioneering merger in March, which is set to go live this year.
The deal – the first of its kind to be backed by the Saudi Ministry of Law – will form a partnership fully integrating corporate, finance and capital markets practices from Al-Jadaan with CC.
Abdulaziz Al-Abduljabbar and Khalid Al-Abdulkareem, currently partners in Al-Jadaan, will join CC’s partnership. All Al-Jadaan associates in the firm’s transactional areas, along with a number of business services staff, will also transfer to CC.
Mohammed Al-Jadaan, together with Yousef Al-Jadaan and Abdullah Al-Hashim will continue as partners with Al-Jadaan, which will operate as a boutique focusing on dispute resolution. Mohammed Al-Jadaan will remain managing partner of Al-Jadaan and will act as a special adviser to CC in Saudi Arabia.
The much-touted move comes as CC has moved to reinforce its already strong position in the wider Middle East and African region with office launches in Doha, Casablanca and Istanbul in the last two years.
Mohammed Al-Jadaan argues that such a substantive commitment is what is required to prosper in the local market, observing: ‘Lots of international firms want to come and run the business. It doesn’t work.’
The merry-go-round of associations starting and ending was a notable feature of 2011 but stabilised somewhat in 2012. One exception saw A&O’s association with Abdulaziz AlGasim end last year, with Linklaters stepping in to secure a co-operation deal with the Saudi firm. A&O has moved its association to a new firm launched by former A&O Saudi-qualified lawyer Zeyad Khoshaim, maintaining its strong presence in the region.
When former Latham & Watkins Riyadh managing partner Mohammed Al-Sheikh joined the World Bank as the Kingdom’s representative last year, this prompted Latham to form a new enterprise: an association with the Law Office of Salman M Al-Sudairi. Latham secured a headline mandate in April when it acted alongside A&O on a $2bn Islamic bond for the Saudi Electricity Company, reportedly the largest sukuk yet to be widely sold to US investors.
Squire Sanders also expanded its Middle East practice last year through its tie-up with El-Khoury & Partners’ MENA business, which formerly operated in Saudi Arabia as EK Partners & Al-Enezee. The acquisition has extended Squire Sanders’ presence in the region as it now operates in Riyadh as Al-Enezee in association with Squire Sanders.
HSF ends its exclusive alliance with GPA in August but argues that the break up was a natural evolution of its business and that the split remains amicable. ‘It wasn’t a deterioration of relationship, quite the opposite. We remain quite close to them,’ says Zubair Mir, head of HSF’s Middle East practice.
The difficulty of securing stable local alliances has seen some firms pull out. Trowers & Hamlins shut its office in Jeddah in 2011 after only being open a year. The firm announced its departure after its last Saudi associate Abbas Khan left for another firm.
The situation is easier to manage for regional players thanks to a 2008 treaty by the Gulf Cooperation Council (GCC) that removes many of the restrictions placed on US and UK law firms operating locally. This makes it much easier for Gulf firms to integrate with local lawyers.
Hourani of Al Tamimi, a firm with offices around the Middle East, comments: ‘We do not have to be ruled by our Saudi partners as we own our Saudi office and our Saudi partners are partners of Al Tamimi and not the Saudi office.’
Some are unconvinced that there are many quality outfits in Saudi Arabia but those practising in domestic firms claim that they are being approached all the time by foreign partners. ‘Associations aren’t for us. We are getting enough work as it is,’ says Haberbeck of Hatem Abbas. He adds that Saudi firms should be wary of getting into an association with an international firm, as the partnership is never equal. ‘The international firms want the Saudi work but are less inclined to give the domestic firm access to their prestige client base,’ he says.
There seems little prospect that such tensions will stop the local legal markets from developing. LB
david.stevenson@legalease.co.uk