Consolidation in the Middle East: should I stay or should I go?

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While the Middle East has in general seen a period of great growth, with law firms responding with new offices and increased local man-power in a bid to expand their client reach, certain regions such as Qatar have experienced a more complicated and turbulent few years.

Oil prices falling to below $50 per barrel has forced the Qatari government to borrow money from the bond market, while other geopolitical tensions have underpinned the various changes to law firms’ presence in the wider MENA region.

Magic circle firm Clifford Chance recently closed its Qatar office citing “less need for a presence in Doha” as the primary reason for the move. The firm opened in Qatar in March 2009 with finance partner Richard Parris and counsel Greg Englefield fronting the base, which initially consisted of six lawyers. Parris has since relocated to Abu Dhabi while Englefield left the firm to join Confluent Law Group as managing partner in Iraq.

In rapid succession, Herbert Smith Freehills became the second international firm to close its Qatar office following poor performance in the country. It has been rumoured that the exit was due in part to the departure of head of the infrastructure finance team James Bremen, who recently moved to Quinn Emanuel Urquhart & Sullivan, and Middle East finance head Nadim Khan, who was instrumental in launching the firm’s first office in the region and has now joined Jones Day.

Interestingly Quinn Emanuel is now understood to be looking at launching a Qatari presence, which would be its first base in the Middle East. This is less likely to be a stand-alone office than a local association or alliance, but it certainly points the finger at Bremen as central, and perhaps highlights the need for a man-on-the-ground who knows the market inside out. Investing in Qatar without such experience would mean operating on much riskier ground.

A source said: “One of these closures has been precipitated by the departure of the big infrastructure finance team at Herbert Smith, but the moves don’t point to a general market response. Clifford Chance has had a skeleton office here for some time.

“Other more specialist firms will see this as an opportunity. Charles Russell Speechlys is growing here. Maybe DWF is similarly looking to do a lot of disputes work on the contractor side.“

One source was unsurprised by the moves: “I don’t think the changes are as dramatic or paradigm shifting as they might first appear from afar.

“In Qatar there are only about six to ten big corporate clients that are worth investment. If many of your competitors deal with them outside of MENA, then it isn’t really worth the costs to keep an office there. Given the relative size of Qatar there isn’t steady workflow of domestic work. With around 45 international law firms in Dubai, it’s better to consolidate.”

Consolidation is a less risky tactic during market fluctuations, and especially when a law firm looks around at its competitors, and sees they are slimming down or leaving altogether.

Addleshaw Goddard’s head of Gulf region Andrew Greaves, who oversees offices in Dubai, Doha and Oman, says the reason some international firms are pulling out of the Middle East markets is simple. “There’s two reasons to open in any country: one, client demand, and two, because you think you can make money. If one or both of these considerations are removed then you need to seriously look at why you’re in that market at all.”

The number of top-end Qatari clients is shrinking, and the ones firms do have are doing less international deals. Sources in the market claim international firms are competing to pick up work from 10 or so clients. So why is client work in Qatar shrinking?

“What we’re seeing at the moment is that is that the region is currently underpinned by the petrodollar, which is still very flat, and that has an impact on the fiscal budget of the regional government entities,” says Greaves. “In turn that’s having an impact on prices, volume of business and big firms with big footprints are seeing their profitably levels being challenged. So we’re seeing a number of bigger firms closing their operation in the likes of Qatar and Abu Dhabi.”

Firms that have departed from areas such as Qatar tend to then consolidate in areas such as Dubai and Saudi Arabia, instead choosing to service Qatari clients from those hubs.

DWF recently took the opportunity to consolidate its existing presence in Dubai with an association with Saudi Arabian firm Harasani & Alkhamees, giving the firm offices in Riyadh and Jeddah.

“Why Dubai? It is a genuine hub for legal services into the broader Middle Eastern, North Africa region,” adds Greaves.

“So I suspect it’s all about cutting overheads, consolidating costs and perhaps enhancing profitability through Dubai. Levels of business in some of the less well-developed markets are being challenged by the oil price.

“Qatar is a market that’s pretty flat at the moment although most firms will see an opportunity arising in the near future in the litigation space because of the amount of work they are doing on the World Cup and railway projects like the Doha Metro and the Lusail Light RailTransit network.”

The future is likely to be a bit brighter, although that of course begs the question over whether firms like HSF and Clifford Chance have been premature in pulling out of the country.

Several sources have predicted that while 2017 could be a difficult year, 2018 may be more buoyant due to the World Cup, which will result in a large number of projects up for grabs.

As one source put it, “often putting up a flag on the ground gets you in the door”. The Lawyer predicts it will be the firm that have spent the time to expand and reinforce their roots in the region – and capable of riding out the downturns – that will profit in the long-run.

The post Consolidation in the Middle East: should I stay or should I go? appeared first on The Lawyer | Legal News and Jobs | Advancing the business of law.

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