Falling oil prices in the past couple of years has led to governments in the Middle East region cutting spending and pulling back on projects, and this in turn has led to slowing growth in a number of key sectors. Law firms are now having to think differently to adapt to this new scenario, finds Ranajit Dam

As recently as 2012, the world price of oil was above $125 per barrel, and it remained strong above $100 until September 2014. Since then however, a record oil glut – caused by a combination of factors from the increase in shale oil volumes to a deceleration in the Chinese economy – caused prices to plummet to below $30. Since then, prices have gradually risen back into the $40s, but that is still a third of what it was four years ago.

The countries most affected by this decline are large oil producers, of which many are in the Middle East. “The fall in oil prices has affected some government spending which in turn has resulted in a slowing down in some sectors in some parts of the region,” says Robin Abraham, the Middle East managing partner of Clifford Chance. “Many companies and government businesses now have more stringent measures in place to evaluate investment decisions and a greater attention on operating efficiently.”

Husam Hourani, managing partner of Al Tamimi & Co, notes that the cuts in spending has resulted in projects that have been led by governments predominantly in Saudi Arabia, Qatar and Abu Dhabi have been put on hold. “On a positive note however, it has created several opportunities in the following areas: Private-public sector cooperation; debt and equity restructuring; arbitration and litigation; new areas of development such as VAT and corporate taxes that have been announced in all GCC countries; and privatizations of several government-owned companies mainly in Saudi Arabia to be followed by other GCC countries,” he says. “Accordingly, we see more opportunities for lawyers who are willing to readjust to the new reality.”

LEGAL RETHINK

The reduced work has caused law firms in the region to do a rethink with regards to their Middle East strategy. Certainly, the UAE market has remained intensely competitive, with the large number of law firms resulting in a significant downward pressure on fees. And with work coming out of government bodies in Abu Dhabi in particular being intensely controlled, that emirate has seen the departures of a number of law firms in the last couple of years, including Latham & Watkins, Herbert Smith Freehills, Baker Botts and Simmons & Simmons.

“Law firms are adapting, like any other business, to the slowdown in certain areas of activities,” says Hourani. “We are readjusting to the new realties where we are seeing more work in the areas of litigation, arbitration, debt and equity restructuring, employment restructuring, advisory and regulatory related issues. To succeed, firms need to look at their offering and if necessary, change their strategy, their focus and move into areas that are providing a steady flow of work.”

Abraham notes that with an abundance of law firms in the market, there continues to be a focus on value for money. The key to succeeding in the region, he says, is to diversify and offer a wide range of services. “Firms without diversified practices or a narrow offering may find it more challenging and certainly we have seen some office closures in the region,” he notes. 

STEADY FLOW

Abraham notes that as governmental and privately held organizations revaluate their operations, opportunities are arising for law firms in the form of mergers and acquisitions, disposals, refinancing and restructuring. “Our transactional practices continue to be very busy… and we expect to see a busier summer than we have over the past few years,” he says. “Across the region we see growth in a number of sectors, including healthcare, education, consumer goods & retail, and a continued focus on infrastructure. The recent announcement of Saudi Arabia’s transformation plan has also resulted in a surge of work in Saudi and from international companies looking to make the most of the privatizations which are emerging and we are at the forefront of advising on many of these deals.”

Al Tamimi today is receiving more enquires related to privatization, debt and equity restructuring, litigation and arbitration, employment-related issues and the potential for mergers and acquisitions, says Hourani, who adds that the firm is “fortunate to be busy” across its network of 16 offices in nine countries. “The UAE, in particular, Dubai continues to be most active as it’s seen as a hub for doing business in the region,” he says. “We are busy across most practice areas and in particular equity and debt restructuring, right issues, helping and assisting companies who wish to migrate to the UAE from Europe, helping Asian companies to identify the opportunities that they would like to pursue in Dubai, and litigation and arbitration.”

Abraham of Clifford Chance says that all of the firm’s practice areas are experiencing strong levels of activity at present. “We are seeing a number of refinancing and restructurings coming through our finance practice, while the consolidation of some sectors is driving our focus in our M&A team, while our litigation practice is busy with some high profile arbitrations and investigations work and our debt capital markets team is busy, including in relation to a number of regulatory capital issues,” he notes. “With the easing of sanctions, we are also receiving a large range of enquiries, including from Korea, Japan, Thailand and China, on the opportunities in Iran.” 

NEW STRATEGIES

According to Hourani, his firm has seen a decline in the number of European and American companies investing in the region. “However, we are seeing more Asian companies, in particular those from China, investing here,” he says. “Foreign investors are focusing on long term, strategic investments and infrastructure related projects specifically. As for Gulf companies, the reduction in the oil prices and the introduction of new strategies by governments in the GCC, primarily lower subsidies and spending, privatization, PPP’s and diverting of resources, are healthy signs that will take time to mature. However, in the long term, it will provide greater opportunities for private sector to grow and expand.”

Abraham notes that smart organizations today are using this period of relative lull to revaluate their operations and focus their strategies. “Many Gulf privately-held corporates are actively scouting opportunities in the market for further expansion, or seeking to take their businesses to the next level through listings or expansion beyond the Middle East,” he notes. “Financial institutions are grappling with reduced budgets, stretched resources and greater demands on their legal teams.”

At the same time, foreign investors and gulf companies are particularly interested in Saudi Arabia at the moment, says Abraham. “We are all waiting to see what investment opportunities will arise from their transformation plan and the reduction of restrictions on foreign owner-ship,” he adds. “Saudi is a huge market, so when it opens up, it will generate an enormous amount of activity.

Looking ahead to the rest of the year, he says he expects to see particularly busy markets in Iran and Saudi Arabia, should the plans that the governments put in place be delivered. “Egypt is also a busy market at the moment,” says Abraham.

Hourani expects 2016 to be “very similar to 2015” with a steady growth towards the end of 2016. “We expect the new implementation of policies and procedures in the GCC will see stabilization in the market and the same type of work and opportunities we’ve been seeing will continue.”