As oil prices continue to plummet, international law firms are hotfooting it out of Abu Dhabi
What started out as a balmy breeze is now beginning to appear like a full-blown sandstorm. When Florida headquartered Holland & Knight closed its sole Middle East office in Abu Dhabi back in 2014, few predicted that it would be the start of a snaking queue of law firms looking to exit the city. But that’s just how it turned out. In May 2015, Baker Botts closed its Abu Dhabi office, and some months before that, in March, Latham & Watkins announced its intention to close both its Abu Dhabi and Doha outposts. Herbert Smith Freehills shuttered its Abu Dhabi presence in June, moving its five-lawyer team there to Dubai. And in February this year, Simmons & Simmons announced plans to close its office in the emirate, adding it was looking to “consolidate its offering in the UAE”; within weeks it was followed by Vinson & Elkins, which had opened in Abu Dhabi in 2007. Suddenly, Abu Dhabi seems to be a barren and inhospitable habitat for the legal community.
One can’t fault the firms for setting up shop – the UAE capital has continued to remain both wealthy and economically stable. Ratings agency Fitch, while recently confirming its AA rating, noted its “exceptionally strong fiscal and external metrics and high GDP per capita.” And a large number of law firms that made their way to Abu Dhabi in the past five years were drawn by the possibility of bagging lucrative contracts linked to the government, particularly the energy sector and the launch of a new financial free zone. Several international firms still maintain offices there, including Baker & McKenzie, King & Spalding and Norton Rose Fulbright.
But the downside, as Fitch also pointed out, includes “a high dependence on hydrocarbons” and “a relatively weak policy framework.” As state revenues decline due to cheap oil, Abu Dhabi has cut back or slowed spending on non-essential projects and lifted subsidies on petrol to ease finances. Growth is also sluggish: The International Monetary Fund has cut its growth forecast for the UAE to 2.6 percent in 2016.
An unnamed source interviewed by Reuters in early February noted that the financial free zone “hasn’t happened as planned and adding to that is the uncertain times we are in now with oil prices around $30.” With growing pressure on international law firms for billable hours, firms have been prompted to urgently review whether having a presence in Abu Dhabi is truly necessary. And as oil shows no sign of moving back up, there could be even more casualties.