Seismic changes on multiple political fronts have gripped the Middle East in recent times as waves of protests storm across the continent. As the landscape awakens with the palpable taste of revolution in the air, the destiny of future pipelines of work is altering.
It all began with the selfimmolation of Mohammed Bouazizi on 17 December 2010 – the spark that lit a blaze of indignation that has fuelled massive protests across the region. Beginning in Tunisia, thousands of people had poured onto its streets, towns and cities, toppling the government and sending President Zine al-Abidine Ben Ali fleeing from the country in January. The Tunisian uprising inspired a wave of similar protests across neighbouring countries, resulting in the unseating of Egypt’s Hosni Mubarak in a matter of weeks.
In Yemen, President Ali Abdullah Saleh has announced that he will not attempt to extend his presidency when his current term expires in 2013. Like Mubarak, the uprisings have brought an end to three decades of power. In Jordan, King Abdullah sacked his government in the face of widespread demonstrations. “There needs to be stability in the legal and political regulatory environments so that investors feel safe investing for the long term. In truth, however, the future remains uncertain. The economic fallout from recent political unrest in North Africa and parts of the Gulf has yet to be felt,” SNR Denton partner Michael Kerr says.
In the doom, gloom and uncertainty, Kerr believes there may be a silver lining. He says the unrest may perversely have a positive effect on projects in the region through increased government spending borne off the back of rising oil prices. “This may serve to kick-start projects that may otherwise have been on ice,” he says.
At the time of press, Bahrain is bracing itself for more protests as Saudi Arabia and other Gulf states reportedly prepare to send troops to help restore ‘order’ in the strategic kingdom. As the streets of Manama seethe with tens of thousands of protestors, so too are the streets of Tehran, Libya, Algeria and Yemen teeming with youths eager and intoxicated with the idea of change.
Continued protests and political unrest in capital city Manama have forced businesses and law firms to limit their operating hours as staff struggle to get to work with main roads through the central business district blocked off.
“In Bahrain, travel has been rather restricted and in common with many other businesses, we have been operating our office on limited hours to ensure that staff are able to travel to and from homes at times which minimize the risk of them becoming caught in various demonstrations which have been taking place,” Norton Rose senior partner & head of corporate finance, Middle East, Campbell Steedman says.
Steedman says that despite the unrest, it is ‘business as usual’ for the firm – no ongoing projects have been cancelled, and the firm continues to have client calls, though meetings are predictably fewer in number than they were before the turmoil erupted.
Commenting on what impact the protests may have on the Kingdom’s regulatory system, Steedman believes it is too early to call but pointed out that the firm remains committed to maintaining its practice in Bahrain.
Managing partner of local law firm Al Boainain Legal Services, Mohammed Abdullah, earlier this month told ALB that the unrest was a ‘small, localised concern’ that despite making things ‘a little difficult’, has yet to affect business in Bahrain in a drastic way. “These protests are isolated incidents and things will calm down. It is a political problem and necessitates a political solution if authorities want to prevent business from slowing down,” Abdullah said.
As forces from the six-state Gulf Cooperation Council prime themselves to enter Bahrain to help boost security, hopes of containing protests in ‘isolated pockets’ are now fast fading. At this juncture, uncertainty is the only constant.
With other problems to grapple with, such as coming to grips with a Middle East recovery post- financial crisis, law firms in the region have taken a stance that nestles between cautious optimism and plain cautiousness. Although growth has not halted completely, there exist fears of a knock on effect in other parts of the continent such as Saudi Arabia, Kuwait and the UAE should regimes such as Bahrain fall.
Capital markets M&A
In summary of capital market trends in Dubai, Clyde & Co corporate partner Hamish Walton says there has been very little activity in Dubai’s capital markets in the past year, with the exception of certain sukuk and bond issuances. The prognosis is grim. “Generally speaking, equity capital markets issuances in the GCC have slowed further from 2009. Recently, the IPO of Axiom Telecom on NASDAQ Dubai was withdrawn and there has been only one IPO within the UAE in the past two years,” Walton says. However, glimmers of hope for a turnaround come as the successful IPO of Insurance House on the Abu Dhabi exchange (ADX) breaks the drought. In addition to NASDAQ Dubai’s recent indication of plans to facilitate listing rule changes to help stimulate the market, this signals a change in fortunes for capital markets and corporate lawyers based in the UAE. “We are seeing an increased level of confidence, and we are forecasting being moderately busy on the corporate side,” Walton says when asked about Clyde’s pipeline in the Middle East.
“The M&A market has been generally slow, although we are noticing a gradual increase in activity,” Walton says. This sentiment is echoed by the Abu Dhabi-based Middle East practice of Singapore Big Four law firm WongPartnership, which has also seen a gradual pick up. “The finance sector is generally quiet, not many deals have been cut. The banks have been cautious in lending and liquidity is tight. Although there has been a recovery following the GFC, the region has suddenly been hit by the political
unrest, so we need to see how it all pans out,” Middle East practice head Paul Sandosham says.
Conversely, law firms with offices based in Saudi Arabia have had better luck. Hogan Lovells Saudi-based partner Imran Mufti has witnessed a significant increase in inbound investment. These investments typically come from Europe, the Far East – in particular, as well as from around the region. “Capital is being moved from the likes of Bahrain and Dubai with a view to generating a higher return in Saudi Arabia, which has managed to weather the financial crisis better than its neighbours” Mufti says.
Sectors in Saudi that have grown in popularity include industrial manufacturing with steel and raw material manufacturing performing especially favourably, according to Mufti. “Foreign investors are entering the Saudi market, often looking to collaborate with a local Saudi partner usually by the incorporation of local joint venture entity. In the past 8-12 months, there has been a marked increase in our FDI workload.” he says.
Tides of change: a wave of practices
According to a number of other firms, demand for legal services in the UAE remains reasonably healthy. However, the nature of legal services has evolved. Insolvency, restructuring, Islamic finance and dispute resolution have grown in importance as practice areas currently in vogue. According to Kerr, banks are now lending larger amounts at lower pricing; instigating improved performances from the region’s project finance market compared to 2010. “Saudi Arabia was the region’s most active project finance market in 2010, raising more than US$20bn. This trend is set to continue following the approval of its ninth five-year development plan by King Abdulaziz al-Saud,” Kerr said.
Under the economic stimulus package, US$385m has been earmarked to be invested in infrastructure development for the years leading up to 2014, with a large amount of this to be spent on publicprivate partnerships. “Across the Middle East, energy and power projects still account for the lion’s share of funding,” Kerr says. According to him, firms based in the Middle East are holding out hope that the multi-billiondollar infrastructure investment programs announced in Kuwait and Qatar, as well as Abu Dhabi’s ongoing implementation of its Vision 2030, will translate into increased business on the ground.
Other areas that SNR Denton & Co predicts a strong pipeline of work for the year include transport and infrastructure – as the firm gets awarded a recent appointment to the panel for ZonesCorp. “Qatar’s securing of the 2022 FIFA World Cup will result in an exponential rise in the level of construction work including the development of stadiums, roads, hotels and other facilities to support the tournament,” Kerr says.
Other lawyers agree. “Qatar is relatively small in terms of population. WongPartnership has an office in Qatar but a lot of law firms have been hesitant to set up shop there because they feel that they can service it out of Dubai or Abu Dhabi just as well. Moving forward, with the World Cup, there is potential,” Sandosham says. When the crisis hit, a litany of investments and projects stalled. Lawyers in the Middle East are now angling for competitive bids of new hotel, infrastructure and construction deals in Qatar – something that they hope will put Qatar back on the map. “A lot of projects were put on hold, until the announcement of the winning World Cup bid. It’s a big challenge and they’ve got 12 years to do it all – it’s exciting times for them,” Sandosham says.
According to Clyde & Co senior associate Jill Nelson, increased implementation of plans to develop the energy and social infrastructure of countries within the MENA region is a trend to look out for. Notably, there has been considerable concern regarding the disruption in Libyan oil production, which Nelson believes may lead to contractual and insurance claims. “International companies holding franchises in those countries that have experienced unrest may also reconsider their commitment to the region which could lead to an increase in cross border disputes,” she said.
The disputes capital of the world
Whether Dubai deserves the reputation of what it has often been dubbed to be – the disputes capital of the world postcrisis – is a moot point amongst legal circles. Dubai has seen a significant amount of construction and property development related disputes as the after effects of the property slump continues to be felt by developers and contractors alike.
In the UAE courts, a significant number of cases brought on by individual property investors suing developers in relation to prolonged delays in completing developments persist. According to Clyde & Co legal director of the firm’s dispute resolution group Richard Bell, that trend is likely to continue for some time yet. In addition, Bell also points out that banks are increasingly active in foreclosing on defaulting mortgagors and expects the number of foreclosures to rise this year. The Middle East generally has seen litigation arising out of the recent political upheavals in the region. “Across the Middle East, we are starting to see litigation over the cancellation of franchise and agency agreements as international companies pull out of the region due to the recent political unrest in North Africa and the Gulf states,” Bell says.
According to most, dispute-related work litigation and arbitration with a heavy emphasis on infrastructure, construction and engineering have grown tremendously out of Dubai. Disputes arising from Abu Dhabi have also seen growth, albeit to a lesser extent. “In Abu Dhabi, it is more of the non-contentious front end stuff – but we are seeing payments starting to become an issue in Abu Dhabi as well; as part of a knock-on effect from Dubai to Abu Dhabi,” Sandosham says “Dubai was a contractor’s dream town with many projects going – they were building everything and anything. Since the dry up in liquidity post-crisis, there has been a lot more dispute work coming out of that sector,” he adds.
Working towards a post-oil era
Across the region, governments are preparing for reduced reliance on hydrocarbons. Transactional lawyers have witnessed a growth in opportunities in social infrastructure – education, roads, housing, transport and health care – for local and foreign investors alike. The Saudi Government has released a record budget for development of social infrastructure – a sector which the Saudi Arabian General Investment Authority is keen to push as a key area for future growth.
“The over-reliance on hydrocarbonrelated assets is going to wane eventually. Investors in Saudi Arabia are very much positioning themselves with a post-oil era in mind or, at the very least, decoupling as much as possible that feature of the Saudi economy from their investment.” Mufti says.
In Saudi Arabia, the Government has also increased the number of grants available for young Saudis to study in the US or UK or Europe. “It’s part of a policy to develop Saudi Arabia’s knowledge-based industries, rather than buying in the expertise from outside,” Mufti said.
During the course of the past 12 months, victims who succumbed to the GFC include Gide Loyrette Nouel, who pulled out of the region. Many other firms have scaled down operations during the last two years. DLA Piper, a firm that expanded rapidly in Dubai during the good times, was singled out as the firm that had to reduce its numbers the fastest. “Most law firms however will fight to keep their presence in the region because of the significant opportunities it still offers. For this reason you found that where firms had overexpanded in Middle East markets most effected by the GFC, rather than lose valuable regional resources through reductions in staff, a significant number of firms redeployed staff to Abu Dhabi, Qatar or Saudi where markets remained more buoyant,” Hogan Lovells partner Sean Harrison says. According to Harrison, “three key markets where heavy investment in infrastructure will continue to take place are Saudi Arabia, Qatar and Abu Dhabi. These centres in the GCC benefit from a steady flow of hydrocarbon income which allows them to continue to invest, build and diversify their economies – whilst those who rely on other non-oil sectors of the economy have experienced restrictions in spending similar to those of Europe and the US”.
Signs of putting the dreadful years of crisis behind are surely on the horizon and, save for the worry presented by continuing political unrest, lawyers in the region have begun to put forth cautious optimism for the future. A number of firms have outlined expansion plans into new Middle East markets this year, including jurisdictions such as Syria, Lebanon, Jordan and other places in Saudi Arabia. Others also believe badly-hit markets such as Dubai have stabilised, beginning the process of “modest recruitment” going forward.
Although factors that have led to recent turmoil across the region are not going to disappear in 2011, a forward-looking vision spearheaded by governments within the Middle East coupled with the hunger for change by its masses promises exciting times going forward. ALB
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