‘The Middle East. We will try to make it better, but it is a troubled place’: the words of Donald Trump as he announced the recent military strikes targeting Syrian president Bashar Assad’s chemical weapons facilities. Although there is some truth to his sweeping statement, most of the over 400 million citizens in the 17 countries that comprise the Middle East region beg to differ. While the World Bank estimates that GDP growth in the region slowed from 5% in 2016 to 1.8% in 2017 – fuelled by oil production cuts and geopolitical tensions – this is projected to rebound to 3% in 2018 and 3.2% the following year.
The region’s lawyers point to the six Gulf Cooperation Council (GCC) economies as leading the way, supported by infrastructure investment. ‘It’s a very good time in the region,’ says Doug Peel at White & Case, head of the firm’s Middle East practice, which is spread across five regional offices: Cairo, Riyadh, Doha, Abu Dhabi and Dubai. ‘We are busy all the way around – there’s substantial activity in all the GCC countries and in Egypt.’ Last year White & Case – along with Latham & Watkins – advised JPMorgan, Citi and HSBC on Saudi Arabia’s debut 144A/Reg S Sukuk programme, including the issue of $9bn Sukuk.
‘There’s a lot of major infrastructure work still being undertaken in the region,’ says Peel’s fellow partner Michael Turrini. ‘Whereas some of the big projects elsewhere are getting cancelled, the Middle East remains very vibrant. There’s a lot of investment, a drive to upgrade the major infrastructure of all the countries – a bit of a renaissance.’
‘Whereas big projects elsewhere are getting cancelled, the Middle East remains very vibrant. There’s a lot of investment – a renaissance.’
Michael Turrini, White & Case
Husam Hourani, managing partner of Al Tamimi, which has 330 lawyers in 17 offices across nine countries in the region, agrees: ‘In the past year, we have focused mainly on Egypt and Saudi Arabia, which have been extremely busy.’ In Egypt, he notes, the government has been working hard to attract mainly GCC investment in real estate and construction.
Although regional IPOs have been notably thin on the ground since the 2014 collapse in oil prices, more may follow the successful December 2017 listing of Abu Dhabi National Oil Company for Distribution on the local stock exchange. Al Tamimi and Shearman & Sterling were the advisers. Saudi Arabia and the UAE have a number of IPOs in the pipeline this year with up to a dozen Saudi and nine UAE companies expected to list.
The giant of all IPOs – Saudi Aramco’s $100bn listing – is widely anticipated as part of the Kingdom’s sweeping economic reform programme, although the decisions on where and when to list have not been made, with White & Case prominent among the firms advising.
‘People are waiting to see what will happen with Saudi Aramco – if it goes ahead then that may trigger a waterfall effect of a lot of other Saudi and regional companies coming to market,’ says Chris Macbeth, counsel at Cleary Gottlieb Steen & Hamilton in Abu Dhabi, from where the firm advises several sovereign wealth funds. He points to the consolidation of two leading funds into a $200bn vehicle: in March, Sheikh Mohammed bin Zayed Al Nahyan, the crown prince, announced that Abu Dhabi Investment Council (ADIC) will join Mubadala, which merged with the International Petroleum Investment Company (IPIC) last year. ‘It still remains to be seen what the impact of those developments will be,’ says Macbeth.
‘There aren’t many firms with lawyers who have almost 35 years’ experience of privatisations internationally – that’s clearly going to be a growth market in Saudi,’ says Campbell Steedman, managing partner of Winston & Strawn’s regional practice, who joined from White & Case in October 2016. He says of the Aramco IPO: ‘It’s the flagship transaction in Saudi – the jewel in the crown in terms of value – but it doesn’t really achieve the government’s diversified share ownership objective. The key element is going to be what the proceeds are used for – how they reinvest that money into stimulating the Saudi Vision 2030.’
‘If Saudi Aramco goes ahead that will trigger a waterfall effect of with a lot of other Saudi and regional companies coming to market.’
Chris Macbeth, Cleary Gottlieb Steen & Hamilton
This plan aims to reduce Saudi’s dependence on oil by diversifying its economy, and developing the health, education, infrastructure, recreation and tourism sectors.
The battleground
The ebb and flow of Middle East work is something which Jonathan Silver has seen over several decades: he has been the head of Clyde & Co’s regional operations since 1989. While some firms have reduced their local footprint in recent years by leaving Abu Dhabi and Qatar – Latham, Clifford Chance, Herbert Smith Freehills, Weil, Gotshal & Manges and, most recently, Norton Rose Fulbright, which closed its Abu Dhabi office in January – Clyde & Co continues to sail on regardless, adding an Oman branch in February in association with Fatma Al Mamari.
This takes its regional office count to five: alongside Dentons, the largest Middle East presence among international firms in terms of locally-based lawyers. Silver points to ‘the two-way flow of investment in and out of Dubai,’ which remains the preferred regional hub for most. But he also acknowledges the strength of competitive pressure on fees. ‘There are an increasing number of law firms in the region chasing largely the same pot of work – inevitably price competition is going to be heightened,’ he says.
He is also excited by the potential of Saudi: ‘The reforms are really good news, very positive. They will have a very big influence. The 2030 vision means that Saudi is an extremely important market. We’ve seen tremendous growth there: we’re the only firm that has a fully integrated operation and we have the biggest presence on the ground. Saudi is becoming increasingly sophisticated in its demands and we are responding. We’ve got insurance specialists, an IP specialist, construction specialist, a marine and an employment specialist there. We will increase the number of people further.’
At Dentons, which has offices in the UAE, Saudi, Oman, Qatar, Lebanon, Jordan and Egypt, regional managing partner Paul Jarvis says: ‘The firm has performed very well in the Middle East this year. We’re very well hedged in terms of core practice areas and geographies.’ In response to local difficulties, he is phlegmatic: ‘Whoever you talk to, oil prices are either too high or too low; the dollar’s too strong or too weak; there’s a war here, there’s a war there. You get used to the fact that there’s always something interesting going on, and frankly, you just get on with it and work out how best you can maximise your practice.’
Banking and construction have been particularly strong over the past year, he notes, with significant work being referred from and to the US, Hong Kong, China, and Singapore, as well as from Dentons’ expanded international network. ‘Our banking clients are increasingly looking outside their domestic markets for business,’ he comments. ‘Other firms take the approach that they don’t need offices in multiple jurisdictions: they can use strong local firms, which is a perfectly viable model. Some regional firms have sought to expand to other markets.’
Hogan Lovells first opened in Dubai in 2007, three years after the Dubai International Financial Centre (DIFC) was established. The firm’s practice centres on finance, corporate and commercial, dispute resolution, construction and projects, according to construction and disputes partner Nabeel Ikram. ‘Our clients were initially international companies doing work in the Middle East, but we now do a lot of work for local companies, government departments, local banks and contractors,’ he says. ‘It’s a competitive market but that’s the case everywhere. You’ve got to be on top of your game wherever you are, there’s no easy ride here. Some of the older firms here probably did have an easy ride for many years, but that’s obviously changed.’
Among offshore firms active in the region, Angela Calnan, group partner in Collas Crill’s trust and fiduciary team, says: ‘We see a lot of clients and intermediaries in Dubai. But in the end, clients are often based in the wider GCC and simply come to Dubai as a more convenient meeting place for the client advisory team.’
A relatively recent arrival, CMS opened its Dubai office in 2012. ‘We chose it as our hub because that’s where many energy companies are headquartered for the region,’ says Middle East managing partner, John O’Connor. ‘Since then we’ve expanded into other sectors and deliberately opened up in more unusual places. After Dubai, we opened in Istanbul, Lebanon, Iraq and Oman, where we were the fourth international law firm to have an office at the time. The local market was delighted to have another alternative and it’s done extremely well.’
‘Oil prices are either too high or too low; the dollar’s too strong or too weak; there’s a war here, there’s a war there. There’s always something interesting going on, and frankly, you just get on with it.’
Paul Jarvis, Dentons
Two years ago CMS also opened in Tehran and last September, established an alliance with Feras Al Shawaf in Riyadh, making it the only international firm operating on the ground in both Iran and Saudi. O’Connor describes the CMS regional operation as ‘pretty well hedged in terms of market fluctuations’. As evidence, the Dubai office delivered 30% revenue growth last year with strong double-digit growth elsewhere in the region. ‘We’re a very stable and dynamic practice,’ he says.
Africa continues to be a growing focus of Middle East investors’ attention, but it cuts both ways. ‘There are a lot of flows in both directions – from and to Africa,’ says Ikram. ‘Dubai is an exciting place, which African people see: this has developed very quickly, this is the type of place we can take inspiration from. I don’t think you should underestimate that.’ Silver agrees: ‘There’s a lot more trade coming backwards and forwards. It’s not one way out of Dubai into Africa, it’s in both directions. Also, Chinese companies are using Dubai as a regional hub for investing into Africa and into other parts of the Middle East.’
Alastair Young, managing partner of Dentons’ Dubai office, comments: ‘We work with businesses that use Dubai as a springboard as well as businesses based in Africa through our South African and Kenyan offices. We’ve advised on a number of financing, infrastructure and construction projects built out in Africa which have a Dubai element to them.’
Peel adds: ‘We do a significant amount of Africa-related work from the UAE offices, including project finance, capital finance and disputes work, from both Abu Dhabi and Dubai. This is not only working for multinationals running their Africa business from the DIFC, but also a function of the relationships that we have and the people we have on the ground.’
Trump may view the Middle East through a simple lens, but the region can only be understood as a complex, multifaceted prism. ‘Multinationals do factor various risks into their consideration, but political risks seems to be low down on the scale,’ says Silver. ‘Certainly, if one looks at the way in which they have expanded and are continuing to expand their businesses, I don’t see people taking political risk as a very high priority on their decision-making agenda.’ LB
Conflict centre: the rise of international disputes in the region
Global dispute resolution is a highly competitive business. But in the Middle East there is also increasing domestic as well as regional competition. ‘As elsewhere, international companies are reluctant to use local courts,’ says Nabeel Ikram, partner at Hogan Lovells. ‘That’s probably why so many arbitral institutions have sprung up: to provide a choice and make those companies more comfortable when investing in the region. Many people do not appreciate how many disputes and arbitration cases there are within the UAE – there are 12 different arbitral institutions here.’
Chief among them are the Dubai International Arbitration Centre (DIAC), the DIFC London Court of International Arbitration (DIFC-LCIA) Centre, Abu Dhabi Commercial Conciliation and Arbitration Centre (ADCCAC), as well as the Sharjah and Ras Al-Khaimah Arbitration Centres. DIFC experienced a four-fold increase in arbitration-related cases filed in its courts between 2013 and 2015. A further 20% increase in 2016 was followed by 100% growth in the first half of 2017.
‘At one time, the DIFC seemed to be the centre for the region,’ says White & Case partner Michael Turrini. ‘What you’ve also got now is countries establishing their own arbitration body trying to capture part of the market. Although the DIFC is very credible and extremely progressive, each country in the Middle East is seeking to develop its own credible alternative.’ He points to the Saudi Centre for Commercial Arbitration and the Qatar International Centre for Conciliation and Arbitration as examples. ‘Of the 15 arbitrations I’ve done in recent years, one was based in Paris, one in London, the others in the Middle East country where the subject of the dispute had arisen. That is a very strong trend. The Middle East has become extremely sophisticated: clients expect the main arbitration players to be centred in the region.’
Alastair Young, managing partner at Dentons in Dubai, says: ‘There is an understandable desire for local markets to have their disputes dealt with competently and locally. DIFC-LCIA and DIAC arbitrations becoming more popular in the region is part of that.’ Disputes work in the GCC is brisk, he adds. ‘Clients are looking for law firms that have both domain expertise, whatever the domain is, and local law expertise with people on the ground. It is a good market in which to be a specialist arbitration practice, provided you’ve got a real pedigree in the region.’
At CMS, which specialises in construction and energy disputes, regional managing partner John O’Connor says: ‘A lot of our work is across UAE, Saudi, Iraq and Oman. The DIFC is still the most commonly referred to seat for arbitration under DIFC-LCIA rules – I don’t think that is going to change any time soon. From an M&A and commercial contracting perspective, it is quite rare to find any high-value transaction that chooses anything other than English law and DIFC arbitration.’
It is seven years since the jurisdiction of the DIFC courts was expanded to become opt in, enabling parties to refer disputes to the DIFC courts without any need for a connection to the DIFC. ‘That was a real game changer, but it’s been a slow burn in terms of DIFC courts attracting a critical mass of big-ticket disputes,’ says Yacine Francis, partner at Allen & Overy in Dubai. ‘Other offshore courts have popped up like the Abu Dhabi Global Market Courts, which went online last year. It’s still early days, but their creation is a significant development and part of a growing trend of new dispute resolution hubs in emerging markets that are attractive to international and regional businesses.’
The regionalisation of dispute resolution, he says, means that much big-ticket international arbitration work arises from construction and major infrastructure disputes within the Middle East. Here, he sees Freshfields Bruckhaus Deringer as A&O’s principal competitor for work while he identifies Al Tamimi as having ‘a highly active DIFC court litigation practice’. Meanwhile, international commercial arbitration arising from contractual disputes and investment treaty arbitration has ‘continued to be busy – where we’ve seen increasing growth is in DIFC court litigation’.