It has been more than a decade since international law firm DLA Piper set up shop in the Middle East in 2005, and, despite economic challenges, the region has become one of the firm’s fastest-growing emerging markets.
In the past 12 months, the Middle East business delivered its strongest financial performance ever, global co-CEO and managing partner Simon Levine tells Arabian Business, recording 10 percent year-on-year growth in fee income.
This is all the more impressive when benchmarked against only 2.7 percent real GDP growth across the Middle East and North Africa (MENA) in 2016, and average 4-5 percent year-on-year growth across the rest of the firm.
In an interview in Dubai this month, UK-based Levine, along with colleague Peter Somekh, regional managing partner for the Middle East, reveal how the Gulf is helping to drive growth for the firm — but why some aspects of its various legislative frameworks require change to support business activity.
“The Middle East accounts for a relatively small percentage of the firm’s overall revenues [the US and UK account for the biggest proportion, with the UK representing 15 percent of the total $2.47bn of revenues in 2016], but its significance to us is much higher in percentage terms — if you could calculate things that way — than the pure revenue number because it occupies a pivotal strategic position in global business,” Levine says.
“First, it’s connected to Europe as a whole [with global businesses operating Europe, Middle East and Africa (EMEA) divisions], but critically it’s connected to Asia, Asia Pacific and Africa — key developing markets in which, if you are going to act for clients as a full-service business law firm across all practice groups, sectors and geographies, you have to satisfy their needs.
“As a result, the Middle East is among the fastest growing regions in our business; it is growing twice as quickly as some of our more developed markets and accounts for the highest proportion of newly appointed partners.”
In 2016, DLA Piper made up 30 partners, three of which were in the Middle East, and is expected to announce four new ones here in 2017, representing a 22 percent increase in total partnership numbers across the region.
It is the only international law firm with offices in all of the six GCC states, and its regional workload includes, among other contracts, an appointment by the Renewable Energy Project Development Office of Saudi Arabia’s energy ministry to advise on round one of the kingdom’s National Renewable Energy Programme (NREP); advising Saudi Electricity Company (SEC) on the $1.2bn Fadhili Combined Heat and Power Project, a joint venture with Saudi Aramco; advising Emirates Group with its $300m IT outsourcing initiative with IBM; the $2.7bn project financing of King Abdullah Port in Saudi Arabia; and working with Dubai Expo 2020 on several of its commercial sponsorship and associated agreements.
Levine claims low oil prices since 2014 have had a minimal impact on the firm. “When you get down to the detail, such as oil and gas, of course those practices have been affected because you follow your clients and clients in that sector are less active and less willing to spend money, but our Middle East financial results have improved year-on-year and, although my team are sick of hearing me say this, we are a very well-hedged business.
“To take an example out of the region for a second, the fact that, say, Western Australia is having a hard time with low commodity prices has little impact on our overall business because, at the same time, German corporate activity is especially busy right now."
Colleague Somekh highlights a few trends that have made the Middle East operations more challenging. “At a macro level across the GCC, we’ve seen real estate prices under pressure — partly a symptom of supply but also an indicator of other things such as that the amount of inward investment is not as strong as it was.
“We’ve also seen the SME [small-to-medium-sized enterprise] market stressed, and some constraints on banks’ liquidity affecting their ability to support the sector. There has been some response to this — a very positive one from the UAE central bank in terms of regulating the banking sector, plus the new UAE bankruptcy law that came in January.”
He says the insolvency law — the first dedicated such legislation to be introduced in the Gulf — is particularly important because bankruptcy “used to be a dirty word [in the region, with cultural attitudes trending against it]. But in fact, it’s a key part of the financial system and [legislating around it] gives certainty to banks’ lending strategies in terms of outcome.”
The planned introduction of value added tax (VAT) in the GCC is further evidence of “the development of a maturing economy”, Somekh says.
“People actually want to live here for reasons other than financial, and they don’t mind paying some tax, if it’s discretionary.” As with the insolvency law, however, there will be a “learning phase” as businesses and citizens are educated on how it all works and shifts are made to accommodate change.
On the flipside, ongoing investment in infrastructure and energy projects have kept GCC business activity relatively buoyant, he says.
“There was a particularly sharp global slowdown here around 2010 but infrastructure projects did not stop. We attended the Expo 2020 launch [of Al Wasl Plaza, the last major element in the design of the Expo 2020 Dubai site] this month, and saw evidence of a holistic vision being implemented.” Unlike in other parts of the world, “you do not have to wait 10 years for some planning nicety, it’s just done”.
DLA Piper aims to execute a similarly holistic vision as it continues to grow in the region. Focussing on a clutch of high-growth sectors — including technology, renewable energy and financial services as well as media, sports and entertainment — the Middle East business is working to become “the leading local business law firm” and this involves acting as a business advisor to clients more broadly, not just as a legal advisor, says Levine.
DLA Piper is also looking at its training obligations and improving processes where necessary.
“It’s easy to criticise but when lawyers are coming from so many different backgrounds — in the Middle East business we’ve got people from at least 15 different nationalities — having a base level of training and regulation is all the more important, says Somekh.
Some aspects of the GCC’s laws and regulations require overhaul, too. Looking specifically at the UAE, Somekh says the judicial system is by-and-large robust, with the common law DIFC (Dubai International Financial Centre) Courts system providing “a consistent level of decision-making that confers an element of certainty to businesses”, and the local courts system “increasingly demonstrating greater sophistication as the knowledge of financial instruments, financing techniques and other products evolves”.
Somekh notes that the creation of open real estate registers and more accessible corporate information as legal systems evolve will help to deepen investor confidence.
Meanwhile, GCC social media laws will need to be reviewed on an ongoing basis because of the “enormous” disruption it is having across the world to privacy and human rights, says Levine.
“When I started out as a media and intellectual property lawyer 30 years ago, I was involved in some of the Spycatcher defamation cases in the UK,” he says. The British government fought for years to stop the publication of the controversial book Spycatcher, written by former secret service agent Peter Wright. It eventually lost in 1988.
“The arguments hinged on the presumption that, if something is published in, say, Australia, there’s not a lot of damage it can do in another jurisdiction unless someone goes there and physically brings it back. Now at the push of a button you can do anything you want around the world [by circulating it on the internet]. Laws need to strike the right balance between privacy and freedom of expression.”
With 100 lawyers based in nine offices across the GCC, DLA Piper has no plans to open any new Gulf offices this year. Despite reports, the Dubai office does not intend to move from DIFC to new financial free zone Abu Dhabi Global Market (ADGM), although last year the firm moved its Abu Dhabi premises to the Emirates Institute of Banking & Financial Services (EIBFS) Building, “to be closer to clients”, a company spokesperson says.
The broader Middle East, meanwhile, will continue to be the pivot for increasing involvement in the business activities of its clients.
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