Western Firms Closing Their Middle-East Offices

17 Jul 2015

Year-round sunshine, spectacular high-rise offices and the use of English law. Being a lawyer in some parts of the Middle-East has its benefits, however, is it as it seems?

In recent times a number of large firms have closed offices in parts of the Middle-East.

Is this a trend we could expect to see carrying on?

Historically, the Middle-East, in particular the gulf states looked to be an ideal location. Situated between Europe, Africa and Asia they have seen the region’s airport infrastructure

grow from almost nothing, to an international hub in only a matter of years. 

This appears to be something they now wish to happen to their legal industry. Pushing to become a legal hub, in 2011 Dubai opened its court to disputes from any county, the largest attractions being the use of English-style common law, along with the English language.  

Western firms in the region are split between the UAE, Qatar and Saudi Arabia, with a few firms scattered between the other countries. Dubai’s International Finance Centre is a popular area (there are also centres in Qatar & Bahrain, Abu Dhabi is establishing one). The 110 acre federal financial free zone is home to twenty-two of the worlds top thirty banks and six of the top ten insurers, an enticing place for an ambitious law firm. 

If the region:

  • is full of potential high-level clients, 
  • uses a familiar style of law, 
  • in places has no tax on income or profit;  and is actively pursuing law firm investment

why are some firms pulling out? 

 

Dubai, Abu Dhabi or Doha?

One problem is that firms don’t know whether to view this as one region, or as separate emirates, city states or counties. 

A prime example of this is Latham & Watkins, who in 2008 opened offices in Dubai, Abu Dhabi and Doha simultaneously. This leap of faith hasn’t paid off, their Abu Dhabi and Doha offices will be closing by the end of this year with staff moving across to Dubai. What may work in Dubai may not work in Doha or Abu Dhabi, and vice versa. 

Riyadh in Saudi Arabia is slowly becoming more popular, but has far stricter controls and greater barriers to entry. What must be weighed up is the fact it is a relativity small region. Will there be enough work for partners in each office and how can firms develop relationships throughout the region. There are different business customs in different places across the region. 

 

Consolidation in Dubai

In the fight to win new firms favour, it would appear Dubai is coming out on top. 

Abu Dhabi & Qatar pose more difficulties to newcomers. Both are highly relationship driven with a small number of people controlling a vast amount of the businesses and wealth. This works against heavily invested short-time frame businesses who expect a quicker return, favouring slower organically grown relationship based ones. The result is a limited number of sometimes state owned clients, who hold high amounts of bargaining power preferring the firms they know well.

James Bowden a partner at Afridi & Angell, whom occupy offices across the region, commented on the issue in Legal Week. “In Dubai people will give you work; in Abu Dhabi you have to understand the Abu Dhabi landscape, where you have 20-30 people who control much of the wealth and companies and most of them come from nine prominent Al Ain or Abu Dhabi families.” Relationships are the key for these clients. 

Such issues could be to blame for the recent number of office closures/relocations in Abu Dhabi and Qatar. Just this year three large firms have pulled out of Abu Dhabi, Doha or both. Most recent is Herbert Smith Freehills, who last month announced they would be closing their Abu Dhabi office. Baker Botts decided to withdraw from Abu Dhabi earlier in the year, along with Latham & Watkins. Hogan Lovells closed their Abu Dhabi office a couple of years ago, despite the office only opening in 2008. With all of these firms, it is not simply the case of upping sticks and leaving the region entirely, just simply consolidating their offices to Dubai. All thirteen Latham & Watkins lawyers affected by the closures accepted the offer to move to the Dubai office. 

 

Abu Dhabi’s Ghost Offices

Not haunted buildings, but offices occupied mainly by backroom staff and junior-level lawyers, with partners dropping by only when necessary to make appearances for client meetings. While this sounds a waste of office space/rent, what must be remembered is the relationship-based business style of Abu Dhabi. Having a base on the ground is needed to nurture such relationships. 

A firm needs a government licence to practice in the country, If you pull out completely it could be difficult to re-enter the market. The easier option is simply occupy an office and fly in partners when needed. 

 

Doha Own Goal

At the minute Qatar seems to go hand in hand with the 2022 World Cup. Such massive scale construction projects provide work and opportunity for lawyers. As well as stadia, the Qatari government intends to increase the number of hotel rooms in the country to around 90,000 by 2022. It currently stands at around 16,000, with 20 new hotels to open this year alone. Whilst the large scale constriction/advisory opportunities are there, so are the doubts, the main one being what happens post-world cup? A decade of gearing up an entire nation for a month long event may not end well.

Away from the World Cup, business is about telecommunications and natural resources. There is a small number of highly prized clients, such as Qatar Petroleum, Ooredoo, and the Qatar Investment Authority, each of which has about 15-20 firms vying for their work.

 

What Next?  

As firms flocked to the region over the last decade, many were initially hit with a turbulent financial patch, culminating in Dubai receiving a $20billion bailout from Abu Dhabi in 2009. 

Since then, despite fluctuating oil prices, things seem to be slightly more stable and property is on the rise again. The Gulf states avoided the turbulent Arab spring in 2011, in fact some appeared to fair well from it. While Bahrain has seen protests and uprising in recent years, politically, the UAE looks a safer bet. 

So will there be more office closures in the Middle-East? The answer is yes, probably. 

Abu Dhabi seems a tough nut to crack, those who have recently moved there may find there is not enough work to warrant an office. 

The future of Qatar is relatively unknown post-2022, although until then there will be work in certain sectors. 

 

Our view is that despite the closure of offices there is no great headcount reduction and no withdrawal from the Middle East. 

What we are seeing is a consolidation to regional hubs in Dubai. 

After all, Doha is only an hours flight away and Abu Dhabi is only 80 miles down the road. In those smaller sub markets the key is to have boots on the ground but only to the extent needed to build relationships because some parts of the middle east are just not big enough to justify the cost of a full time office.