UAE is hot right now

Q: What have been the highlights of 2015 so far for you and do they reflect any market trends?

Samir Kantaria, head of employment, Al Tamimi & Co: The long-awaited amendment to the UAE Commercial Companies Law has certainly been welcome. The implementation of the law demonstrates the UAE government’s commitment to a modern UAE economy.

IPO activity has been slow over the past few months largely due to lower oil prices. However, with the introduction of a more transparent regulatory regime under the amended law, and a more favourable business environment more generally, it is predicted that IPO activity will return.

Mike Wakefield, partner, Galadari Advocates & Legal Consultants: With increasingly challenging economic conditions in the North Sea and UK continental shelf – where some estimates suggest that oil and gas production has fallen by 30 per cent over the past five years – many small and medium-sized operators and oilfield services companies have been looking to re-organise their global presence, with many choosing Dubai as a base. This has led to substantial registration and corporate structuring work as well as M&A work in this segment.

In addition, looking at the hospitality and leisure industry, the first half of 2015 has shown an increase this year on 2014 in terms of new hotel management and franchise deals being signed.

Barry Greenberg, senior associate, BSA Ahmad Bin Hezeem & Associates: A big story is that, despite two factors that have been a drag on the UAE economy – the rapid decrease in the price of oil in 2014/15 and an oversupply of real estate units coming to market – the downside has been remarkably controlled.

Unlike the boom and bust cycle we have seen in the past, commercial activity has continued and expanded, albeit at a much slower pace than in prior periods. This trend perhaps is a sign of a more diverse market that is not over-reliant on too few sectors.

Given that the price of oil has been cut in half since mid 2014, the consequences could have been disastrous, but there has been no sign of any panic or any significant drawdown. In the long term, should oil remain at its current level, there may be structural changes in how regional governments budget and fund their activities, but given how oil prices fluctuate, this is speculative at this point.

Q: The UAE’s economy has grown strongly in the past couple of years. Do you expect the ongoing turmoil in the wider Middle East region to have any impact on this, or on investor confidence in the UAE?

Kantaria: The figures would indicate that the regional turmoil has had a positive effect on the UAE and we are seeing investors diverting funds, ear-marked for the region, into the UAE instead, which would indicate that investor confidence in the UAE remains high. In addition, the hosting of Expo 2020 is expected to create over 225,000 jobs over the next few years, bringing with it huge economic opportunities for the UAE as a whole.

Wakefield: It would be unwise to downplay the regional threats to ongoing projects and the opportunities for further foreign direct inward investment, so yes, it has changed the risk profile of many deals and make the region more challenging for multinational companies.

However, with increased awareness of these potential threats comes an appetite for clients to engage with advisers earlier in the project, providing additional focus on risk management and mitigation measures. As the various insurgent groups cast their web of terror wider, the region and the people
doing business within it are having to become even more resourceful in managing these risks, or at least putting in place effective processes for doing so.

Greenberg: Short of a major regional war or the development of an active insurgency in the UAE, investor confidence is unlikely to be affected by recent turmoil in the wider region. The UAE has for the vast majority of its history as a federal state avoided the internal strife and external conflict that has plagued other nations in the region.

Despite many regional conflagrations over the past 35 years, including the Iran-Iraq War, the Gulf War of 1991, the US-led invasion of Iraq in 2003 and its aftermath, and the Arab Spring events of 2011 and the continuing aftershocks, the UAE has continued to flourish. There is no reason to think that will not continue.

Q: Looking at the legal market, a number of international firms have consolidated their presence in Dubai in preference to Abu Dhabi recently. What do you think is prompting this trend and do you expect it to continue?

Kantaria: Some international firms established presences in Abu Dhabi in the past as they felt there were potentially enormous opportunities in a predominantly oil-based economy. Those opportunities did not quite materialise for all the firms, initially, in light of the Arab Spring and now the lower oil prices. Consequently, some firms have ultimately taken the decision to consolidate their UAE practices into Dubai. We expect this trend to continue with other firms which have dual offices in the UAE.

Wakefield: There are many factors and each firm will have made their decision based on different metrics, such as the costs of maintaining offices in multiple and lower revenue jurisdictions relative to the costs of maintaining such offices; the difficulty in attracting suitably qualified lawyers to work in more remote jurisdictions on the basis that time away from a head office could prejudice the lawyer’s chance of advancement; clients developing better in-house teams and relying less on outside counsel; Western billing practices no longer proving acceptable to regional consumers, such as billing in units of 15 or 30 minutes each; and general rise in competition, especially in niche areas such as oil and gas, projects, renewables and infrastructure, and hospitality & leisure.

Greenberg: This comes down to where business development prospects are stronger. Abu Dhabi, as the federal capital of the UAE, has a very strong governmental presence. Any firm that looks to do significant business in that sector will want an Abu Dhabi office. Dubai remains the commercial hub of the UAE and the wider GCC region, with aspirations to become the commercial centre of the greater MENA region and a gateway between east and west.

With so many opportunities developing in Dubai in the commercial setting, law firms are simply looking to go where there are greater prospects for generating new business. There is no reason for this trend to reverse itself, unless Abu Dhabi seeks to become a stronger player in the commercial market, which could occur depending on the success of the new Abu Dhabi Global Market financial free zone.

“Lloyd’s opened an office this year, and forecasters suggest the insurance industry in the Arabian gulf will grow”

Mike Wakefield

Q: What areas of growth are you predicting for the legal market?

Kantaria: IPO activity is certainly predicted to be busy again as well as M&A activity. However, at the same time we are also seeing the adverse effects of the lower oil process on the operations of energy-based companies, with some companies looking to scale back operations or even wind down operations totally.

Wakefield: Hospitality & leisure has to pick up with the number of new rooms required before Expo 2020. Even though the overall number of new hotels rooms has been revised downwards to around 35,000, this represents significant developments. To ensure delivery of these projects by October 2020, all the main contracts in respect of the projects will need to have been signed by the end of 2016, if not sooner, and the orders for long-lead construction items (such as steel, cement, rebar, construction equipment and so on) will need to have been placed.

It is also highly probable that infrastructure activity will increase in the next few months to support the reinvigorated property market generally and also to support the strategic development projects such as the Expo 2020 site, the Dubai world central and the surrounding area. Lloyd’s opened an office in the DIFC earlier this year, and with some forecasters suggesting the insurance industry in the Arabian gulf will grow annually by 18 per cent between 2012 and 2017, this is another area we are expecting to flourish for the rest of this year and beyond.

Greenberg: A big driver of growth in the short and medium term will be the lifting of sanctions against Iran. The UAE is a natural jumping off point to doing business in Iran, and with the anticipated lifting of international sanctions, it is expected that many international companies will seek to establish an Iranian presence.

The UAE legal community is well situated to provide services to those companies looking to make inroads into the largely untapped Iranian markets. The new UAE Commercial Companies Law, and perhaps later this year a new Insolvency Law, will also generate some activity as companies look to take advantage of each.