Southern Africa: Gateway nation
16 December 2013 | By Joanne Harris
31 March 2014
25 November 2013
4 October 2013
17 June 2013
19 November 2013
Despite unrest in the mining sector, South Africa is likely to remain a draw for international firms wanting to get their feet on African soil
Looking back, 2013 could well go down as a critical year for South Africa. The country’s international icon Nelson Mandela has died, the country’s mining sector, for so long one of the drivers of its economy, has suffered as a result of industrial action and the rand has been sliding downwards against the US dollar all year.
On the other hand, the government’s push for renewable energy and an increase in oil and gas exploration are causes for optimism. Many also still see South Africa as the gateway to opportunities in less developed countries across sub-Saharan Africa.
There has been significant change in the local legal market in recent years – and 2013 has been no different. Linklaters became the first magic circle firm with a significant involvement on the ground in South Africa when it signed an alliance with Webber Wentzel in December 2012, and Hogan Lovellsbookended the year by announcing a merger with Routledge Modise.
“It’s definitely made the opposition that we face more formidable, but we welcome it as it keeps us on our toes” comments ENSafrica chief executive Piet Faber. “Some of the best law firms in the world are starting to compete in the African jurisdictions.”
Shaping up to compete
The fact that competition is hotting up across Africa, with many international firms putting an increased focus on their relationships with domestic outfits, was the trigger for both Routledge Modise and Webber Wentzel to consider their international strategies.
“It’s really difficult for independent South African firms to compete for the big work on the continent without some sort of international partner,” Webber Wentzel senior partner David Lancaster says, explaining the firm’s reasons for teaming up with Linklaters.
“There’ll always be room for a strong South African domestic firm, but if you’re looking to compete, particularly outside Africa, you have to do that with the capacity that an international firm or global firm has – that’s what Norton Rose has shown,” he adds.
The alliance, says Lancaster, has resulted in several joint pitch wins for the two firms and, overall, has been a success.
Routledge Modise chairman Lavery Modise and commercial head Warren Drue agree with Lancaster’s conclusion that an international partner is critical. For four years the firm was part of Eversheds’ international network, before breaking up at the end of 2012.
“Strategically, we were moving down different paths – they were looking at a more commoditised practice scenario,” explains Drue.
He says that the partnership sat down to examine the firm’s strategy and decided it wanted to find an international merger partner. Several London-headquartered firms were approached, and “ultimately, Hogan Lovells was the firm of choice”.
“During an extensive analysis and discussion we came to the conclusion that we were a good fit with them,” adds Modise, saying the fact that Hogan Lovells’ has a sizeable number of clients with an African presence was a big draw.
Drue says the merger is as close to fully integrated as local bar rules allow. “What they bring to us is just as important as what we bring to them,” he says.
The duo admit that Routledge, which, with 120 lawyers, is a medium-sized firm by South African standards and does not have the extensive formal pan-Africa network of some of the bigger firms, was not an obvious merger partner for a firm like Hogan Lovells.
“Our competitors are green with envy – they can’t believe we managed to pull this off,” says Modise.
But while the identities of the merger partners might have taken some in the market by surprise, the fact of the merger is less surprising.
“There’s a lot of interest in South Africa and its firms,” observes Werksmans chairman Des Williams. “But it’s not just about South Africa: the global firms are interested as a way of getting into Africa.”
A challenge for firms trying to gain an African foothold is that the market is small but well-lawyered – some would say over-lawyered.
“It’s quite a small market – there aren’t the tiers you get in other countries,” notes Bowman Gilfillan Africa group head Jonathan Lang.
Although several lawyers say South Africa has not yet seen a “true” merger between a local firm and a global player, Norton Rose Fulbright South Africa managing director Rob Otty says the combination of legacy Norton Rose and Deneys Reitz has led to a “seamless operation”, despite the fact that the South African offices are a separate legal entity within the firm’s Swiss Verein structure.
“What’s the game-changer?” ENSafrica’s Faber asks, referring to the various moves by international players in the country.
However most think that global firms will keep trying to move in – indeed, Eversheds has already said it wants to open up in South Africa again, and it is unlikely to be alone.
The interest in the jurisdiction stems from the fact that, while relative to some of its neighbours, South African growth is sluggish – the forecast for 2013 is 1.9 per cent – there is still plenty going on.
One area all law firms are keenly engaged in is energy. The government’s plan to reduce South Africa’s reliance on coal has resulted in a massive, prolonged renewable energy project. All the major firms have snagged instructions from one or more parties, with several setting up Chinese walls to allow them to act for several investors, or a government stakeholder and investors.
Meanwhile, there is a pronounced uptick in oil and gas work. While this has been a feature of other African countries in recent years, drilling is now taking place off the South African coast and firms are ramping up their oil and gas practices.
“We’ve enhanced our oil and gas capability quite substantially in the firm. We think it could be a real game-changer like mining was 100 years ago,” says Lancaster.
Webber Wentzel hired Latham & Watkins lawyer John Smelcer a year ago to head up its oil and gas practice, and more laterals are in the pipeline.
Lang says Bowman Gilfillan has had a sizeable oil and gas team for a while, but he too expects this area to become more prominent.
“South Africa has always been the mining story,” Lang says. “It’s early days, but it’s something we expect to grow. I wouldn’t be surprised if our major competitors tooled up in that area in the future.”
In terms of more general M&A activity, the picture for the past year is mixed. Some firms say things have been busy, others that big deals have dropped off.
“Our corporate team has been very busy in all sectors,” Otty says.
“On the really big M&A work it’s been quiet, but despite that there’s been a level of activity that’s kept our commercial department busy,” says Williams, while Lancaster says activity levels picked up in the second half of the year.
Faber notes that international investment is continuing, particularly from China.
“China business has grown exponentially – South Africa remains an attractive destination for foreign investors and particularly for Chinese investors, but that’s equally true for the rest of the continent,” he adds.
While corporate work in mining has fallen off somewhat, employment and regulatory work has increased in response to union calls for industrial action and the government response to unrest within the sector.
Litigation is also busy; Williams says a new arbitration act to be brought in next year may help South Africa develop as a regional arbitration centre.
All this work, coupled with continuing interest from international firms, has given rise to a pretty upbeat mood within South Africa’s legal community.
“It’s still a buoyant and diversified market,” notes Otty.
So, while those international firms wanting to move into South Africa may find the market already busy, it seems as though there will be plenty to do.
“To be a corporate lawyer in Botswana is great”
South Africa has always had pretty close links with the countries around its borders, with investment flowing into jurisdictions such as Botswana, Namibia and Zambia. These three countries are large geographically but small economically and in terms of population – and, compared with their larger neighbour, underdeveloped legally.
“There’s a lot of work in most of the countries bordering us – there isn’t sufficient legal capacity in any of them to serve that work,” says Webber Wentzel’s David Lancaster.
In October, Bowman Gilfillan made inroads into Botswana when it agreed a tie-up with local boutiqueBookbinder Business Law. Bookbinder is now a member of Bowman Gilfillan’s Africa Group, along with firms in a growing number of African jurisdictions.
Bookbinder founder Jeffrey Bookbinder says the association was “almost incidental” and
came about after one of his lawyers spent time on secondment to Bowman Gilfillan. Once he began talking to the firm, Bookbinder says he found its vision for Africa “exciting” and believes the association has made a real difference to his practice.
“Almost immediately I was seen as having significant backup if need be and that launched me into a different tier,” he says, revealing that it has already resulted in an increased number of international referrals.
“The assistance they’ve given me both at a professional level and in how we integrate our practice has been immeasurable. It might not work, but I think their concept is very exciting.”
He says, for example, that the ability for his associates to network and build a career path is crucial. Bookbinder adds that there is plenty of work in Botswana, including takeovers of listed companies and mining work.
“To be a corporate lawyer in Botswana is great because there are very few of us who can do the deals,” he says, pointing out that for South African businesses, Botswana is seen as a relatively safe, stable place to begin investment into the rest of the continent.
Key figures: South Africa
Annual inflation: 5.5%
Life expectancy at birth: 55
Source: World Bank, Statistics South Africa