Georgia: The battle for Tbilisi
1 July 2013 | By Jonathan Ames
9 September 2013
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4 March 2014
12 August 2013
14 April 2014
The economy may be stagnant, but at least Georgia can now boast freedom of speech and transparency – and a highly competitive legal market
Two global law firms are jousting for a slice of a shrinking legal sector in the shadows of the south Caucasus Mountains in Georgia.
Relative newcomer Dechert is taking on the established might of DLA Piper in a jurisdiction where there is optimism about political democracy, but trepidation over what one lawyer describes as an almost “stagnant” economy. Dancing around the edge of that Tbilisi scrum is one other international player, Dentons, and a small group of top-tier local firms.
All are having to get to grips with a roller coaster ride that saw Georgia boom with investment following the demise of the Soviet Union, only to peak and start a drift downwards, a slide exacerbated by the global financial crisis.
The upshot for lawyers is a legal scene where fee rates have more or less halved in five years and global and local firms alike are openly competing on price.
An IMF delegation to Tbilisi produced a blunt assessment a few weeks ago: it awarded Georgia plus points for conducting open elections, but flagged uncertainty over the political complexion of the new government, made worse by a looming presidential poll this autumn.
“It was remarkable and important that there was a democratic transition of government,” says DLA Piper Tbilisi office managing partner Ted Jonas. “Democracy is pervading the system – we now have a functioning parliament, which we didn’t have before.”
Local lawyers agree. “In Georgia, there is freedom of speech, transparency and government accountability – much of that doesn’t exist elsewhere in the region,” comments Alexander Bolkvadze, a partner at one of the three largest Georgian firms, BLC. Other big local players are Mgaloblishvili Kipiani Dzidziguri (MKD) and BGI.
At first sight opportunities for investment look fairly sparse – boiling down to tourism and a nascent wine exporting sector. But, say lawyers, that is overly simplistic and possibilities are more plentiful. Hydropower is one possible seam, as the country is keen to promote itself as an exporter of energy to Turkey, Armenia, Iran and Russia.
Agribusiness is also seen as a growth area, as producers look beyond wine to expanding other processing opportunities, all backed by government loans aimed at improving subsistence farming.
Perhaps most importantly, the country is viewed as being an ideal regional transport and logistics hub. DLA acts for the terminal owners at Poti Sea Port on the eastern Black Sea coast. The port is developing significantly as a transit corridor railway. The Anglo-American law firm also acts for Toyota, which has made Georgia its warehousing and logistics centre for central Asia and the Caucusus.
Other areas eyed up by lawyers include a small but growing mining sector and some also hold out hope for a rise in the local services sector.
“We are doing some commercial contracts and an increasing amount of M&A of all types,” maintains Dechert partner Louise Bernstein.
While there is potential in the jurisdiction, the legal market is undeniably highly competitive – and the brewing bout between DLA and Dechert is the most interesting aspect.
“We are the only serious international player in the country,” posits Bernstein, who goes on to acknowledge that DLA has been in the country far longer, but claims “it has shrunk considerably and is domestically focused”.
The back story to the local office of Philadelphia-based Dechert is also dramatic. The team started life as the Tbilisi outpost of Dewey & LeBoeuf, but when the New York firm spectacularly imploded last year the Georgia team found a home at Dechert.
It is true that DLA shed nearly half its Georgia-based lawyers in 2008, but it still fields 12 in Tbilisi. Dechert claims a three-strong presence, but that includes two who shuttle back and forth to London. DLA’s Ted Jonas, who local Georgia law firms point to as having almost single-handedly modernised the local profession, is bemused.
He acknowledges that under the Dewey banner the office had “locked into a good line of work for the Georgian government and state-owned companies” under the previous regime, but maintains it did that mostly from London.
Dipping into Georgia from the sidelines is the Moscow office of Dentons, which has an association deal with MKD. That relationship dates back to the legacy Salans element of last March’s merger.
“For us to compete with DLA,” comments Dentons Moscow partner Glenn Kolleeny, “we find it useful to have our formalised association and be active in the market.”
There is no doubt there is plenty of competition in Georgia, but the question remains – is the fight worth the reward?
Key figures: Georgia
Inflation (May 2013): -0.1%
Life expectancy at birth: 73
Unemployment (2012): 15%
Source: World Bank, National Statistics Office of Georgia