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Special report: UAE – Hotspots
28 July 2014 | By Becky Waller-Davies
11 March 2014
14 November 2013
12 November 2013
14 November 2013
21 July 2014
A maturing economy, political stability and innovations such as industry hubs make Dubai and Abu Dhabi inviting – if you can get your feet under the table
Dubai International Airport was the busiest in the world last year, pipping Heathrow to the post by handling 66.4 million passengers. It is a sign that the market is once more on the up, with recovery mirroring the fortunes of Western economies.
What’s more, the nation that brought us palm tree-shaped island formations and the planet’s tallest skyscraper is beginning to build again. This month Sheikh Mohammed announced building the ‘Mall of the World’ – an indoor, climate-controlled city, no less. The city is the first state-sponsored project on this scale since the crash, and brings to mind the pre-2008 levels of brash hedonism for which the United Arab Emirates (UAE) in general, and Dubai in particular, became famous.
The 48 million sq ft creation will feature 20,000 hotel rooms, 50,000 parking spots, a tram system, districts modelled on New York’s Broadway and London’s Oxford Street, and tropical waterfalls. In short, the UAE is open for business. And it’s desperate to tell the world.
The country is in the process of being reclassified, along with nearby Qatar, from a frontier market to an emerging market. This signals a recognition that the jurisdiction is becoming not only more mature, but also more secure and stable.
Recognition of this stability will ensure foreign funds continue flowing back into the UAE stock market, with foreign investors less anxious about their prospects. The unrest across the rest of the Middle East may mean that, while investors would previously have spread their investments over the region, the UAE is now seen as a safe haven. As one UAE source points out, Western investors, stung five years ago by the crash, are now risk-averse. Rubber stamps such as reclassifications have traction.
For all its air traffic, shopping mall glitz and market reclassification, however, the UAE is not immune to financial difficulties. The crash of 2008 still looms large in many a UAE mind, with one source indicating an anxious collective knee-jerk reaction to a recent dip on the Dubai stock market.
The market had its worst monthly fall since 2008 in June, attributed to the upheaval in Iraq and instability at the country’s biggest construction company, Arabtec – builder of the Burj Khalifa skyscraper.
Despite this latter factor, construction, along with tourism, is one of the sectors leading the recovery. Dubai’s successful bid to host the Expo 2020 world trade show and Qatar’s 2018 World Cup win are two of the driving forces behind this renaissance, as well as infrastructure.
Etihad Rail, established as recently as 2009, has been tasked with constructing freight and passenger networks across the UAE. With Deloitte estimating that a third of total spending in the Gulf Cooperation Council (GCC) nations will be on railways, the scale of such a project becomes apparent. The 1,200km Etihad Rail network will link the UAE’s industrial centres such as Jebel Ali port to Dubai and Abu Dhabi, as well as connecting to the GCC network.
Firms move in
2012 and 2013 featured a raft of firms moving into the UAE, with Addleshaw Goddard, Baker Botts, CMS Cameron McKenna, Morgan Lewis and White & Case all taking the plunge by sending in teams. Meanwhile, Baker & McKenzie sealed the deal through a merger, with former Kennedys association partner Habib Al Mulla its outfit of choice, thereby adding to its Abu Dhabi presence and gaining a Dubai base.
So far this year, just Nabarro has established a base in the country, moving one partner and two associates into its Dubai office.
Miami-headquartered Holland & Knight chose to close an Abu Dhabi base, its only Middle Eastern office, last month, billing its decision as a strategic concentration on US and Latin American work. However worthy a strategy that might be, there is no question that Western firms do not find it easy to gain a
secure foothold in the region.
As in many Middle Eastern countries, relationships and longevity count for more than they might in London or New York, with firms that have established presences being more likely to reap the rewards from government contracts.
According to one UAE insider there is a clear line between the ease with which UK firms embed themselves in the region and the more rocky relationships their US counterparts endure. They attribute this unease to stricter ties with the senior leadership team back home, restricting how much freedom, and time, lawyers are given to build relationships and market themselves, as well as historic tensions between the US and the Middle East.
Of the 29 Western firms that have chosen to heavily invest in the UAE, placing five or more partners in either Abu Dhabi or Dubai, 14 are UK-based, with eight headquartered in the US and three truly global: Dentons, Herbert Smith Freehills and Hogan Lovells. The remaining four places are split between Asia Pacific and offshore firms.
More importantly, the firms at the top of that table, with a greater partner presence, are all London-headquartered, with the first four spots claimed by Allen & Overy (A&O), Clyde & Co, Clifford Chance and DLA Piper. The UK firms in that group of 28 have a combined partner presence of 161. This contrasts with an American presence of 64.
Abu Dhabi or Dubai?
Firms setting up in the UAE can choose to establish a base in the emirates’ capital of Abu Dhabi or Dubai, with both cities playing very different roles. Most top international firms in the region have realised this, setting up offices in each, rather than relying on one base to serve both.
The rule of thumb is that Dubai is a better base from which to serve the whole Gulf region, whereas Abu Dhabi offices tend to serve government bodies and affiliated organisations such as the Abu Dhabi National Energy Company.
And although Abu Dhabi is the capital, Dubai’s reputation as a global finance sector inevitably attracts the bulk of professional services firms. In Dubai, many firms choose to set up in the financial free zone, the Dubai International Financial Centre (DIFC). The DIFC is a tax-free zone that allows 100 per cent foreign ownership. Since it opened a decade ago, international companies have flocked to it.
Abu Dhabi is now trying to get in on the act by setting up its own financial free zone, the Abu Dhabi Global Market (ADGM), even poaching former Dubai Financial Services Authority chief operating officer Jan Bladen to co-ordinate its launch. A&O has already cashed in on the project by being appointed sole legal adviser.
Like the DIFC, the ADGM is exempt from city legislation. It will self-govern, using a framework designed to tie in with international financial regulations. Also similar are its rules on 100 per cent foreign ownership, zero tax and customs duty exemption.
The UAE is home to countless free zones – Dubai especially fosters these hubs – to the extent that there is now a zone for almost every industry, with Dubai’s Design District the latest to be established. These centres not only bestow regulatory breaks on companies but also act as hives of industry, spawning groups such as CMS-co-founded The Energy Club, which is trying to promote Dubai as an energy hub.
With Dubai and Abu Dhabi locked in competition and the UAE once more embarking on its own particular brand of construction, the fortunes of the region are on the up.
What the lawyers say
“The international firms that have been here a long time, such as A&O, Clydes and Clifford Chance, are probably fairly busy and doing pretty well. The more bespoke firms who have come in to do particular work probably have been struggling because they don’t have the width of practice. You need to have roots – you need to know people, who to see, what procedures are. And you have to have local or Arabic-speaking lawyers who know what they’re doing.” Al Tamimi partner Stephen Forster
“I wouldn’t put London-headquartered firms in the same category as US firms. The historic relationships with this part of the world are different. There’s a better understanding of how to do business among European firms. American firms struggle more with reporting lines back to the US, whereas the UK firms have a greater Autonomy.” Galadari partner Rosanna Chopra
“We’re in a district run by the Dubai Multi-Commodities Centre and they have been supportive. They are enthusiastic and committed to an exchange of ideas. They know that it takes more than putting together a bit of infrastructure and hoping people will turn up.” CMS Cameron McKenna partner Stephen Millar