16 January 2012 | By Dale McEwan
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While the Arab Spring has left some deals up in the air, infrastructure work looks set to be the main area of growth in North Africa
As the dust begins to settle on the tumultuous events of the Arab Spring witnessed in North African countries, a clearer picture of theimpact on legal markets across the region is beginning to emerge.
With new areas of work developing, such as much-needed infrastructure and power projects, firms are positioning themselves to grab a slice of the action. But those that were present before the turmoil are suffering from the fact that a number of transactions are in limbo.
As Norton Rose partner Alain Malek explains, the transitional governments of Libya and Egypt are only empowered to act on a day-to-day basis, meaning some of the deals firms were involved in prior to the uprising are at a standstill because the authorisation of government bodies is unavailable.
Filling the gap
Egypt’s Nour Law Office, which is managed by Trowers & Hamlins, had been advising on two PPP waste water projects - the 6th of October and Abu Rawash plants - but both are in a state of suspension. Despite this, Cairo managing partner Sara Hinton says the firm has found other work to fill the gap, such as advising on the creation of two PPP hospitals that will be owned and operated by Alexandria University.
“This is a transitional period where things are a bit unstable, but we’re busy,” says Hinton.
In other areas of work in Egypt, Sharkawy & Sarhan partner Karim Sarhan says the key activity over the past few months has been the financing of oil and gas operations. At present, the firm is advising Shell on the restructuring of its downstream business in Egypt.
“Transactions have slowed, but at the same time there’s a huge amount of interest,” says Clifford Chance Abu Dhabi partner Mohamed Hamra-Krouha, highlighting the pent-up demand for infrastructure and development of the power sector.
“There’ll be a strong bias towards Gulf investment,” adds Hinton, explaining Egypt has one of the world’s most exciting housing markets. “Certainly in the medium to long term [the Arab Spring] can only be good for business. There are infrastructure needs that have to be satisfied.”
Potential investors need reassurance however, given the instances of privatisations that were started under the old regime and have been challenged by the new.
“That hasn’t sent a good message to investors,” adds Hamra-Krouha. “The fact there was an intention by the new regime to say they weren’t bound by decisions made by the old regime did raise a few eyebrows. To be honest, it wasn’t a large number [of privatisations], but investors picked up on the political risk.”
With Egypt’s elections ongoing as The Lawyer went to press, Islamic political parties have already taken more than 50 per cent of the votes. This has led to further concerns in the banking community.
A large chunk of the votes have gone to the Salafis, who adhere to a strict interpretation of the Koran - in which usury is prohibited - and who equate bank interest with usury.
“Some of [the Salafis] - not all - were demanding the abolition of interest rates as a priority item on the new parliament’s agenda,” says Mahmoud Bassiouny, partner at DLA Matouk Bassiouny. “This is a concern of banks working in Egypt, but I don’t think that any party in power would proceed to that, given that it would mean Egypt would be in a state of default vis-a-vis international banks and lending institutions, and more generally, an economic collapse.
“I don’t see [Islamic parties] as a negative force for business in Egypt. On the contrary, I think they’ll work hard to attract foreign direct investment, develop basic infrastructure and facilitate the financing of commercial and industrial operations. Given the condition of the state’s coffers, any other route would be tantamount to political suicide.”
“The investors who know Egypt are pretty much convinced of the fundamentals,” says Hamra-Krouha. “I think it’s fair to say that it feels pretty safe - optimism dominates.”
“Most people are banking on a sensible government ending up in place that has to encourage foreign investment,” adds Hinton. “I hope that five to 10 years down the line there’ll be more firms here. I’d like to see it become more sophisticated.”
Across the border in Libya, Gulf-based Al Tamimi & Company has become the first law firm to launch since the fall of dictator Muammar Gaddafi last year. Al Tamimi announced it was planning to open in Libya in December, with the office expected to go live in the first few months of 2012. The news is reminiscent of Al Tamimi’s move into war-torn Iraq in 2003 and is a clear indication of the way firms are limbering up to get involved in shaping Libya’s economic and political landscape.
In autumn 2011, Hogan Lovells advised representatives of the Libyan National Transitional Council on its negotiations with the UK government and printer De La Rue on the release of approximately 1.86bn Libyan dinar (£948m). The notes had been printed in the UK and then frozen by the UK government as a result of sanctions imposed by the UN. Baker & McKenzie acted for De La Rue’s in-house legal team.
Banking is expected to be one area of rapid change, say Libyan lawyers.
“There’ll be huge developments in that sector,” says Mazen Tumi, a partner at Tripoli firm Tumi Law Firm.
It is expected that new products will be introduced for and more widely used by private individuals, such as debit cards, point-of-sale systems, SMS and internet banking, and consumer loans. The adoption of Islamic finance principles is also anticipated. The stock exchange is expected to resume operation and Libya might even see the opening of foreign private banks. Within three years, explains Tumi, the currency design and name could see a radical overhaul. As in Egypt, oil and gas will also contribute to lawyers’ workloads.
“Most dealmaking before the uprising was in the oil and gas industries,” says Hamra-Krouha. “It wasn’t as if you had a huge number of transactions taking place. Dealmaking was difficult and opaque. Oil and gas investment is needed to bring an increase in capacity.
“Whether it’s waste water, building housing units or improving the transportation network, everything will be a priority. Expectations are very high. People are keen to deliver, and deliver quickly.”
Compared with Egypt and Libya Tunisia is further ahead in terms of post-revolution development. President Zine al-Abidine Ben Ali stepped down a year ago, giving Tunisia longer to find stability and elect a new government. Malek says this meant that 2011 was a turning point for business in the country.
He explains that Norton Rose’s Paris office has advised international investors on the renegotiation with the Tunisian government of joint venture agreements entered into with companies in the telecommunications and technology sectors previously owned by members of the old regime, following the nationalisation of these companies.
Over at Gide Loyrette Nouel, Tunisia managing partner Bruno Cazalet says the changes have led to work concerning loans granted by international institutions to the country. The firm provided assistance to French lender Agence Française de Développement in connection with the granting of a €180m (£150m) loan to Tunisia to help reconstruct the economy following the revolution.
“Our mission included the review of the loan documentation and the issuance of a legal opinion on the legal capacity of the temporary government representatives to sign such a loan and to commit Tunisia, in light of public law rules,” says Cazalet.
In comparison with its neighbours, Algeria has been barely touched by the shockwaves sweeping the rest of the North Africa region, with a handful of protests swiftly stamped out by the government. Algeria is restrictive when it comes to foreign investment, with regulations stipulating that the Algerian party to a deal must hold 51 per cent of any joint venture, requiring benefits from tax incentives to be reinvested in the country and keeping tight control of foreign exchange.
For Simmons & Simmons partner Yves Baratte, there are no significant signs of this changing, meaning little in the way of work for lawyers. However, as Baratte explains, there are a few positive glimmers. For example, talk of a new law in relation to oil and gas exploration may bring greater flexibility.
“According to some information, the Algerian government is planning to improve commercial terms for oil and gas exploration after several unsuccessful licensing rounds, and to pass legislation to promote ’non-conventional’ projects - for example, shale gas,” says Baratte.
Furthermore, the appointment of a new chief executive at state-owned oil giant Sonatrach is considered a positive sign.
“The appointment of Abdelhamid Zerguine is seen by a number of observers as a move to get Sonatrach on track again, both in Algeria and internationally, after a difficult period following the bribery scandals that hit the company in 2009,” adds Baratte.
In addition, moves in the power sector suggest there is a will to accelerate the development of renewable energy, including with the support of foreign partners.
Algeria’s revolution may be in a different vein to that of other countries in the region, but the long-term outcome of all the upheaval across North Africa is likely to be positive for law firms, with opportunities presenting themselves for those with the right experience and connections.
Revolution swept across North Africa last year, ousting governments and bringing the hope of democracy to many countries. Egypt, Libya and Tunisia are among the most affected, but to date the so-called Arab Spring has had a limited impact on the legal community.
The Arab Spring: a timeline
- 17 December 2010: Tunisian street vendor Mohamed Bouazizi sets fire to himself, sparking protests against regimes across North Africa. He dies the following January.
- January 2011: protests in countries including Algeria, Egypt and Tun-isia, Lebanon, Jordan and Palestine.
- 14 January: Tunisian president Zine al-Abidine Ben Ali leaves the country, taking refuge in Saudi Arabia.
- 25 January: Egyptians gather in a mass protest against president Hosni Mubarak’s regime.
- 11 February: Mubarak resigns, prompting celebrations in Egypt.
- 16 February: protests in Libya after arrest of human rights campaigner.
- 17 February: protesters killed in clash with government forces in Bahrain’s Pearl Square. March onwards: protests in Yemen and Syria, with hundreds killed as government forces attempt to quell demonstrations.
- 18 March: UN Security Council votes in favour of air strikes against Gaddafi loyalists in Libya.
- 13 May: Egyptians return to Tahrir Square, with further protests throughout the year as military rulers fail to deliver on promises of swift reforms.
- 20 October: Libya’s Muammar Gadaffi is captured by rebel forces and killed. His corpse is displayed in Misrata alongside that of his son.
- 23 November: Yemeni president Ali Abdullah Saleh signs agreement promising to step down by February 2012, with powers transferred to the vice-president.
- 28 November: Egyptians vote in first free elections for 80 years. Early 2012: Egyptians vote. Syrian president Bashar al-Assad continues to resist calls to step down. Libya’s National Transitional Council releases draft election law to govern elections in the summer.