The 8 June issue of "The Lawyer" featured a wide-ranging interview with Elias Neocleous, vice-chairman of our firm and head of the corporate and commercial department, on Cyprus's recovery from the 2013 banking crisis and the prospects for the legal services sector in Cyprus. Appearing weekly, "The Lawyer" is a leading source of news, jobs and training for the legal profession in the United Kingdom. Here are some highlights from the interview.
Q: The economy has picked up in the first quarter of 2015. How has this translated into legal work?
Because our main focus is on cross-border work, the state of the local economy has a less direct impact on us than on firms that derive most of their activity from the domestic market and in the event the banking crisis of 2013 brought in a lot of new work for us, from local and international banks requiring advice on their dealings with local borrowers, to international investors looking to invest in distressed assets. We continue to be very busy with assignments such as these in 2015, and we are working on several other projects for investors considering direct inward investment projects. There is a general feeling of greater confidence, but this is tempered by caution regarding investment into Russia and into Ukraine. It would therefore be premature to say that there has been a fundamental sea change and that the bad times for the legal profession are over. Fortunately we recognised the risks of having too many of our eggs in one basket and we are busy with inward investment work in Cyprus and projects not only in Russia and Eastern Europe but also in other areas. However, firms that are over-dependent on Russian and Eastern European business are inevitably going to face problems.
Q: A couple of years ago all the talk was about the energy sector; what work has there been in this market and do you think the promises about its development will pay off?
When the first important gas find was made towards the end of 2011 we recognised that the economic benefits would take years to realise, not only because of the long lead times needed to construct the infrastructure projects required, but also because of the complications arising from the political situation with Turkey. Our approach to the energy sector took these factors into account. Unlike some of our competitors, we did not seek to reinvent ourselves overnight as an energy firm – we recognised the difficulties of competing effectively in that very closed, specialist market. Instead we focused, and continue to focus, on offering clients in the energy sector our expertise in Cyprus corporate and tax law, working alongside their industry specialist advisers. This approach has paid off for us, as we have had several substantial pieces of work in the sector. Looking forward, we expect more work in the sector and associated sectors. The holder of the concession has now declared the reserves to be commercially viable and while it is now generally accepted that an "oil boom" is no longer on the cards, particularly given the drop in energy prices over the last year or so, there is confidence that the gas discovery will provide significant revenues for Cyprus in the medium to long term. It may even act as a catalyst for reunification, with all the potential benefits that could bring.
Q: What has been the impact of the Russian sanctions on Cyprus? Do you see signs that Russia is growing closer to Cyprus again?
Russia and Cyprus share a long cultural and religious heritage and this will always continue, but Russian business people, like business people everywhere, are primarily motivated by financial and economic considerations. The de-offshoring law that the Russian government introduced as a reaction to worsening relations with the EU and the USA reduced the benefits to Russian investors of using Cyprus as a holding company jurisdiction, and firms that are unduly reliant on such business will inevitably see a reduction in activity. We believe that the quantity of work from Russia will decline, as marginal businesses leave Cyprus. On the other hand, the quality and complexity of the work that remains are likely to be higher than in the past. We made a deliberate decision to diversify geographically some years ago, and while Russian and Eastern European clients are still very important to us, we are not over-reliant on business from the region.
One side-effect that I hope will result from the reduction in demand for legal services is a "shake-down" in the profession and a general improvement in quality. For too long the seller's market for legal services in Cyprus meant that firms could survive, and indeed thrive, despite offering unacceptably low standards of quality and responsiveness. To succeed as a credible financial centre we need to offer consistently high quality.
Q: How has the legal market fared in the last year or so? What changes have you as a firm made to cope with the difficult economic environment, and what investments are you planning for the next year?
In the aftermath of the 2013 financial crisis many law firms, particularly those that were mainly dependent on the domestic market, were forced to take drastic action in order to survive, by closing offices, making redundancies and imposing pay cuts and freezes on promotions. Others followed them, not out of necessity but in order to boost short-term profitability. We did not do so. Our day to day operating capacity and profitability remain robust and it would not be fair to our staff, or good for client service. In fact, while we are cautious given the uncertainties facing the economy we view the current situation as an opportunity to recruit talented people who feel undervalued by their current employers. We are also continuing to invest in technology and training, so that we offer our clients the best possible service and maximum ease of communication. We have had to put our plans to open a representative office in China on hold, as the Chinese authorities are understandably cautious after the 2013 crisis, but we are constantly on the lookout for other opportunities.
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