Originally published in Legal Week on 13 May 2010
International law firms in the UK and US have been chewing for many years on the chestnut of how to position their firms to capture the international legal services market in Sub-Saharan Africa. The answer for most firms has been to remain cautious – unlike in Eastern Europe and Asia – by opting to service clients from the big existing hubs, particularly London and Paris.
Now that the big South African law firms have entered the wider African legal scene, they too are grappling with the problem, this time viewed from the south, Johannesburg. Early indications are that they may be willing to take a bolder attitude.
A perpetual dilemma for law firms is that, on the one hand, opportunities for commercial lawyers in Africa abound. This is underpinned by the continent's huge mineral wealth (including offshore oil and gas discoveries), and massive potential for infrastructure investment, particularly in energy and telecoms, which are ideal territories for big firms. On the other hand, Africa is highly fragmented jurisdictionally, posing practical problems: how do you service clients, with appropriate market-knowledge and know-how, in over 50 different jurisdictions?
Fragmentation also affects the economics of any law firm's Africa strategy, since few jurisdictions boast sufficient economic activity to generate a meaningful number of transactions which can carry high legal fees. Indeed, the bread and butter of transactions in African economies is well below $100 million (£66m), with the vast majority of transactions being a small fraction of that.
Faced with this tension, most top firms have kept cool and relied on their recognised industry experience and large resources rather than pursuing tie-ups or establishing offices in Sub-Saharan Africa. A few London and Lisbon-based firms have formed associations in some African jurisdictions, including South Africa. These seem to be primarily referral and branding mechanisms, with the benefit of enhanced local presence and contacts. Two international firms operate small independent offices in Johannesburg as platforms for African business but have not sought wider associations.
South Africa 's economy is the largest in Africa, and this is reflected by the size of its law firms, the largest of which have professional staff complements well into the 100s and 200s. In Nigeria and Kenya, the nearest rivals, 10-partner firms are considered big. But most South African firms have been slow to seize opportunities in Africa – a residue of the country's economic and political isolation under apartheid and its legacies.
That is changing rapidly and South African firms are now following their clients into the continent – and many claim African expertise. Some have pursued association models and two firms (Deneys Reitz, through its Africa division Africa Legal, and Bowman Gilfillan) have established closely integrated tie ups (mergers face regulatory difficulties) with local firms in East Africa. Other large South African firms are on the prowl for possible targets, while others are still formulating their Africa strategies. Given the small size of local economies and the limited number of good firms, tie-ups that make sense must surely be limited.
Two key factors differentiate the South African attempt at tackling Africa: first, the cost bases of South African firms are comparatively low, allowing them to compete profitably for big and small transactions - a competitive advantage over large London firms. Second, these firms are dominant in South Africa, a key jurisdiction in Africa both in its own right but also in terms of the growing influence of its banks and corporates in the rest of the continent. South Africa is a key jurisdiction which, if cracked, can help open the doors to the rest of the continent.
Law societies and practitioners throughout Africa have been observing the recent surge of interest by international law firms carefully and, in many quarters, with some scepticism. Many believe that tie-ups and associations are not self-evidently a good thing for local legal industries. Many law societies remain highly protectionist.
However, even sceptics might ultimately be persuaded of the benefits of internationalisation if they see it benefiting local training and bringing increased revenues for local lawyers. The best strategy for those law firms seeking associations in Africa will be to prove that internationalisation can be beneficial from wherever it's viewed.
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