Why every law firm needs an office in South Africa right now!

Why every law firm needs an office in South Africa right now!
17 Jan 2019

“Africa is brimming with opportunity and, where there is growth and development, there is a lawyer”

South Africa – a country with huge natural resources, a young, educated workforce, and the gateway to the Sub-Saharan African continent. A land of opportunity, that some firms are already positioned well in.

With many of our international law firm clients in the US, Europe, the Middle East and Asia now looking at having more of a presence in Africa, it’s no surprise that in the past four years we’ve helped the likes of Pinsent Masons, Eversheds, Dentons, Clyde & Co and many others, strengthen their position in Africa, through research and recruitment of the leading individuals on the continent.

To make this commitment, one needs to conduct proper feasibility studies, human capital research and most importantly, consider the timing of entry and financial outlay.

While there is a trend of rising (and some months, falling) interest from international law firms looking to expand in Africa, overall GRM predicts that the interest in Africa is not going to fade. In fact, we will go one step further and state that within 10 years, every single major law brand will have a footprint on the continent.

The timing for a multinational Law firm to expand their footprint into Africa is right now.

Every law firm has its own opinion on the likelihood of success for expansion locally and internationally. There are some that use group connections and local affiliates to establish a ‘boots on the ground’ presence, for instance, Linklaters and Webber Wentzel. Whilst other law firms have merged with local firms with the likes of Norton Rose Fulbright and Deneys Reitz, and Hogan Lovells with Routledge Modise. Many firms also take a combined approach by acquiring local firms.

Some firms, such as Pinsent Masons, Allen & Overy, and Eversheds, opting to open their own offices under their global banner.

It’s all about your Africa Strategy.

AMEA, EMEA, EEMA, MENA. Whatever you call it, or where ever Africa sits in your company strategy, now is the time to separate the continent out and have it stand alone.

What leading law firms need is an A strategy. That is a strategy for Africa. If you are still running a MENA/EMEA strategy and lumping almost 100 entirely unique countries (54 in Africa alone) spanning multiple continents together into a single strategy, you may be missing out on solid business growth opportunities.

Until now, a lot of law firms still have their African Heads in London, Paris, Dubai or a US city – but this is changing, rapidly.

There is still room for firms to gain market share in first mover advantage, but that door will close slightly with every competitor that enters.

Over the past few years there has been an increase in international law firms opening offices in South Africa – the gateway to Africa.

Why are these law firms entering Africa? The better question is why wouldn’t they?!!!

From a macro perspective –

  1. The economic strength of many African continues to rise
  2. High levels of foreign investment
  3. Large number of infrastructure, energy and commodity projects and manufacturing plant deals
  4. Labour is talented, affordable and plentiful
  5. Improving governance and regulatory factors
  6. Brexit necessitating new market opportunities outside of Europe

From a client service perspective –

  1. Jurisdiction and language skills
  2. Industry knowledge and on-the-ground experience
  3. Intimate understanding of the complexities of doing business on the African continent
  4. Less competition for talent – bigger and more affordable talent pools

The most important factor is almost the most obvious one – it’s the last continent with real, true growth potential. Firms must get in now before they miss the boat!!

Why open an office in South Africa?

The first thing to consider when opening an office in Africa is that if you are looking for stability, or you are looking for assurances and confidence in a sound political system, then you are looking in the wrong place. Those businesses that succeed on the continent are those that expect a rough terrain, they expect political instability and in some cases turmoil and they plug on regardless.

Only those with a sound risk strategy will succeed. The rewards are likely to be huge, but the risks are there, and you need to understand them and above all, embrace them and even (sadistically) enjoy them.

Johannesburg is typically known as the ‘gateway into Africa’, with Sandton being the ‘richest square mile’ on the continent. When driving upon Katherine Street in Johannesburg, one will notice the large law firm buildings settled in-between the Insurance houses, banks, wealth houses and conglomerates.

Some of the law firms are bigger in office size than the commercial banks, which is unique compared to developed cities like Hong Kong and London. There is obviously an appetite to make use of experienced lawyers in South Africa.

South Africa is a member of the G20 countries and BRICS. South Africa has recently adopted a Twin Peaks model on financial regulation, which is in line with global trends.

The Promotion and Protection of Investment Act makes provision for the equal treatment of foreign investment in South Africa. Foreigners may purchase property in South Africa, subject to the Expropriation Act and the country’s constitution.

Why invest in South Africa now?

From a macro perspective –

  1. An uptick in business confidence, economic growth and political stability is improving since the election of Cyril Ramaphosa
  2. Favourable exchange rate
  3. Robust financial market, banking and regulatory infrastructure
  4. More established infrastructure than the vast majority of other countries on the African continent. Infrastructure disparities exist across the country, however the major cities of South Africa have the infrastructure and resources necessitated by big business.
  5. Solid Corporate Governance structures through the King Reports and JSE listing requirements, notable strength of auditing and reporting standards; efficacy of corporate boards; and the protection of minority shareholders’ interests.
  6. Company registration is very simple, and it is not expensive.

From a client perspective –

  1. High levels of M&A and PE activity
  2. Attractive levels of FDI, despite annual fluctuations. 2018 Ernst & Young (EY) Africa Attractiveness Survey sees South Africa retain its position as the top foreign direct investment (FDI) destination on the African continent. Foreign Direct Investment in South Africa increased by 1863 ZAR Billion in the second quarter of 2018.
  3. Growing technology, telecoms, retail and agribusiness industries
  4. The traditional legal client sector of natural resources (primarily oil & gas) is still booming. Oil and Gas saw massive growth in 2018, this is projected to continue.
  5. Infrastructure investment, particularly around water and energy, is also predicted to continue to be a key sector moving forward
  6. Strong capital markets and a robust services sector. It is also home to Africa’s biggest lender, Standard Bank Group.
  7. Spurred by a growing middle class, the insurance sector is also expanding and South Africa is home to the continent’s biggest insurers.
  8. Fantastic airline networks out of Johannesburg and Cape Town, with multiple daily, direct connections to the US, Europe and Asia.

From a talent perspective –

  1. A wealth of untapped affordable but high-quality talent
  2. Numerous local partners and directors are ranked amongst the top lawyers in the world, including the likes of Christo Els at Webber Wentzel, Bridgette Baillie and Peter Leon at Herbert Smith Freehills and Michael Katz at ENS, and the list continues.
  3. The Times Higher Education (THE) 2019 ranking places only South African universities as the top four universities in Africa. The University of Pretoria Law Faculty is rated 76th globally with the University of Cape Town coming in at the 77th spot. These rankings are compared to 187 top law faculties globally. The QS World Rankings by Subject, also place 6 African universities in their top 500 institutions for Law and five of these are South African.
  4. The Legal Practice Act, when enforced, will further strengthen the appeal of South Africa to foreign firms as it looks to lift a ban on fee-sharing between foreign legal professionals and South African lawyers. Foreign lawyers may practice law in South Africa under their ‘home title’, i.e. solicitor, barrister or lawyer, with certain limitations.
  5. Becoming a qualified lawyer (attorney) in South Africa is similar compared to the process you might expect in the United States, Canada, Australia and the United Kingdom.
  6. When hiring local partners/directors to join the international brand, one may negotiate a mutually beneficial shareholders agreement, in order to maintain a global expansion standard.
  7. South African Law Schools train local LLB (Legum Baccalaureus) students on a hybrid legal system. A civil law system received from the Dutch, a common law system received from the British, and a customary law system inherited from indigenous Africans.

Options for opening in SA (or another African country)

For the sake of this article, there are 5 identified avenues to expand your footprint:

  1. Merge with a local firm; or
  2. Acquire a local firm; or
  3. Establish independent new offices; or
  4. Establish “mutually beneficial” alliances; or
  5. Foreign distant service offering.

There could be a positive and negative case made for every avenue selected above.

The avenue GRM is focussed on is number 3, establish an independent new office by employing local experienced lawyers. This has the benefit of attracting various lawyers from different firms and industries. The international firm could establish a brand new culture, in accordance with their international standards without bringing in local ‘deadwood’.

Important considerations for market-entry into South Africa

  1. While the exchange rate is attractive overall, the volatile rand-dollar exchange rate can complicate planning. Forward cover is however readily available, and the rand is one of the most heavily traded currencies in the world.
  2. The South African market, notwithstanding the legal sector, is relatively more mature and competitive than other African countries, marked by well-established local, European and Asian competition.
  3. Crime and corruption
  4. Transport infrastructure is relatively better than most African countries, however is far from first-world given the lack of sufficient efficient public transport, and high congestion during peak traffic hours
  5. Tight monetary policy
  6. Contentious labour relations and labour strikes
  7. Weak and unstable electricity supply. The country’s main supplier Eskom is faced with maintenance backlogs, construction delays and coal shortages. These issues are compounded by financial distress and a history of mismanagement
  8. Concerns around a new mining and petroleum bill
  9. South Africa’s current regulations forbid foreign law firms to enter into fee-sharing arrangements or form partnerships with South African lawyers

What opportunities are there in the wider African continent?

South Sudan became the 54th independent country in Africa in 2011. Therefore, 54 opportunities exist for foreign lawyers to share their skill set and gain a market lead in a specific market segment.

Ample resources make Africa the perfect destination for investing in the manufacturing, infrastructure and technological industries. While the agricultural industry is employing more than 60% of the total workforce in Africa, compared to the United States’ mere 2%, corporate and employment lawyers could benefit from this industry with several interfirm-cooperation initiatives.

Exponential population growth is predicted to be largely driven by Africa in the next two decades. This coupled with locally and internationally induced economic and business growth forecasts will necessitate rising legal support on the continent.

The Harvard Business Review made note that Retail, Agriculture, Pharmaceuticals, Finance and Banking, and Technology are growing areas to focus on in the next couple of years. Smartphone use in Africa doubled in the past two years, which illustrates a growth in technology and telecommunications. Africa has the fastest urbanization rate in the world, and it is estimated that Africa would have a larger workforce than either China or India by 2035.

GRM research indicates that the prime countries for legal sector market-entry are currently South Africa, Nigeria, and Kenya.

Nigeria is one of those countries that you can never write off. Despite their recent recession and significant decrease in FDI. Its market is the same size as the East Africa cluster. The country is abundant in untapped natural resources, a massive population offers a large consumer market and skilled low-cost labour, and a growing and dynamic private sector. The appeal of Nigeria also continues to grow given the ever increasing middle-class in Africa’s most populous country together with an expanding appetite for banking services in capital markets and foreign investment. In recent years, the Nigerian Bar Association formed a committee which is looking into the liberalisation of the legal services market there. In November 2018 however Priti Patel, former secretary of state for International Development in the United Kingdom (UK), cautioned against investment into Nigeria stating that corruption, a lack of transparency and associated difficulties of doing business. Two of the largest banking and financial services institutions in the world, HSBC and UBS, have recently closed their local representative offices in Nigeria. Nigeria’s government in September accused HSBC of money laundering after an analyst working for the lender said a second term for President Muhammadu Buhari may stall economic recovery in Africa’s biggest oil producer. There are also tensions between Nigeria’s central bank and the South African telecom company MTN.

Kenya has been experiencing steady growth for quite some time now and is arguably one of the most attractive markets in terms of quality of human capital and availability of research and innovation. The country has the largest economy in East Africa. GRM have seen massive investments in infrastructure and jobs. There has been a strong commitment to improving the business climate, boost in exports. Further to this the expansionary fiscal policy has encouraged infrastructure projects without affecting local financial markets. Kenya is however home to Africa’s biggest ‘slum’ and extreme poverty plaguing the country. Countless social issues such as Ppor healthcare, high levels of Malaria, poor food quality and access to education are unavoidable issues. only 22 percent of the students across the country passed the Bar examinations, not per se due to the difficulty of the exam but the quality of education received by many students.

Why should you use GRM to establish your new Africa office(s)?

The cornerstone of what has made GRM a multi-award-winning recruitment brand for over 10 years, is our commitment to research, analytics and delivery.

GRM is not merely an observer to the African market-entry trend, having ventured into Africa almost 5 years ago with the establishment of a South African office. We have successfully adapted to this unique legal market. Our SA office is now our largest office by numbers of employees.

We have assisted many international law firms launch new offices, teams and strengthen existing offerings.

International law firms face many issues when looking to establish an office in Africa and carrying out deals for their clients. This includes the complexity of Africa, logistical difficulties, regulation, government interference, bribery and corruption risk and difficulty in enforcing disputes. Remember that Africa is a huge continent made up of 54 countries, each with complex legal and political systems.

GRM predominantly hires LLB graduates and admitted attorneys to work in our Consulting and Research teams – we’ve worked in the sector we serve.

Business Development in South Africa is very important to local attorneys as they understand the landscape of what a typical law firm needs. When speaking to a local attorney, one will notice the unique landscape of practising law in developing countries. We are the strategic experts you need to navigate and compete in Africa.

African countries have a mix of languages – both native and European. There are also logistical difficulties which can include internet access, transport and the challenge of distributing large documents across the continent. However, there have been efforts to synchronise fundamental features of the African legal landscape such as the Organisation for the Harmonisation of Business Law in Africa, which aims to synchronise business law and regulation across West and Central African countries.

The timing could not be better to open a local service offering in South Africa. Every country globally could be examined on individual growth trends, and Africa as a whole is no different. All countries in Africa are influenced by the general wellbeing of its neighbouring countries. To that effect, one needs to examine the industries in Africa that perform well, independent of the geographical boundaries.

GRM has identified the top 10 Industries in Africa as:

  1. Pharmaceutical
  2. Agricultural
  3. Manufacturing
  4. Retail
  5. Finance & Banking
  6. Mining & Energy
  7. Hospitality
  8. Construction and Infrastructure
  9. Technology and Telecommunication
  10. Logistics

When looking to set up an African presence your strategy needs to incorporate a number of offices, you’ll need this if you want is to access to the deal flow and business confidence because each city and province are very different and each offer unique opportunities.

Despite the clear benefits of opening up your own office (as opposed to market-entry through alliance, affiliates, mergers and the like) recruiting top talent and specialists is really complicated in Africa.

GRM is located strategically in the UK, Hong Kong and South Africa. Offering both a global and local perspective to our clients. Our multi-award winning services and in-depth legal sector knowledge makes GRM a preferred strategic partner for many international law firms!

Do you want to be a pioneer or a late arrival?

Bring your A-game, have a real A-frica strategy!

Contact Rob Green or Darius Zeederberg today on +27 21 271 0274 or email [email protected] or [email protected]

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)
Share


Running Your Practice articles on GoLegal