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The Abu Dhabi Conundrum

Posted by: Laurence Simons 14/08/15

Dubai and Abu Dhabi: two city states perched on the edge of the Arabian Gulf, beacons of economic development and political stability in a region fraught with political tension and conflict. In the past fifty years, both have emerged as respected financial centres on the international stage.

This is in part due to their ownership of the world’s fifth largest oil reserves, their geographical position situated conveniently between Europe, Africa and Asia to facilitate import and export of goods and services, and the vision of forward thinking political leadership who were quick to capitalise on these inherent advantages. Consequently, it was inevitable that international law firms would flock to the Emirates, and elsewhere in the Gulf, to take advantage of the business opportunities presented in the burgeoning economies of the Gulf states.

However, despite their similarities, Abu Dhabi and Dubai can be very different places in which to live and conduct business, and it seems that a number of international law firms are recognising this and withdrawing from Abu Dhabi in favour of consolidating their operations in Dubai. Herbert Smith Freehills, Baker Botts and Latham & Watkins have all announced the closure of their Abu Dhabi offices this year and, while this is in no way symptomatic of dwindling fortunes in the region for the law firms in question, it is clear that Abu Dhabi presents challenges for law firms looking to establish a presence in the UAE’s capital.

There is a strong perception that Dubai and Abu Dhabi are two distinct and separate markets, and that law firms pitching for business in Abu Dhabi have to have a presence on the ground in the emirate. The type of legal work on offer in Abu Dhabi is very different from Dubai. Dubai, perhaps a little more audacious than its wealthier and more conservative older brother, is a large commercial centre and very much the regional hub for legal activity across the Middle East.

Abu Dhabi on the other hand, offers a very different type of business proposition. While there is a lot of commercial activity in Abu Dhabi, it is highly relationship driven with the majority of big ticket work driven by government and federal entities. The wealth is controlled by a very small percentage of the population and this minority tends to be made up of a handful of prominent Abu Dhabi and Al Ain families. The law firms that have established relationships with these businesses work very hard to maintain these connections and have done so for a number of years. It is therefore extremely difficult for newcomers to the market to break into it and they may end up finding that there is not enough work to go round.

The cost of renting office space in Abu Dhabi is higher than in Dubai and those high rental costs have to be justified. Moreover, the increasing pressure for law firms to be housed in the new Abu Dhabi Global Market, where rents can be much higher compared to other prestigious office developments in Abu Dhabi, may mean that this trend of consolidation in Dubai continues as more law firms find that there is not enough big ticket legal work in Abu Dhabi to justify the costs of having an office space on the ground. Many law firms consolidating their position in Dubai find that they are able adequately to service the needs of their mid-market Abu Dhabi clients from Dubai with lawyers taking time when needed to travel the short distance to Abu Dhabi.

We have seen these differences reflected in hiring trends for our law firm clients in Abu Dhabi and Dubai. While there are always exceptions to every rule, many requisitions in Abu Dhabi are very focussed, with construction/projects/energy lawyers largely in demand throughout the year, and are replacement rather than growth hires more often than not. Hiring in Dubai is much more diverse across practice areas and levels and a healthy mix of replacement and growth positions.

Law firm newcomers to the UAE may find that a more sensible entry strategy to doing business in the Gulf is to establish operations in Dubai, especially in light of the new business opportunities that may come about with Dubai Expo 2020, and build out from there. Abu Dhabi seems a tough nut to crack and surely the question is which law firm will be closing their Abu Dhabi office next?