Research by KermaPartners highlights how international law firms are positioning themselves to embrace opportunities in Africa

As developing markets in Africa continue to attract international interest, the legal industry is one that is increasingly looking to the continent as part of its growth strategy.

Global law firms are becoming ever more aware of the opportunities unfolding in Africa, and a report by management consultants KermaPartners seeks to uncover what is attracting these global players to Africa and how they believe the market for legal services in Africa will develop.

In undertaking its research for the report ‘Embracing the African Opportunity: Strategies of the Global Law Firms’, KermaPartners interviewed key individuals with Africa responsibilities at 16 global law firms during 2013, including 12 of the top 20 global firms and ‘Magic Circle’, international and American firms.

Drivers for interest in Africa: Law firms report that the Africa’s natural resources are driving the opportunities they see in the region.  As substantial oil and gas deposits and mining attract foreign investment from global corporates, law firms are in demand for deal-structuring, negotiations and drafting the necessary documentation.  As the infrastructure, telecoms, technology and power sectors continue to develop in Africa, further demand for legal services is anticipated.

The scale of opportunity: Most of those surveyed see significant short-term opportunities in Africa, with a quarter describing them as ‘huge’.  The increase in revenues derived from the continent over the next 3-5 years were seen as at least double by some, while others expect three to five times the current level of business over that period, American firms being the least positive among respondents.  Key countries of interest include Nigeria, with its strong resource related assets, relative size and potential economic growth, as well as Kenya and South Africa.

Countries such as Ghana, Angola, Tanzania, Mozambique and Egypt were also considered attractive prospects, with others seeing opportunities in Algeria, Guinea, Liberia, Morocco, Uganda and Tunisia.

Most of the global law firms that participated in the research currently run their operations in Africa through an Africa practice or group based out of London, Paris or the Middle East, with only a minority having a presence or formal tie-up with a local firm on the continent.

The strategy to date has tended towards the establishment of an informal ‘best friends’ type of arrangement involving 2-5 firms in a country that firms will recommend to international clients.  These relationships are often the result of many years of collaboration and global firms tend to seek out the best local firm to deal with on specific issues.  These relationships are generally not viewed as exclusive by either side, although respondents stressed the importance of being able to substantiate their choice of local firm and that firm’s ability to deliver a good quality service to their clients.

In building and maintaining their relationships with local African firms and ensuring quality standards, global law firms are using a range of approaches including regular meetings with local firms and joint meetings with clients. 

Global law firms will often appoint a specific relationship partner for each African firm and may bring them on board with their client marketing events for the region.  Collaboration will also often extend to training, such as secondments for African lawyers to the Africa teams working in London or other Western offices, and support on issues such as recruitment or IT.

The research indicated that global firms are keen to build long-term sustainable relationships with local firms and have a vested interest in ensuring that these firms are able to deliver a quality service to their clients.

The contacts of local firms are critical to the success of global firms, who do not typically see themselves in competition with local national firms for business, given the disparity in client expectations and the differing fee rates.

The research suggests that African governments seeking legal services do not generally pressure global firms to use African firms, although South Africa does strongly encourage the use of BEE (Black Economic Empowerment) firms for government business.

Local content restrictions in some countries are nevertheless creating restrictions for non-nationals in legal work; Angola and Mozambique being examples of these.  This is flagging the need for talent from these countries that will need to be developed by local institutions or sought from their diaspora.

Respondents noted that African governments are generally not willing to for their work to be undertaken offshore or for the profits to be expatriated, Angola being a recent case where fees are required to be paid in local currency.

Marketing their ability to support international clients within the African market is an important aspect of global firms’ ability to capture the opportunities presented by the continent’s development.  Demonstrating expertise and thought leadership through speaking engagements, communications and seeking to partner with other agencies focused on Africa are some of the ways they aim to achieve this.

The future direction of global firms in the Africa space involves a variety of strategies.  Some respondents felt strongly that the informal network arrangements do not guarantee quality and see the need for a meaningful presence within Africa with their own brands.

Others see the ‘best friend’ approach as working well and are still cautious about investing in fully moving their businesses into the continent, seeing it as uneconomic due to political or other risks.  For firms with no current operations on the continent, the countries cited as most likely to be of interest as a starting point for local operations included South Africa, Nigeria and Kenya.

Factors such as the size of the economic and legal local market, the stability of the national legal framework, local firm competition and market readiness were the key factors in determining the attractiveness of a country.

Some firms veer towards the idea of a regional hub managing a ‘best friends’ network across individual countries, and the potential to expand into one of the countries on a wholly-owned basis, either by acquisition or as a start-up.

In general, non-US firms appear more positive than American firms about the move to establish local operations, a reflection of their perception of the potential for revenue growth across the African continent in the next few years.