Just as every cloud has a silver lining, so too did the Arab Spring. Simon Petersen looks back on what has been a tumultuous time for the Middle East

The Arab Spring has become a summer. More than six months since a solitary act of protest in Tunisia became the catalyst for widespread political unrest that swept throughout much of the Arab world, the swelling tide of uprisings in the Middle East continues.

As the Muslim month of fasting comes to an end, the region is radically different to how it was one year ago. A violent transformation has taken place: dictators have fallen, dynamics have shifted and the institutional setup of the region has been radically altered. Most pressingly for the legal sector, markets in places such as Bahrain, Egypt and Libya have been hit hard.

"Bahrain has slowed down considerably," says Latham & Watkins Middle East chair Bryant Edwards. "And as far as capital markets go, investors have adopted a wait-and-see approach to Libya, Yemen and Egypt in particular."

The good news for law firms, however, is that the United Arab Emirates (UAE) has been virtually untouched by the waves of discontent that have lashed much of the region. The twin economic powerhouses of Abu Dhabi and Dubai – as well as up-and-coming Qatar – continue to forge on without much pause. In fact, as many firms in the region point out, the Arab Spring may even have been good for business in the UAE.

Gary WattsBack in black

"The economic cloud caused by the Arab Spring has undoubtedly had a silver lining for the UAE," says Al Tamimi corporate commercial head Gary Watts (pictured). "What it's done is highlight the UAE's status as the leader for business and demonstrably the most stable place in the Middle East."

Few would argue, however, that the onset of the chaos that engulfed much of the region caused many in the UAE – law firms, investors and governments alike – to pause for thought. But after that initial pause, the UAE roared back into life with a renewed focus on government investment.

In March, the UAE Government pledged to increase spending on infrastructure in the less-developed Northern Emirates and create more jobs for nationals. It also said it would spend a further $1.6bn (£984m) overhauling and upgrading utility networks.

Watts says: "Government projects have been brought forward and accelerated, no doubt to head-off any political problems or demonstrations at the pass; in this way the Arab Spring has led to an increased focus on projects that improve people's lives."

Meanwhile, according to the Institute of International Finance (IIF), which in August revised its gross domestic product forecast for the UAE to 4.4% from its earlier prediction of 3.8%, regional unrest has prompted high net worth individuals from troubled Arab countries to move their savings and investments to the UAE.

Total deposits made by residents and non-residents rose by 16% in the 12 months to May 2011, while lending increased by 3% during the same period, as the focus of foreign investment switched from troubled countries such as Egypt and Bahrain to the UAE.

Habib Al Mulla founder and executive chair Habib Al Mulla (pictured) comments: "The Arab Spring has had a surprisingly positive impact on the UAE, which has benefited from increased tourism and an influx of people and money from the areas that have been affected.

Habib al Mullah"I think the most interesting effect will be the shift of talent from the areas worst affected to more stable places in the region. I think firms in the UAE, which may have kept a stable headcount over the past few years, will be well placed to recruit lawyers from firms in badly affected areas."

From boom to bust

The UAE, then, is enjoying the benefits of its reputation as the most stable location in the region. The Arab Spring has led to increased government spending on infrastructure projects and recruitment opportunities in the country, while financial institutions are seemingly high in liquidity at the moment. In short, it has had the opposite effect of the financial crisis.

Just a few short years ago, Dubai's – and to a slightly lesser degree Abu Dhabi's – economy was booming; law firms were opening in droves as the desert transformed into a buzzing metropolis, largely buoyed by an exceptionally strong real estate market.

But as that real estate bubble eventually burst in 2008 and 2009 as a result of the worldwide economic downturn, nearly half of all the UAE's construction projects, totalling $582bn (£400bn), were either put on hold or cancelled.

Dozens of firms were forced to either close or restructure their local offices. Among the casualties were French firm Gide Loyrette Nouel, which pulled out of Dubai, Abu Dhabi and Riyadh in October 2010, and DLA Piper, which laid off 8% of its Dubai workforce in April 2009 and reduced its Middle East headcount by a further 9% later that year.

Jones Day Dubai partner-in-charge Arman Galledari (pictured) comments: "We opened in Dubai in 2009 at the absolute bottom of the market. Work was sparse and a lot of offices were downsizing. Fortunately for us, we had a number of international clients that were active enough in the region to keep us busy.

Arman Galledari"I don't know of any firms that have increased their headcounts substantially over the past three years – they've all decreased. Maybe during the last six months there has been some rebuilding and return of optimism given the sheer potential of the region, but there is still some way to go before we are back to the levels in 2006, 2007 and 2008."

Indeed, as many lawyers working in the Middle East point out, the region may never get back to the way it was before the crash. The economic environment is constantly evolving and, as highlighted by the financial crisis, the region is not immune to what is happening in the rest of the world.

Linklaters Middle East managing partner Sarosh Mewawalla says: "You only have to watch the news to know how volatile the world is right now, with the sovereign debt crisis and what's happening over in the US. From a short and medium-term perspective, the outlook here is positive but it will be a while before it settles into any definite trends."

While the state of international markets may cause many global firms to pause, Watts argues that local firms will be undeterred. He says that the largest local firms in the region – Al Tamimi, Hadef & Partners and Habib Al Mulla – have started hiring again and, if anything, will be looking to extend their regional networks.

Expansion continues

Even now, after the economic downturn resulted in severe cost-cutting measures across the Middle East legal sector, the UAE is still a heavily congested marketplace. With a number of firms opening new offices in the region over the past year and still more to come, competition in the region shows no signs of relenting.

"I would say there are 10-15% too many lawyers in the region," says Mewawalla, who oversaw the opening of Linklater's new Abu Dhabi office in July this year. While the volume of projects and infrastructure deals is increasing slightly, the fees remain very competitive. If you can't differentiate yourself from the competition then you should be questioning why you are here."

Among the firms to open offices in the past year are McGrigors (Qatar), Wragge & Co (Abu Dhabi), Baker & McKenzie (Qatar) and Bird & Bird (Abu Dhabi). Meanwhile, Eversheds merged with Middle East law consortium KSLG in May, handing the firm new offices in Iraq, Jordan, Saudi Arabia and Dubai.

Naturally, Eversheds Middle East managing partner Chris Jobson is optimistic about the future of the region, even those areas hit hardest by the Arab Spring. "If anything, the restructuring taking place in a number of the countries affected by the Arab Spring will make them better places to invest. Clients are looking for firms to take care of them across a number of different jurisdictions and we're delighted with how the merger is progressing."

His optimism is evidently shared by a number of firms still looking to expand in the Middle East. Among the firms to have announced plans to open in the region are Addleshaw Goddard (Dubai), Herbert Smith (Qatar), Clifford Chance (Qatar) and Pillsbury Winthrop Shaw Pittman (Abu Dhabi).

The Middle East, then, remains a region of immense potential for the legal sector. Even as the Arab Spring continues across multiple seasons, with insurrections flaring up and then dying down in multiple jurisdictions, law firms remain cautiously optimistic about the future of the region.

Edwards summarises its appeal: "In the future the Middle East is going to control more and more of the world's assets and I think it would be a mistake not to be here."

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Quentin PooleNew horizons

Law firms are increasingly looking for new horizons in the Middle East, to expand into other jurisdictions and find new niches outside the traditional economic hotspots of Abu Dhabi and Dubai.

Competition is rife in Abu Dhabi and Dubai. The economic boom that once attracted so many international firms to set up shop has long gone and the economy is just starting to recover.

Qatar, the world's fastest-growing economy and host nation for the 2022 FIFA World Cup, is the "new Dubai" in terms of activity and peoples' interest in wanting to set up, according to Simmons & Simmons Doha office head Andrew Wingfield. Simmons opened in Doha eight years ago.

"The financial services and legal sector has grown significantly since we opened here," says Wingfield. "Now it's huge, with lots of competition from firms just setting up in the region and looking to buy up work."

Indeed, Qatar appears to be the flavour of the month for many international firms seeking to open in the Middle East. It is no wonder, as the emirate's construction industry expanded by 28% in the first quarter of 2011, according to figures by Qatar's Statistics Authority. Meanwhile, infrastructure projects in line with Qatar's National Vision 2030 development framework and national strategy are expected to be announced throughout the coming years, in preparation for the World Cup.

For this reason, Qatar was a key part of Wragge & Co's strategy in launching in nearby Abu Dhabi in December 2010. Senior partner Quentin Poole (pictured) comments: "The country is already experiencing radical growth in preparation for the World Cup, with a huge investment to be made in the country's infrastructure before 2022."

McGrigors finance and projects business group head Michael Watson adds: "We decided to launch in Qatar long before it was given hosting rights to the Football World Cup in 2022, but it certainly convinced us that our strategy was right in terms of demonstrating how vibrant and ambitious the state is."

Saudi Arabia, meanwhile, is experiencing a similar boom. In the wake of the Arab Spring, the oil rich nation has unveiled plans to build the world's largest tower at a cost of $1.23bn (£760m) as well as plans to help lower and middle-income people among the 18 million Saudi nationals.

Al Tamimi corporate commercial head Gary Watts comments: "Saudi Arabia is one of the countries that has benefited from more foreign investment in the wake of the Arab Spring and there has been more of a focus on improving the country's infrastructure."

However, Wingfield sounds a note of caution. He says law firms in Qatar and, to a lesser degree, Saudi Arabia, will inevitably meet the same challenges as Dubai and Abu Dhabi, namely overcrowding and pressure on fees as more firms look to these lucrative markets.

He says: "I think Qatar in particular will inevitably become over-lawyered in due course. The streets aren't paved with gold. There will undoubtedly be a lot of work to come out of the Football World Cup, but it will be extremely competitive."