As Europe continues to flouder, the Middle East is still seeing GDP growth. Pui-Guan Man eyes up the region's benefits

Competing against countries from Europe, South America and Asia, Dubai's bid to host the World Expo in 2020 is redolent of the growth in prominence of the Middle East in recent years. With the emirate pitching to bring the exhibition to the Middle East for the first time, delegates at Legal Week's Corporate Counsel Forum Middle East suggested the bid was symbolic of increasing scrutiny on how Gulf Co-operation Council (GCC) countries stack up against markets in Europe and Asia on the wider business stage.

Speaking at the recent event, which was held at the Mina A'Salam, Madinat Jumeirah in Dubai, Iain Linney, a global capital markets regulatory specialist and formerly executive director at WestLB and Farouk Soussa, chief economist for the Middle East at Citi, sized up the opportunities for businesses looking to expand or invest in the GCC.

A strong platform

In pure economic growth terms, the attractiveness of Asia and the Middle East is clear: growth in gross domestic product (GDP) in 2012 stood at 4% across the GCC and 6% in Asia, according to IMF World Economic Outlook 2013 figures. But Europe continues to suffer, posting zero to negative growth. 

Coupled with the more favourable tax structures in the Gulf region, Linney (pictured, right) is clear about the opportunities offered for businesses. He said: "Asia has more sophisticated financial markets, while the GCC has less scope for derivative products. Meanwhile Europe has 'developed' financial markets, but at what price? 

"With the European Union's plans to introduce a financial transactions tax, there is a chance it could become even more of a highly taxed region. Firms in the GCC get to keep income and profitability, as the tax element isn't as significant as in the EU."

Linklaters UAE head of corporate Scott Campbell seconds the view that the Middle East has benefited from the lacklustre economy across Europe. 

"The growth and strength of sectors like transport and telecoms have provided a strong platform for bids like the World Expo, and the provision of legal services in the UAE goes hand in hand with it," he says. "We opened in 2006 with a handful of lawyers, which has now grown to 40, marking one of many examples of the kind of rapid growth the region has been seeing."

Growth in the use of Islamic banking and insurance over recent years has also played into the hands of the UAE, and have allowed it to build on its commercial links with the West and Asia over the last decade.

Freshfields Bruckhaus Deringer UAE-based corporate partner Michael Hilton says: "GCC economies such as Dubai have done well over the past 10 years. They started with strong growth that outstripped large parts of Europe and matched Asia, and with that economic growth came huge growth in the legal market. When growth fell off in 2009, law firms were forced to focus on clients even more so than previously – to work hard to provide them with a quality service that added real value. The best firms were able to do this and are now well-positioned to take advantage of the deal flow that is beginning to return – provided they retain that focus on clients and adding value."

And the region looks set to further benefit from fallout from the US and Europe, as businesses turn towards the Middle East and Asia in preference of the increasingly onerous demands placed on them by regulators based elsewhere. Speakers at the event also suggested that as the extraterritorial reach of regulators – particularly those based in the US – starts to extend into the GCC, law firms may also benefit from an increased call for regulatory expertise.

Linney said: "The US is increasingly pushing out its regulatory powers on an extra-territorial scale – non-US foreign investors are coming under the US enforcement radar and the pace of global regulatory change is such that even western companies are struggling to keep pace.

"We're not seeing that level of enforcement hitting the GCC at the moment but if it does, will it be able to cope? The region has such a heavy reliance on foreign expertise; this could be used to its benefit if extra-territorial measures start to bite."

Private sector focus

However, the GCC's focus on the oil and public sectors was identified as a potential weakness, with panelists suggesting the region would benefit from building expertise in emerging industries in the private sector.

Speaking at the forum, Soussa (pictured, right) said: "The main question is, [are domestic markets] diversifying quickly enough? All the indicators point to economies that remain as driven by oil and the public sector as they ever have been. There is a pressing need to shift towards a more diversified economic model in which the private sector plays a leading role. 

"Economic reform is easier to implement in good times than in bad, and the window of opportunity is closing as risks to the oil price going forward look more to the downside, and domestic expenditures continue to rise."

Freshfields' MENA managing partner Pervez Akhtar adds: "The Middle East has been trying for some time now to diversify away from natural resources to other real economies – particularly in terms of where cash is deployed. The more high-profile examples of this include acquisitions of flagship retail stores and football teams – but other, 'safe' sectors such as healthcare, education, logistics and consumer goods are all attracting significant investment. For these sectors we see a 'flywheel' effect, whereby clients turn to firms with sector expertise, which in turn strengthens that expertise and so attracts more deals and more clients."

However; Campbell cautions: "The region is relatively low cost as a tax-friendly region, attracting high-quality human capital and plenty of inward investment. However, while the market has been relatively stable for the past few years, it's still not entirely immune to the challenges Europe has been facing post-2008."