With fierce competition and huge pressure on fees, Romanian law firms face an uncertain future as they pray for a glut of foreign investment, writes Dominic Carman

As politicians prey on fears of 'a flood' of Romanian migrants into Britain when border controls are lifted next month, Romanian lawyers are, in turn, praying for a flood of foreign investment into their country.

"Romania is not a country that can stand on its own," says Gheorghe Musat, managing partner at Musat & Associates. "It badly needs foreign investment."

Ion Nestor, managing partner at Nestor Nestor Diculescu Kingston Petersen, confirms: "The economy is stable, but, unfortunately, we are stable in poverty."

Romanian GDP grew by 1.7% in 2012; it may push 2% this year. "It's not significant enough for a country such as Romania," says Nestor. "We need at least 3.5%-4% to see real improvement in living standards. In this context, the legal market remains flat."

Before joining the EU in 2007, Romania witnessed significant foreign investment, most notably in energy. But in the past two years, political instability and legislative U-turns have "killed renewable energy", says Sebastian Gutiu, Bucharest partner at Schoenherr. Renewables were hit this year by the suspension of the Grid Certificate Scheme, which was "one of the most rewarding in Europe", explains Musat.

"An unstable political environment discourages investors," says Gutiu. "But then, Romania has never been politically stable."

At Wolf Theiss, partner Bryan Jardine adds: "I have often heard it said that when Romania was booming before the crisis, this was despite the politicians, not because of the politicians."

Pressure on fees 

Competition is cut-throat and the impact upon Romania's independent firms is significant. "Fees have been crushed in the past four years by at least 40%, maybe more," says Nestor. "There have been no big new firms entering the market, nor any significant withdrawals. The Austrian firms here continue to be very good." He points to Schoenherr "making spectacular progress in developing as a true local firm".

Musat develops the point: "Pressure on fees and undercutting by smaller firms is our main concern, even more than the crisis. Partners and experienced lawyers who used to invoice at €250 (£210) an hour now work for less than €50 (£42) an hour, sometimes €30 (£25) an hour. We know we don't have any chance for mandates when we're told that our rates are sometimes 10 times higher than other competitors."

International firms in Bucharest, he believes, are "not performing well". Jardine confirms that: "We are often pressured on fees. In some instances, we have offered blended rates ranging from €220-€250 (£185-£210) an hour. But even then, we have still lost on price where domestic and even other international law firms have undercut us."

He recalls "large tenders we've participated in – EU/EBRD/IFC/World Bank – where a local firm was charging as low as €45 (£38) an hour."

Nestor explains: "Small firms launched a battle to acquire market share by lowering rates – that, in combination with the drying up of clients' budgets for legal services, provoked a crashing of fees."

Star turn

In terms of work, Gutiu says: "Real estate is quite dead, a shadow of what it used to be. Project finance is very thin. Restructuring is what we see – insolvency is the star."

Nestor agrees: "M&A is at a very low level. Instead, we have seen a significant increase in restructuring work related to loans and financial arrangements."

Musat says: "The core practice for most firms – M&A, real estate, banking, corporate finance – is much reduced." In their place, he points to energy, competition, employment, restructuring, insolvency, dispute resolution and international arbitration.

Gutiu highlights public procurement, project finance and construction as hopeful areas for the future: "We need infrastructure – roads, hospitals, schools." 

Jardine believes that, long term, Romania remains a key market for energy work: "Romania has the capacity to generate excess energy, through a variety of conventional and renewable sources, in order to become a regional export hub for markets like Turkey and Bulgaria that need this energy."

Musat concludes: "The Government is very slow at attracting new funds and providing infrastructure investment – we really depend on foreign investment."