Neil Hodge reports on the revival of the South African legal market and the positive impact it is having on the rest of Africa

South Africa's top law firms say that fee revenue and market share are continuing to grow as they benefit from the country's growing economy. In fact, some say they are experiencing "double-digit growth" and that 2013 has been a "bumper year".

Des Williams, chair of Werksmans, says that the market for legal services in South Africa is "strong", prompting the firm to make some significant hires over the past year to bolster its mining, banking, and renewable energy expertise. 

However, he adds, the usual bellwethers of economic activity – such as merger and acquisition work and large corporate transactions – have slowed. 

"South Africa has not suffered the ill effects of the global recession in the same way or to the same extent that the US and Europe have. Our financial sector remains strong and there is still a lot of corporate transaction activity here," says Williams.

"While M&A may have slowed, there is a lot of work going to law firms thanks to Government investment into major renewable energy and infrastructure projects. Other growth areas have been an increase in litigation work, as well as an upswing in dispute resolution and arbitration work, particularly with regards to issues such as mining and mineral rights. There is also a lot of insolvency and restructuring work at the moment."

Boosting portfolios

The continued growth of the economy has provided opportunities for law firms to expand their reach and increase their market share, particularly in some areas of practice. For example, last year Adams & Adams took on Bowman Gilfillan's IP department to create the largest IP firm in the southern hemisphere. 

In September Cliffe Dekker Hofmeyr launched a specialist construction and engineering group to cater for the increasing global demand for legal expertise in this sector, especially with regard to construction-specific dispute resolution skills and the negotiating and drafting of construction contracts. 

Yet while full-service commercial law firms may be enjoying a boon, niche specialists have had a tougher experience. Jonathan Whittaker, partner and chair of the executive committee at specialist IP firm Spoor & Fisher, says that "the market is still going very well for us", but concedes that "we did have some tough years as a result of the credit crunch".

"About 70% of our clients are based overseas, typically in the US, UK, Europe and Australia. If they are being badly affected by the financial crisis, then we are going to be hit as well," he adds.

Before 2008, the firm was experiencing year-on-year growth of 20%. That dropped for a few years, but such growth is coming back – largely through referrals from foreign law firms whose clients want greater protection in other parts of Africa. 

Spoor & Fisher has reduced its headcount and operating costs because of the impact from the financial crisis. But a few years on from the "dark times", Whittaker believes that "the firm is now more capable of meeting client needs and robust enough to deal with fluctuations in the local and world economies". 

While some international firms have been present in South Africa for some time – White & Case has been active for a number of years, and DLA Piper has had a long-standing relationship with Cliffe Dekker Hofmeyr through a strategic alliance – the country's good economic fortunes are luring international firms into the marketplace. 

This February, the merger between Bell Dewar and Canadian firm Fasken Martineau went live. The addition of the 76-lawyer Johannesburg-based firm brings in expertise in mining, infrastructure, energy, project finance, capital markets and M&A. 

Also in February, Linklaters launched its exclusive alliance with South African law firm Webber Wentzel, which gives Linklaters its first presence on the ground in Africa, as well as access to the Africa Legal Network (and potentially markets such as Botswana, Burundi, Ethiopia, Kenya, Malawi, Mauritius, Mozambique, Rwanda, Tanzania, Uganda and Zambia) through Webber Wentzel's membership.

Homeward bound 

Some firms are also coming back into the market. In September Eversheds launched an initiative designed to give it a broad presence in Africa. The firm plans to launch offices in Ghana, Kenya, Morocco and Tunisia, as well as return to South Africa, just a year after its alliance with Routledge Modise fell apart because of client conflicts. 

Jonathan Lang, head of Bowman Gilfillan's Africa group, expects that there will be consolidation within the sector, and that international firms are circling: "We have considered forming an alliance with a major international firm and we took a long and hard look at the way we operate. But we have taken the decision to remain independent, and that is purely for financial reasons." 

Several locally-based lawyers believe that the international firms are using South Africa as a platform to launch themselves into other African countries – not least because foreign direct investment into Africa is expected to grow to $150bn (£93.5bn) by 2015. DLA Piper is pushing hard to expand its Africa group – an alliance of independent law firms in major markets in sub-Saharan Africa; while in June Norton Rose Fulbright said it was looking to add new bases in Nigeria, Kenya, Mozambique, Angola and Egypt. 

"We are watching and waiting to see what the international firms will do," says Williams. "South Africa is a good place to launch into other parts of Africa. At the moment, international firms are referring their clients to local firms here. But the fact that some firms are looking to make alliances with South African firms suggests that they might want to be more active."

Neighbourhood watch

However, pan-Africa expansionism is not limited to international firms trying to get a foothold in the continent. South African firms are also benefiting from the resurgent economies in neighbouring countries which has resulted in the unveiling of several large-scale infrastructure, construction and energy projects.  

In January Edward Nathan Sonnenbergs (ENS) continued its expansion across Africa by launching in Uganda via a takeover of local outfit Synergy Solicitors & Advocates. The office will focus on energy, finance, telecoms, refining and infrastructure work. The takeover increases ENS' total lawyer headcount to more than 550. In August 2012, ENS opened offices in Burundi and Rwanda. 

Werksmans has benefited from its involvement in Lex Africa, the continent's largest legal network. "We are doing more pan-Africa work for clients based outside of South Africa and for our clients who have operations and activities in other areas of Africa, and this represents a significant part of our business," says Williams. 

Bowmans has also just opened an office in Botswana, and is looking to expand its market share deeper into Africa. Lang says that the firm is considering opportunities in Nigeria, Ghana and Ethiopia, and is particularly keen to move into sub-Saharan Francophone Africa. 

But one of the key challenges that Bowmans foresees in the near future is trying to find the right firms to partner with. Lang says: "In some countries the legal system is under-developed, and some markets are very protectionist so that foreign firms are effectively barred from entering or from providing any work that would make any investment there worthwhile. Also, not all firms operate in the same way we do, or have the same values, so it can be frustrating trying to find the right firm to do business with." 

Williams thinks that the next couple of years will present a "challenge", but those firms that will come out on top "are those that try to harness the potential of Africa as a whole rather than just focusing on South Africa".

He adds that economic growth rates in other parts of southern Africa outstrip that of South Africa, and that there are a number of significant construction, energy, and rail and road infrastructure projects that are either underway or are set to start which are ripe for foreign investment and which would require sound local legal expertise.

Lang also believes that the rest of the continent represents massive potential for growth for South African law firms: "The geographic size of Africa, its mineral resources, and its under-development and need for foreign investment all point to great opportunities for companies and law firms to take advantage.

"South African firms are better equipped to operate in these countries – they understand the business culture, have had long-standing relationships with clients active in these areas, and [they know] what legal services and expertise is needed locally. 

"This makes them far more competitive than international firms trying to come into the market, so referral work is set to continue to be a key revenue-earner."