Event Report

In 2017, Morocco became the African Union’s 55th member. The country’s re-accession to the continental bloc, 33 years after the disputed status of Western Sahara had caused it to withdraw, was a political reflection of the significance sub-Saharan Africa has taken on for Morocco’s world affairs. Last year, over 80% of its outbound investment was directed to sub-Saharan economies, reminding businesses that Rabat remains a key actor on the continent. But access to the wider African market is not the only reason investors are looking to the North. With over $700bn worth of infrastructure projects set to commence in the coming years and a population of around 90m, or nearly twice that of the Gulf States, the Francophone North African nations of Morocco, Algeria and Tunisia are making the Maghreb an attractive place to invest in its own right.

At the same time, as one senior counsel who joined us for this special discussion commented, ‘North Africa has become a bit of a mystery to multinationals. It used to be the starting point for any African investment, but it is now an afterthought when it comes to setting a Middle East and Africa strategy.’ Is North Africa – for many years the hub for multinationals looking to do business on the African continent – in danger of becoming the odd region out? To find out, we teamed up with North Africa’s leading domestic firm, Bennani & Associés, to get the thoughts of senior counsel and Dubai-based international law firm partners on some of the issues they face in managing the Maghreb from afar.

Representing Bennani were Mehdi Bennani, Lamia Harguem and Mourad Seghir, partners-in-charge for the firm’s offices in Morocco, Tunisia and Algeria. Mehdi Bennani opened the debate by asking guests about the costs and benefits of managing the North African region from Dubai.

The odd place out

London and Paris were once the default location for multinationals’ MENA counsel, but a growing number of these roles are now migrating to Dubai. Is Dubai a more natural out-of-country base for North African operations? It seems like a reasonable question, but over half the group felt the answer was too obvious to merit much thought: Dubai, they were sure, is much closer. The improbability of well-informed people being wrong makes others question themselves, but a collective checking of Google Maps proved they were not only wrong, but wrong by a wide margin – Casablanca is around three times the distance from Dubai as it is from Paris. This apparently common misjudgment of distance, said one senior counsel, showed that proximity is not only a question of geography: ‘One of principal reasons businesses are transferring their North African management functions from Europe to Dubai is the recognition that, culturally, it is a far better fit. The language, business practices, and trade relationships are all far more similar. Quite often, when a North African team finds out it will be moving to Dubai it breathes a sign of relief because it will be working among Arabic speakers who understand the ways in which business gets done in the region. Distance aside, it feels closer.’

However, argued Adel Khalaf, legal and compliance counsel for India, Middle East and Africa at Allergan, this was simply repeating the same error. ‘North Africa is no closer to the Middle East in cultural terms than it is in geographical terms. It is interesting that so many people think otherwise because the case against is so striking. In a cultural, linguistic and legal sense, North Africa is clearly much closer to France than the Middle East. To my mind, running North Africa from Dubai is simply a function of how businesses define regional markets. North Africa is an outlier that tends to get packaged up as part of the wider MENA region and managed from Dubai.’

There are, of course, practical advantages to being based in Dubai. The logistics of arranging travel and meetings is far easier in a city that has based its success on finding ways to move money, goods and people effectively. And, as one GC commented, ‘even though it may be easier to work with French speakers out of Paris, the danger of running North Africa out of such a large domestic market is that anything else can become an afterthought. At least in Dubai the teams will be able to give the market the attention it deserves.’

The Battle for Algiers

‘Algeria is a big market with a lot of opportunity but we are hamstrung by the facts’, complained one GC. ‘We can’t own 100% there, the government has pursued a stop-start approach to privatisation and large parts of the economy remain dominated by the state. At the same time, the potential benefits make it difficult to ignore.’ This seemed to represent the consensus. All agreed that Algeria was difficult – and, with its 81 year old president Abdelaziz Bouteflika unlikely to be in power much longer, the dynamics of a challenging but predictable country are likely to change again in the coming years. Protectionist measures have also picked up recently, with tariffs reaching up to 50% for certain products. And with FCPA settlements in the US getting larger each year, the group was particularly keen to discuss the risks of facilitating business in a country where large parts of the economy are overseen by government officials.

Mourad Seghir, partner-in-charge of Bennani & Associés in Algiers, noted: ‘The legal obligations that surround an investment can be challenging, but deciding who will make the best partner is where the real art lies. There are always costs and benefits here – a state-owned partner may make businesses feel more confident that they are taking the right steps when it comes to bureaucracy, while the flexibility offered by a strong private partner can be equally attractive. Either way, it is important to focus on structuring the investment properly so each party has a mechanism to disincentivise the other from going to court. Law firms love arbitration because it is very lucrative, but that’s not where I like to see my clients end up.’

While North Africa is increasingly being managed from Dubai, Paris and London still remain dominant when it comes to referring disputes. As Ilham Kabbouri, a member of the international arbitration team at Hogan Lovells noted, ‘There is a near universal preference for taking disputes to the International Chamber of Commerce (ICC) in Paris or the London Court of International Arbitration (LCIA) in the region. However, enforcement is relatively smooth in North Africa, and certainly in Morocco, Algeria and Tunisia.’

However, Salah Mostafa, head of legal for the Near East, Middle East & Africa region at Takeda Pharmaceuticals, pointed out, legal counsel have a duty to anticipate disputes arising: ‘Talking from the outset about what you will do if it comes to a disagreement is important. I try to force that discussion as much as possible – people don’t like to think about it when excitement is high and a deal is being made, but it is essential to get these things right. If it ends up in court then that’s the biggest failure on your part. A GC should do everything possible to avoid something dragging into a full blown dispute.

Ultimately, a lot of the issues businesses encounter in Algeria are cultural. You need to make sure you have someone on the ground who understands the culture and can translate, and relay that to the regional headquarters.’

This cultural aspect, added William Reichert, a partner in the Dubai office of K&L Gates, is especially important from an anti-corruption perspective. ‘Having lived and worked in a number of different emerging markets, my experience is that many of the things that are flagged as instances of corruption in the US or EU are considered normal practices. Staff may know rules but they also know that’s not how you do business in the country. As a result, simply putting rules and policies in place won’t mitigate the real risks the business faces – you need to work with the local teams to help drive cultural change on the ground. There is also a linguistic aspect that we have to be sensitive to. When policies and procedures are conveyed in English you can’t make the assumption people will understand what you are talking about. I have seen corruption investigations where the local party has asked what “bribe” means. It’s actually phenomenally difficult to explain the concept to someone who is coming at it from a culture where facilitation is an accepted way of getting a deal through.’

A further difficulty was raised by Adel Khalaf. ‘Even within the MENA region, North Africa is not likely to be at the top of the list when it comes to assigning resources. UAE and Saudi Arabia will take precedence, which makes it much easier to find and run diligence on joint venture partners in those markets. Getting the right guidance and support can be a little tricky if the country has not been subject to sustained interest from foreign investors.’

This, added Deepa Tharmaraj, legal director at Dell, could also make hiring external counsel a challenge: ‘If you want to use a firm at the premium end of the market it can be difficult to justify the spend because people will say, “it’s generally a less lucrative market, why are we paying so much for legal services?” However, that is precisely why you need to be more rigorous in selecting counsel. Generally, there is a brain-drain from North Africa to the Gulf, which means I am a lot more stringent over choice of external counsel when I go there. I want to make sure I do actually get people with the right experience.’

There are 16 firms operating in Morocco, including some of the largest international players. For a market of Morocco’s size this means competition can be fierce. But, as Brett Hattaway, vice president and head of legal for Eastern Europe, the Middle East and East Africa at DHL noted, the quality can vary considerably. ‘At a pragmatic level, if you are used to working with an international firm as in-house counsel you send an email to the partner you work with, they talk to associates, associate sends an email to a partner at a local firm who will then send the matter onwards. Things get lost in translation and you don’t have the right information to price properly. That means working directly with the local firm can be far more efficient.’

‘I always found it a little weird’, added Adel Khalaf, ‘that Dubai-based counsel will always go first to a firm in Dubai when they want to get legal advice on a country where their company is not present. I would worry about being double billed, with both the local and international firm charging me for the time required to locate the right advice. The danger is that international lawyers will insist on staying with a matter even when they have no added value to bring. We have all sat through conference calls where an international lawyer sits in because he or she set up the relationship with local counsel, even though they don’t know the local law and can’t offer any pertinent advice.’

Participants:

Mehdi Bennani, Bennani & Associés Lamia Harguem, Bennani & Associés Mourad Seghir, Bennani & Associés Salah Mostafa, Takeda Pharmaceuticals Brett Hattaway, DHL William Reichert, K&L Gates Ilham Kabbouri, Hogan Lovells Mohammad Tbaishat, Pinsent Masons Brian Dunn, Deputy general counsel, Property Finder Adel Khalaf, Allergan Khaled Shivji, Aggreko Jean-Luc Khayat, Nokia Ali Haidar, General counsel – Middle East & Africa, 3M Deepa Tharmaraj, Dell

In association with...