"Of all the legal markets, in all the towns, in all the world…” - Casablanca rising

IFLR1000’s John Crabb looks at Casablanca’s rise and establishment as a legal hub for North and West Africa

I heard a story once, as a matter of fact, I’ve heard a lot of stories in my time. The story of Casablanca’s rise to legal prominence started, like many others, when Allen & Overy opened its doors in Morocco in 2011. Few would have predicted that the small North African jurisdiction would soon become a legal hub for North and Western Africa.

The presence of existing international firms was limited, the legal framework unsophisticated and the country’s economic condition was far from a success story. With the added threat of rising tension across the wider Maghreb area, the bustling city of Casablanca looked unlikely to become the preferred location of the legal elite in the region any time soon.

“Round up the usual suspects”

Despite this, over the last five years a wave of global firms have established offices in Casablanca, including Clifford Chance, Norton Rose Fulbright and Baker & McKenzie. Nowhere else on the African continent is the market as infiltrated by its international firms, and nowhere else do they have such a dominance in our rankings.

The managing partner of the latest firm to open in Casablanca, Christophe Bachelet of DLA Piper, says: “This is a positive sign for Morocco. Casablanca is ready to welcome investment and we are seeing more and more investors looking into Morocco and Africa. The hub is Morocco. Morocco is part of the story.”

In the years that led up to the financial crisis, Casablanca was attracting a lot of attention from Paris and Madrid. In 2010 the King was implementing the Plan Azur vision, which saw several sizeable real estate and tourism projects, such as The Mazagan Resort that was erected on the Atlantic Coast, launch across the country.

Infrastructure was also experiencing significant investment at this time, with motorways, trains and port projects springing all over the country. The developments were providing sufficient domestic mandates to attract French and Spanish outfits, like Gide Loyrette Nouel and Garrigues, to open full service offices.

When the European economy nosedived in 2008 however, foreign interest in the jurisdiction looked set to wane as investment levels fell. Rather against trend, Allen & Overy opened its office just three years later, and in the subsequent period it has been followed by a number of contemporaries.

“What in heaven’s name brought you to Casablanca?”

Exactly why Casablanca is preferred as the hub of North and West African law can be attributed to several different factors. Bachelet for one does not think that the development comes as much of a surprise: “In terms of political stability and the sophistication of the legal framework, Casablanca is the best place to be.”

Compared to the surrounding Maghreb region, and other parts of Western Africa, Morocco’s legal framework is much more advanced, and offers far greater legal protection to investors and advisors alike. A liberal approach to bar restrictions, not mirrored in nearby jurisdictions like Algeria, Tunisia or more traditional economic strongholds like Nigeria, allows international law firms to open with relative ease and has helped to encourage the recent trend.

Given its key geographical position between Europe, north, west and francophone Africa, and across the Atlantic to the east, Morocco, and more specifically Casablanca, has proclaimed itself the ‘crossroads of the world’. Culturally Morocco also benefits from a shared language with France and francophone Africa and by taking advantage of its Islamic connections to the Arab world, and of its proximity to Sub-Saharan Africa, it has established several trade agreements with many of its neighbours. This multi-faceted identity, combined with political, economic and legal assets, is causing more and more firms to look at the city as a regional base.

When looking at what has triggered this sudden migration, it is important to discuss what a modern day global player in the legal world looks for when opening a new office.

Mustapha Mourahib, Clifford Chance’s managing partner in Casablanca, offered the criteria his firm use when looking to establish a presence in Africa. “Political stability; steady and regular economic growth; a sophisticated legal market, and the capacity for the office to be used as a hub to project our business out of the country“, and perhaps most importantly, “we need to believe that these conditions are to be met for at least 15 years”. Morocco, evidently, ticks all of these boxes.

Another factor in Morocco’s favour, according to Mourahib, is the strength of the economy and its lack of reliance on fossil fuels. “An important factor is the diversified economy, there is no oil or gas, but Morocco has the largest banks, insurance companies, energy projects, and airports in Africa. Morocco also has the fastest developments in the aeronautical business, the largest in automotive, in outsourcing, and so on,” he says.

The significance of this cannot be downplayed. The perils of over reliance on oil can be seen in neighbouring Algeria who, according to the World Bank, have registered an increasing fiscal deficit and decreasing levels of growth since the price tumbled in mid-2014.

“Honest as the day is long”

Politically, Morocco has been keen to distance itself from the stigma attributed to the rest of Northern Africa; civil war in Libya, terrorist attacks in Tunisia, revolution in Egypt, and widespread unemployment are but a few of the usual suspects.

Unlike these other countries Morocco is in a prolonged period of stability. Since adopting a new constitution in 2011 the country has become more democratic; elections in September 2015 passed without conflict, and the government remains in situ despite the emergence of a coalition led by the moderate Islamist party.

Another important political influence has been the recent wave of liberal reforms that hugely relax inward foreign investments, driven by King Mohammed VI. Recent legal developments include law n°86-12, which has incentivised public-private partnerships (PPP) in the infrastructure sector by increasing visibility for investors, anti-corruption measures, and rolling reforms to the banking, capital market, competition and mining sectors.

Arguably, another contributing factor of Casablanca’s rise to prominence is the economic awakening of Africa itself. Jean-Jacques Lecat, long standing partner at CMS Bureau Francis Lefebvre in Paris, suggests that reduced activity levels in Europe swung the focus of investment worldwide towards Africa, and that Morocco was an obvious landing point. “This is the new frontier, this is Africa, and Africa is in the mood. This is now one of the most interesting places to set up, and it can be a platform to serve our other clients in West Africa.”

“I came to Casablanca for the waters”

When looking at this phenomenon, perhaps the most significant economic development of recent years has been the establishment of Casablanca as a global financial centre.

According to its website, the project, known as the Casablanca Finance City (CFC), is an effort by the state to “support and sustain Africa’s development and growth through draining foreign investment to the continent”.

In order to gain full CFC status, all parties must adhere to certain financial and legal stipulations concerning a percentage of non-resident turnover, dependant on industry sector. Tax incentives are offered to members; non-regional headquarters get total exemption from corporation tax for the first year, and a low rate of 8.75% after that, while headquarters themselves get a rate of 10% from the outset. These enticements have encouraged dozens of multinationals to make the transition already, MasterCard was granted CFC status in October 2015, while the Bank of China, BNP Paribas and Renault are among those to have already attained it.

In 2014 the CFC was ranked in the Global Financial Centres Index for the first time, instantly leap frogging Mauritius and achieving second position in Africa and 62nd position globally. The city boasts a healthy stock exchange and the headquarters of Attijariwafa Bank, the country’s leading bank which is active in several countries across the OHADA region.

In light of restrictions put in place for those granted CFC status, the balance of domestic and international work for firms based in Casablanca is important.
According to Bachelet, DLA’s strategy is to have a strong presence in Morocco, but says that: “We have to make sure that more than 70% of our turnover is outside of Morocco. It is the legal stipulation of our Casablanca finance status to be here, we have no choice than to do that.”

Similarly for Clifford Chance, Mourahib says that there is a “50/50 split between Moroccan work, and North and West African work in places like Tunisia, Algeria, Ivory Coast, Senegal and Nigeria”.

“We’ll always have Paris”

The amount of legal work in the region is steadily increasing; work in energy and infrastructure has been abundant for some time, and areas like capital markets, M&A and private equity have grown in recent years. “The work in West Africa is increasing, we are seeing more and more services companies and financial services companies going there to have a base, and these companies need lawyers,” says Lecat.

Across the continent there are countless examples of oil refineries, gas extraction plants, water desalination plants, nuclear power plants, wind farms, motorways, dams, bridges, and social infrastructure projects being erected as economic forces such as China seek new investment opportunities in Africa. In 2015 the construction of the Noor-1 solar power plant was completed, set to be the largest of its kind globally it will propel Morocco forward as a solar super power.

Traditionally the leading legal roles on African projects have been handled from Paris and London, with international firms designating specific ‘Africa desks’ and teams to handle work on the continent. There is however a growing sense that this dynamic is set to change, and that the ever more sophisticated Moroccan and South Africa based teams will begin to take leading roles.

Samy Laghouti, partner in charge of the Algiers office of Gide, believes that the tide is already turning: “It is true that Morocco is in a key position, as local investors are increasingly active across the continent. We do more and more work from our north African offices in relation to Africa, and I think that this trend will continue. When you claim to have African capability, you are always more credible when you are on the ground than when you are only in Paris or London.”

Lecat on the other hand, though agreeing that there will be a shift of power towards Casablanca, does not think that there will be a complete transfer of power: “There is a limit, not every company willing to work in West Africa will go to Morocco.”

Similarly, Mourahib suggests that geographical location will always be of secondary importance to expertise: “We did a power project for example, the team was split between Paris, Casablanca and Dubai, and we all assisted together,” he says. “For a private equity deal in Senegal, we were working with London. We see ourselves partnering where the expertise is.”

Another factor to consider is that for many firms and lawyers working in the financial and corporate sector, moving to Casablanca is seen as an excellent opportunity to make the step up from being a small fish in a big pond. Some French firms, like Jeantet and Lefèvre Pelletier & Associés, although relatively small domestically, are well established in Morocco.

It is also worth considering the effect that the arrival of a host of global players will have on those domestic firms that are already struggling for survival. Financial backing, extensive networks, and technological superiority make the larger multinational firms a far more attractive prospect for international mandates.

A glance at our rankings illustrates that the market is already largely dominated by firms from France and the UK, and only a small number of local firms remain. Bennani & Associés are one instance of this in action, in 2011 they were healthily ranked in tier two, whereas by 2016 they have slipped down to tier four, due largely to market saturation by firms with far superior resources. Similarly, Benzakour Law Firm, Hajji & Associés and Bakouchi & Habachi-HB Law Firm are all ranked in tier four or lower.

As with many emerging markets, money talks and larger firms with greater financial backing will ultimately also attract the best lawyers, which is not necessarily a bad thing when it comes to developing local legal talent.

"Here’s looking at you, kid”

It is important for young Moroccan lawyers, who train in France or elsewhere, to join successful firms in Casablanca, and not feel the need to look further afield to fulfil their personal career aspirations. Gone is the era where wealthy local lawyers with inherited clients can take advantage in Morocco, and all firms now need to bring a certain level of expertise to the fray. As the market matures further, many expect to see an abundance of young talented lawyers emerging.

There is a possibility however that firms will attempt to bypass young Moroccans, and infiltrate the market with teams of lawyers trained in Paris or London where possible. However the early signs suggest that this is not happening yet.

Take DLA Piper’s new team, at the time of writing they have 10 lawyers based in Casablanca, one in Paris and one in London. According to Bachelet: “In the end, it makes sense to have a majority of people on the ground in Morocco. The clients want Moroccan people, but then they also want people with international expertise.”

“I think this is the beginning of a beautiful friendship”

The volume of firms opening in Casablanca over the last couple of years could be seen as a simple mirror of the country’s economic progression. More clients means more work, and more work means more firms, but as has been shown, they are more factors at play than a simple emerging markets story would suggest.

The question of whether the market is sustainable in the long term remains, but the effect works both ways according to Bachelet: “If you have more UK law firms there will be more UK clients, and it’s the same for the US. There has been a 10% increase in US investment in the last year, they have a really strong appetite.”

Bachelet even suggests that there is room for more firms to move in: “There are different categories of clients and investors, there is space for everyone. I think there is space for three or four more firms. I think the US will come next, and then probably Saudi Arabia.” Mourahib tends to agree, and suggests that as long as entrants contribute to the market, then they are good competition. “There is always room left for brilliant lawyers.”

From Algeria though, Laghouti has a word of caution: “Given the size of the market, the competition between international firms is very high and this should affect their profitability. It has been something of a mirage with the Moroccan market.”

Politically, economically and culturally, Casablanca seems set to become the perfect business hub for north and west Africa. The business realm is developing at a strong rate, and the economy is showing regular and steady growth. If the country can avoid the political turmoil that has engulfed some of its neighbours, then Casablanca has every chance of establishing its authority as a significant global financial centre in years to come, with a fully developed and sophisticated legal market to match.