The legal market in South Africa, once made up of a small group of domestic firms isolated by apartheid, has been transformed into a legal hub, serving as a base for global firms seeking to counsel clients throughout Africa.

But as these global firms continue to set up shop in Johannesburg, the well-established domestic firms are adapting so that they, too, can compete for the increasing international business and investment flowing across the continent.

From InternationalLaw.com. Story by James Booth

South Africa has been hit by a flood of global law firms seeking lucrative new markets.

In 2014, three firms with a combined global revenue of $4.8 billion opened offices in South Africa — Allen & Overy (based in London), Clyde & Co (based in London), and Dentons (structured as a Swiss verein).

In 2016, Herbert Smith Freehills (based in London and Sydney) and DLA Piper (U.K. and U.S.-based) entered the market, hiring big-name partners from local firms. And this year, Pinsent Masons, a global firm based in the U.K., plans to open its first African office in South Africa.

During apartheid era, South Africa was cut off from the wider international business community. In its closed market, a handful of local law firms dominated the field. Once apartheid ended in 1994, those firms underwent unprecedented growth as South Africa began reintegrating into the wider global economy.

Today, the leading six local firms that dominate the South African market are Bowmans; Cliffe Dekker Hofmeyr; ENS­africa; Webber Wentzel; Werksmans; and the South African arm of Norton Rose Fulbright.

“From the sixth firm to the seventh, there is a seismic drop in the number of lawyers,” says David Hertz, chairman of Werksmans.

The post-apartheid economy brought risk as well as reward for the big domestic players. The firms began to do more work in other African nations. But they also started to face competition from international rivals, who were casting a covetous eye at South Africa, the continent’s largest economy.

“Here we were in South Africa all happily operating, and there was then a change,” Hertz says. “Maybe we reached, as Malcolm Gladwell said, a tipping point. International law firms started to express an interest.”

Those looking at the market early on included White & Case (Based in NYC), which opened an office in South Africa in 1995, and the now defunct Dewey & LeBoeuf (formerly based in NYC), which opened in the country in 2000.

But the biggest change came with the advent of tie-ups between South Africa’s big players and leading international firms. Cliffe Dekker Hofmeyr signed an alliance with global giant DLA Piper in 2005; Deneys Reitz joined legacy Norton Rose in a verein in 2011; and Webber Wentzel signed an exclusive alliance with U.K. Magic Circle firm Linklaters in 2013.

The alliances ultimately forced the larger domestic firms to do some soul-searching.

“South African firms had to decide whether they wanted to be South African, African or global,” says Donald Dinnie, who was with Deneys Reitz when it joined with Norton Rose and is now managing director of Norton Rose Fulbright South Africa. “We decided that we wanted to be a leading global firm.”

More recently, the international firms targeting South Africa’s market have chosen a different model: Rather than form alliances, they have opened their own fully financially integrated offices.

In 2012, Baker & McKenzie, which had already been doing work in Africa for years, opened an office in Johannesburg after absorbing litigation boutique Rudolph Bernstein & Associates and the 31-lawyer Johannesburg practice of Dewey & LeBoeuf shortly after that firm went bankrupt.

In 2014, Allen & Overy launched a finance-focused South Africa office.

Attorneys at firms following the financially integrated model say that this approach allows a firm to work seamlessly across its entire Africa practice, with no risk of different offices competing for the same work. Such competition can make an alliance difficult. When Cliffe Dekker Hofmeyr and DLA Piper terminated their alliance, one of the issues cited by partners was competition between the two firms for the same assignments.

For the domestic firms that have chosen to remain independent, the entry of global competitors in any form has had a fundamental impact,” says Alan Keep, managing partner of Bowmans. Having overseas firms as competitors “has definitely sharpened us up,” he says, adding that Bowmans has pulled out of lower-margin areas such as residential property and commoditized employment work in order to boost its profitability.

But international firms, with their generous pay scales, have been able to lure top partners away from South African firms, making retention of talent a challenge even at firms with global alliances.

Nevertheless, defections are having an impact on the overall market.

For most of these firms, South Africa is only the beginning. The global firms that are moving in and the established players are all betting on the wider Africa legal market for growth.

But the expansion isn’t likely to end in South Africa. Local and international firms are looking to establish physical networks of offices throughout the continent, often using South Africa as a jumping-off point. “Everyone wants a piece of the action,” says ENSafrica’s chief operating officer, Otsile Matlou. “Most of the legal sector is looking at Africa as the next frontier.”

Both Bowmans and ENSafrica have opened several fully integrated offices elsewhere in Africa, and both have further ambitions.

ENSafrica is aiming to become the first major non-Nigerian law firm to open an office in Nigeria, with plans to launch there this year.  The firm is also in discussions to establish an office in Kenya.

Bowmans is targeting Nigeria and Tanzania. Norton Rose Fulbright is focsing on East Africa. Other global firms are also looking at the wider African map, with Clyde & Co, Baker & McKenzie and DLA Piper considering further office launches in Africa.

Will the influx of international firms to South Africa continue?

“You saw the flood last year, and no doubt others will still look,” says Norton Rose’s Dinnie.

Pinsent Mason’s Watson says that his firm decided to open an office in South Africa this year in part because of moves being made by others. “It is a defensive and offensive play, as clients from all four corners of the organization were doing more work in Africa,” he says. “We needed to make sure we had a response for them in Africa.”

Wildu du Plessis, head of Baker & McKenzie’s South Africa finance practice, is certain that even more global firms will move in. “As the big emerging market that is Africa starts attracting more investment,” he says, “you will see more and more professional services providers, lawyers included, come under pressure to render their services in Africa.”

Read more at InternationalLaw.com.