International companies and professional services firms are exiting South Africa, signaling growing concerns regarding the regulatory environment, economic performance, and investor confidence as foreign legal practices dismantle their local operations.
The Bottom Line:
- A&O Shearman closed its Johannesburg office following its mega-merger, while Norton Rose Fulbright withdrew from its South African operation and reclaimed the Deneys name.
- Webber Wentzel mutually agreed to end its formal alliance with UK-based Linklaters, stripping the Linklaters wording and associated pink branding from its identity.
- Peter Tshisevhe, director of TGR Attorneys, noted that foreign law firms face profitability challenges when fee structures are linked to expensive foreign currencies without sufficient large-scale transactions.
The Structural Shift Behind Corporate Law Departures
The departure of international law firms reflects changes in the global legal market and the challenges of doing business in South Africa. Peter Tshisevhe highlighted that these foreign practices historically followed their major corporate clients into the region following the end of apartheid and Nelson Mandela’s release. Back then, international firms viewed the country as an attractive destination for expanding their businesses and accessing the broader African market. Today, however, the economics have changed.
Global law firms rely on the availability of large commercial projects and foreign investment. When those capital inflows slow down, maintaining a South African office becomes increasingly difficult. The closure of A&O Shearman’s Johannesburg office followed the mega-merger between London’s Allen & Overy and New York’s Shearman & Sterling. This choice was part of a wider international reorganization involving a roughly 10% cut to the firm’s partnership aimed at tackling overcapacity and repositioning assets. Soon after, Bowmans took on A&O Shearman’s entire domestic legal staff, which comprised two directors, four counsel, and eight partners.
Regulatory Obstacles and the Cost of Doing Business
Regulatory uncertainty remains a consideration for incoming capital. Mining provides a case study of how regulatory uncertainty can influence investment decisions. When international companies delay or withhold investment due to regulatory obstacles, the law firms servicing them also lose potential work.
Black economic empowerment (BEE) requirements further complicate the calculus for some international businesses. While international law firms have exemptions from certain requirements and can use alternative arrangements to earn points, these may not align with the preferences of every international company.
The Ripple Effect on Cross-Border Financial Transactions
The consequences of these departures extend beyond the loss of international law firm offices. When major international financial institutions back syndicated transactions, they often prefer that they be governed by foreign law. Tshisevhe pointed out that most international financial institutions are not interested when transactions are subject to South African law.
As a result, an increasing number of South African legal professionals are qualifying as solicitors so that they can issue legal opinions on agreements subject to foreign jurisdictions. Yet, the broader reliance on international arbitration to resolve major commercial disputes drains substantial legal fees to foreign lawyers and institutions. State-owned entities and domestic corporations have historically spent significant amounts resolving disputes abroad, including through arbitration in France and London.
Tshisevhe believes that the rising wave of international exits underscores an urgent need to tackle issues affecting South Africa’s commercial legal system, regulatory framework, and overall investment climate.
Disclaimer: The information provided in this article is for educational and market analysis purposes only and does not constitute financial, investment, or legal advice. Always consult with a certified financial professional before making investment decisions.
