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Guest Editorial: Navigating the Crisis in the Western Balkans

Guest Editorial: Navigating the Crisis in the Western Balkans

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The COVID-19 pandemic hit the Western Balkans right during a period of accelerating economic activity and a promising economic outlook for 2020. The rapid spread of the virus forced the governments of the Western Balkans countries to introduce protective measures, lockdowns, and temporary business shutdowns. These restrictions had a devastating direct economic impact on a wide range of sectors – particularly the hospitality and transport industries – and the measures had many indirect side effects that significantly decreased economic activity.

The full repercussions of the pandemic are yet to be seen, but the region’s relative dependence on foreign direct investment suggests that the Western Balkans’ vulnerability to the impact of the pandemic can’t be sufficiently alleviated by government stimuli and short-term policies. Foreign investment in the region comes primarily from EU member states, the United States, and Russia, all of which have themselves been severely affected by the COVID-19 crisis. Consequently, the pandemic’s effect on the revenues of economic actors in the main investor countries will most likely reflect itself in the fall of foreign investment inflow in the Western Balkan economies.

The law firm market is heavily dependent on overall economic conditions as well. Economic downturns tend to produce a more conservative attitude among stakeholders who try to “play it safe” and weather the crisis by stabilizing current operations and cutting expenses where feasible. The response to the COVID-19 crisis is a prime example of this phenomenon, and we are already witnessing a decline in investment and a contraction of transactional practices in the Western Balkan countries.

However, simultaneously with the slowdown trend in transactional work, the “new normal” created a need for legal services aimed at alleviating the pressure of the market disruptions. Law firms were met with a spectrum of demands from a range of industries and practice areas. Market difficulties, regulatory changes, government stimulus program uncertainties, workforce management questions, bankruptcies, corporate restructurings, and other challenges arising from the pandemic provided new sources of demand for legal services. The severity of the COVID-19 crisis created a truly unusual situation for the young and underdeveloped Western Balkan markets: it forced us into a conversation about alternative work structures and business frameworks we weren’t prepared for, but now have to adopt in order to (economically) survive.

For the first time, Balkan law firms are being asked to assess and implement modern working practices and technological innovations into current business models. Clients are inquiring about collective remote work, flexible work policies, transferring work processes into cloud-based platforms, local e-signature regulations, data protection frameworks and compliance, force majeure scenarios regarding agreements and development projects, and so on. On the other hand, public institutions have historically resisted technological improvements, and rigidness in adapting to new and unusual circumstances. Since the pandemic started, these issues have been overwhelming the legal space and are forcing lawyers to find creative solutions and think outside the box. And at the same time, law firm management has been compelled to develop a strategic perspective on the demand outlook for the sectors, client types, and practices to which they have greatest exposure and, more importantly, to approach the distressed sectors proactively, with answers and solutions right off the bat.

Therefore, the unprecedented challenges facing Western Balkan law firms represent an opportunity: the time has come for us to show that we are ready to adapt, foster connectivity and collaboration through technology, learn more about our clients and look for ways to more efficiently reallocate our capacities towards them in their time of need. The dominance of the biggest market players in the local legal markets is being disrupted by small but creative law practices that have the ability to recognize the most efficient ways to address the immediate business needs and anticipate underlying market expansion that is due to occur after the crisis ends. The ones most successful in pivoting their capacity towards helping clients overcome the challenges and come out stronger after the crisis ends will be seen as winners in the economic aftermath of COVID-19.

By Milan Samardzic, Partner, SOG / Samardzic, Oreski & Grbovic

This Article was originally published in Issue 7.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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