Annual Report 2010 FINAL by Chamber of Commerce Gibraltar

THE GIBRALTAR CHAMBER OF COMMERCE

www.gibraltarchamberofcommerce.com

2010 ANNUAL REPORT & ACCOUNTS

OFFICE SUPPLIES SHOP NOW OPEN Unit 4 Eurotowers

* Stationery at wholesale prices * Computer Accessories * Office Furniture * Gibraltarâ&#x20AC;&#x2122;s official Dyson agent

FREE DELIVERY

Tel: 200 77994 sales@sacarello.gi

www.sacarello.gi

Annual Report & Accounts 2010 03

BOARD MEMBERS PRESIDENT: E J Nicholas Russo VICE PRESIDENT: John Isola HON TREASURER: George Olivera

ANNUAL REPORT The Gibraltar Chamber of Commerce was founded in 1882. It was established for the “promotion of measures calculated to benefit and protect the trading interests of its members and the general trade of Gibraltar”. More than 125 years later the Chamber’s role is as important today as it was then. Our members employ more than 6000 people which is around half of Gibraltar's current private sector workforce. It is the largest organisation representing the interests of private sector commerce in Gibraltar. The nature of Gibraltar’s economy has been transformed, particularly over the last two decades. Today the Rock is a service economy revolving around Financial services, the Port & Shipping Services, Tourism, Online Gaming and a very well developed Professional Services Sector.

The benefits of being a member of the chamber include: • Network and meet new business contacts and potential clients • Advice on local legislation and regulations • Email alert service on matters affecting the business community in Gibraltar

HON SECRETARY: Jeremy Nicholls DIRECTORS: Bruno Callaghan Marvin Cartwright Franco Cassar George Desoisa Ernest Felipes Andrew Haynes Christian Hernandez Jose Luis Bonavia

• Represent your views directly to Government • Reduced rates on export documentation • Use of Chamber meeting rooms and presentation suite facilities • Free subscription to the Chamber’s quarterly publication “B2B”

REGISTERED OFFICE: Watergate House 2/6 Casemates, PO Box 29 Gibraltar T: +350 200 78376 F: +350 200 78403 E: info@gibraltarchamberofcommerce.com W: www.gibraltarchamberofcommerce.com

HONORARY AUDITORS: Baker Tilly (Gibraltar) Limited, Regal House Queensway Gibraltar

Annual Report & Accounts 2010 05

Contents Foreword

Politics

Economy

New Corporation Tax Regime

Wholesale & Distribution

Retail Sector

Banking

Insurance Sector

Gaming

Maritime Sector

Tourism Sector

Property

Report of the Auditors

Annual Accounts

Gibraltar: Key Information

Professional advisors in a complicated world Grant Thornton Gibraltar Chartered Accountants

• Audit • Trust & Company Management • Specialist Advisory Services • Fund Administration • International Tax

6A Queensway, P.O. Box 64 Gibraltar Tel: 00 350 200 45502 E-mail: enquiries@gi.gt.com www.grantthornton.gi Grant Thornton Gibraltar is a member firm within Grant Thornton International Ltd (Grant Thornton International). Grant Thornton International and the member firms are not a worldwide partnership. Services are delivered independently by the member firms. Grant Thornton (Gibraltar) Limited is a registered audit firm under the Financial Services (Auditors) Act 2009, registration number FSC0010AUD. GT Fiduciary Services Limited is licensed by Gibraltar’s Financial Services Commission as a Professional Trustee, licence number FSC00603B. Grant Thornton Fund Administration Limited is licensed by Gibraltar’s Financial Services Commission as a Collective Investment Scheme Administrator, license number FSC00926B.

Annual Report & Accounts 2010 07

Foreword Looking back it is probably fair to say that many members will be quite glad to have said ‘Good riddance’ to 2010. It was not one of Gibraltar’s finest years. Economically, most businesses managed to hold their own although some continued to suffer the effects of company collapses of prior years, most notably in the construction sector. Many of these were subcontractors who were left with unpaid bills when Haymills and/or Bruesa Gibraltar folded in 2009 or early 2010. The web of local operators, tradesmen and suppliers struggled bravely on hoping that the worst of the downturn would come in 2010. The good news is that 2010 was probably the bottom. The not so good news is that 2011 may be the same or only slightly better than last year. It reflects how dependent Gibraltar’s economy is on our two principal trading partners, the UK and Spain. When one of them sees a downturn Gibraltar can just about get by. When they are both in the economic doldrums Gibraltar cannot remain unaffected. Growth in both these countries has almost ground to a halt. Gibraltar’s growth has fallen but is still a quite respectable 4-5% or so. Some of the more noteworthy events during the year were as ill-thought out as they were unwelcome. The Mayor of La Linea believed that his bankrupt administration was entitled to help itself to a share of Gibraltar’s visitor revenue in the form of a road toll. It played well to his local support base, albeit briefly. In four short weeks of last August he put back cross-border relations 40 years. The Chamber has periodically commented since the Cordoba Agreement was signed in 2006 that for the Tripartite process to work effectively for the benefit of all parties it would take time and trust. The Mayor’s intentions signalled one massive breach of that much needed trust. As the economic impact study published by the Chamber in 2009 clearly showed, Gibraltar benefits from the Campo and Campo residents benefit from Gibraltar.

Gibraltar’s impact is today all the greater as our economy has continued to flourish whilst the Campo’s, like the rest of Spain’s, continues to wilt. What then is the sense in trying to damage a source of potential help? The Mayor’s actions defied any sort of rational logic. The Chief Minister announced with great relish significant changes to the corporate tax system just ahead of the July budget. The headline rate for companies was set to fall to 10 per cent. The devil, though was hidden in the detail and the budget announced significant increases in the overall cost base for local businesses. The new tax system is assessed in more detail later in this year’s report. Nevertheless, it is the fruition of several years of planning, consultation and hard work by many local professionals, politicians and civil servants. At the very least it gives certainty to all companies operating in Gibraltar and importantly for any new entity wishing to set up on the Rock and it should be welcomed for that. Members in virtually all sectors commented to the Chamber on the impact that last year’s budget will have on their operations going forward. The headline of lower tax rates only benefits those who make profits. Private enterprise cannot sustain losses forever, but it is worth noting that as fixed costs continue to increase there is a very real risk that a number of local firms will cease trading as it is simply not worth the cost and effort in carrying on. These companies are the small traders often employing no more than a handful of people. They only serve the local market and have no opportunity to expand outside Gibraltar. Multi-nationals have a choice of where they operate. These local companies do not. They also represent the single largest segment of the Chamber’s membership. They are not at the forefront of their sector worldwide; they may not be in the most dynamic or exciting of businesses. But that does not make them any less worthy. They employ people, pay taxes and social insurance and in their

own small way, they offer a service and create wealth. These dozens of small companies are an important part of the community and they are locally owned and locally run. This is not a plea for special treatment. It is a call to recognise the important role they play, but they cannot continue to fulfil this role if they are hit year after year by increases in fixed costs which ignore the underlying level of economic activity. 2011 is likely to remain challenging even without these additional difficulties and there will also be an election in the year. Whatever the electorate may decide, Gibraltar needs to ensure that stability prevails to ensure the full benefits to changing circumstances are derived. The progress which Gibraltar has made during 2010 has nonetheless, again been impressive when set against a backdrop of cuts, redundancies and bankruptcies found elsewhere in Europe. 2011 is likely to be just as tough and so long as the Rock’s principal trading partners experience anaemic growth, Gibraltar is unlikely to be able to defy economic gravity. That does not mean no growth. It just means slower growth.

08 Annual Report & Accounts 2010

Politics 2010 may be significant for two reasons neither of which have perhaps attracted the attention they deserved. First the six swimmers, three from Gibraltar and three from Spain for remaining true to the cause of cross border friendship. Their example deserves to be followed. The second concerns the Mayor of Beni-Enzar the lyrically named M. Yahya Yahya. The relevance to Gibraltar of the actions of the Mayor of Beni-Enzar may not be immediately obvious but they serve as a cautionary tale for some of our less friendly neighbours who perhaps should be careful what they wish for. The story of M. Yahya Yahya also carries lessons for the Spanish media. The headlines of 2010 have been dominated by the stunts and posturing of two of the leading politicians in the ‘Campo de Gibraltar’: Sr. Landaluce of Algeciras and Sr. Sanchez of La Linea. These gentlemen have vied with each other to produce ever more damning condemnation of Gibraltar, and, in the case of Sr. Sanchez, threats with dire consequences for the Rock. The antics of Sr. Landaluce are not new, however, Gibraltar has been lambasted by Sr. Landaluce for some years now. The position with Sr. Sanchez, however, is as novel as it is unwelcome. 2010 saw Sr. Sanchez newly appointed as mayor of La Linea facing seemingly impossible demands on the Town Halls’ Treasury. His first statements were to promise an end to the hostility provoked by his predecessor to Gibraltar and to usherin an era of renewed friendship. The statements were followed by a number of visits to Gibraltar, attendances at functions and meetings with political leaders and the private sector, including the Chamber of Commerce. Sr. Sanchez made clear his ambition to cement better relations and promote joint venture projects of a cross border nature.

It was not to be, not because of any hostility from Gibraltar which had hailed the new Mayor and lauded his aspirations for closer ties, but because the money ran out for the Town Hall. At first Sr. Sanchez made clear that his plan for a toll was not intended to harm Gibraltar but to raise awareness for his plight in Madrid. Gradually Sr. Sanchez’s position towards Gibraltar has hardened. Now he is reckless to the risks his rhetoric may have across the border. Sr. Sanchez uses Gibraltar to stir up nationalist sentiments by claiming that Madrid favours the interests of Gibraltar over those of La Linea. Madrid’s decision to prevent Sr. Sanchez from breaking the law by introducing an illegal toll at the border is an example of the ‘favouritism’ shown by Madrid. Sr. Landaluce’s statements following the Royal Gibraltar Police standoff with the Guardia Civil in the Bay served to heighten tensions rather than defuse the situation in which two European law enforcement agencies found themselves ‘eyeball to eyeball’ in an overtly hostile confrontation. If it is the duty of our community leaders to keep their heads whilst others lose composure then Sr. Landaluce failed in his duty. Rather than help Sr. Landaluce used his position of privilege to make mischief. This is one of many instances in which Sr. Landaluce has expressed extreme views against Gibraltar. It would seem there is no easier way for a regional politician to gain national recognition that by espousing the rhetoric of the Franco era in condemnation of Gibraltar. These declarations are avidly reported in Spain’s broadsheet and tabloid press, seemingly without any sense of irony and occasionally the stories make front page cover. The absence of editorial comment to achieve a balanced view has further served to

encourage the political strategy adopted by Sres. Landaluce and Sanchez. 2011 is an election year for Spain’s municipalities and both men are expected to run for office: Sr. Landaluce for Mayor of Algeciras and Sr Sanchez to be returned in La Linea. The tide has turned for the governing PSOE party and polls indicate that the Partido Popular are now in the ascendant, both men will certainly benefit from the changed political climate in Spain but the question remains whether the senior ranks of the Partido Popular, who are all also expected to win the National elections scheduled no later than May 2012, will exercise restraint and adopt a more conciliatory attitude to Gibraltar once they form Government? The prospect however remains that 2011 will not produce a change of government and we will witness further jockeying for position and increased efforts on the part of Sres. Sanchez and Landaluce to lambast Gibraltar at every opportunity. In Gibraltar, both Government and Opposition have shown commendable restraint and have avoided rising to the constant provocation from Sres. Sanchez and Landaluce. 2011 will likely test their patience further but it is worth noting the response to Sr. Sanchez’s hostility by Gibraltar’s swimmers, who, with their sporting counterparts across the border undertook a swim around the Rock as a protest against those who seek to turn neighbours into enemies. The swimmers have given the lead and actions such as theirs are the most effective antidote to prevent cross border relations from souring. The Mayor of Beni-Enzar, a municipality close to the Spanish colony of Melilla, has been in the news for threatening to cut off Melilla’s fresh water supply, which is located in neighbouring Beni-Enzar.

Annual Report & Accounts 2010 09

Politics cont. The wells, located outside the territory of

It seems that, however discordant

locations of critical strategic importance.

Melilla are nevertheless claimed by

maritime relations with Spain are at the

This fact should not be lost on those

Spain as sovereign territory. The Mayor

present, nevertheless our maritime

whose task it will be in the coming

disputes Melilla’s title over the water, and

interests are closely aligned. The geo

months to find a workable maritime

Spain's title over Melilla.

strategic significance to the United

solution. Being able to cooperate,

States of the Straits of Gibraltar was

despite our differences, will send the

recently underlined by Wikileaks. The

right signal and serve both our interests.

The vulnerability of Spain’s claim and the significance of a transfer of control over the supply of water have been exploited

Straits feature among the top hundred

by Moroccan nationalists. The purpose of those like M. Yahya Yahya is to threaten the status quo of Melilla. The Spanish media were quick to report that the actions of M. Yahya Yahya were media stunts unworthy of serious consideration, but they fail to make the connection this side of the divide. Morocco is no longer acquiescent. In the past Spain could take action against Gibraltar without the need to look over its shoulder. This is no longer the case. Whether or not M. Yahya Yahya’s actions are inspired or fuelled by those of Sres Landaluce and Sanchez cannot be established conclusively but the example our

Spanish

neighbours

give

Moroccan Nationalists across the straits cannot serve Spain’s long-term interests.

These gentlemen have vied with each other to produce ever more damning condemnation of Gibraltar

Annual Report & Accounts 2010 11

Economy AHEAD OF CHOPPY WATERS? 2010 has generally been a year of economic recovery across most countries, with the hangover from the events of 2008 and 2009 still very much in evidence. The recovery has been modest and uneven but nevertheless positive. World output increased by 5% in comparison to 2009, with advanced economies posting a 3% growth and

being outstripped by emerging and developing economies, which grew at 7.1%. This latter figure serves to once again to underlie the shift in world economic power away from the Western world. China continued on the economic rampage, posting a 10.1% growth! India, Brazil, Singapore and Taiwan all posted a growth rate of 7% or more, with Singapore leading the pack with a scarcely believable 14.8%, the highest growth rate in the world. By contrast, the Euro area as a whole grew by just 1.8%. The main drivers among the developed economies were the US, Japan, Germany and France. In general, therefore, a positive picture and steps in the right direction, in a post recessionary world. Other countries in the Euro area did not fare so well. We saw the bailouts of Greece and Ireland, with intervention from the IMF and the EU fighting fund. Some fear that Spain and Portugal might be next. Threats to the Euro therefore remain. Spain’s economy continued to shrink in 2010 by a further 0.2%. Only Greece, Ireland and Iceland did worse among developed economies. The UK is estimated to have grown by 1.6% in 2010. However, Britain’s recovery is perceived as brittle as the cutbacks and austerity measures introduced by the coalition

government start working their way through. The last quarter of 2010 saw a reduction, with the economy shrinking by some 0.6%. Although this shrinkage is not expected to continue into Q1 2011 (and therefore constitute another recession), The Economist magazine’s outlook for the UK economy was downgraded from 1.9% in January 2011 to 1.8% in February. While this is not a huge amount, the

fact that there has been a downgrade is significant. All in all, the outlook for Gibraltar’s two biggest trading partners is not the best, especially Spain’s. A more recent development that will put a brake on recovery prospects for all countries is the prospect of increasing inflation. This is especially important when we have seen sustained levels of price increases globally in foodstuffs and commodities. More recently, we have seen oil prices shooting up on an almost daily basis in the wake of continuing and developing unrest in the Middle East and North Africa. Some are concerned that another fuel crisis may be around the corner. Turning now to Gibraltar (and not airing on this occasion our usual gripe of the lack of up to date information - 2009 data is of little use in 2011!), it is apparent that we have managed to weather the storm of the recession, although we have not been totally immune to its effects. Several major private sector construction projects are on ice and there is no sign of movement on the East Side reclamation. Well documented also have been the failures of a number of building contractors engaged in low cost housing projects, with Government having had to step in. The ripple effects of these failures

have been felt by local companies connected with the building trade. There is a reported downturn in the retail trade generally, likely due in part to the reduced purchasing power of visitors, particularly from Spain. There is also a softening of the real estate market and a tightening of the job market. While these events are well short of a recession, there is generally reckoned to be a slowdown in economic activity and a likely decrease in the growth rates that Gibraltar had been enjoying until recently. Overall though, few would argue that Gibraltar continues to perform well. However, not is all rosy. The Chamber came out strongly on the July budget. In a nutshell, this budget was seen as revenue raising as a government hedge to the understandable uncertainties about the income effects of the new 10% Corporation Tax regime introduced on 1st January 2011. The budget measures led to a significant increase in business costs

12 Annual Report & Accounts 2010

Economy cont. change has done much to improve traffic flow in the area, as will the airport tunnel, new Devil’s Tower Road and the overall improvement to Gibraltar’s road link to Spain. Equally, the re-opened Dudley Ward tunnel, the new prison and the public market project are generally welcomed. Doubts remain in some quarters about the appropriateness of the new airport

in rates, companies’ social insurance contributions, and electricity and water charges. For many businesses, these will negate the theoretical advantage of the new tax rate. Be this as it may, the budget was also seen as being highly inconsistent in that, in the same breadth as government announced a record budget surplus of nearly £30m, it also introduced the revenue raising measures summarised above! The impact of the 10% tax on government coffers remains to be seen. There are many ways to skin a cat and if government was concerned at the equation between income and expenditure, it could have also looked at its own costs. The Chamber has been urging this for years. There are several issues at play here. One is the overall level of expenditure. Consolidated Fund expenditure has risen from £137m in 2000/01 to an estimated £356m for 2010/11, or by some 160%. The overall index of retail prices rose by 31% over the same period. So in 10 years, expenditure has risen by some 130% in real terms. By any measure, this is a significant rise. For several years now, a common debate in our Parliament centres around government and opposition going on, back and forth, about how their respective administrations spent ‘x’ million more

on this or ‘x’ million more on that, the assumption being that spending more makes it better. This assumption is heroic. The real question is value for money for the taxpayer. Have all these increase in expenditure resulted in better services? Are these services cost effective? Can services be improved without necessarily increasing costs? Are there alternative ways of funding? (medical tourism anyone?) Are all services/ departments needed? Could some functions be better and more efficiently delivered by merging or consolidating departments? These are issues that need to be debated and resolved. Parity seems to have gone out the window, if the pay awards achieved by GHA and Buildings and works are anything to go by. The above questions are not an issue for analysing in detail in this forum but they are of concern to Chamber members as it is largely the private sector that funds government. On capital projects, government has also been spending substantially and continues to do so. There is no doubt that many of these projects are needed and many have been implemented successfully. The new Trafalgar inter-

terminal and whether it is too big. The jury is still out on this. Given that it is being built, and that it has cost a lot, the Chamber certainly hopes it is successful!

in the same breadth as government announced a record budget surplus of nearly £30m

Annual Report & Accounts 2010 13

Economy cont. The above snapshot on Government expenditure and taxpayer value now needs to be put into context. For the moment all of this expenditure appears to be sustainable. What cannot be ignored is future legacy costs of an expanding public sector. Equally, while current income streams may well support debt servicing costs on public sector capital projects, these costs will carry forward into the future (and we still have major projects in the pipeline such as the power station), when net income streams may differ.

Ireland, Spain, the UK and others need not

Given the above, logic would say that a comprehensive and independent review of government expenditure and how this is in line with real needs would be both a welcome and necessary development. We have all seen the devastating effects that runaway government spending can have when there is an economic downturn kicks in. The problems faced by Greece,

alike but it would act as an added

be expanded upon here. While there are no indications that Gibraltar is headed for any sort of economic meltdown, it would be prudent to conduct such a review when times are good. If efficiency and other savings can be found and implemented, then we would be better prepared for any downturn in the future. If the downturn does not materialise, then taxpayers and business would be able to benefit from reduced taxes. This would be welcomed by not only individuals and businesses incentive for companies and investors to come and set up in Gibraltar.

14 Annual Report & Accounts 2010

New Corporation Tax Regime On the 1st November 2010 the Income Tax Act 2010 was enacted by the Legislature of Gibraltar. Although no effective date is stipulated in the Act, the Government has confirmed that it will come into effect on the 1st January 2011. As outlined by the Government in its pre-legislative Briefing Paper issued in June 2010, the 1st January 2011 coincides with the coming to an end of the Tax Exempt Company regime as required by the European Commission. The new Act has been generally welcomed particularly the move to a low corporate tax regime applicable across the board thereby eliminating the ‘onshore’ and ‘offshore’ concepts. Whilst the headline corporate tax rate will be 10% the Act introduces tax at the higher rate of 20% on utilities (telecommunications, electricity, water and petroleum) and on companies which are deemed to be abusing a dominant position.

The move to a low tax regime applicable across the board is seen by many as conducive, given today’s attitude towards perceived tax havens, to the further development and expansion of Gibraltar as a financial services centre. However, there are several others who feel that some of the provisions of the new Act are somewhat bureaucratic or even draconian. There can be no doubt that the previous Act was antiquated and its provisions in regard to enforcement and compliance somewhat benign. As a consequence of this, the need to update the legislation in keeping with the times was essential. Whilst the new Act has achieved this in many ways, one can, however, be forgiven for being of the opinion that the anti-avoidance provisions contained in the new Act go a bit too far in as much as they appear to have been designed in a manner that attempts to deny the taxpayer his right to minimise or avoid tax legally. This would seem to be the case with section 41 of the new Act (Notification of Arrangements) which imposes an obligation, under threat of penalties, on any promoter (which apparently means everyone) to notify the Commissioner of Income Tax of any tax planning arrangement. How far one is meant to go in classifying any tax advice, or indeed one’s own personal tax planning, as a notifiable arrangement, remains to be seen. Guidelines from the Commissioner of Income Tax in this respect have yet to be published and would be welcomed.

they appear to have been designed in a manner that attempts to deny the taxpayer his right to minimise or avoid tax legally.

The new Act purports to create fairness and certainty in taxation and at the same time create a climate of compliance. In pursuance of these commendable objectives radical changes have been introduced including self assessment for self employed individuals and companies, a series of surcharges and penalties, strict deadlines for submission of returns etc., and new powers of enforcement. Such changes are not that much different to what already exists in other jurisdictions, in particular in regard to the United Kingdom. Two notable exceptions of probable concern to companies and self employed individuals, are, however, that whilst in the UK interest is payable to tax payers on any excess tax paid, no such interest will be payable in Gibraltar. Furthermore the Act does not provide for any deadlines by when any excess tax paid is to be refunded by the Tax Office. It is hoped the Income Tax Office will be able to attend to the repayment of any excess tax paid expeditiously - at least before the taxpayer is required to make his next payment on account. Inevitably, such radical changes to the Tax legislation will take some time to be assimilated by those affected by it, including in particular tax advisors. It is to be expected that specific issues will arise that may not have been, or not been fully, considered at the time of drafting the legislation. Additionally there will be, as is already apparent, a need for the Tax Office to issue guidelines on the manner in which certain aspects of the legislation will given effect to or in respect of which clarification on the interpretation and application of sections of the Act is required. If the creation of certainty is meant to be one of the objectives of the new Act then it is imperative that any unclear issues are addressed as a matter of priority by the Tax Office. Teething problems tend to be

Annual Report & Accounts 2010 15

New Corporation Tax Regime cont. the norm when such radical changes are introduced and will no doubt take some time to fully resolve, but nonetheless every effort needs to be made to avoid continued uncertainty to taxpayers and professional advisors alike. Companies and self employed individuals will be significantly affected by the provisions of the new Act and

need to ensure that they do not fall foul of its provisions particularly in regard to deadlines, compliance issues and the many other aspects of the new Act. Advice from their tax advisers should be sought if in any doubt, but they in turn can only advise when they have certainty. The need for an overhaul of the tax legislation and the introduction of a new

introduction of the Income Tax Act 2010 on the 1st January 2011 will lead to a sufficient rise in Government revenues to permit reductions in personal income tax. This has been alluded to publicly by the Chief Minister and Chamber members, among others, would welcome progressive reductions in personal taxation.

The need for an overhaul of the tax legislation and the introduction of a new corporate tax regime cannot be denied.

corporate tax regime cannot be denied. How effective the new Act will be will, however, depend to a large extent not only on the achievement of clarity and certainty in regard to its provisions, but just as important on how effectively its provisions can be managed and applied by the Income Tax Office in an equitable and efficient manner. This requires not only sufficiently robust and suitable IT systems, but also adequate levels of personnel, both in terms of numbers and experience. Without these prerequisites undue pressures will be placed on the Income Tax Office staff especially on the Commissioner and his senior staff. Such pressures will undoubtedly affect taxpayers generally and in particular companies that require clarity, certainty and expediency in regard to their tax affairs. Finally it is hoped that the new climate of compliance expected from the

Annual Report & Accounts 2010 17

Wholesale & Distribution The wholesale and distributive sectors have once again endured the challenges of operating in an increasingly congested and difficult environment during 2010. The same issues persist and are raised annually by members but this year in particular the problems related to traffic congestion have become particularly prevalent. The various road works have compounded this issue further and until the current works are completed on Devilâ&#x20AC;&#x2122;s Tower Road and the East side vehicular entrance point to Gibraltar established, congestion will remain and be an unwelcome cost burden on the sector. The principle causes of congestion at this end of the Rock have been flight movements and footdragging procedures adopted by Spanish Customs at the frontier coupled with sheer weight of traffic into and out of Gibraltar. Delivery trucks taking hours to reach a particular address sounds ludicrous given the territoryâ&#x20AC;&#x2122;s size but this is a regular experience for virtually every company in the sector. Not only are vehicles burning unnecessary fuel but invariably the delayed return of these vehicles to their stores leads to increased labour costs at a time when the sector is suffering the burden of several other cost increases. The Waterport fountain roundabout and Regal House junction are two specific areas that always bring traffic to a halt

sometimes to outright closure when rain is heavy. The new arrangements for the Trafalgar interchange have eased congestion considerably which is welcome. A similar study should be considered for these aforementioned chokepoints. It is hoped that in 2011 most of the necessary works will reach completion. A welcome development was the long overdue re-opening of the Dudley Ward tunnel which has, after considerable delay, provided an alternative artery to the south side thus avoiding the need to use the often-congested town area. This route that will also be positively enjoyed by beach goers this coming summer who will not need to drive through the city on a return trip to the south district. Loading Bays...ARRRGHH! The perennial problem of illegally parked vehicles in loading and unloading bays remains a source of daily frustration to delivery vehicles which are prevented from the legitimate use of theses bays. The Chamber has written both to government and also to the Commissioner of Police but there remains little actual enforcement although it is encouraging that, after Chamber lobbying, government has pledged to amend legislation to levy similar fines on those vehicles parked illegally as those parked illegally in bus stops. It is time that this matter be dealt with under a comprehensive review following the significant building that has taken place in Gibraltar in the last 10

years as the number of bays has not increased. The Chamber on behalf of its members would welcome consultation on current and projected needs for the sector. The difficulties with deliveries to Main street however remains fascinating and a true feat of resourcefulness that every working day Gibraltarâ&#x20AC;&#x2122;s retail commercial hub is supplied despite the limited access and the now standard daily fines. An additional 30 minute delivery window in the morning would facilitate deliveries without causing an unnecessary encumbrance to early morning shoppers on Main Street. East Gate EPU Another traffic concern is that of the chaotic nature of incoming vehicles and procedures at the goods frontier. At times it seems like a free for all with no traffic management and to witness the mayhem is worthy of a visit although it is amazing that to date there has not been any serious accident. This aspect of traffic flow one assumes will also be tackled as the various infrastructural projects are completed to ease flow and cater for drivers and clearance agents. Whilst traffic-related issues have had a considerable adverse effect on members in the sector it is a cost and frustration for everyone in Gibraltar. Nevertheless, other issues have come to the fore.

congestion will remain and be an unwelcome cost burden on the sector

18 Annual Report & Accounts 2010

Wholesale & Distribution cont. Credit terms tighten further The harsh economic climate elsewhere has led principals to review their credit terms. This has had a knock-on effect locally and has been most noticeable in the bar and restaurant trade where credit tightening has shown that many of the businesses were only viable if there was a sustainable source of easy credit. The increase in businesses going under has affected a number of wholesalers over the past couple of years. If this continues the level of closures and subsequent impact on employment and government revenues and empty premises will be clear for all to see. Operators in the wholesale sector have on occasion supported illiquid retailers in the hope that they could trade out of a difficult period and so retain a trading relationship. Unfortunately the arguments for taking action sooner rather than later are now more powerful than ever. In the worst cases certain businesses owing monies have gone into liquidation and then set up again trading as another entity, walking away from their creditors. The Chamber has written to government urging it to enact legislation prohibiting such phoenix companies, but unfortunately we have yet to see any progress on this issue. With other costs such as the minimum wage, social insurance, electricity and rents all rising, the sector is unlikely to be in a position to support the level of credit it has in the past and with it levels of employment. Remove this credit facility from the economy as the banks have done and again one can only imagine the consequences. This is further compounded by Government-led wage initiatives which reward public sector workers with pay increases way ahead of both inflation and the private sector. This puts further pressure on companies who cannot afford to reward their own staff with similar increases.

The sector has always faced the doubleedged sword of operating in a dual currency. On the one hand the weak pound of recent times raised costs from the euro zone, but it also led to Gibraltarians buying more locally as shops forwarded this competitive edge specifically with foodstuffs. Now 2011 promises to see a stronger Pound but it is not yet certain if locals will venture en masse once again to enjoy the advantages of the hinterland and by contrast Spanish pedestrian traffic into Gibraltar slows to a trickle. The economic crisis in Spain will continue to have a significant bearing on Gibraltar in the year ahead. If ‘traffic’ and ‘exchange rates’ remain the only issues of concern during the next year, perhaps we should count ourselves lucky.

for the military garrison and have continued unabated ever since. Today they account for nearly 3,000 jobs directly or nearly 15% of the Rock’s total workforce. The sector may not be the most dynamic of the Rock’s business groups at the cutting edge of technology or regulatory change. But without these firms, who provide the physical goods from foodstuffs to building materials, Gibraltar - its commerce, its families and its uniqueness - would definitely be the poorer.

From apples to zips The pillars of Gibraltar’s economy are often described in terms of Finance, Tourism and Shipping. However, an underlying and well-developed infrastructure is needed in order to sustain each of these sectors. The retail and wholesale sectors may at times be considered by some to be the poor

cousins in Gibraltar’s economic make-up, but they have been constant pillars in Gibraltar’s economic development over the years. The majority of the distributive and wholesale traders in Gibraltar are local companies, family businesses in the main with strong links to the Rock who simply get on with everyday challenges. A sector of traders made up in many instances by immigrants who arrived on these shores initially to provide a service

Unfortunately the arguments for taking action sooner rather than later are now more powerful than ever

Annual Report & Accounts 2010 19

Retail Sector By and large 2010 has been a lacklustre year for the retail trade with most businesses reporting a decline on last year as the deep recession in Spain and the rest of Europe has affected tourism. Whilst large numbers continue to visit our retail centre it was noticeable that visitors had less money to spend and traded down. Also local shoppers turned to the internet in droves where competitive pricing and the very wide selection proved irresistible.

even more challenging and possibly

doubt. Unfortunately this is not the case

unsustainable. Rents are overinflated, the

across the board and Gibraltar still has

pre-payment rates discount has been

quite a number of outlets selling a

reduced, electricity and water charges

mismatch of goods. Furthermore there

have been increased, the minimum wage

remains a prevalence of counterfeit and

has been increased, social insurance

substandard goods. The Chamberâ&#x20AC;&#x2122;s call

has been increased. To make matters

to the Government that it should

worse there is little enforcement by the

introduce Trading Standards legislation

authorities and there is a considerable

with a properly resourced Department

Many of the traditional areas of trade have become uncompetitive as businesses in Gibraltar find it more and more difficult to compete with the huge purchasing power of the large shopping centres across the border and the internet.

business if they paid all their dues and

of Gibraltarâ&#x20AC;&#x2122;s retail sector are numbered

registered all their labour. This is not

and things will have to change and adapt

only unfair but also distorts the market

if Gibraltar is to preserve a diverse

by giving the impression of a healthy

shopping experience in the centre of

situation which in turn serves to

town with all the jobs that this sector is

encourage new players to enter an

responsible for. The signs are there for all

already saturated market.

to see with a number of vacant premises

If this was not enough of a challenge, the substantial increase in the cost of doing business in Gibraltar has made matters

un-level playing field where bona fide businesses are having to compete with rogue traders who would not be in

That some retailers have invested in their premises and have specialised is not in

has so far gone unheeded. In its current form, the days of many parts

on Main Street.

Annual Report & Accounts 2010 21

Banking Following the turmoil of the previous year, 2010 seemed a relatively calm year for banking on the Rock; however all licensed entities or financial services operators would have been affected by the fall-out from the Marrache failure, either directly or indirectly. Nonetheless, the industry continued to settle down and the banks here seemed less affected than elsewhere; jobs, if anything,

delays none of which have yet been resolved or implemented. Additionally the Payment Services Directive was also progressed along with progress on ICAAP/Basel II implementation, a future eye on Basel III and its implications as well as MIFID II. These initiatives bring increased regulation, and costs (including increased licence fees implemented

seemed to increase with a definite sense of upward movement in Q4. In particular, but not exclusively, the private banks faced the prospect of the new tax regime and the necessity to widen their area of operations.

this year), to the industry in its quest to provide greater safety to clients and better compliance with the various Directives and laws that are continually passed. The Deposit Guarantee Scheme will also increase to 100,000 euros from 2011.

The market has continued to digest various rumours around possible closures, further headcount reductions or partial withdrawals. Some players did adjust their numbers, classically moving back office jobs to large processing centres as is the trend elsewhere. The feeling towards the end of the year, however, is that many are already recruiting into their relationship management teams as they start to look ahead at the opportunities that will arise as the global economies slowly but surely pull out of recession. Gibraltar of course is dependent primarily on the UK and Spanish economies. Ironically we are well placed to benefit from movement either way, as companies and individuals seek competitive tax regimes and safety for their hard earned cash. Some of the issues the industry has grappled with this year include (perennially it seems!) Small Firm Guarantee Loan Scheme, Consumer Credit Directive and Land Registry

A word about regulation; Gibraltar is considered, by international bodies, to be well regulated. This does not mean a 100% guarantee. However it is worth noting that many of the banks represented here are branches of EU banks which have all survived, some better than others, the trials of the last few years. They continue to ply their trade along with the various subsidiaries of well known banks and support the local community and the Finance Centre. Compliance with anti-money laundering and terrorism legislation is a necessary burden if we are to continue to have a safe and thriving Finance Centre. All operators as well as clients must be ready to share in that responsibility and accept the increasing costs in effort, time and money required for compliance. 2011 brings fresh new challenges and maybe we shall also see some additions to the banks already operating here in 2010 we saw one new bank open its

doors. We look forward to the Finance Centre Council-inspired marketing plan as well as early announcements on funds growth and pensions issue resolution all of which go towards a more prosperous environment for all our operators.

Some players did adjust their numbers, classically moving back office jobs to large processing centres as is the trend elsewhere

22 Annual Report & Accounts 2010

Insurance Sector International Potential Gibraltar stands on the brink of significant change within the world finance sector as a result of the adoption from January of the territory’s new tax regime and this opens up the opportunity to woo major Spanish multinationals for their insurance business.

all matters relating to financial services yet underpinned by a sovereign guarantee. To anyone wishing to establish a captive insurance company or a third party writer to take advantage of pan-European underwriting, it offers a combination of quick decision making and an Anglo Saxon working environment, coupled with a Latin lifestyle.

It is not the new low headline rate of 10 per cent corporation tax as such that is attracting attention; most interest stems from the acceptance of Gibraltar’s transformation as a mainstream, onshore finance centre fully compliant with EU and other international regulations.

As a European onshore Finance Centre, Gibraltar’s value has been its rigorous and efficient regulation coupled with a ‘can do’ attitude, its size giving it far greater agility and flexibility than larger jurisdictions, yet always retaining the safe and secure modus operandi expected from a jurisdiction that prides itself on reputation by virtue of looking at business for long, and not short, term gain. The Rock as a Lat-Am Link When comparing Gibraltar to the other two main European Union insurance domiciles, Dublin and Malta, it is quite unique. Gibraltar’s attraction is as a British overseas territory with full autonomy in

Traditionally, Latin America looked to the US and New York. But now when there is a problem it’s only natural Latin

As a European onshore Finance Centre, Gibraltar’s value has been its rigorous and efficient regulation coupled with a ‘can do’ attitude

With the advent of Gibraltar’s new tax legislation positioning the jurisdiction as a low tax and not a no-tax domicile, Gibraltar is better placed than ever before to attract new types of insurance business. Over the last ten years the jurisdiction’s insurance sector has grown from a mere handful to approximately 65 insurance companies and 30 cells. The new tax regime makes Gibraltar well-placed to launch the next phase of growth for its well-developed insurance sector.

In the same way that Luxembourg, because of tax treaties, has for many years served as a reinsurance centre for the Nordic countries, Benelux and France, Gibraltar could readily serve as the Iberian Peninsula’s finance centre.

What makes Gibraltar stand out from the rest is its potential in the Spanish market, presently a virtual ‘no-go’ area given that country’s continued insistence on erroneously declaring the Rock a tax haven! But that is all set to change. With present negotiations between Spain, the UK and Gibraltar, there is the strong possibility of a Tax Information Exchange Agreement (TIEA) being signed to add to the 18 or so Gibraltar has already concluded. That should result in Gibraltar’s automatic removal from Spain’s tax black list and gives us the chance of setting out to be the de facto Finance Centre of choice for the Spanish market! Gibraltar is an integral of Europe, geographically as well as politically so it is only right that we have a level playing field. There might even be the possibility of a reaching double tax treaty with Spain. The benefits for both parties are clear and there would be possible political advantages for both sides too.

America turns to Madrid, because of the huge migration of people to Spain with historical and cultural links, and the enormous growth in Latin America of huge Spanish trading companies such as Santander, BBVA and Telefonica that today are bigger outside of Spain than within it. Their natural first port of call is not London - even though it is the global international insurance centre, bigger

Annual Report & Accounts 2010 23

Insurance Sector cont. But having the Spanish or Latin American insurance facility on the Iberian Peninsula, as opposed to going to Ireland or Malta, simply makes it all much easier. Gibraltar professionals speak Spanish - not that necessarily, professionals in Madrid cannot speak English - but it’s quite good to be able to speak in their own language. And there

Once Spain’s DGSFP, the equivalent of the Financial Services Commission is comfortable that Gibraltar is not anything other than a European finance centre, paying its EU tax as agreed, much more marketing could be done by the insurance industry into Spain. If the political climate is right then Gibraltar’s insurance sector should be working hard to make Madrid more aware of Gibraltar, in the same way as we do at Gibraltar Day in London. The climate has got to be right, but it’s where we want to get to. As the Impact Study commissioned by the Chamber clearly demonstrated, the Campo de Gibraltar is heavily reliant on this jurisdiction and to a lesser extent we are reliant on the Campo. Working together the achievements and benefits would be far greater than by working in isolation. Domestic Market

than anything else - because of language difficulties. Instead they use big multinational brokers, such as Willis, with a large presence in Madrid as well as Latin America. But Madrid is geographically very close to Gibraltar and has a natural advantage in insurance over London in that Gibraltarians, whilst having an Anglo Saxon working mentality, also embrace Latin concepts, making it much easier for us to do business with Latin American interests, because we understand the temperament, the thought process and we are a hybrid. Gibraltar could be a good base for Spanish insurance captives instead of being in Luxembourg or Dublin. Why shouldn’t Telefonica and Iberia Airlines for example, have their insurance captives here? There is no corporation tax advantage if the parent company is domiciled where there are higher rates in France, Spain or Germany - they are going to be paying the difference from here in their own countries.

is no VAT charged in Gibraltar, which does provide an advantage in Europe. The Telefonica insurance captive is in Luxembourg, but if it were here, it would be far easier and speedier to talk to the Regulator. A of captive clients like Gibraltar because they everything is convenient with easy access to lawyers and accountants and other professionals with industry experience. The advantage for Gibraltar is that, because of its size, it doesn’t need a great deal of business to prosper. We have been very successful within the e-gaming sector and finance centre. If we get half a dozen or more new insurance operations with some coming from Spain, we can measure that as a success; we don’t need hundreds more. Insurance and re-insurance companies are starting to come here. French, Austrian and UK companies use Gibraltar to establish an insurance operation, but so far there’s not been a Spanish one.

Gibraltar’s home or internal insurance market remains over-broked with around 30 local brokers fighting for market share. It is a sector ripe for consolidation and to an extent this has been happening with the advent of new entrants in recent years who have had the expertise and the necessary capital to invest in new systems. The additional pressure on local operators to invest in ongoing training and technology is likely to spur this consolidation process further. For the last five years or so Gibraltar’s home market has been largely immune from any increases in premiums. This is no longer sustainable as underwriters in the UK have had to pay out on an increasing number of significant risks such as Katrina, the Haiti earthquake and the oil disaster in the Gulf of Mexico. Premiums on ordinary lines of home, motor and general are set for more regular year on year increases. These increases will accelerate if the local claims history worsens. Undercutting others to get the business will not be sustainable if the risk insured has a greater likelihood of making a claim.

Annual Report & Accounts 2010 25

Gaming Today Gibraltar’s online gambling industry has cemented itself as one of the pillars of the local economy. The timely introduction of the UK Gambling Act which led to Gibraltar based providers being able to advertise in the UK also proved a significantly positive development for Gibraltar. Gibraltar’s e-gaming industry has come a long way since the body blow

of the US ban in 2006, but the sector internationally remains ripe for consolidation. One notable development during the year was confirmation that the on-off, on-off discussions between PartyGaming and BWIN had at last come to fruition in an agreement to merge. The enlarged entity will create one of the largest and most diverse online gaming groups in the world. Although the product sets and country offerings do not have much overlap there will inevitably be some costsavings when the merger completes at the end of Q1 2011. It is unlikely to be the last tie up and should, other things being equal, spur further waves of consolidation. Nevertheless, the fall in value of the combined firms reflects the general fall in consumer spending on Bingo and Poker generally and future growth is likely to be at another’s expense rather than from growth in the overall size of the market. Gaming companies now employ approximately 10 per cent of the workforce in Gibraltar and although churn rates in some firms are quite high, overall headcount levels have been broadly maintained. There are currently around 20 licensed e-gaming operators in Gibraltar and with one arrival and one departure the number remains the same as last year.

New developments in the sector appear to be less about products but rather about delivery across different platforms, particularly mobile applications. The Chamber welcomes new operators to Gibraltar such as Probability as they will help to propel the sector forward and also reinforce the Rock’s reputation, not only as one of the world’s leading gaming jurisdictions but also one which is at the centre of industry’s innovation.

ability of our jurisdiction (not least in terms of infrastructure, telecoms resilience and office space, etc) to accommodate new licence holders without prejudicing established operators in Gibraltar.

As we noted in last year’s report, an increasing number of EU states continue actively to explore the merits of having their own national regulatory framework for online gaming and this remains a threat to Gibraltar’s welldeveloped and highly regarded reputation. In Spain developments are afoot which may impact how Gibraltar licensees operate and are treated by the local licensing/regulatory bodies. Spain has recently announced that it will no longer tax gaming operators on their turnover but rather on profit. The new Spanish legislation will include language specifically outlining how the tax revenues generated from both landbased and online casinos will be used by the Spanish Government. Looking towards the future, there is likely to be continued growth in the sector locally but always subject to the

on-off, on-off discussions between PartyGaming and BWIN had at last come to fruition in an agreement to merge

26 Annual Report & Accounts 2010

Maritime Sector The maritime sector played a key role in enabling Gibraltar to maintain economic growth at a time when other countries were reporting rising deficits. Gibraltar’s Chief Minister, Peter Caruana said last year that the port represents the ‘major engine of our growing economy’. In recent years, the Gibraltar government has targeted significant investment in the maritime sector, reflecting its growing importance to the Rock’s economy alongside financial services and tourism. The shift from a cumbersome government department to a leaner, more flexible and commercially-focused Gibraltar Port Authority has largely been completed and, while there are still wrinkles to be ironed out, in broad terms the shift has opened the way for important organisational changes to improve staff prospects and, by extension, the efficient running of the port. Critical among these new changes is the port’s new £700,000 vessel traffic monitoring system, which is manned by specially-trained personnel and will allow for close monitoring and coordination of all ship movements in Gibraltar waters. The Chamber has commented on the imminent introduction of this in previous annual reports and the Board congratulates the government and the Port Authority on its implementation. The system’s main aim is to improve navigational safety by enabling the GPA to monitor and control all vessel movements on both sides of the Rock in real time. It will also boost the port’s ability make the best commercial use of finite capacity and will bolster its search and rescue capability. In the longer term, an integrated web-based system will also enable the electronic transfer of vessel data from ships and agents to the port authority itself, further reducing the administrative workload.

By blending radar imagery and the industry-standard automatic identification system [AIS], operators in the port can obtain a detailed and comprehensive picture of anything moving in Gibraltar waters and beyond, up to a distance of 60 nautical miles. The system automatically collects ship details via onboard transponders, cutting down on administrative tasks, and also provides constant weather updates. It is further enhanced by the use of CCTV cameras fitted with thermal imagers capable of tracking a one-metre object moving at speeds of up to 90 knots. The launch of the new VTS will also bring about important benefits for bunkering operations. By increasing awareness of vessel arrival times and movements, the port is able to make the best use of the limited anchorage space available for bunkering operations in the bay. In the medium term, the VTS will enable the Port Authority to permit bunkering on east side of the Rock in calm weather conditions, a step that will dramatically increase Gibraltar’s capacity to refuel merchant ships. The decision to open up the East Side is currently the subject of an environmental impact assessment study. Despite opposition from local environmental groups, the wide expectation in the maritime sector is that the move will go ahead, albeit under tight restrictions. Re-fuelling operations will only be permitted under strict criteria that hinge mainly on weather conditions. Limited capacity is currently the only stumbling block to further expansion of Gibraltar’s bunkering sector at a time when neighbouring ports in the region namely Tangier Mediterranean and Algeciras - are jealously eyeing a larger

slice of the business and investing accordingly. Total bunker volumes dropped from 4.7m tonnes in 2009 to 4.3m last year but the result must be viewed against the turmoil in the global economy and the freight markets. To put it into context, bunkers suppliers here delivered 4.2m tonnes in 2008 when the impact of the downturn was starting to kick in. That the port has managed to remain at similar levels is a noteworthy achievement. The difficult trading climate has brought some benefits to Gibraltar, which has seen the number of ship arrests increase over the past two years after a quiet period during the boom cycle. As credit conditions continue to tighten loan payments are missed and the lending institution repossesses the vessel. The Rock has a good reputation worldwide as an efficient jurisdiction in

Annual Report & Accounts 2010 27

Maritime Sector cont. which to resolve admiralty disputes under British law. Gibraltarâ&#x20AC;&#x2122;s legal community is tightly knit and has a close working relationship with court staff, who are well-versed in the intricacies of admiralty law and try to give priority to shipping cases wherever possible. That, coupled with an unrivaled geographic location overlooking the

busy Strait of Gibraltar, means it is a jurisdiction of choice in troubled times. For troubled lenders it provides certainty in ensuring that they can retake control of a valuable asset. It also makes the Rock a barometer for any wider malaise in the industry. Cruise Sector In other areas of business, the cruise sector remains buoyant, with bigger ships helping to keep passenger numbers stable as the number of cruise calls fell compared with 2009. Gibraltarâ&#x20AC;&#x2122;s shipyard is also doing brisk business under its Gibdocks brand, reporting similar levels of business in 2010 to 2009 despite the bleak panorama in the shipping world. The yard has carried out repairs on a broad range of vessel types, including cruise ships, ferries, container feeder ships and offshore support vessels working off the west coast of Africa.

On shore, the Gibraltar Ship Register, which is administered by the Gibraltar Maritime Administration, improved its position on the Paris MoU White List of quality registers. The flag, a Category One member of the Red Ensign Group, has over 300 vessels on its books, representing well over 2m gross tonnes, and boasts a regular inflow of new

24 metres in length. The GMA is also working with its Red Ensign partners on new initiatives for these type of vessels.

registrations. The number of new registrations continues to show a healthy 10 per cent growth year on year for the last five years Among the newcomers last year was the Atlantic Conveyor, the replacement to the vessel of the same name lost in the Falklands campaign. The Atlantic Conveyor was a British merchant navy ship, registered in Liverpool, which was requisitioned during the Falklands War and sank after being hit by two Argentine Exocet missiles. The vessel now registered in Gibraltar was one of the last vessels built on the River Tyne and was a replacement for the original vessel. Having taken over the running of the Gibraltar yacht register, the Administration is now keen to tap the market for super yacht registrations. The size of yachts that can be registered in Gibraltar has been extended to include commercial charter vessels over

The difficult trading climate has brought some benefits to Gibraltar, which has seen the number of ship arrests increase over the past two years after a quiet period during the boom cycle

28 Annual Report & Accounts 2010

Tourism Sector Last year we noted that very little had changed from the previous year. In 2010 however, there have been some positive developments and we hope that these provide a platform for continued focus and innovation in this sector. Tourism and its related activities appear in some quarters to have been the least-loved pillar of the economy despite being a significant generator of direct and indirect employment and hence source of revenue. In recent years there has been little meaningful investment by Government to improve or upgrade the tourist infrastructure. 2010 indicated that there should be some grounds for optimism. At the celebration of MH Bland’s 200th anniversary held at the top of the Rock in July, the Chief Minister made reference to a new impetus for the tourist sector and the establishment of a special committee of industry members to review and make recommendations for the way forward. We are aware that the committee has met but so far the impetus alluded to has yet to produce any tangible results. The Chamber is aware that outside interests with the capital, expertise and vision are also keen to contribute to developing Gibraltar’s tourist infrastructure. New routes, new hotels easyJet announced in November that they would be introducing a new route from Liverpool to Gibraltar three times a week from March 2011. This opens up an additional market in the north west of

England, which is commendable. Other low cost carriers from further afield should also be courted to come and use Gibraltar’s new airport facilities. This new route comes after easyJet scrapped one of its daily flights from the busy summer schedule. The impact this had on tour operators, hotels and other sectors dependent on the tourist trade was felt by all. The announcement made by Lester Hotels that they will be building a new 160 bed Hotel on Devils Tower Road, is welcome indeed. It is also a reflection of how investment in areas such as the air terminal stimulates additional private sector investment. Targeted investment in this part of the economy has the potential to produce significant additional benefits. Hilton Group is also understood to be setting up an operation here and this would add to the quality and choice of hotels available. Business travellers are a discerning group and it would be beneficial for Gibraltar to have an internationally-recognised hotel brand in addition to the existing operators.

An example is the nearby port of Cadiz. Calls to Cadiz in 2010 were up some 42% during the year with nearly 300 calls and 336,000 passengers visiting the port. What does Cadiz have that Gibraltar does not? What are they doing right that we are not? We need to raise our game. We understand blue chip cruise line companies are questioning Gibraltar’s ability to deliver the right product given transportation constraints and capacity on the Upper Rock thereby forcing them to look elsewhere. Extending the cruise terminal to handle a greater number of larger ships is all very well but if the cruise operators are taking the view that Gibraltar cannot handle any increases in traffic then one has to ask what is the point. It is not the terminal facilities that are found wanting. It is what tourists are coming to see: the Upper Rock attractions that need attention. Our product At the risk of sounding like a scratched record, the Upper Rock, the No.1 tourist attraction for decades, continues to

Cruise Calls 2010 saw a marked downturn in cruise calls. The cruise business has been a cornerstone of the government’s tourism strategy for the last 10 years. The reduction in calls was partially offset by larger vessels calling so passenger numbers did not fall on a pro rata basis. Gibraltar had 178 calls during 2010, down from 238 the previous year. The forecast for 2011 is 197 calls which is an improvement, but does not detract from the fact that other ports in the Iberian peninsular are making big inroads into the cruise liner market.

deteriorate in front of our eyes with several sites now being in a very dilapidated

state.

They

are

embarrassment at best and a potential public liability at worst. It must also be galling for those operators who have invested significant sums in refurbishing their own facilities to be situated so close to what amount to little more than rubble and ruins. It is not the Chamber’s role to be prescriptive as to the layout and detail of the individual sites but much of what is there no longer cuts the mustard.

Year

Number of Cruise Calls

Estimated Passengers

2008

224

319,021

2009 2010

238 363,291 of individual sites but much of what is 178there no longer cuts 309,041 the mustard.

2011

197

358,426

Annual Report & Accounts 2010 29

Tourism Sector cont. The Chamber has argued for years that the Government should use taxpayer’s money to make the necessary infrastructure investment in these sites and then put the management and operations of these various sites out to tender. This would ensure that no single operator had dominance on the Upper Rock and that the forces of competition lead to a greatly improved and sustainable product offering with a significantly enhanced customer experience. Gibraltar has more heritage, history and uniqueness in its 6 1/2 square kilometres than many cities twenty times its size. Some private sector operators can see this and have, through their best efforts, benefitted from offering visitors an experience they could not find elsewhere. But there does not appear to be any joined-up thinking.

Many attractions are open between

be significantly increased to pay for

Monday to Friday and one is by

major investment in infrastructure and

appointment only. Local operators scrap

services. But visitors need to be given

between themselves for every last

value for money. The tariff system needs

tourist pound. Yes they have to make a

re-vamping so visitors can choose what

profit but somewhere in all of this the

experience they want rather than being

visitor, the tourist gets forgotten. This

rushed through one site or another by

has to start from the top.

their respective tour provider. The

The transport system is no longer viable and needs to be rethought if we want to be able to handle increased visitors numbers on the Upper Rock without the chaotic congestion that exists when two or more cruise liners bring their passengers ashore. A ‘hop on, hop off’ experience common in other successful tourist

destinations

London,

Granada or Barcelona might be worthy of consideration.

current system is all rather piecemeal. Tourist Sites A welcome addition in 2011 will be the long awaited refurbishment of Europa Point. The improved facilities will also provide the local population with additional services at what has been one of the most neglected sites on the Rock for too long. Nevertheless, as with the Kings Bastion, it shows the real potential of what can be achieved with a bit of

As we said last year, even in government

vision and some well-targeted public

hands, the fees to the Upper Rock could

capital investment. The refurbishment of

The Rooftop Conference and Banqueting area with it’s breathtaking panoramic views of the ocean gateway guarantees the event organiser a dramatic back drop steeped in history.

2 Governor’s Parade, Gibraltar. Tel: +350 200 70500 Fax: +350 200 70243 www.eliotthotel.com

30 Annual Report & Accounts 2010

Tourism Sector cont. O’Hara’s Battery is another example of what is possible although accessibility is still limited. There remain however, several sites, particularly on the Upper Rock that are in various states of dereliction. The relocation of the prison releases another historic site which could provide a great opportunity to enhance the Moorish Castle area and open up the

northern defences into an accessible and well frequented tourist attraction. We are also delighted to see the announcement to refurbish Eastern Beach. The Chamber has never understood how, given our size and geographical surroundings, that we have not identified our beaches as a truly prized social and tourism asset which should be flag bearers for the surrounding area and costa. Specialist Sectors We repeat the point that we made in our last annual report in that our real growth potential lies in satisfying specialist sectors. The opening of additional air routes should be married to a structured marketing programme. We have commented in previous reports that Gibraltar should take advantage of the niche markets it has available ornithology, weddings, diving, sailing, fishing, heritage and military history to name a few. This year has seen the Chess Festival continue to grow and Brian Callaghan and his team at the Caleta Hotel should be commended for their efforts in developing this niche. The momentum of this January event has led to additional

chess tournaments being planned later in the year. Several other notable events which play to Gibraltar’s strengths include the International Open Darts Tournament in March, the International Dog Show in September and for the first time last year the very successful Ultra Marathon in October. How great it would be to have at least one big internationally-

recognised sporting event every month. This would raise Gibraltar’s profile and also fill hotel rooms and restaurant seats as well as benefit many of the local shops. Conclusion The Chamber will continue to lobby Government to make meaningful investments in the local tourist infrastructure. At a time when retail businesses are feeling the pinch of a tougher economic climate it is more important than ever that Government provides the vision to allow businesses to consider new opportunities and alternative business revenues. We believe that, in working with the private sector, Gibraltar can provide a unique visitor experience rivaled by nowhere in Southern Spain and hope that during the forthcoming election campaign all parties can come forth with innovative ideas of substance for this sector.

There remain however, several sites, particularly on the Upper Rock that are in various states of dereliction

Annual Report & Accounts 2010 31

Property The Chamber became increasingly concerned during the year about the number of vacant shop premises on Main Street. Some retail members decided finally and reluctantly that they could not afford to

choice if they want to retain good quality, reliable tenants. Charge a fair rent if they want to keep their premises occupied. Otherwise the retailer will walk.

in some cases as some owners tried

The malaise affecting tracts of British and Spanish retailing has had some effect on Gibraltar but with high rents traders have been forced to decide whether to raise their game or simply throw in the towel. By contrast it is heartening that some retailers have had the confidence, cash and vision to upgrade or refurbish their premises and this is welcome as it adds to the retail fabric of the town.

almost anything to entice potential

Office & Commercial

pay ever-increasing rents demanded by landlords when all the other cost factors were taken into account. It would appear that the laws of demand and supply are being applied with increasing harshness, even in Gibraltar. That could spell bad news for landlords who have become used to ever increasing rents. Even key money was being waived

tenants to rent a retail premises. A prolonged downturn could mean even more vacant shops in the next few years. Empty shops do not instill a sense of confidence. Landlords are faced with a

Demand for office property remained strong during the year although several Chamber members reacted with alarm at the announcement in Juneâ&#x20AC;&#x2122;s budget that the government was considering using

taxpayerâ&#x20AC;&#x2122;s money to fund a favoured development. There is no doubt that Gibraltar will continue to need additional good quality office space in the years to come. What is not needed is for the government to become a de facto developer in its own right. The distortions this would create in the market place would lead to years of uncertainty for any private sector developer. The governmentâ&#x20AC;&#x2122;s announcement has already caused ripples of uncertainty among some developers who fear that their own schemes may be compromised by a state-backed development. The decision about whether a scheme is viable should be market-based. If the banks refuse to lend or the developers do not have the cash to fund a viable development then that is for the market to determine. The record of state-backed champions has not always been a happy one.

Independent Property Consultant and Valuer WATERGATE HOUSE 2-6 CASEMATES P.O. BOX 1418 GIBRALTAR. TEL: (350) 200 46579 FAX: (350) 200 50539 Email: nick@nicholasgale.com www.nicholasgale.com

Annual Report & Accounts 2010 33

Report Of The Auditors To the members of the Gibraltar Chamber Of Commerce. We have audited the financial statements on pages 34 to 41, which have been prepared under the historical cost convention and on the basis of the accounting policies set out on page 37. Respective responsibilities of the Honorary treasurer, directors and auditors It is the responsibility of the honorary treasurer to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Chamber and of the surplus or deficit of the Chamber for that year. In preparing those financial statements the honorary treasurer is required to: • Select suitable accounting policies and then apply them consistently;

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatements, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion the financial statements give a true and fair view of the state of affairs of the Chamber at 31 December 2010 and of its surplus for the year then ended, according to the best of our information and the explanations given to us and as shown by the books of the Chamber.

• Make judgements and estimates that are reasonable and prudent; • Prepare the accounts on the going concern basis unless it is appropriate to presume that the Chamber will continue in operation. The Honorary treasurer is responsible for keeping proper accounting records, which disclose with reasonable accuracy at any time the financial position of the Chamber. The directors are also responsible for controlling the funds of the Chamber and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Ian Collinson Statutory auditor for and on behalf of

BAKER TILLY (GIBRALTAR) LIMITED Chartered Accountants Honorary Auditors

Basis of opinion We conducted our audit in accordance with International Audit Standards. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements and of whether the accounting policies are appropriate to the Chamber’s circumstances, consistently applied and adequately disclosed.

Date: 28th March 2011.

Annual turnover (2009: £87,038)

£86,685

Cash balance at year end (2009: £51,568)

£54,698

34 Annual Report & Accounts 2010

Th e Gibr a lta r Ch a mber o f Co mmerce INCOME & EXPENDITURE ACCOUNT for the year ended 31 December 2010

2010

2009

49,735

48,455

107

36,854

38,476

86,685

87,038

39,753

39,537

Office rent

7,056

6,408

Electricity and water

1,181

1,309

31,732

45,159

(1,066)

4,616

2,155

5,565

80,811

102,594

5,874

(15,556)

INCOME

Notes

Subscriptions Deposit interest Other income

Total income

EXPENDITURE Staff remuneration and social insurance

General administration

Amounts written back/(bad debt written off) Depreciation

Total expenditure SURPLUS/(DEFICIT) FOR THE YEAR

There are no recognised gains or losses other than those shown above.

Annual Report & Accounts 2010 35

Th e Gibr a lta r Ch a mber o f Co mmerce BALANCE SHEET as at 31 December 2010

2010

2009

Notes

8,998

10,573

Stocks

552

Debtors

16,969

13,640

Cash at bank and in hand

54,698

51,568

72,219

65,760

(10,484)

(11,474)

61,735

54,286

70,733

64,859

70,733

64,859

TANGIBLE FIXED ASSETS CURRENT ASSETS

CREDITORS: amounts falling due within one year

NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES

ACCUMULATED FUND

Approved by the board on 28th March 2011.

G A Olivera Honorary Treasurer

36 Annual Report & Accounts 2010

Th e Gibr a lta r Ch a mber o f Co mmerce CASH FLOW STATEMENT for the year ended 31 December 2010

NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES

2010

2009

Notes

3,614

(7,977)

107

RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest on deposit account CAPITAL EXPENDITURE Payment to acquire tangible fixed assets

(580)

(5,778)

INCREASE/(DECREASE) IN CASH

3,130

(13,648)

Annual Report & Accounts 2010 37

Th e Gibr a lta r Ch a mber o f Co mmerce PRINCIPAL ACCOUNTING POLICIES

BASIS OF ACCOUNTING The financial statements have been prepared under the historical cost convention and in accordance with Gibraltar Accounting Standards. DEPRECIATION Fixed assets are depreciated over their expected useful lives as follows: Furniture and fittings

15% on cost

Office equipment

15% on reducing balance

Computer equipment

25% on reducing balance

Air conditioning units

20% on cost

Leasehold improvements

Over 9 years

STOCKS Stocks are valued at the lower of cost or net realisable value. FOREIGN CURRENCIES Transactions denominated in foreign currencies are recorded at the rates of exchange ruling at the dates of the transactions.

38 Annual Report & Accounts 2010

Th e Gibr a lta r Ch a mber o f Co mmerce NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2010

2010

2009

1,650

1,318

23,923

16,252

4,325

7,210

4,885

6,891

7,624

1,187

36,854

38,476

2010

2009

Advertising

3,810

5,699

Telephone

3,184

3,503

Printing, postage and stationery

4,484

4,533

Miscellaneous expenses

1,416

234

388

381

Entertaining

5,610

5,611

Office cleaning

2,123

2,068

Repairs and maintenance

1,837

2,094

Training

1,575

3,454

605

974

Accountancy fees

1,200

1,000

Professional fees

5,500

15,608

31,732

45,159

1. OTHER INCOME ATA Carnets Fees for certificates of origin and invoices Surplus on: - Business centre - Chamber dinners - Publications - Other sales and services

2. GENERAL ADMINISTRATION EXPENSES

Insurance

Subscriptions

Annual Report & Accounts 2010 39

Th e Gibr a lta r Ch a mber o f Co mmerce NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2010

3. FIXED ASSETS Leasehold improvements

Furniture and fittings

Office equipment

Air conditioning

Computer equipment

Total

35,755

11,772

23,708

8,647

9,516

89,398

580

35,755

11,772

23,708

8,647

10,096

89,978

35,541

9,224

19,439

6,951

7,670

78,825

458

640

424

606

2,155

35,568

9,682

20,079

7,375

8,276

80,980

187

2,090

3,629

1,272

1,820

8,998

214

2,548

4,269

1,696

1,846

10,573

Cost As at 1 January 2010 Additions during the year As at 31st December 2010 Depreciation As at 1 January 2010 Charge for the year As at 31st December 2010 Net book value As at 31st December 2010 Net book value As at 31st December 2009

40 Annual Report & Accounts 2010

Th e Gibr a lta r Ch a mber o f Co mmerce NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2010

4. STOCKS

2010

2009

Commemorative books, booklets and First Day Covers

252

Ties and shields

300

552

2010

2009

4,595

3,865

12,116

8,837

258

938

16,969

13,640

2010

2009

51,568

65,216

3,130

(13,648)

54,698

51,568

2010

2009

10,080

10,574

404

900

10,484

11,474

Stocks at the year end comprised of the following:

5. DEBTORS

Subscriptions Other debtors Prepayments and accrued income

6. CASH AT BANK AND IN HAND At 1 January Net cash inflow/(outflow) At 31 December 7. CREDITORS: amounts falling due within on year Creditors and accruals PAYE and Social Security

Annual Report & Accounts 2010 41

Th e Gibr a lta r Ch a mber o f Co mmerce NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2010

8. ACCUMULATED FUND

2010

2009

64,859

80,415

5,874

(15,556)

70,733

64,859

2010

2009

Surplus/(Deficit) for the year

5,874

(15,556)

Interest on deposit account

(96)

(107)

5,778

(15,663)

2,155

5,565

(3,329)

7,443

(990)

(5,322)

3,614

(7,977)

Balance at 1 January Surplus/(Deficit) for the year Balance at 31 December 9. NOTES TO THE STATEMENT OF CASH FLOWS Reconciliation of results for the year to net cash flow from operating activities

Depreciation (Increase)/decrease in debtors Decrease in creditors Net cash inflow/(outflow) from operating activities 10. OTHER FINANCIAL COMMITMENTS

At 31 December 2010 the Chamber had annual commitments under non-cancellable operating leases as set out below: Operating leases on land and buildings which expire: Over five years

31 December 2010

31 December 2009

6,927

6,408

42 Annual Report & Accounts 2010

Gibraltar: Key Information (All figures relate to 2009 unless otherwise stated) Population:

28,779

Total land area:

6.5 sq km

Natural resources:

None

Head of State:

Her Majesty Queen Elizabeth II

Chief Minister:

Hon Peter Caruana QC, MP

Legislature:

Parliament (no upper house)

Languages:

English & Spanish

Business hours:

9am - 5pm Monday to Friday

Inflation rate:

3.4% per annum

Minimum wage:

£5.40 per hour (£210.60 per week)

Average earnings:

£22,928 (2009)

Registered employed:

20,450

Registered unemployed:

3.0%

Imports:

UK: 60%, Spain: 30%, Other EU: 10%

USEFUL WEBLINKS: www.gibraltar.gov.gi www.fsc.gi www.gibraltarport.com www.companieshouse.gi www.gibraltarlaws.gov.gi www.gibyellow.gi

AIRLINES & HOTELS:

20000

Employment Growth 1998 - 2009

www.ba.com www.flymonarch.com www.easyjet.com www.caletahotel.com www.rockhotelgibraltar.com www.ocallaghanhotels.com/eliott

900

18000

800

16000

700

14000

600

12000

500

10000

GDP Growth 1998 - 2010 (£m)

400

8000

300

6000

200

4000

100

2000

0 1998 1999 2000 2002 2002 2003 2004 2005 2006 2007 2008 2009 Females

1998/9 1999/002000/01 2001/2 2002/3 2003/4 2004/5 2005/6 2006/7 2007/8 2008/9 2009/10

£m

Males

Corporation Tax (from 1st January 2011) Resident Companies Utilities Companies

Tax Payable 10% 20%

Personal Income Tax £0 - £4000 Annual gross income £4001 - £16,000 Annual gross income Over £16,000 Annual gross income

Tax Payable 17% 30% 40%

No capital gains taxes No Inheritance tax/death duties or estate duty

No tax on dividends No wealth, gift or capital taxes

Special Status personal tax rates Qualifying individuals who are non-resident and derive no income from Gibraltar can apply for Category II resident status.

Tax Payable Minimum tax payable of £22,000 per annum up to a maximum tax payable of £30,000 per annum.

Applications should be made to the Finance Centre Director, info@financecentre.gov.gi

Associated with

www.fiduciarygroup.com

www.gibraltarlawyers.com

Trusted since 1892 An EU Finance Centre regulated to EU Standards Banking, Insurance, Funds, Company and Trust Law Please contact: selwyn.figueras@isolas.gi Portland House Glacis Road PO Box 204 Gibraltar. Tel +350 2000 1892 Fax +350 2007 8990