annual_report_2007 by Chamber of Commerce Gibraltar

The Gibraltar

Chamber Commerce OF

ANNUAL REPORT & ACCOUNTS

2007

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THE GIBRALTAR CHAMBER

COMMERCE ANNUAL REPORT 2007

THE GIBRALTAR CHAMBER

2007 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”.

The benefits of being a member of the chamber include:

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 Gibaltar’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.

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

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

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contents Registered Office:

Foreword

Watergate House 2/6 Casemates PO Box 29 Gibraltar

Politics

The Economy

Inflation

Employment

Wholesale, Distribution & Retail Sectors

Financial Services Sector

T: F: E: W:

+350 200 78376 +350 200 78403 info@gibraltarchamberofcommerce.com www.gibraltarchamberofcommerce.com

Honorary Auditors: Represent your views directly to Government

Baker Tilly (Gibraltar) Limited Suite 5 International House Bell Lane Gibraltar

Banking Funds Insurance

Online Gaming

Port & Shipping Services Sector

Intro Bunkers Cruises

Board Members President:

E J Nicholas Russo

Vice President:

John Isola

Hon Treasurer:

George Olivera

Hon Secretary:

Jeremy Nicholls

Directors:

Bruno Callaghan Marvin Cartwright Franco Cassar George Desoisa Ernest Felipes Andrew Haynes Christian Hernandez Peter Isola

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Agency Business

Tourism Sector

Intro Hotels Airlines & Airlinks

Telecommunications

Property Development

EU Funding

Annual Accounts

Gibraltar: Key Information

Designed & Produced by: Colorworks Design Limited T: +350 200 74349 www.colorworksltd.com Photography by: John James Wood

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foreword

I am delighted to present the 2007 Annual Report of the Chamber of Commerce. 2007 has again been an eventful year for Gibraltar with political developments creating the highest level of interest. The year kicked off with our new Constitution which came into effect on the 1st January and which gives Gibraltar greater independence. This was followed early in January with the announcement that Serco had won the MOD contract much to the disappointment of those who had worked so hard for a local bid. After lengthy negotiations between the Government and the MOD, a Contractorisation Agreement was reached in which stability of employment was guaranteed. In February, the historic first trilateral meeting was held in Gibraltar and this was followed by a member’s dinner at which our guest speaker was the Director General for Europe at the Spanish Foreign Ministry, Sr José Maria Pons Irazábal. This was again another first for the Chamber and we were particularly pleased that Sr Pons took questions from the floor.

May saw the IMF publish its long awaited report on the Finance Centre. This was the second report by the IMF since 2001 and whilst several observations and recommendations were made, overall the report commented that Gibraltar is amongst the top jurisdictions worldwide in so far as compliance with international standards. The Chamber welcomes this endorsement wholeheartedly as it recognises the high standards of those working in the Finance Centre.

7 flights per week to just 2 on Friday and Sundays. This did not surprise the Chamber, as the schedules did not suit anyone in the business sector either in Gibraltar or the surrounding catchment area in Spain. It is hoped that Iberia will show greater consideration of the needs of the business community and re-schedule this route to a time which would not only to suit the business sector but also generate sufficient economic benefits for the airline.

This year’s budget announcement in June was largely neutral for the private sector and although there was some disappointment on the failure to reduce corporate tax to meaningful levels, the Chamber welcomed the progressive reductions in personal and corporate tax. Whilst the Finance Centre continues to show sustained growth, it is worth noting that there are businesses in the wholesale and retail sectors which are suffering from continued competition from Spain. This was clearly recognised by the Chief Minister in his budget speech. The Chamber will continue to lobby Government on behalf of these important local sectors.

Soon after the election, came the news that GB Airways had been sold to easyJet. The initial shock at the news was followed by some uncertainty as to how many airlines would serve Gibraltar following the sale. British Airways announced that it would commence its own service from April 2008 thus adding a fourth carrier operating scheduled services to and from Gibraltar. The Chamber considers that an airline offering a business service is essential to the further development of the Finance Centre and Gibraltar’s commercial sector as a whole.

The dominant event during the year was without doubt the General Election which produced one of the closest results in recent times. It saw the GSD returned for an historic fourth term and the announcement by the Leader of the Opposition, the Hon Joe Bossano, that he would not be standing at the next General Election as leader of the opposition. The airline industry dominated the news prior to and after the General Elections with GB Airways announcing that it was cancelling its Madrid route. This was followed soon after by Iberia announcing that it was cutting back its services from

During 2007, the Chamber commented through its quarterly magazine, B2B, that it felt the spirit of Cordoba was not always evident in the arrangements at the land frontier with Spain either into or out of Gibraltar. The Chamber urges the Spanish authorities to keep focused on this issue as many have come to regard the border flow as a barometer of Spain’s intentions. I am extremely grateful for all the hard work and time the Directors have donated to the Chamber during 2007 as indeed I am to the Chief Executive, Edward Macquisten and Sue McGowan who have worked hard and tirelessly throughout the year. Nicholas Russo

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politics Political Developments 2007 was another watershed year for Gibraltar and the process of rapprochement with Madrid saw a new ‘first’ with Sr. Jose Pons, the senior Spanish diplomat in the Tripartite talks, as the guest speaker at the Chamber dinner. Sr. Pon’s opening remarks underlined the historical nature of the event when he said that his words were not as significant as the fact of his attendance. Nothing similar involving a senior representative of the Spanish Government had taken place in Gibraltar since before the Civil War. Sr. Pons outlined his Government’s policy towards Gibraltar, which, while generally welcome, nevertheless emphasised that there were a number of aspects of the Gibraltar economy, which his Government were opposed to, but Mr. Pons also indicated that his Government was open to persuasion. The challenge therefore is for Gibraltar to make its case in support of those features, which make our economic model different from that of the Campo de Gibraltar, and which Madrid views with mistrust. It is not clear whether or not the process of entente, heralded by the Tripartite talks, is now sufficiently consolidated to survive changes in Government on either side of the border. What is clear, however, is that political achievements to date have been significant and a number of major irritants for both sides have been satisfactorily resolved after decades of tension. In particular the terms of agreement for the development of the airport and the resolution of the Spanish pensions,

both of which were politically sensitive issues for the respective parties, have, as a result of the Cordoba Agreement, become powerful totems for what can be achieved when there is a combination of mutual goodwill and political courage. In so far as the work of establishing neighbourly relations between Gibraltar and Spain is concerned, the Cordoba Agreement is only the beginning, but for the process to be robust it cannot depend on just the same handful of individuals. The Tripartite talks should establish a formula or process, which will endure the inevitable changes in Government, which will occur on both sides of the border. This requires that momentum is not lost. As regards on-going projects, such as the new air terminal, construction needs to be expedited. In fairness it is apparent that Government need no prompting and the plans appear to be very advanced. Similarly there should be no loss of appetite for confronting thorny issues. None can be as daunting as those already conquered. All the same the public should be kept informed, if not of the detail, at least they should be sufficiently apprised to encourage a sense of greater participation. Lastly, there should be an effort to avoid giving rise to issues, which represent no gain for Gibraltar, but which, if not properly handled, can sow mistrust and undermine the new entente. In particular, there have been two such events, which if not avoidable, nevertheless have threatened cross border relations and

should provide valuable lessons for the future. Both events have pointed to maritime issues with the capacity to flare into a crisis with serious implications for the Tripartite Forum. The first of these events concerns the M.V. “Odyssey Explorer”, a deep sea vessel tasked with hunting the seabed for treasure. Odyssey Marine Exploration is a US private sector enterprise which had been using Gibraltar as a temporary base for its operations in the waters off Gibraltar and Spain. The second event concerns the M.V. “New Flame” which floundered off Europa Point following a collision. The unfolding story of the Odyssey has seen increased hostility from the Junta de Andalucia, which challenges Odyssey’s right to recover any treasure and accuses Gibraltar of harbouring an illicit activity. The high profile arrests at sea by the Spanish Guardia Civil have all occurred

2007 was another watershed year for Gibraltar and the process of rapprochement with Madrid saw a new ‘first’ with Sr. Jose Pons, the senior Spanish diplomat in the Tripartite talks www.gibraltarchamberofcommerce.com 07

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politics cont. in violation of Gibraltar’s claim to jurisdiction over adjacent waters in accordance with international convention. Spain does not acknowledge Gibraltar’s right to jurisdiction over any adjacent waters and relies on a literal interpretation of the Treaty of Utrecht. There could hardly be a less compelling case for Gibraltar to make a firm political stand regardless of the cost. Sympathy for the “Odyssey”, even within Gibraltar, is lukewarm at best, and then only as a reaction to Spanish hostility. It is not clear how best to defuse the situation. The least promising issue, which may even be beyond the scope of the current Tripartite process, is that of maritime jurisdiction and territorial waters. If, as we believe, there is no angle in this matter, the question must be asked: why have we allowed ourselves to become embroiled in such a potentially damaging issue? The answer may lie in finding a benefit that could serve both Gibraltar and the Campo de Gibraltar: an undertaking by the owners of Odyssey to contribute funds and artefacts to a new Maritime Museum might be a start in the right direction. If, as we believe, there is no angle in this matter, the question must be asked: why have we allowed ourselves to become embroiled in such a potentially damaging issue? The answer may lie in finding a benefit that could serve both Gibraltar and the Campo de Gibraltar: an undertaking by the owners of Odyssey to contribute funds and artefacts to a new Maritime Museum might be a start in the right direction. The lesson to be learnt from New Flame is that closer co-ordination is required in the protection of our mutual maritime interests and close cooperation may help to minimise the risk of political manipulation by those hostile to Gibraltar.

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the economy Responsibility for the sinking of the “New Flame” off Europa Point may be the subject of judicial process, but the handling of the crisis has been marred by lack of perceived co-operation between local and neighbouring authorities.

Economic Developments It is appropriate at the outset to comment on the recent upheavals witnessed in world financial markets in the wake of the repercussions following the collapse of the sub-prime mortgage market in the US in the latter half of 2007. With an increasingly globalised international market place, in both the financial and goods sectors, Gibraltar is not immune to the seismic shifts we have seen on a worldwide level in late 2007 and early 2008.

If more than a century ago it was possible to co-ordinate the beams of the two lighthouses which govern the entrance to the bay, then why cannot the relief, rescue or salvage of vessels in distress in the same area be the subject of coordinated effort? 2007 also saw the GSD win their fourth mandate in a hard fought election campaign. The announcement that there was to be a general election in October was itself a surprise and caught most pundits unawares. More surprising still was the lacklustre performance during the campaign by the ruling party, which allowed the GSLP, whose own energetic campaign was a contributing factor, to narrow the gap between the parties. Ultimately it was the high turnout, which turned the tide in favour of the GSD. Shortly after the results of the General Election was made known Joe Bossano announced that he would not be standing for the leadership of his party at the next GSLP conference. Speculation as to his likely successor has set the scene for rumour and intrigue in anticipation of a sea change in the political landscape. Peter Caruana may have quashed speculation regarding his eventual successor by announcing his commitment to stand as leader of the GSD at the next elections, but the issue of the succession remains. In the case of the GSLP, the appointment of a new leader cannot come too soon to revive the party’s fortunes. After four successive defeats it is only to be expected that Joe Bossano should

The collapse of the US sub prime mortgage market exposed not only US banks, who have been reporting record losses, but also leading banks in Europe and Asia, including Chinese institutions, underlying the international nature of

withdraw from the front line of the political scene. Ready or not, if the GSLP are to play any further part in Gibraltar’s evolution, they must grasp the opportunity for change. The position for the GSD however is different. The GSD has time on its side but the perception is that with natural wastage the party has lost strength in depth and is not likely to gain from a change at the top. If this trend is to be reversed, greater autonomy should be given to Ministers to enable them to step out from behind the shadow of the Chief Minister. The new constitution with the increased numbers on the Government bench should allow for a greater degree of personal discretion than the simple majority formula that existed before. The temptation however for power to be centralised in the Chief Minister may prove difficult to avoid but if this is not achieved the prospects for a GSD change in leadership will have more parallels with the defunct AACR than any other.

today’s capital markets. This has led to a crisis of confidence in the international financial system, with the resultant lack of liquidity, as epitomised by the Northern Rock crisis, where a complete run on the bank was only averted by an unprecedented level of intervention by HM Treasury. To put all this into context, it should be remembered that the strong economic performance of many western economies over the last few years, including the US, the UK and, closer to home, Spain, has been mainly consumer led. The availability of cheap and easy money has fuelled a spending boom in real estate and across a whole range of consumer items, leading to a high level of personal indebtedness and, as a

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the economy cont. consequence, inflationary pressures. The reaction to this from central banks during 2007 was to increase the base-lending rate. The repercussions of this policy have been felt in many markets. In the UK, house prices are receding and the level of December retail sales were depressed. Similar experiences are occurring in Spain, with the real estate market, and the important construction industry, experiencing serious slowdowns and, in some areas, declines, with major redundancies reported in both these sectors as 2007 drew to a close. In the US, fears of an actual recession have not gone away, despite an unprecedented level of intervention from Washington, including two reductions in US interest rates and a $145 billion tax credit package all introduced in a bid to ease the credit squeeze. Such drastic action from the US Federal Reserve clearly underlines that there is a problem in the US economy and, in turn, this expectation has been mirrored in stock market losses the world over, as countries fear a significant downturn of trade with America.

While it is still too early to speculate as to whether all of this will lead to a full blown recession, what is clear is that the world economic outlook is at best uncertain and for sure much less positive than it has been for a number of years. What is clear is that the consumption led bubble of the last few years, while perhaps not having quite burst, it is certainly leaking profusely at the seams. It will be interesting to see what impact the events of the second half of 2007 and the uncertain outlook for 2008 will have on Gibraltar’s economy. There are already some signs of the recent boom in property prices beginning to ease. Certainly, the evident slowdown in the UK and Spanish economies cannot be good news for the retail sector in Gibraltar, mirroring the expectations of trade as revealed in the last Trading Conditions Survey. As discussed in previous reports, accurate assessment of how the economy has fared in (this case) 2007 is at best an educated guess, as we are obliged to work with out of date

information. We have moaned about this on innumerable occasions in the past. Regrettably, Government shows no inclination to make statistics available on a more timely basis. (The Statistics Office web site happily earmarks the 2006 ‘Abstract of Statistics’ as “new”!) In a value added economy such as Gibraltar’s, employment levels and the volume of imports are two very good indicators of economic health. Employment levels are discussed elsewhere in this report (see page 14). The only commentary to be added here is that most of the increases seen in private sector employment between 2005 and 2006 have come from gaming, other services and financial intermediaries. The construction industry also showed an increase, while employment in the retail and wholesale sector and in hotel and catering have experienced only modest growth. These statistics generally reflect trading conditions as reported in the Chamber’s last survey.

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the economy cont.

Looking now at the level of imports, the following are relevant:

The main elements of the increase in imports between 2005 and 2006 include building materials, foodstuffs, vehicles and parts, electrical appliances and ships and boats. The building materials and electrical appliances increases follow from the level of activity seen in the construction industry. Equally, the increases in foodstuffs reflect the (slightly) improved trading reported by the retail/wholesale and the hotel & catering sectors in the last Trading Conditions survey.

Gibraltar Trade Flows 1996-2006 (ÂŁ millions) (Excluding Petroleum Products) 400 350 300 250 200

Imports Exports

150

It would appear that, although the information is out of date, there is some consistency between Government statistics and the findings of the Chamberâ&#x20AC;&#x2122;s own surveys.

100 50 0 1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

In trying to extend this to 2007, the best educated guess is that Gibraltar as a whole had a good year and experienced sustained growth. It would seem that most of this growth came from the Finance Centre, the Gaming Industry and Construction, with the Retail/Wholesale and the Hotel & Catering sectors experiencing only modest growth. 2008 promises to be a challenging year, given the uncertain scenario for the wider economic outlook and the outcome of our pending court case in the EU on taxation issues.

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inflation The current index used in Gibraltar dates from April 1998, when the weights were last revised, following the 1996/97 Family Expenditure Survey.

Given that the Index of Retail Prices is used, among other things, as a basis for wage adjustments etc., it is important that the index is accurate. Last year, the Chamber expressed concern that the

bodies have had their employees classified as working in the private sector. Information as to the numbers affected by such a re-classification is not currently available so we cannot gauge the effect this will have had on the private/public sectors employment numbers.

Inflation (%) 1999-2007 3

2 1.5 1 0.5 0 1999

2000

2001

2002

2003

2004

2005

2006

2007

Source: Statistics Office

index may be outdated, given that it is some ten years since the ‘weights ‘were last adjusted. Clearly, over such a long period of time, spending patterns change, and this in turn affects the weights and, therefore, the accuracy of the Index. It is positive to report, therefore,

that Government has decided to conduct a new Family Expenditure Survey to address this problem and that your Board will be represented on the Committee charged with this task. This Survey is a major undertaking and the Committee starts its work in February 2008.

employment In a predominantly service economy like Gibraltar the level and growth of employment is a good indicator of how the economy is progressing. The continuing increases in employment Gibraltar has experienced over the last few years underpin a resilient and progressive economy. Although like most Government statistics, employment data is over a year out of date (In this high tech swift moving electronic age, is there any real excuse that the latest figures available in January 2008 relate to October 2006?), nevertheless the trend is clear and unmistakable. Between October 2005 and October 2006, private sector employment grew by 13 per cent. By any measure, this is substantial growth. One is tempted to say that this is all the better as it was 14 www.gibraltarchamberofcommerce.com

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employment cont. 2.5

The latest twelve months for which data are available (October 07 v October 06) shows an underlying annual inflation rate of 2.53 %. This is slightly higher than the previous (October 06 v October 05) comparable year of 2.33%. This latest rate is about at the 2.5% rate pegged by western economies as being a figure that should not be exceeded if inflation is to remain under control. The figures show that inflation in Gibraltar has been fairly steady at about 2.5% per year over the last 4 or so years.

Employment Growth Public sector vs Private sector 2001-2006 20000 15000

Private Sector Public Sector

10000 5000 0 2001

2002

2003

2004

2005

2006 Source: Statistics Office

accompanied by a reduction in Government jobs but, in truth, we cannot say this as, according to the Statistics Office, part of the decline of the public, or official, sector (which includes the MOD) results from “the reclassification of the Gibraltar Electricity Authority and the

Gibraltar Sports Authority under the Private Sector”. [The mind boggles!] This anomaly of classification may have its roots in the late eighties, when the then Government started setting up Companies and Authorities and these

However, if we accept that Governmentowned companies and statutory authorities should not be categorised under ‘private sector’, then the apparent shift in employment in favour of the private sector is somewhat overstated. One obvious answer is that such Government owned entities could have their own classification, separate from ‘Official’ and ‘Private’. This is a matter your Board will be taking up with the Statistics Office in due course.

What remains clear is that, despite these anomalies, it is the continued growth of the Private Sector that drives employment and the economy. There is often talk about how Gibraltar has transformed itself from an MOD/public sector based economy into a thriving, dynamic and progressive service economy in scarcely more than two decades. The employment charts to the right serve to underline this remarkable achievement.

Structure of Employment 1986 Total number of employed: 11,030

Public Sector 54%

Private Sector 46%

Structure of Employment 2006 Total number of employed: 18,485

The adjacent charts clearly and amply show the complete reversal in Gibraltar’s employment situation since 1986, with the public sector reducing from 54 per cent of overall employment to 21 per cent in 2006. During this period, employment in the private sector grew nearly threefold, while the overall employment level

Public Sector 21%

Private Sector 79%

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employment cont.

grew by close to 70 per cent. Even with the caveats about the reclassification of public sector jobs into the private sector mentioned above, the private sector has been the dominant creator of jobs in Gibraltar over the period.

The system is often cumbersome and bureaucratic. There are already signs that certain sectors of the economy are suffering from the shortage of labour and the ability to source labour from this group would be of assistance. In most cases these are jobs that would not be filled by locals.

While this situation of continued economic and employment growth, which currently shows no sign of reversal, is clearly a positive development, it also means that future development is likely to be constrained by the availability of an adequate labour pool. This has been mentioned in previous Chamber Annual Reports and it continues to be a challenge for many employers. Gibraltarâ&#x20AC;&#x2122;s population remains relatively static, only growing from 28,520 in 2002 to 28,875 in 2006. Unemployment remains at around 500 or so and we are therefore at a virtual full employment situation. Increasingly, our Trading Condition Surveys places the difficulty of finding and retaining staff locally higher on the agenda of factors affecting business development, moving up from second most important in the 2005 survey to first in the 2006 edition. Increasingly, Gibraltar continues to rely on external labour supplies to allow development. One issue is the cost of attracting labour from abroad, in terms of the need to pay a very high gross remuneration to return an acceptable and attractive level of net earnings. (These people are not on the Gibraltar property ladder and until the tax changes introduced last year, were not able to take advantage of the generous tax concessions available.) Government has seen the validity of this argument and introduced the two-tier tax system in July 2007, which was a welcome move. Nevertheless although there have been progressive reductions in personal tax rates by the Government local tax rates are still high and the thresholds at which they are triggered remain low. Another issue which impacts the local employment market is that of non-EU labour and labour from the newly acceded members of the EU. If the future growth of the economy is not to be constrained, it may be necessary to allow more flexibility in the employment of labour from this group. Currently employers are required to obtain work permits.

Whilst certain large employers have been able to obtain work permits this is not the

case across the board. It may be necessary for the Government to bring forward the date by when it will no longer be necessary to obtain work permits for citizens of the Member States that joined the EU in 2004 (Estonia, Latvia, Lithuania, Poland, Czech republic, Slovakia, Hungary, Slovenia and Cyprus, Malta). Currently only citizens from Malta can be employed freely. In the case of the other countries the Government opted for the

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maximum period of derogation of five years as laid out in the amendment of Section 46A(1) of the Immigration Control Act in November 2004. This means that the restriction will be lifted by 30th April 2009 for citizens from the central and eastern European states mentioned above. The restriction on workers from Bulgaria and Romania is not due to be lifted until the end of 2011.

wholesale, distribution & retail Indications from members show that there has been a slight improvement in trading volumes on the previous year, but conditions continue to be difficult and pressure on margins is ever more prevalent.

A recent problem facing most importers in Gibraltar is the significant drop in the value of sterling, given that a large proportion of goods imported into Gibraltar are purchased in Euros. Sterling has depreciated by

approximately 13% in the last two months of the year and importers have had to absorb this increase in the cost of goods imported from the Eurozone as they have been unable to increase prices for fear of

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wholesale, distribution & retail cont. Exchange Rates 2007 Source: www.x-rates.com

£ vs € 1,55 1,5 1,45 1,4 1,35

disrupting the key Christmas selling period. However the longer-term effect is that eventually prices locally will be increased and this is likely to result in significant inflation in the coming year.

December

November

October

September

August

July

June

May

April

March

February

January

1,3

For the large number of European tourists visiting Gibraltar it should make no difference and it could also be argued that the weakening of sterling will make shopping in Gibraltar more attractive for local shoppers.

However the net effect is that only goods that have been purchased and imported in sterling will be more attractive in price provided that the current exchange rate remains at or around the same level. The growing cost burden for local retailers and wholesalers makes it difficult for businesses in Gibraltar to compete with their competitors across the border. Furthermore the trading environment is not easy. Reputable businesses compete with rogue traders who continue to operate unabated. Traders from across the border seem to be able to operate freely in Gibraltar with only a brass plate company to show for it. Traffic congestion, the lack of Loading and Unloading bays and the ineffective way that these are policed make the physical distribution of goods in Gibraltar a daily nightmare. Conditions at

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wholesale, distribution & retail cont. the Customs Entry Processing Unit and the physical arrangements for incoming commercial traffic results in much time and effort being wasted when importing goods. The Chamber will continue to work with Customs in an attempt to alleviate these problems for local traders. The Chamber continues to lobby Government in all of these areas to seek improvements for its members. We have lobbied Government to look closely at the cost burden for business with a view to reduce this to a more manageable level. We have been consulted and have made representations to Government on the modernisation of the Trade Licensing Ordinance. The Chamber further urges Government to introduce Trading Standards Legislation and to empower the Consumer

Protection Office so that it has effective tools at its disposal to penalise offenders. We have unsuccessfully sought the creation of more Loading and Unloading bays and an improvement in how these operate and are policed. We will continue to lobby the new Minister for Transport and Traffic on this issue. The Chamber looks forward to the results of the Government’s ´root and branch´ review of the Customs department and will monitor the possible effect that any changes might have on the sector. The Chamber has identified that a further review of import duties could go a long way towards making businesses in the sector more competitive as well as simplifying the various tariff levels whilst protecting government duty revenues. We welcome the views of those in the sector on this

issue as indeed on any issues affecting the sector so that we can best represent their interests. In last year´s report the Chamber highlighted the problems facing retail in Gibraltar and in particular the growing exodus of local shoppers to the shopping Centres in Spain. We advocated that everything must be done to maintain and preserve Main Street as Gibraltar’s Shopping Centre. During the year the Chamber has received a number of representations from retailers advocating that Gibraltar do more to enhance the shopping experience through the holding of street events and festivals. We have already outlined a number of proposals to Government on how this could be developed further and we are interested in hearing from more retailers in this regard.

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banking Uncertainty around corporate taxation continues and despite the positive news from the European Courts of Justice well over 12 months ago (the Azores case) we continue to await an outcome that will allow the Finance Sector to move on. That aside, the sector continues to be buoyant with record levels of employment and some firm indications of new entities seeking to be licensed. Banks operating from Gibraltar are generally subsidiaries or branches of international household names and issues sometimes encountered are specific to those organisations and their international operations, for example mergers or takeovers. This past year we saw the proposed merger between Barclays and ABN Amro eventually leading to the break up of ABN with a three way split of the business shared between RBS, Santander and Fortis. The effect on the Gibraltar entity is that it will more than likely be re-branded as Fortis and form part of that bank’s private banking division.

implementation is largely consistent within the EU. However, it should also be remembered that the ‘home regulators’ of the various banks must also be considered when it comes to ensuring that as a banking group, all entities within it have to meet local rules as well as those of other locations where the bank is present. This can very often lead to some confusion and blame being apportioned in places where it is not necessarily due. In other words, over zealous ‘know your customer‘ (KYC ) or due diligence demands can sometimes be blamed locally when the truth is that a different approach is being applied by the bank at group level elsewhere due to the different approach adopted by it’s home regulator.

Other, more general or industry-wide issues included the implementation of Basle II and MIFID; again whilst large banking groups take a holistic view of these sometimes seismic changes, one must not underestimate the problems faced by local entities in implementation of new IT processes and regulatory systems. These can place an inordinate amount of pressure on relatively small management team even though strategic implementation is decided elsewhere. These two initiatives came on the back of ESD implementation which is only now starting to bed in completely.

Locally, data protection continues to be a work in progress as does a Consumer Credit Act. The establishment of a Financial Services Ombudsman has long been a ‘need to have’ for local industry, not least because the public quite often assumes, wrongly, that the FSC is the arbiter when it comes to complaints about local banks. The Government continues to look at this and the Chamber would urge the early establishment of this position.

Whilst keeping the regulators and EU governments happy is critical, the industry must also ensure that clients fully understand the implications of these changes. The industry can often struggle to explain some of the nuances and differences in implementing these initiatives. It is worth remembering that regulatory

‘Nice to have’ initiatives include ongoing work on Islamic Finance legislation which should be completed shortly and will give Gibraltar, and those operators that wish to take advantage, the opportunity to attract a slice of what is seen as a significant growth area in the near future, particularly given our proximity to North Africa.

The success of banking on the Rock is obviously closely linked to the success of the Gibraltar economy overall, as well as to the success of the economies of the UK, the Campo de Gibraltar and Spain. This last year has undoubtedly been good for the banks and some of the challenges they continue to face are a testament to the growth of these economies and their success in attracting more and more business to the Rock. One of the continuing challenges is unquestionably the ability to recruit people at all levels. The local employment pool struggles to provide not only the numbers required but also the level of experience required to hold down the more technical roles which are becoming increasingly necessary as the banks grow. The dilemma for local institutions is never straightforward: a realisation that there is sometimes an immediate need that requires a balanced view of whether to recruit from outside the market whilst investing in the development of local staff so that an increasing number of the qualitative roles are filled from the talent available locally. Such investment enhances the overall skillset of Gibraltar’s workforce. Both the Gibraltar Bankers Association, through its now annual Banking Conference for example, and the Chamber, through a variety of training and other initiatives, are striving to ensure that this momentum grows. The FSC continues with its work in progress on Training and Competency and Approved Persons Regimes. Full implementation of this is expected during 2008. The climate for further growth and continuing success in the coming year is one of caution as the subprime debacle hits the global economies and the effects of that continue to work through the financial system. Gibraltar’s economy is closely linked to these events and so too will be the effect of them on the future of the banking industry in Gibraltar. www.gibraltarchamberofcommerce.com 21

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funds sector We are particularly pleased to be earmarking a new section for this sector, clearly a reflection of the rapid development and growth of this exciting industry within financial services. As we commented in our 2006 Annual Report, the introduction of the Experienced Investor Legislation in August 2005 has provided the trigger for the sector’s expansion. Indeed, from a starting point of zero there are already 21 EIFs registered. Legislation alone however would not have allowed such impressive growth. The sound infrastructure in related financial services such as Accountancy and Banking along with the appropriate regulatory framework have contributed to this success and is a further endorsement of the highly developed Industry in Gibraltar.

Since the passing of the Experienced Investor legislation we have seen a dramatic increase in the number of licensed Fund Administrators and these now total 10. In terms of corporate activity, the year was marked by the acquisition of locally founded Global Fund Administration by Capita Group plc, the business process outsourcing company and FTSE100 member listed in London. Capita, along with other key industry players and under the helm of GASIM (The Association of Stockbrokers and Insurance Managers) are pro-actively working together to promote the sector beyond our shores. Indeed, together with the Finance Centre Department, a roadshow was held in Munich late in the year with further highpowered presentations already earmarked for London and Switzerland in 2008.

We are likely to see further growth in the sector as our reputation as an alternative Funds Jurisdiction grows and global expansion puts further pressure on traditional centres such as Dublin, Luxembourg and the Caribbean. The Chamber appreciates that further stimulus would be provided with the establishment of the Gibraltar Stock Exchange and hopes that this project comes to fruition. We understand further legislative changes are in the pipeline including the possibility of adopting Shari’a compliant law. The Chamber is fully supportive of the Industry’s efforts to promote Gibraltar as a funds jurisdiction and sees similar opportunities for real employment and specialised jobs being created as has happened with the insurance sector.

insurance sector If 2006 was a year of consolidation for the non-domestic insurance market, 2007 was a year of anxiety and frustration. As we said last year, Gibraltar had become the viable alternative to that of Dublin. Last year we also said “Malta is a clear and present threat to the Rock’s ascendancy as the de facto alternative”. How right we were in 2007. Malta is today the alternative to Dublin within the European Union other than UK business which still leaves 20+ European countries who unfortunately prefer to use Malta over Gibraltar for captive insurance business. The reason for this is largely due to the unfortunate situation Gibraltar finds itself in with regards to the European Court of Justice tax ruling. The delay in resolving this ruling continues to cast a cloud of uncertainty over Gibraltar’s future tax regime and we, along with the government, are equally frustrated by this.

We are also at a huge disadvantage due to the lack of double tax treaties which to a huge extent are well beyond our control. It is therefore ever more important that when we are in control of certain matters we are able, without hesitation, to implement those policies which are within our control. 2007 saw year on year growth in the number of insurers coming to Gibraltar. Although the 1 July budget was a watershed for the local insurance sector, much of the work done and decisions made had been carried out prior to the 1 July. Last year also saw the retirement of Emilio

Gomez and the appointment of Penny Hudson to the Chair of the Association ably assisted by Paul Sykes as Vice Chairman. These appointments have been warmly welcomed by all in the industry, In addition, the hard work which local institutions undertook in preparing for the requirements of Solvency II and in ensuring that Gibraltar, however small a jurisdiction, retains its own voice within the European insurance industry, made for a busy year overall. It is key for the Finance Centre that Gibraltar’s position has a future as an attractive captive insurance domicile within Europe. Last year’s report gave an www.gibraltarchamberofcommerce.com 23

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insurance sector cont. in-depth view and explanation of what Solvency II means for Gibraltar and therefore we would not wish to regurgitate the same information except to say that it is critical that Gibraltar and its institutions adhere to the terms of the Directive. In all probability the Directive is unlikely to affect the local industry much before 2014. The domestic market also saw the full integration of Argus within the marketplace which is extremely welcome and also the merger / portfolio transfer of business from Prescott to Capurro and we wish two old established Gibraltar intermediaries, much success.

It is key for the Finance Centre that Gibraltar’s position has a future as an attractive captive insurance domicile within Europe.

The greatest problem Gibraltar has, due to its size, is the lack of major players providing general insurance products in the same way that they are on offer in the United Kingdom. Unfortunately this is also the case in the life and pensions market

where we have very limited options in respect of pension vehicles for individuals other than the Government’s Provident No3 Fund. Although this fund is a welcome addition to assist those in the private sector wanting to make pension provision, it is nevertheless one of the very few options available to private individuals at this time, unlike the situation in many other EU member states.

online gaming Following the roller coaster year of growth and setbacks in 2006, last year was one of focus, adaptation and consolidation. Many local operators accelerated their plans to develop new products and services into European and other markets following the protectionist measures taken by the US government in 2006. This brought with it new challenges as many European jurisdictions were saddled with outdated legislation which made the legal position of online gaming uncertain. Working with the industry groups and the European Commission, several European countries updated their legislation during the year which lifted some of the restrictions. The greater clarity that the new legislation has brought will enable local operators to compete on a more evenhanded basis.

online gaming sector remains at the forefront of industry developments whilst maintaining the highest standards and levels of transparency. At a time when the online gaming industry as a whole is coming under intense scrutiny it is important to have someone of Mr Brear’s calibre who has extensive industry experience and understands the needs of the local operators. Apart from its regulatory role, the GRA interacts regularly with all the local

operators through issuing codes of practice, providing guidelines on combating money laundering, the financing of terrorism and responsible gambling. As mentioned elsewhere in this report, and in common with companies in the finance sector, local online operators await cautiously the outcome of the case being heard at the European Court of First Instance and hope that the removal of this uncertainty will enable the sector to plan with greater surety in the years ahead.

The appointment of Phill Brear as the Head of Gambling Regulation at the Gibraltar Regulatory Authority was welcomed locally by the industry and seen as a further firm commitment to ensure that Gibraltar’s www.gibraltarchamberofcommerce.com 25

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port & shipping services sector Overview

Bunkering

Gibraltar still combines the lowest calling costs of any of the ports in the Strait with the most comprehensive range of services for owners and charterers alike. Port entry and pilotage together with the high number of safe anchorages make it a popular staging point for the international maritime trade. There is still a feeling among some port operators that Gibraltarâ&#x20AC;&#x2122;s strengths are not being utilised as much as they could be. With the number of ship calls at Gibraltar rising year on year, the need for efficiency becomes more acute. According to the Port Authority during 2007 a total of 8,351 ships called at Gibraltar compared with a total of 7,599 calls in 2006.

The sector continued to grow during 2007 with just over a 12 per cent increase in the volumes of bunkers delivered compared with 2006. A record 5640 vessels listed bunkers calls as the primary reason for visiting Gibraltar during 2007 up from 5402 in 2006.

Several notable events during the year highlighted the complexities of operating a safe and efficient commercial port. In particular, the New Flame incident in August clearly illustrated the need for a modern port navigation management system. The proposed installation of a new Vessel Traffic Services (VTS) during 2008 will be a welcome addition. It will enable port practises to be brought up to date and should go a long way to meeting the twin challenges of more efficient ship management operations in the port and the surrounding anchorages and ensuring port safety remains paramount. The new system should also enable the Port Authority to be extra vigilant of the anchorages off port limits that have on occasion been supplied directly by unlicensed agents operating out of Algeciras.

The departure of a marginal player at the end of the year is unlikely to have any long lasting impact, as they never managed to carve any meaningful share of the local bunker market. Concerns about reaching capacity in the port remain and these have been raised for a number of years. Some operators have upgraded their barges and this, coupled with the introduction of the VTS system, should enable greater efficiencies which in turn should help to alleviate capacity problems. Cruise Liners The number of cruise passengers coming to Gibraltar continues to increase year on year as the number and size of ships visiting increases. The Cruise sector enjoyed another record year with a total of 227 cruise calls bringing more than 276,000 passengers to the Rock. Around 40 per cent of cruise passengers coming to Gibraltar are British with the remainder being a mix of European and US tourists. Nevertheless the cruise business is fiercely competitive and several Mediterranean ports have invested substantial sums in recent years to attract cruise operators to their ports. Malaga, with 2.5 km of

quaysides, had the same number of calls as Gibraltar last year. Other ports such as Valencia did not have a cruise business ten years ago, but has managed to attract an increasing number of cruise operators. The Chamber has been liaising with Government to see how passenger flow could be made smoother so that passengers spend less time waiting to get into town and can be certain of a prompt return to their ship. It is hoped that the Chamber will be in a position to resolve this issue in time for the busy cruise season. Port Authority There is little doubt though that the port facilities are in dire need of investment. A brief walk around the North Mole shows a number of areas needing urgent action. According to Government accounts, actual port dues increased from ÂŁ1.6m to ÂŁ2.2m between 2000/01 and 2005/06.

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port & shipping services cont. Many of our members in this sector have commented to the Chamber that the number and increase in the cost of various port and related licences introduced in recent years do not appear to have had any impact on maintaining the portâ&#x20AC;&#x2122;s facilities. The ice factory remains an eyesore, loose asbestos roofing flaps in the wind, and parts of the roadway need to be resurfaced. Disembarking cruise visitors must be left with a rather bemused impression of the shabbiness of the port. These visitors bring income to Gibraltar and investment should be made to create a good lasting impression. The year saw the welcome appointment of Cliff Brand as the new Captain of the Port. His wide experience of the maritime business was a valuable addition to the

port and it was hoped his appointment would help to speed the transfer from the old Port Department to a modern and long-awaited Port Authority. It is therefore regrettable to report that as we went to press Captain Brand announced his resignation for personal reasons. Marina Developments When the Marina Bay development is completed over the next 18 months, it will provide a modern marina with over 250 berths. Several of these will be able to accommodate larger yachts of up to 100m or more. These berths are badly needed as there is a shortage of berths locally. The newly-configured berth layout in Marina Bay combined with the new waterside attractions will, it is hoped,

make Gibraltar an increasingly attractive port of call for the Mediterranean yachting community.

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tourism Airlines Many of the year’s local big business stories centred around air transport in some shape or form: the unveiling of the new air terminal and airport link road; the inaugural flights from Gibraltar to Madrid and subsequent scale back; and the sale of local BA operator, GB Airways to easyjet. The amount of upheaval in the sector looks like a portent of things to come. What seems clear is that none of these events would have occurred without the Tripartite Forum and without the Cordoba Agreement. A disappointment early in the year was the confusion and subsequent scrapping of the FlyGib project. The project had been announced with great fanfare during the Autumn of 2006, but it became apparent in

the first few months of 2007 that it was to be grounded permanently. News of the scaling back of the Madrid flights was jumped on by critics of the new air terminal saying that its construction would be a waste of taxpayer’s money. The existing terminal has served the local community well but it has become something of a relic from a bygone age. Tinkering to maintain the poor facilities is increasingly expensive and to little effect when the capacity to handle any up tick in aircraft numbers remains severely restricted. The investment in a modern air terminal which can handle the demands of airlines and air taxi operators is long overdue. Attracting new airlines and establishing new routes will take time but one thing is

certain: without the new terminal no new airlines would come to Gibraltar and the ones currently using the airport would have little incentive to promote the route. Also, without an increase in the air passengers, the local hotel market remains exposed to a business only, rather than tourist, clientele. Without an increase in tourists staying at local hotels no new hotels will come and this in turn will severely restrict the growth of the tourist market and particularly the well-heeled tourist that Gibraltar needs to attract. During the year, the Government took over the running of the airport. This means that the Government sets the levels of landing fees for aircraft using the airport. A long standing sore for airlines has been the high costs of landing fees at Gibraltar – more than three times those of Gatwick or

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tourism cont. Malaga for the same aircraft. The Government introduced significant cuts to the landing fees early in 2008 and it is hoped that this will encourage a measured increase in the number of services to and from the Rock.

types, particularly business visitors have managed to take up the slack somewhat. They also tend to generate higher margins. Crew transfers to and from merchant ships calling at Gibraltar also continue bring welcome business to several of the local hotels.

facilities. A consequence of the influx of new businesses setting up on the Rock has been an increase in demand for short term lets: from three to six months. One hotel has converted an entire floor to cater to this emerging market and the initial reaction has been very positive.

This is another reason for having a new modern air terminal. The airport acts as the feedstock for the local hotel sector. Without the airport the hotels would probably be largely empty. The hotel sector is unlikely to develop further unless there is a means to get more travellers to the Rock. That inevitably means more airlines flying from more routes to Gibraltar.

Tourist Facilities

That said, it is good that existing operators continue to invest and upgrade their

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tourism cont.

Hotel sector Occupancy levels have been directly impacted by the loss of the Manchester air link. One estimate indicates that this accounted for up to a 15 drop in stays in 2007 compared to the previous year. Weekday occupancy at the main hotels remained high during the year – at or around 70 per cent on average through the year - although it tended to drop off at weekends. The short stay tourist is becoming more elusive but other guest

Private and public sector investment illustrate the continued high level of confidence in the future of Gibraltar. The Government has invested in upgrading and improving the facilities of several areas in town: Orange Bastion, Chatham Counterguard, Fish Market Road and the Clock Tower next to the Market Place. EU funds also contributed substantially to these projects. The plan to beautify

Europa Point was announced during the year and work to transform this space should begin sometime during 2008. The Top of the Rock cable car station also underwent the first part of a tasteful refurbishment and further investment to upgrade and extend the facilities there are planned. The redevelopment of Kings Bastion, whilst not a tourist site per se, shows what can be achieved when modern facilities are combined tastefully with Gibraltar’s unique heritage. Indeed this could become a model for refurbishing, developing and operating other parts of Gibraltar’s derelict heritage. Taxpayer’s money is used to refurbish a public good but the private sector bids for tenders to operate and generate future income streams.

This creates employment, raises Government revenues and expands the number of tourist sites. Government figures show that receipts from tourist sites continue to grow but the overall level at £2.6m for 2005/06 would indicate that a relatively small percentage of visitors to Gibraltar take a trip to the various tourist sites. If this is the case it is reasonable to ask what more could be done to entice people to visit the sites when in Gibraltar. The Gibraltar Tourist Board (GTB) works hard with finite resources to encourage people to visit Gibraltar. They have been very successful in what they have achieved. As we commented last year though tourist expenditure is low on a per capita basis.

One way may be to introduce some new instant style games to the Government lottery. The Gibraltar lottery, with the current single fortnightly draw, appeals only to local residents. Day-trippers to the Rock have no interest in buying tickets for this draw. However, if the lottery could be augmented with a range of products such as scratch cards offering winners instant cash prizes aimed at day visitors and this was actively promoted, it might encourage an increase in spending by visitors. This money may then lead to more being spent in local shops and restaurants. The Chamber would welcome any suggestions which might encourage visitors to spend more during their visits to the Gibraltar.

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telecommunications The year saw the pace of change in Gibraltar’s telecoms infrastructure increase as Gibraltar’s 350 international dialing code was finally recognised by the Spanish authorities as part of the Cordoba Agreement. The switchover in February went relatively smoothly although a number of Chamber members reported that their overseas counterparts had experienced trouble getting through to Gibraltar. This seems to have been largely resolved by the year end although it is expected that there may be a rerun of this as the new extended numbering plan is rolled out during 2008. The Chamber has informed members of the key dates and has urged members to adopt the new plan early and inform their counterparts overseas accordingly. The need for the extended 8 digit phone numbers is because of the substantial

increase in demand for new phone numbers. Gibtelecom, the dominant local carrier, estimates that it will need a further 9000 lines in the next 2 years as Gibraltar’s strong economic growth continues. Growth in mobile usage slowed to around 7 per cent in 2007 compared with 2006 as the market moved into a more mature phase. Gibtelecom continued to invest and upgrade to its mobile network during 2007 and hopes to introduce 3G (third generation) services by June 2008. Gibtelecom also promised that these new services would be charged at rates similar to those available in Spain. The upgraded Ericsson system will enable pre-paid Reload customers to make outgoing calls while travelling abroad. They will also be able to top up their accounts via their phones or through the internet instead of having to buy scratch cards.

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telecommunications cont. The 3G service, new to Gibraltar, will give users access to high-speed internet from their mobile phones. Users will be able to make video calls and to view web-based TV on their handsets or on 3G-enabled laptops. Demand for these new services will depend on the availability of handsets and also on price although Gibtelecom is yet to unveil its precise pricing plans.

Sapphire, the other local telecom provider also invested heavily in its own network during 2007 so that it is now less reliant on Gibtelecom’s network than in the past. To date, Sapphire has focused primarily on the gaming sector, providing a muchneeded supplement to Gibtelecom as relatively long-term contracts for data communications services started to expire.

During 2008 Gibtelecom also hopes to introduce a Blackberry service although the small size of the local market will make it hard for Gibtelecom to achieve the economies of scale that allow for competitive pricing. Currently those using Blackberry’s services locally tend to subscribe to the company’s Spanish network.

Sapphire has invested in new routing and switching hardware from leading equipment manufacturers such as Nortel and Cisco, and class-leading DDoS (denial of service) protection from Toplayer, a key requisite for global web-based businesses. This greater level of redundancy will provide local businesses with a more resilient network, a broader range of services and, it is hoped, a progressive reduction in tariffs. During 2007 Sapphire also laid its own fibre-optic cable ring around the Rock – completed in the fourth quarter of 2007 the design of which results in no single point of failure. This ‘access network’ now has live access points in Europort, Atlantic Suites and Europlaza, with existing points at Eurotowers, Portland House and Watergardens currently being upgraded. Investment continues with expansion plans

to reach potentiallly up to 5,000 homes and businesses. The company’s new SapphireDirect product – a broadband offering using fibre right to the block, avoiding Gibtelecom copper cabling and allowing for improved bandwidth and pricing - will be available to more residential customers during 2008. Outside Gibraltar, Sapphire also installed its own fibre-optic cable between Gibraltar and La Linea. This is backed-up by an additional Telefonica fibre and a microwave circuit to Spain. From La Linea, Sapphire then uses two separate carriers over two separate networks (Telefonica and ONO), to connect with its location in Madrid. With the south of Spain traditionally the weakest link in the international communications chain to Gibraltar, Sapphire believes this was an essential addition to its own dedicated network and it will provide unmatched resilience to Sapphire’s international network. Sapphire offers Internet-based services as well as leased lines. For these, Sapphire’s network connects in Madrid to top-tier providers each of which specialise in different geographical regions. Sapphire’s network performance, in particular high-

speed/low latency combined with zero downtime, has attracted custom from local financial services industries and traders, where transactions are time critical. A third operator, CTS has been awarded a licence to offer ADSL services in 2008. Having a third provider in a market as small as Gibraltar is welcome as it continues to drive down tariffs and expand the range of services available to businesses and individuals.

property development Property Market Overview

Residential Sector

In common with markets elsewhere Gibraltar’s property market is cyclical and the point in the cycle that we find ourselves at the end of 2007 is an interesting one. Changes are expected across all sectors of the market but not necessarily the same changes and outcomes are likely to be different in each case. Nevertheless, the overall level of investment in property is expected to continue albeit at a slower pace but with a more precise focus.

The residential market has been the star performer for some time now, and the result has been a considerable boom of speculative development, both large and small with the vast majority of sales taking place off plan. This form of investment has attracted the speculator rather than the end user, and returns have been favourable.

steel and glass blocks evident in and around the Waterport Basin, and South District with further new similar blocks to come. This sector of the market has attracted most of the speculator interest and perhaps least of the end users. It is likely that these blocks will end up mostly empty like those around the Queensway Quay area, with the majority of those occupied leased to tax category residents.

The upper tier of the market is perhaps most noticeable, with the new stainless www.gibraltarchamberofcommerce.com 35

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property development cont. The signs for the coming year are that there will be an over supply of these luxury apartments and with the demand coming mainly from the tax category tenants. There will be a good choice of properties available, and as with the normal patterns of the best developments, those apartments with the most to offer in terms of views and furnishings will succeed in attracting the business.

It remains to be seen how the local market is affected by the worldwide credit crunch but up to now there has not been any noticeable trends that would indicate the dramatic decline in values suggested a recent survey by Deloitte. The residential market as a whole however has likely come to the end of the growth cycle but a steady demand is expected across all price bands to keep the market stable.

The local residential market is beginning to show signs of a slowdown in values but the overall trend towards home ownership continues most evidently at the lower price band, where the latest Government developed projects are close to being finished and occupied. This will reduce the pressure on the public rental sector.

Commercial Sector

The success of the subsidised house purchase policy is still very evident in the local market with many of the original purchasers in the Westside area, trading up with the benefit of good capital gains to newer blocks like Europlaza or elsewhere. The Upper Town has also become more popular with values growing and inward investment to refurbish older properties when the opportunity arises. This area however will never achieve its full potential unless the inequalities of the legislation relating to ‘Pre War’ properties is addressed and subsidised housing at the expense of the private sector ceases once and for all. Sadly, continued delays in this area have and will continue to lead to the destruction and decay of many of our older properties. Another trend that continues to affect the local housing market is the continued exodus of local residents to Spain, where the lower prices and lifestyle offered has been sufficiently attractive to outweigh the tax benefits of a local residence. Recent changes in the tax assessment reducing the impact of this loss will possibly increase the number making the move still further.

Capital Value Annual Rental Annual Rental (£/m2) Value (£/m2) Value (£/ft2) £3,000

£210

£19.50

£3,500

£245

£22.75

£4,000

£280

£26.00

The retail market continues to be dominated by Main Street, although with the completion of the Ocean Village development, there will be a new area for shoppers and tenants to consider, but this area is unlikely to compete with Main Street in the foreseeable future.

The commercial property market continues to be buoyant. The demand for offices is fairly difficult to gauge, as many companies are deterred from considering additional space by the fact that there is very little space available. Also, most of the new projects that offer offices are either pre-let or pre-sold, or have a long time frame attached for development such as the Mid Town development.

As with previous years, rental levels continue to rise, with the upper band of market rents in the region of £45 per square foot and premium payments ranging from £150,000 to £500,000, depending on the location and the size of the outlet. The area between Casemates and the Piazza remains the prime zone, with areas just beyond this zone up to Library Street and beyond to Cathedral Square becoming increasingly attractive to retailers.

Offices rent levels are rising after a long period of stagnation, a result of the huge over supply provided by Europort during the 1990s. The latest rent reviews and lettings agreed are in the £20-£25 per square foot range and further rises are likely.

Overall the local market remains stable and growth is likely to continue in certain sectors. However after a significant period of strong growth it is likely that the rate of growth will slow in the year ahead.

Some companies prefer to buy premises, and the price levels per square metre, whilst not yet competing with the upper levels of the residential market, are getting closer. The table below indicates the ratio between price and rent values.

Gibraltar Retail and Office Rents 1998-2007 £50.00 £40.00

Retail Rents (£/sq.ft)

£30.00

Office Rents (£/sq.ft)

£20.00 £10.00 £0.00 1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

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EU funding 2000-2006 Programme Achievements During the period nearly 120 different projects received co-funding across both the public and private sectors. Over 80 small local businesses have received funding for startups of for business development. Other milestones included: £1,000,000 Private Sector funds helped to fund new start-ups or business expansion 1000 m2 of industrial units for SME premises created £35m per year visitor spend increase over the period with a 20% increase 2004-2006 Applications for funding are evaluated according to merit and scored against a set of pre-determined outcomes judged to be beneficial to the local economy. They include such factors as the increase in number of people employed in the applicant’s business, increase in the use of information technology and the likely environmental impact of the applicant’s business if it are to secure EU funds. Applications that achieved the required score (or higher) were then submitted to the Joint Local Advisory Group or JLAG for wider consideration. (This only applies to projects whose grant element exceeds £10,000.)

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Under the Objective 2 of the 2000-2006 programme a total of 125 private sector projects were deemed eligible and received EU funding grants. The combined value of all these projects was £19.85m of which private financing funded around one fifth; just less than one half by the Government and one third came from the EU. The Chamber takes a very active role in the Programme and is represented and attends the various committees which consider the applications and recommend individual projects for funding. The Chamber has also been instrumental in assisting several local companies in applying for local funding and has worked closely with the EU Secretariat to try to ensure that those projects that are eligible can apply and subsequently receive funding. This has helped local entrepreneurs, created new jobs and generated income for the local economy.

Due to EU enlargement the new Programme will mean that Gibraltar receives a lesser grant than the 20002006 Programme. Nevertheless the grants are very welcome and they will enable many small and medium sized businesses to get established locally. Without the Programme a number of small businesses would simply not be able to get started. The Chamber looks forward to working closely with the EU Secretariat on the new programme, which is set to be launched officially in March 2008 and companies or individuals who wish their project to be considered for funding should in the first instance apply directly to the EU Secretariat in Europort.

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financial highlights Annual turnover up 20% at £88,876 (2006: £73,618) Net profit of £13,080 (2006: £2,458) Cash balance at year end £53,054 (2006: £30,157)

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report of the auditors To the members of the Gibraltar Chamber Of Commerce. We have audited the financial statements on pages 42 to 49, which have been prepared under the historical cost convention and on the basis of the accounting policies set out on page 45. 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 statements the honorary treasurer is required to: Select suitable accounting policies and then apply them consistently; 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.

Basis of opinion

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.

In our opinion the financial statements give a true and fair view of the state of affairs of the Chamber at 31 December 2007 and of its surplus for the year then ended, according to the best of the information and the explanations given to us and as shown by the books of the Chamber.

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.

BAKER TILLY (GIBRALTAR) LIMITED Chartered Accountants Honorary Auditors

Date: 19th February 2008.

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.

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THE GIBRALTAR CHAMBER OF COMMERCE INCOME & EXPENDITURE ACCOUNT

THE GIBRALTAR CHAMBER OF COMMERCE BALANCE SHEET

for the year ended 31 December 2007

As at 31 December 2007

INCOME

Notes

Subscriptions Deposit interest Other income

2007

2006

46,710

48,085

1,227

637

40,939

24,896

COMMERCE ANNUAL REPORT 2007

2007

2006

Notes

13,915

18,107

Stocks

552

Debtors

14,722

22,043

Cash at bank and in hand

53,054

30,157

68,328

52,752

5,787

7,483

NET CURRENT ASSETS

62,541

45,269

TOTAL ASSETS LESS CURRENT LIABILITIES

76,456

63,376

76,456

63,376

TANGIBLE FIXED ASSETS

CURRENT ASSETS Total income

88,876

73,618

EXPENDITURE Staff remuneration and social insurance

37,372

35,617

Office rent

6,408

6,052

Rates, electricity and water

2,369

1,455

23,400

16,293

5,000

270

5,977

6,743

75,796

71,160

13,080

2,458

General administration

Provision for bad debts Bad debt written off Depreciation

Total expenditure

SURPLUS FOR THE YEAR

CREDITORS: amounts falling due within one year

ACCUMULATED

FUND

Approved by the board on 19th February 2008. There are no recognised gains or losses other than those shown above.

G A Olivera Honorary Treasurer

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www.gibraltarchamberofcommerce.com 43

THE GIBRALTAR CHAMBER

COMMERCE ANNUAL REPORT 2007

THE GIBRALTAR CHAMBER

THE GIBRALTAR CHAMBER OF COMMERCE CASH FLOW STATEMENT

COMMERCE ANNUAL REPORT 2007

THE GIBRALTAR CHAMBER OF COMMERCE PRINCIPAL ACCOUNTING POLICIES

for the year ended 31 December 2007

NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES

2007

2006

Notes

23,455

(5,956)

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:

RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest on deposit account

1,227

607

CAPITAL EXPENDITURE Payment to acquire tangible fixed assets

INCREASE/(DECREASE) IN CASH

(1,785)

22,897

(2,076)

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

(7,425) 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.

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THE GIBRALTAR CHAMBER

COMMERCE ANNUAL REPORT 2007

THE GIBRALTAR CHAMBER

THE GIBRALTAR CHAMBER OF COMMERCE NOTES TO THE FINANCIAL STATEMENTS

for the year ended 31 December 2007

OTHER INCOME ATA Carnets Fees for certificates of origin and invoices

COMMERCE ANNUAL REPORT 2007

2007

2006

Leasehold

Furniture

Office

Air

Computer

1,098

1,110

improvements

and fittings

equipment

conditioning

equipment

18,246

11,330

35,515

9,128

20,696

6,527

7,990

79,856

1,025

760

1,785

35,515

9,128

21,721

6,527

8,750

81,641

24,334

8,055

17,361

6,527

5,472

61,749

3,946

557

655

819

5,977

28,280

8,612

18,016

6,527

6,291

67,726

7,235

516

3,705

2,459

13,915

11,181

1,073

3,335

2,518

18,107

Surplus on:

FIXED ASSETS Total

Cost

- Business centre

6,945

5,830

As at 1 January 2007

- Chamber dinners

5,664

4,929

Additions during the year

- Publications

7,800

- Other sales and services

1,186

1,697

40,939

24,896

As at 31st December 2007

Depreciation

2007

2006

955

2,991

Telephone

2,983

2,729

Printing, postage and stationery

4,006

4,272

Miscellaneous expenses

1,259

1,153

378

398

Entertaining

4,376

2,023

Office cleaning

1,604

1,837

Repairs and maintenance

1,308

890

910

2,395

784

1,725

717

23,400

16,293

GENERAL ADMINISTRATION EXPENSES Advertising

Insurance

Training Equipment hire Subscriptions Accountancy fees Professional fees

46 www.gibraltarchamberofcommerce.com

As at 1 January 2007 Charge for the year

As at 31st December 2007

Net book value As at 31st December 2007

Net book value As at 31st December 2006

www.gibraltarchamberofcommerce.com 47

THE GIBRALTAR CHAMBER

COMMERCE ANNUAL REPORT 2007

THE GIBRALTAR CHAMBER

THE GIBRALTAR CHAMBER OF COMMERCE NOTES TO THE FINANCIAL STATEMENTS

for the year ended 31 December 2007

STOCKS

2007

2006

Commemorative books, booklets and first day covers

252

Ties and shields

300

552

Stocks at the year end comprised of the following:

DEBTORS

2007

2006

Balance at 1 January

63,376

60,918

Surplus for the year

13,080

2,458

Balance at 31 December

76,456

63,376

2006

Subscriptions

8,631

9,250

Other debtors

5,839

12,501

2007

2006

252

292

14,722

22,043

Surplus for the year

13,080

2,458

Interest on deposit account

(1,227)

(607)

11,853

1,851

5,977

6,743

(250)

7,321

(9,193)

Decrease in creditors

(1,696)

(5,107)

Net cash inflow/(outflow) from operating activities

23,455

(5,956)

CASH AT BANK AND IN HAND

NOTES TO THE STATEMENT OF CASH FLOWS Reconciliation of results for the year to net cash flow from operating activities

2007

2006

At 1 January

30,157

37,582

Increase in stocks

Net cash inflow/(outflow)

22,897

(7,425)

Decrease/(increase) in debtors

At 31 December

ACCUMULATED FUND

COMMERCE ANNUAL REPORT 2007

2007

Prepayments and accrued income

CREDITORS: amounts falling due within on year

53,054

30,157

2007

2006

Creditors and accruals

2,397

6,879

PAYE and Social Security

3,390

144

460

5,787

7,483

Deferred income

Depreciation

10.

OTHER FINANCIAL COMMITMENTS At 31 December 2007 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

48 www.gibraltarchamberofcommerce.com

6,408

www.gibraltarchamberofcommerce.com 49

THE GIBRALTAR CHAMBER

COMMERCE ANNUAL REPORT 2007

Gibraltar: key information (All figures relate to 2007 unless otherwise stated) Population:

28,779

Total land area:

6.5 sq km

Natural resources:

None

Head of State:

HRH Queen Elizabeth II

Chief Minister:

Hon Peter Caruana QC

Languages:

English & Spanish

Business hours:

9am - 5pm Monday to Friday

Inflation rate:

2.6% per annum

Minimum wage:

£4.50 per hour (£175.50 per week)

AIRLINES & HOTELS:

Average wage:

£20,470 per annum

GDP per capita:

£20,848

Imports:

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

Registered employed:

18,485

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

Registered unemployed:

2.7%

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

Employment Growth 1996 - 2006

GDP Growth 1996 - 2007

20000 18000

800

16000

700

14000

600

12000

500

10000

400

8000

300

6000 200 4000 100

2000

0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Females

1996/7 1997/8 1998/9 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 (E)

Males

£m

Corporation Tax Resident Companies Small companies rate (Profits of less than £35,000 pa)

Tax Payable 33% 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 other than from an exempt company can apply foy Category II resident status. Applications should be made to the Finance Centre Director, info@financecentre.gov.gi

Tax Payable 2% of worldwide income capped at £20,000 per annum.

50 www.gibraltarchamberofcommerce.com