Associated with www.fiduciarygroup.com
The Gibraltar
Chamber Commerce OF
www.gibraltarlawyers.com
Trusted since 1892
2009 annual report & accounts
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 +350 200 78363 Fax +350 200 78990
w w w. g i b r a l t a r c h a m b e r o f c o m m e r c e . c o m
THREE
L.SACARELLO
ANNUAL REPORT
EST.1923
Magazines s Newspapers s Stationery s Office Supplies FOR ALL YOUR OFFICE SUPPLIES
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 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.
•
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
•
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
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, Jose Luis Bonavia.
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 Honourary Auditors: Baker Tilly (Gibraltar) Limited, Suite 5, International House, Bell Lane, Gibraltar
96 MAIN STREET • TEL: +350 200 78723 • EMAIL: presstat@gibnet.gi
www.sacarello.gi
FIVE
Contents Foreword
07
Politics & Economics
08
Wholesale & Distribution
16
Retail Sector
18
Finance Sector
19
Online Gaming
25
Port & Shipping
27
Tourism
30
Annual Accounts
32
Gibraltar: Key Information
42
Designed by: Colorworks Design Limited T: +350 200 74349 www.colorworksltd.com
SEVEN
Foreword 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@grantthornton.gi 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.
I am delighted to once again to present the 2009 Annual Report of the Chamber of Commerce. Like in recent years, 2009 has been a particularly eventful year with political developments again creating the highest level of interest closely followed by the recession and the financial turmoil that has gripped the world. The highlight of the year was undoubtedly the Tripartite meeting held in Gibraltar in July attended by the UK Foreign Secretary, Mr David Milliband, The Spanish Foreign Secretary, Sr Miguel Angel Moratinos and the Chief Minister of Gibraltar, Mr Peter Caruana. Whilst it was the first visit to Gibraltar of a governing Spanish Foreign Minister, it highlights the importance of the Tripartite Forum, and the importance it plays in our daily and future lives in a modern world which we all aspire to on both sides of the frontier. The Chamber, for its part, has long been a supporter of this process and members will recall that the last time a Spanish Foreign Ministry representative came to Gibraltar in 2007, the speaker at our Annual Dinner was Sr Jose Maria Pons who had also just concluded Tripartite talks in Gibraltar. Here in the Chamber we have also being doing our bit with the publication of the Economic , which was commissioned precisely as a result of the dinner speech made by Mr Pons.The Study has exceeded all our expectations and is dealt with in greater detail within the Annual Report but it is worth highlighting briefly the enormous impact that Gibraltar plays on the Campo in economic and employment and our Members should grasp this to seek further opportunities in the hinterland. 2009 also brought many political clouds to our horizon in the way of the waters dispute and the continued diatribe from the ex Mayor of La Linea who attempted to make access to Gibraltar difficult during the summer months. Gladly there is now a new Mayor in La Linea and the Chamber has already invited him to lunch and to discuss aspect of mutual benefit. On the former, we are glad that the British Government has lodged its own legal challenge with the EU and we hope that this will bring a quick solution to the problem. Gibraltar has historically been fairly insulated from recession and we are particularly glad that the current recession is blowing over without many traces in Gibraltar. Of-course the Banks have tightened up but generally speaking, businesses have held their own and this is due to the resilience of our business community and in some cases to the strength of the euro over sterling which has made Gibraltar cheaper to euro based tourists. Employment is still at almost 100% and in fact statistics recently issued showed that employment was on the up. If anything, recession usually has had a delayed impact on Gibraltar and coincides as the UK is coming out and therefore 2010 may still bring some surprises. We in the Chamber have always looked for positive signs that may bring growth to our members and the introduction of the 10 per cent rate for company tax as from 1st January 2011 should produce this and allow further expansion and growth in many sectors of the economy.
However, one area that is of concern is the reduction of flights to Gibraltar from the UK and Madrid/Barcelona. easyJet reduced their schedule to just one return flight in the winter and have announced no increase for the summer 2010. British Airways are rumoured to be increasing their schedule to twice daily in 2010 and this would be much welcomed as they alone offer Business Class which is so vital to our finance centre. Andalus Airlines continues to provide a sketchy service to Madrid and during part of the summer to Barcelona. The fact that during the winter a round trip to or from Madrid was not available does not augur at all well. It is hard to see this service having a long term future due to the high prices charged and poor service levels. In the 2007 foreword, mention was made that we felt that the traffic arrangements at the Spanish side of the border were not in the spirit of Cordoba. Whilst we urged the Spanish authorities on this issue in 2007, unfortunately the flow and particularly the appearance has deteriorated to an appaling level and we again urge for a rethink in this important area. By all accounts the Finance Centre has had another good year in 2009 and this is reported in depth in this Report. However the recent scandal involving Marrache & Co was not good news to Gibraltar and it is particularly important to be extra vigilant to safeguard our hard earned reputation as a Finance Centre of excellence. Mention has already been made that 2010 may bring surprises to commerce and perhaps no more so than to the Retail and Wholesale sectors who will have new challenges in an already tough market. With continuing unemployment in the Campo area reaching well over 20%, increased competition and price inflation due to the strong euro, it is important to control costs in all areas and as stated in the Retail Report, particularly on the already high level of rents. I am extremely grateful to the time and hard work dedicated by the Directors to Chamber especially in an age where demands are placed on our time. I would also like to thank our Chief Executive, Edward Macquisten and Sue McGowan who have worked hard and tirelessly throughout the year.
EIGHT
NINE
Politics & Economics 2009 proved Gibraltar impermeable to the threat of recession even when this engulfed our two most important commercial partners as are Spain and the United Kingdom. Collectively this was our greatest achievement for the year. We can all be proud of the result: Parliament for more than two decades of competitive tax policies, local banks for prudent lending practices, the private sector for organic growth and diversification principles and the general public for the stability provided to our economy by a large proportion of home owners whose efforts are the backbone of our economy. One other event stands out as significant. Specifically the first ever visit by a serving Spanish Foreign Secretary. Credit for this landmark achievement goes to the component members of the Tripartite process. Political success has many fathers or at least many claimants to paternity but not in this case. It is as if, despite the diplomatic success, opponents to the Tripartite process are still hopeful of a major reversal to put the clock back to a more “comfortable” position. A default position where siege politics offers the security of familiarity. The courage shown by the Chief Minister and the Spanish Foreign Secretary, in particular, to chart a path into unknown territory, despite a hostile Spanish media deserves special praise. The risk remains, however, that it may all have been in vain. Success for the Tripartite in 2009 gives no guarantee for success in subsequent years.The prospects for 2010 are cast in shadow. The looming dispute over territorial waters could prove a “bridge too far” for the Tripartite Process. It seems that the issue is unavoidable. In recent years the limit of our territorial waters has been tested as a result of the treasure claims on the seabed in a disputed area. The Odyssey saga has been further complicated by an apparent turf war between Sevilla and Madrid and also by partial success for the Spanish Government in the Florida courts. Gibraltar has found itself in a difficult position,
as if in partnership with the Americans when the fact is that from the limited information available it appears we stand to gain little or nothing from this episode. The New Flame, the Fedra and the latest incident of the VEMAOIL XX, which broke its moorings and was beached off La Linea, all point to the need for greater cooperation between Gibraltar and Algeciras for maritime rescue operations. Similarly numerous complaints and denials of pollution incidents in the Bay will serve to feed suspicion and mistrust. Equally incursions by the Guardia Civil into Gibraltar waters need to be classified into two categories: policing for environmental infringements pursuant to the newly designated “Site of Community Importance” as designated by the EU Commission, and policing for criminal, customs or immigration offences.There has long been a need for better police and customs coordination between Gibraltar and Spain. This need has been highlighted by the recent incident which resulted in the Guardia Civil chasing suspects inside Gibraltar harbour waters. An agreement which allows for mutual “hot pursuit” provisions and recognition of our respective criminal courts would establish the kind of working relationship as befits close neighbours who profess the supremacy of the Rule of Law. Taken all together and bundled under the heading “sovereignty” the issue is primarily a question of territorial waters. As such it is probably beyond the remit of the Tripartite Process and if it remains on the agenda it will only damage the process. A more pragmatic approach perhaps, with considerably less glory attached, is to cut and dice the various matters into their component parts under the heading “maritime issues”. These are clearly more manageable when they can be dealt with separately. If additionally the issue of sovereignty can be parked with the proviso that all sides reserve their position then the prospects of success are enhanced further.
Success for the Tripartite in 2009 gives no guarantee for success in subsequent years
Politics & Economics cont. Turning now to the economy, there are a number of issues that need to be aired.
GDP Growth Forecast (%)
A good starting point is to review what has happened on the world economic stage in 2009 and to consider the outlook for 2010 and beyond. Much as we predicted last year, 2009 really was an annus horribilis, with practically all advanced economies experiencing a significant drop in GDP. World output, according to January figures released by the IMF, declined by 0.8%. Across the advanced economies, the decline was some 3.2%, with the Euro zone suffering a 3.9% decrease. The US economy shrank by 2.5% in the same period. It was only the 2.1% output increase shown by emerging and developing economies that mitigated the overall downturn for the year. Closer to home, the UK declined by 4.8% and Spain by 3.6%. This overall drop in output was reflected in unemployment rates, which also worsened across virtually all advanced economies. Examples include: Advanced Economies (as a whole) 8.2%; USA 9.3%; Euro Area 9.9%; UK 7.6% and Spain a massive 18.2%. (In fact, the only country with a worse unemployment rate than Spain was beleaguered Latvia at 22%). Overall, a truly horrible set of numbers. What, then can be expected in 2010? In general terms, the recession triggered by the financial crisis of 2008/09 appears to have bottomed out in late 2009, with many advanced economies beginning what will likely be a slow recovery for 2010, although recovery rates will not be uniform. In this general scenario, the biggest concern is the sustainability of central government financing, giving rise to worries about sovereign risk. This has resulted from the unprecedented level of central government spending on various economic stimulus packages, the absence of which would have resulted in a deeper and more prolonged recession, given the serious reduction in consumer spending resulting from the near meltdown of financial systems. Although the legacy effects of the high level of public spending (read borrowing) remain to be played out, many economies will see modest growth over the coming year, although at a level of activity well below pre crisis levels. A brake on this will be the ability of central Governments to keep on borrowing at a time when the private sector led elements of the recovery may be too fragile to be sustainable. Some pundits are concerned that this could lead to a ‘double dip’ recession.World trade is also beginning to recover, with major emerging economies like China, India and other Asian countries showing strong growth in comparisons to their ‘Western’ counterparts. The recovery in commodity prices has also contributed to this. Again relying on the latest IMF figures the year on year projections for selected economies (for GDP, 2011 numbers are also included) are:
Country/Region
2010
2011
World
3.9
4.3
Advanced Economies
2.1
2.4
U.S.A.
2.7
2.4
Euro Area
1.0
1.6
Spain
-0.6
0.9
United Kingdom
1.3
2.7
Emerging/Developing Economies
6.0
6.3 Source: IMF
The above figures reveal a Euro zone showing only modest growth over the next two years, with the UK doing a little better while the Spanish economy is expected to contract further in 2010 and only returning to growth in 2011, with this growth expected to be only marginal. Also of note is the continuing strong performance of the developing economies, reflecting increasing manufacturing output as well as the continued firming up of commodity prices. While a modest recovery on output is expected, the picture on employment is not positive, with unemployment in the advanced economies expected to increase further in 2010. Modest recovery in the labour market is not generally expected until 2011, although some countries will be seeing improvements in the latter half of 2010. Unemployment Rates (%) Country/Region
2009
2010 (E)
Advanced Economies
8.2
9.3
U.S.A.
9.3
10.1
Euro Area
9.9
11.7
Spain
18.2
20.2
United Kingdom
7.6
9.3
Once again, it is the Spanish economy that is lagging behind on this indicator. (When we look at Andalucía, things are worse.) The recession is technically over but, much as predicted last year, the recovery will be modest and gradual. It needs to be realised that the recovery has generally been led by the expanding fiscal policies of central Governments, rather than by any consumer fuelled increases in final demand through the private sector. Banks continue to place emphasis on rebuilding their balance sheets and the flow of lending to both households and small to medium enterprises continues to be tight. Clearly, this is constraining the recovery. The other issue is the huge budget deficits that have resulted from central governments’ unprecedented levels of spending (borrowing) for bank bailouts and the various stimulus packages
ELEVEN
Politics & Economics cont. that have been central to keep economies more or less tottering along in the expectation of eventual market led recovery. This is a delicate balancing act, with attendant increases in perceived sovereign risk, as reflected by high yields in the bond markets. The risk of cutting off assistance packages at a time when private sector led recovery elements remain tenuous, and risking a double dip recession needs to be weighed up against mushrooming national debt levels. This is the essence of the problem affecting Greece, whose budget deficit at 12.7% is a huge distance away from the 3% Euro zone rule. (Greece is not alone in flouting these rules but it has the biggest problem in this respect. However, it would seem that at the recent EU summit talks, broad agreement has been reached in supporting Greece, in a bid to avoid a currency crisis for the Euro). Once again, it is the Spanish economy, the Euro zone’s fourth largest, that is of major concern in this respect, given that, apart from a very high budget deficit, unemployment rates are the highest of any advanced economy and the banks are considered weak. (We have yet to see the full balance sheet effects of highly reduced property values registered as loan collateral, which is considered a time-bomb for Spanish financial institutions.) At the January World Economic Forum in Davos, renowned New York University economics professor Nouriel Roubini, who is widely credited for forecasting the credit crisis/banking crash, had this to say in relation to the Euro zone issues. “If Greece goes under, that’s a problem for the Euro. If Spain goes under, it’s a disaster.” He also went on to say “…even the largest economies were now vulnerable, as financial markets were looking harder at the new phenomenon of rising sovereign risk on the ability of governments to service mushrooming national debt”. This exposition by Roubini elegantly focuses on the crux of the matter. Uneasy times are still ahead and there will be a concomitant need for Governments to tighten their belts further. Indeed, some of these expenditure restricting measures are either already being put in place or being mooted as reality grips, including freezes and cutbacks in public sector pay, the raising of the retirement age, cutbacks on capital spending, defence budget cuts and other unpleasant things. In this context, in mid-February 2010, the Bank of England, at the first sign that the UK economy may have come out of recession, albeit very tenuously, quickly put its Quantitative Easing (read printing money) programme on hold, in an attempt to tone down escalating public debt. What now of the Gibraltar economy? A quantitative analysis is not possible, given that publicly available data on relevant economic indicators is, notwithstanding our persistent lobbying, out of date. Currently available data reflects 2008 and is of little use, so we are once again consigned to the crystal ball and a qualitative assessment. What is evident, however, is that Gibraltar, to date, appears to have been largely unaffected by the economic turmoil discussed above. For this we must be grateful. Employment remains stable, GDP is provisionally estimated to have grown by some 5% to £850m in the year to March 2009 and a guesstimate would indicate further growth to some £890-£900m to March 2010.
Government finances appear to be robust. Clearly, we are doing something right and the combination of Government policies and the development of the private sector continues to produce results. However, although there appear to be no major setbacks on the horizon, some issues are worth raising at this juncture. As the Chief Minister said in his June 2009 budget speech, Gibraltar is not immune to happenings in the world. Although there has been no major impact yet, can we assume that this will forever be the case? Given that Gibraltar fundamentally depends on outside prosperity for its economic well-being, this would be a bold assumption. There are some signs that would herald a prudent view as to what the future may hold. Some major planned developments are on hold, as banks take a more cautious approach to commercial lending. (What is happening to the East Side reclamation? There has been silence on this lately.) At a time when there is said to be increasing demand for office space, this would constrain economic growth. The banks’ more cautious approach is also affecting households for house purchasing and general loan financing. Local businesses are also being adversely affected by this new stance from the banks. While this attitude is understandable, in view of world events, the constraints this implies for economic progress are clear. Another potential risk is the evolving story about alleged improper activities at one of Gibraltar’s high profile legal firms. While this issue remains to be played out, the potential repercussions for our finance centre, if the allegations prove to be substantiated, can only be negative. For the benefit of all, an early resolution is needed. What then is our message? In reality, it is simple. As has been said ‘Gib. Inc’ is currently in good health. Our Government should take advantage of this situation and use the opportunity to take a long hard look at both capital and recurrent expenditure, (We aired our feelings on this amply in last year’s Annual Report, so there is little point in repetition), and seek ways to contain this without prejudicing the level of service. We believe there is sufficient slack in Government service provision for this to be achievable at the recurrent expenditure level. In other words, let us strive for a more efficient public sector. One action could be to aim for a zero expenditure increase for our next budget. Given the uncertain effect the 10% corporate tax rate will have on treasury coffers come January 2011, as well as the expected concomitant reductions in income tax, efforts to contain budget excesses can only be prudent in a challenging world. This would have benefits all round. In the event that Gibraltar avoids serious economic shocks in the short to medium term, we will be able to increase our competitiveness in comparison to other jurisdictions. This will stand Gibraltar in good stead in the long term. Alternatively, if things do go bad, we will be better placed to ride out the consequences of a recessionary impact. There is a lesson to be learnt from what has happened to other Governments recently, as discussed earlier in this report. Ignoring these events is an unnecessary risk.
THIRTEEN
Politics & Economics cont. Finally, on economic events of 2009, we need to mention the report commissioned by the Chamber on “The Economic Impact of Gibraltar on the Campo de Gibraltar”. This study has been well received both in Gibraltar and elsewhere. It quantified what we had always felt but were unable to prove irrefutably: that the contribution of our economy to the Campo was both positive and significant. However, it is fair to say that the quantum exceeded our expectations. The headline figures show that in 2007, Gibraltar was responsible, conservatively, for over £420m worth of expenditure in the Campo, representing some 12% of the GDP of the hinterland. Also that Gibraltar accounted for one out of every six jobs in the Campo region! The study also showed the strong links between the two economies. Earlier in this report, we expressed our concerns at the state of the Spanish economy in general. The situation is worse in Andalucía. In the last quarter of 2009 alone, the economy of Andalucía shrank by 3.9%. Unemployment reached 26.3%, with Malaga province at 27.3% and Cadiz province at 28.7%. These are seriously bad figures. Prospects for recovery are weak. In the Campo area alone, there are around 37,000 registered unemployed. The financial woes of the La Linea city council are known to all. In the context of this sad state of affairs, with the resulting negative social impacts, we have seen the new Mayor of La Linea looking at Gibraltar in a positive light as a source of employment for Linenses. Even Mr. Landaluce has begun to soften somewhat of late. This is an opportunity to be grasped, as an impoverished neighbour does us no favours in the long term. “Needs must” is an appropriate metaphor, in this case even emanating from traditionally hostile PP politicians.This apparent change in attitude, if sustained by action, can eventually lead to good things for both communities. The Tripartite Forum is the appropriate vehicle to see this through and to evaluate what could be done for mutual benefit. We like to think that the Chamber’s economic study has been instrumental in this respect.
Budgetary Concerns In our 2009 report the Chamber called on Government to come forward with radical proposals to bring efficiencies to the least affordable items of recurrent expenditure. “In particular proposals to mitigate the costs of running a general hospital by joint venturing with a private sector entity”. This idea appears to have fallen on deaf ears as has the suggestion that we should embrace medical tourism as a solution rather than despise it as some form of stigma. Gibraltar, like the rest of the Western world spends a high proportion of its tax income on providing health care for its citizens. In the Estimates of Revenue and Expenditure for 2009/10, expenditure on the Health Service was estimated at £68.4m or 23% of total recurrent expenditure of £295.6m. Using a population figure of 30,000, this gives a spend per head 2,280 on an annual basis or £6.24 per day for every man, woman and child in Gibraltar. To put things into perspective, this would easily buy quality private medical insurance for all. The level of expenditure, already at an all time high, can only go up if current population trends persist. Gibraltar, in common with the rest of the Western world, has an ever-ageing population. This demographic trend will bring considerable extra burdens to its taxpayers: increasing budgets for health-care as well as ever greater demands on a Pension pool with proportionally smaller numbers of contributors.These are the consequences of an ageing population and the role of Government is to find a balance which does not overburden the younger working generation whilst not diminishing its care for the elderly. The challenge therefore is to anticipate future requirements and address the changing demands without either mortgaging future generations or skewing the economy. Much as we like to believe that the “status quo” of our Health budget is sustainable and that the current arrangements will last forever, the facts are otherwise.The provision of a free health
Whilst a modest recovery on output is expected, the picture on employment is not positive, with unemployment in the advanced economies expected to increase further in 2010.
FOURTEEN
FIFTEEN
Politics & Economics cont. service for all citizens has been in place for less than 50 years. It may seem that it has been there since time began and that it will continue in the same way, without costing the tax payer proportionally any more than at present and providing the same level of service as today, but these assumptions are misguided. We can take nothing for granted when it comes to meeting the future cost of health provision for our ageing society. Standing still is not an option. It is important to note that the General Medical Council in the United Kingdom now requires doctors with any speciality to produce a “licence to practice”, without this they will not be eligible to work in clinical medicine in the UK.To meet the “licence to practice” standard the requirement is for an annual “appraisal” and a five yearly ‘revalidation’. It is not clear how many but a large number of the medical posts in the Gibraltar Health Authority will no longer be accredited by the General Medical Council in the United Kingdom. Doctors in those GHA posts will fall short of GMC requirements for revalidation and will not meet the five yearly ‘revalidation’ tests. This would make Gibraltar a “dead end”, from a career perspective, for any young doctor contemplating an opening at St. Bernard’s Hospital. The GHA will find it increasingly difficult to recruit doctors from the UK and if the “licence to practice” standard is exported to the EU then the catchment area for new doctors will be further reduced. This can only be detrimental to the ultimate quality of future healthcare in Gibraltar. Public sector services are required to meet ‘value for money’ tests by comparing like with like between differed providers or by comparison with similar services in the private sector. Hospitals are subject to these tests just as any other service and similarly they are subject to general economic principles including that of ‘economies of scale’. This means that, to remain competitive, to warrant attracting the top consultants and recruiting the best doctors and nurses and to justify state of the art facilities, a hospital needs a significant number of patients. This minimum turnover correlates to ‘economies of scale’. A population of Gibraltar’s size would not normally warrant its own General Hospital because the minimum patient turnover would not be available. If, however, as a community we have decided, for good political reason, that independent Health provision, is a priority we should approach the challenge with an open mind. This challenge must be met on two fronts; we need to maintain and improve the standard of healthcare and also mitigate the cost of its provision. There is a growing debate in the United Kingdom, and elsewhere, about the long term sustainability of the provision of National healthcare. Gibraltar needs to open up this debate. It makes increasing sense, therefore, to consider options like sharing the costs of maintaining St. Bernard’s with a Private Sector Health Insurance provider. A joint venture or an agreement to outsource the hospital to a reputable entity would result in an influx of patients from outside Gibraltar. Increased numbers would satisfy the minimum turn-over required to provide a top level cost effective hospital. Medical Tourism is an opportunity which our proximity to the large expatriate community in Spain provides if we are willing to explore further. A successful venture may not only achieve sustainability for
our healthcare budget but even release funds to provide enhanced facilities for the elderly, including home assistance for those who wish to continue leading independent lives but need a safety net and back-up services.
Employment Service A recurring theme during the year has been the problem many members have experienced in their dealings with various government departments. This has been referred to in several annual reports over the years. At the risk of sounding like a scratched record there is still a lot of room for improvement in a number of departments. The Chamber was taken to task at the annual dinner by the Chief Minister himself who defended the civil service and refused to accept that the public sector is bloated. To refine the argument somewhat and in order to avoid “odious generalisations”, the Chamber’s principal concern about the civil service is less one of its overall size but one of its efficiency and in particular the availability of personnel to deal with issues that affect the business community. Let us be clear. Some departments are better than others and we recognise that there have been improvements in recent years that are welcome. Nevertheless certain perennial nettles still need to be grasped. The public counters for the submission and collection of documents at many government offices are only open to the public until 1pm throughout the year. For some departments where there is a continual need to interface with the private sector such as Employment (ETB) these public counter hours should be extended to include afternoons. Business does not stop at lunchtime. An alternative might be to have a satellite office located in the centre of town that would be more convenient for the majority of businesses in town.
Politics & Economics cont. Gibraltar Customs The volume and value of imports continues to rise significantly. Government statistics show that import duty receipts rose from just over £35m in 2006/07 to £47m in 2008/09. The increase in this single revenue line by one third in just two years highlights the importance of Gibraltar Customs, not just to Government, but also to traders and to the wider public. However, it is not just the role of revenue collection that Customs fulfils. They are one of the key mechanisms that enable Gibraltar’s economy to run. It is crucial therefore that the equipment, processes, personnel and training are all geared to ensuring this department functions as smoothly as possible. The implementation of the upgraded ASYCUDA computer system is an important and necessary investment. It should also help to speed up entry processing at the East Gate. There are times when this process takes an inordinate amount of time. The new system should enable the re-assignment of personnel to conduct direct vehicle inspections and reconciliation with items listed on the invoice. Established traders who have funds in their Customs accounts should be able to leave the import paperwork at the East Gate or email electronic versions direct to Customs and be permitted to import their vehicles without delay. The Chamber looks to Customs to ensure that trucks entering Gibraltar have the necessary paperwork to make deliveries to local suppliers. This is especially if the goods are in transit for delivery to a vessel calling at Gibraltar. Unregistered or unlicensed traders who take orders over the internet for fulfilment in Gibraltar should be prevented at the frontier from entering unless they pay import duty on the goods they are delivering.
At the civilian frontier entry it is noticeable that Customs officers have increased their vigilance of personal imports.The strong euro has also reduced the numbers of locals shopping in Spain. However, the Chamber is aware of several instances where duty values charged appear to have little or no relation to the value of the goods being imported. This is a bonus for the personal importer but again creates an unfair playing field for local traders. Customs officials should be able to check the value of VAT exports and compare this with the import duty actually collected. To further assist with this Customs should ask for VAT export office to be located close to the frontier to facilitate the interchange of invoices. Those individuals or traders who are found to be in breach of the rules, particularly for under declaration or non-declaration of goods, should be fined heavily or where they are unable to pay have their trade licence or other permits suspended.
Moving towards e-Government The Chamber is aware that Government is moving some of its activities towards an e-commerce platform.The implementation of this e-government policy is most welcome and the Chamber encourages the speedy implementation of this on behalf of its members and the wider private sector. If businesses were able to complete and submit forms to the ETB electronically or email Entry Clearances to Customs on the internet or via an intranet this would have many benefits for all sides: speed of processing, reduction in invalid data entry, improved cash flow and free up personnel to be re-assigned to other tasks and at the same time provide an up to date source of statistics. With so many benefits it is difficult to foresee any drawbacks in rolling out this platform into as many areas of government as possible.The sooner the better.”
There needs to be greater coordination between the Tax Office and the ETB in regards to employment contracts and in particular to the administration of terminations. Members have also commented to the Chamber than that there have been instances of poor record keeping of employment contracts and especially terminations that will not necessarily help ITO to monitor PAYE. Overall there seems to be inconsistencies in the co-ordination between the three key departments of Employment, Social Security and Income Tax. This has the twin adverse effects of potential loss of government revenue which costs us all in the end and in the additional time that businesses need to reconcile issues that should have been addressed at the outset. This is not a witch-hunt and the Chamber does not seek to apportion blame. Our members want to help government departments but in return the business community would like feel that taxes and other levies which they pay towards the cost of the public sector are valued and used efficiently. Ultimately, who is the customer? Some members take the view that the Employment Service is like an unofficial union as in some cases they have appeared to side with the employee as a matter of course rather than investigate an issue and resolve it equitably.
The Chamber was taken to task at the annual dinner by the Chief Minister himself who defended the civil service and refused to accept that the public sector is bloated.
SIXTEEN
SEVENTEEN
Wholesale & Distribution This decade started with high expectations for the global economy, the dot.com revolution was steaming ahead, the Euro was in its infancy having being introduced in January 1999 and all computer systems were expected to fail the second we entered into the new Millennium, the infamous Y2K. During this decade we also witnessed the effects of corporate and social globalisation on our lifestyles and aspirations. This global economic confidence and growth suddenly died in 2008 with the collapse of the banking sector, which in turn has affected countries and markets throughout 2009. This year has followed the closing trends of 2008 and has once again thrown new challenges to the wholesale and distribution sector as well as Gibraltar as a whole. The major problem that has affected a cross section of Gibraltarian businesses has been the collapse of two of Gibraltar’s leading construction companies PCG Group Overseas Limited, Haymills Gibraltar Limited and their associated companies. Whereas the Government has lost millions of pounds of unpaid PAYE and social insurance contributions, an equal amount of money has been lost by the local businesses, at a total cost to the Gibraltar economy that is estimated at over £5 million. Gibraltar’s leading builder’s merchants, hire specialists, plumbing suppliers, transporters and sub-contractors have borne the majority of this loss, yet they have not been offered any type of compensation from Government in relation to materials and services given to Haymills in respect of the low cost Government housing schemes. As a result of this, these businesses enter 2010 with a larger hurdle to surpass than other sectors. During 2009 we have seen two companies cease trading and their businesses or obligations passed onto what would appear to be related 3rd party companies. These were the Ministry of Defence contract awarded to PCG Group for works at Devil’s Tower Camp and Celebrities Wine Bar at Ocean Village, both with the apparent blessing of the counter party, namely the Ministry of Defence and Ocean Village.This practice of condoning “phoenix”
operations, where one business rises out of the ashes of another is damaging for the Gibraltar economy and its reputation for being well regulated, whilst at the same time leaving Gibraltarian business with unrecoverable bad debts. It is essential that this practice is nipped in the bud with relevant changes to our legislation. As we are all aware, Gibraltar is a sterling-based economy, yet due to its physical connection to Spain it is highly intertwined with and affected by the euro. The strength of the euro has fluctuated over the last year, reaching lows of near parity to highs of 1.18 to the pound over twelve months. These fluctuations are a double-edged sword for the Gibraltar economy and in particular the wholesale and distribution sector. The strong euro has increased the cost of the majority of imports into Gibraltar such as clothing, food products, wines and spirits, cigarettes, water and other consumer products as well as building materials, bedding & furniture. However, in many cases these increased costs have been absorbed by the importer, as otherwise Gibraltar’s competitiveness would be adversely affected. Businesses continue to explore sourcing from countries outside the eurozone, where the effects of the weak sterling are not as noticeable. The other side of the coin is that businesses have undoubtedly benefited from the weak pound, which in 2009 saw residents from the Campo and from further afield visit Gibraltar to maximise their spending power and stretch their household budgets. By the same token, due to the high levels of unemployment in the Campo, the spending power of these shoppers is not as strong and their visits not as frequent as last year. This curious mix of shoppers has helped the wholesale sector smooth an extremely challenging year. The effects of the turmoil in the banking sector have been felt in Gibraltar in 2009. Banks appear reluctant to offer new facilities to businesses and when they do, the terms being offered are considerably higher than those being offered 12 or even 24 months ago despite historically low base rates. Gibraltarian businesses have a reputation for being conservative yet
Gibraltarian businesses have a reputation for being conservative yet entrepreneurial and steady, something the banks could learn from, yet they seem to be paying the cost of the mistakes made by the banks.
Wholesale & Distribution cont. entrepreneurial and steady, something the banks could learn from, yet they seem to be paying the cost of the mistakes made by the banks. Following the credit crisis one of the newest problems facing local wholesalers and other importers is the inability of credit agencies and their insurers in the United Kingdom, Spain or other European countries to cover risk of the goods sold by exporters in these countries to Gibraltar-based businesses. This in turn has resulted the withdrawal of credit facilities and lowering of credit ceilings to some Gibraltar business, as a consequence of which goods have to be paid in advance.This has a significant impact on the company’s cash-flows and its ability to do business. Traffic problems and congestion have continued to plague Gibraltar in 2009 and this problem has been further aggravated by the works on Devil’s Tower Road and also at the new Trafalgar interchange. On a normal day, it can take a delivery by any other types of vehicle up to 30 minutes to travel west along Devil’s Tower Road and reach the Cross of Sacrifice roundabout, before it reaches its final destination. The cost of these delays is immeasurable and is adversely affecting the delivery times of businesses. Those businesses that are located along Devil’s Tower Road, the North Front area and Sir Herbert Miles Road and have to deliver into Main Street and other pedestrianised areas are struggling to reach and deliver to their customers before the 10 am window closes. It is surprising that works on these two sites are not carried out seven days a week. Working on weekends would accelerate the completion dates of these two projects as the number of commercial and other vehicles on the roads is lower.
As mentioned in last year’s report, the 5% ad valorem tax that was introduced on alcoholic beverages a few years ago has been instrumental in the demise of the duty-free sector as Gibraltar has become uncompetitive in the supply of alcoholic beverages on a duty-free basis to vessels calling at Gibraltar. This is further aggravated by the uncontrolled and liberal access to the Gibraltar market by Spanish ship chandlers. As their goods are in transit to the vessel, the Gibraltar economy does not earn any revenue from this operation, and in turn undermines Gibraltarian businesses that do pay duties, taxes, and overheads and contribute to the economy. This loophole must be closed through legislation, so that Gibraltarian businesses can exploit opportunities in this sector and safeguard the employment of their work force. As we enter a new decade, 2010 is expected to be even more challenging on the entrepreneurial spirit of the business community. The ripples of the collapses in the construction industry will be felt even more strongly once the Government’s low cost housing projects are completed and the many purchasers pay mortgages and utility bills for the first time. It is expected that unemployment in the construction sector will rise as the projects near completion. Businesses will need to be keep a tight control on overheads and capital expenditure programmes and possibly deferring non essential expenditure. Being a partially closed economy, any expenditure curbs by one company will inevitably affect another business that is dependant on this revenue.
EIGHTEEN
NINETEEN
Retail Sector
Finance Sector
Generally speaking 2009 has proved to be a difficult year for most retailers. Whilst the weakness of sterling has attracted more visitors to Gibraltar it is noticeable that these visitors have had less to spend. Certain retailers such as Morrisons and a few others have benefited from this situation. However most have suffered as there has been little or no growth, costs have increased and margins have fallen. In the Chamber’s opinion, the long-term prospects of the retail sector in Gibraltar are not good.This is of concern especially as, together with wholesale, the sector currently employs nearly 3,000 people. Increasingly traders are finding it difficult to compete with similar businesses in Spain or with Internet sites even though the strong euro should benefit Gibraltar. Currently most visitors are attracted by specific retail businesses operating franchises, which are not available in Spain or by a very small basket of specific products, which offer very attractive savings. The Government urgently needs to look at the general competitiveness of retail products and consider restructuring how it collects import duty as a way of improving the situation. We have long advocated that the retail trade must adapt and change to ensure that the sector survives and to their credit, many businesses have invested significantly over the years to adapt their retail offer. Today Main Street and Irish Town in particular bear little resemblance to how they looked twenty or even ten years ago. Nevertheless, there are too many retailers trading in the same products. Many outlets are engaged in outdated practices that are
counterproductive. For example many do not display their prices and the price for their products is subject to negotiation. Others offer a mismatch of products many of which cannot be properly displayed. Retailers must be encouraged to display their prices and to limit their range to categories that go hand in hand.The Chamber does not want to be prescriptive about how or what retailers should sell but some traders need to move with the times an modernise not just their stores but their way of operating. Some retailers have invested considerable sums and have diversified into other areas of business. However the risks are considerable. Costs are high with rents in some areas of Main Street at unrealistic levels. In many cases retailers are faced with unfair competition from substandard or counterfeit goods or from traders who do not properly register their staff. The Chamber has continued to lobby the Government to introduce Trading Standards Legislation with a properly resourced Trading Standards office. The Chamber further urges the Government to increase resources to ensure that traders employing unregistered labour are dealt with firmly. One long established and diversified retailer with a number of outlets recently commented to the Chamber that there are a couple of new lines of business that he would ideally like to introduce but at the current levels of rent and costs, the risks were too great. It is poignant to note that there are currently eight vacant premises in Main Street.
With the compliments
of
S. M. SERUYA specialists in Perfumes & Cosmetics 2, 59, 107, 151, 165, 187, MAIN STREET
GIBRALTAR
Banking As we noted in last year’s Report, 2008 was the year that saw the global economies and the relationship between those that supply financial services and those that buy them change forever. 2009 has been a year of two halves and also a year where those that ended 2008 stronger and made the right decisions. or indeed were able to, emerged stronger whilst those that did not, or could not, were left behind in many respects. Unquestionably the global economy has shifted and those companies and individuals with a strong strategic direction and a fair bit of luck have improved their lot. Inevitably, there are others that now feel poorer and are unable to move quickly enough into those areas of opportunity that present themselves at times of such upheaval. So the man in the street generally feels poorer and is being hit by rising costs from all sides.Those that have been able to curtail their expenditure and who, importantly, are not highly leveraged, have weathered the storm well. Equally at the corporate level, most companies have to borrow for cash flow purposes and that the banks have not been immune to this upheaval is well recorded. Banks have been forced to curtail their lending because both governments and regulators have forced them to rebuild their capital bases and have tightened the rules on what is acceptable. The interbank market also eased up from its 2008 seizure as governments stepped in to provide much needed liquidity.
The year of two halves was defined by the perception (if not necessarily backed by figures) that the recession ‘bottomed’ out in the UK in the summer. We have seen some easing of the global situation towards the beginning of Q3 but the recovery, if we may call it that, has been fragile and is likely to remain so. Gibraltar continued to buck the trend in many respects during the year, although the slowdown elsewhere became more noticeable as the year progressed. We do not see the extremes as much in our economy and we have seen a number of Government-led projects filling the economic gap. That is not to say that we are completely immune from what happens in the UK and Spain, our two closest and most significant trading partners. Britain continues to show signs of a fragile recovery but has the spectre of a general election in 2010 hanging over it. This is not good for leadership out of a financial mess. Spain similarly has many issues to deal with and these have unquestionably had an effect on Gibraltar. For example, on those banks that lent to buy properties across the border whose prices are starting to fall in value or who depend on the flow of HNWIs to the costas. Our banks have continued to play their part in oiling the wheels of the local economy, the larger ones being UK-centric in particular have been affected by their Group strategies elsewhere. Nonetheless, they continue to lend to both individuals and companies and we have seen little hard evidence of the predicted
TWENTY ONE
Finance Sector cont. doom and gloom on Main St or in the related property market. However, it is true to say that a reality check has been evident and those that in the past may have been allowed to overstretch themselves or who may have got away with less than up to date trading figures, are now finding the going harder than ever. This is no bad thing. On the other hand, those banks that have private wealth management at the core of their offering have seen the rich get richer but even so there was a pronounced reduction in the number of Cat II compared to the previous year. Lawyers, accountants, fund and investment managers as well as insurers have all felt the pinch, but the finance sector continues to motor on albeit at three quarters speed for now. In all of this it is true to say that companies will take opportunities to restructure their operations and blame the recession. This is partially true but one has to consider that the object is survival and jurisdictions will be affected in different ways, depending sometimes on nothing more than luck. We have seen some of our competitor jurisdictions being asked some stiff questions about their level of regulation; we may yet face this and complacency is not something we should allow. Our regulations, the quality of the players in the finance sector, our taxation structure and our workforce and geography will all
continue to be attractive draws. Nevertheless, small jurisdictions like ours will always suffer disproportionately by issues that larger jurisdictions would otherwise easily absorb. eg, Gibraltar would sorely miss even one bank closing down, particularly a retail bank. It is critical that all players in the sector are encouraged not only to stay, but to raise their game and expand their services and products and ensure greater competition and quality of service. For locals and non-locals alike, the sector must continue to strive to make Gibraltar their destination of choice.
Insurance Gibraltar’s insurance sector ended the decade in 2009 with the number of insurance and reinsurance companies licensed in the jurisdiction totalling 63, which compared to 13 at the start of the decade in 2000. In addition there are also over 30 cells belonging to 5 Protected Cell Companies. The growth of the insurance sector started with captive insurance companies set up to insure the “first party” risks of the parent company. It is very much more diversified today including PCCs and long-term, aka life insurance companies.There are many more open market insurance companies established today in Gibraltar writing ‘third party’ risks, that passport their services into the EEA member states.
TWENTY THREE
Finance Sector cont. Gibraltar now boasts a motor insurance market of international significance, which underwrites approximately 8% of all business in the UK motor sector, more than Lloyds of London. Markerstudy, the first entrant into the Gibraltar motor market has recently bought one of the later entrants, Zenith although the biggest names are probably Admiral & Saga presently. The motor market, in common with all other Gibraltar insurance companies, benefits from a close level of engagement with the Regulator. The rapid response of the FSC as Regulator has been an abiding advantage of Gibraltar relative to other jurisdictions and one that Michael Oliver has been excellent in sustaining since he arrived in Gibraltar. The Gibraltar Insurance Institute (GII) sits alongside the GIA with a focus on training and education in insurance. Led by President Andy Baker the GII is extremely active and membership at 31.12.2009 stood at 149. An application has been made for the GII for Associated Institute status of the Chartered Insurance Institute, last achieved by Ireland some 20 years ago. 2009 was the final year of Penny Hudson’s 3 year tenure as Chairman of the Gibraltar Insurance Association. During her terms in office the engagement levels of the member insurers and intermediaries has increased substantially. The outlook for insurance industry growth is extremely positive having been given further impetus by the development of tax certainty and Gibraltar’s achievement of a “white listing” by the OECD. The GIA
has a clear strategy for the future, which will be driven by the new Chairman Paul Sykes and Vice Chair, Angelique Linares.
The Funds Sector It was a year of further steady growth in the popular Experienced Investor Fund regime with the number of EIF Funds now standing at over 60. The main sector participants believe that there are many reasons why the fund industry in Gibraltar will continue to grow. The financial market crisis which deepened during 2009 set off a witch hunt looking for someone to blame for the whole meltdown. The dealings of hedge funds came under particular scrutiny from governments and regulators alike. Investors themselves began to shun some offshore centres and turn to the relative safety of transparent and sound regulation offered by fund vehicles particularly in EU jurisdictions. This trend has been further advanced within the hedge fund world, by the spectre of the EU’s proposed Alternative Fund Managers Directive, currently due for implementation in 2011. This Directive will tighten the regulations applying to hedge fund managers and seeks to restrict the distribution of non-retail funds which are not based (i.e. registered, managed and administered) within the EU. As a consequence, many managers are now looking to relocate to EU fund centres as a base for their products to facilitate distribution.
Valuing Gibraltar • Surveys • Valuations • Property Advice
WATERGATE HOUSE 2-6 CASEMATES P.O. BOX 1418 GIBRALTAR. TEL: (350) 200 46579
TWENTY FOUR
TWENTY FIVE
Finance Sector cont. In the retail funds world, the EU Directive on UCITS IV is nearly upon us.This Directive further opens up distribution of retail funds in the EU and presents opportunities for Gibraltar to participate. Gibraltar’s drive to obtain “white list” status on the OECD list of tax jurisdictions also bore fruit towards the end of the year, and this should help to attract further business to the jurisdiction. The Gibraltar Funds and Investments Association, “GFIA”, formerly GASIM, underwent internal change and modernisation during the year, and now, through its new working committees on Technical, Training and Marketing, is ready to meet the challenges presented by this emerging market place.
ATCOM The Association of Trust and Company Managers locally known as ATCOM is a representative association that has a membership in excess of 30 companies, which includes well known names such as PWC Abacus, Deloitte, Sovereign, STM Fidecs and Finsbury among others. These companies employ hundreds of the people in the Finance Centre and through taxation and social insurance they contribute significantly to the social welfare of Gibraltar. ATCOM’s role is to represent its views, on behalf of its members, directly to Government, regulators and other members of the financial services industry. Additionally, ATCOM forms part of the Finance Centre Council, a Government consultative body that comprises of the head of all finance centre associations (Law, Accounting,Trust, Company Managers, Banks, Investment Advisors, Insurance, Funds Managers and Fund Administrators). Its role within the FCC is therefore important as representations through the FCC can often by sheer mass of support be more effective.
Online Gaming Inevitably the industry faces challenges.These include Exchange of Information Agreements. Tax avoidance or simply basic tax structuring will be confined to the history books as more and more exchange of information agreements are signed, but as Chairman of ATCOM I can safely say we are well placed to face those challenges and more and more business is about find quite legitimately competitive tax jurisdictions from which to manage ones business or personal assets. The business is becoming more sophisticated and as a result so are our members. Moreover, whilst the traditional business model involved high volume of clients with relatively modest fees, most of our members are finding that we have better and bigger clients many corporate clients looking for a competitive edge which they can establish within a low tax jurisdiction. The savings can be considerable and inevitably clients are prepared to pay higher fees. Gibraltar already on the OECD white list will see 10% corporate tax by January 2011 and the Government has committed itself to lowering personal tax soon after. With no capital gains tax, no VAT, no investment tax and no inheritance tax and the professionalism of the community, Gibraltar is increasingly becoming a place from which many serious companies want to do business.This all means to the industry that despite the current changes and the global slow down we are well placed to flourish. I believe the future for our members will be more profitable than ever and that general feeling of cautious optimism can be found throughout the industry. Whilst this year may be a little tough, roll on 2011. Nicholas Cruz, Chairman, ATCOM
Gibraltar’s drive to obtain “white list” status on the OECD list of tax jurisdictions also bore fruit towards the end of the year, and this should help to attract further business to the jurisdiction.
The move from tax-exempt status to the new tax regime in January 2011 has still not been resolved and this is a cause for concern within the sector. It is less than twelve months away and companies need to be able to forecast and plan accordingly. In a similar vein there are concerns from sector participants around EU VAT provisions and the supply of electronic entertainment services.The treatment of these provisions remains unclear in certain jurisdictions and at the general EU-wide level. In the last few years there has been an increasing trend among authorities, particularly within the EU, to introduce their own local/national regulation which requires offshore operators to establish themselves and their infrastructure within the national territory in order to obtain a licence. Some of these licenses have unattractive commercial terms attached. In addition, some of the conditions set by EU member states are in direct conflict with Article 49 of the European Treaty that sets out the principles of Freedom of Establishment and the rules governing freedom to provide cross border services. These principles should be defended robustly and not be permitted by nation states to be interpreted to suit individual wants or protect local monopolies.
The UK government is reviewing the White List, which currently allows Gibraltar-licensed operators to advertise and market within Great Britain.The Chamber has made representations along with the sector on this matter in the past and it is disturbing to see that vested national interests have resurrected this once more. One change being mooted is that there may be a requirement to obtain a licence to advertise nationally which may in turn attract a tax liability.The review is at an early stage so it is too early to offer detailed comment. Competition within the sector remains as intense as ever and the economic slowdown continues to squeeze operator margins for all participants. There have been some new arrivals on the Rock during the year but the usual challenge of the small talent pool continues to make recruitment of locals more difficult than in many other jurisdictions.
TWENTY SEVEN
Port & Shipping Bunkering Activities Bunkering volumes continued to increase year on year with the total volume delivered in 2009 rising 11% to 4.7 million tonnes. These volumes were delivered by the same number of participants with no new entrants seeking to enter the market during the year. Volumes in the neighbouring ports of Algeciras and Ceuta also showed growth, and it became clear that both ship owners and charterers have been scrutinising each of the three ports and making their choice on price, availability and speed of delivery. Bunkers remains the principal purpose of call for all vessels calling at Gibraltar with bunker vessel calls from increasing by 14.5% compared to the previous year. These figures are encouraging given the world recession and highlight some of the unique and attractive features that Gibraltar can offer: good geographical positioning and healthy competition. The only area of concern is congestion, often caused by bad weather when vessels have to wait entry into Port for many hours. It is hoped that the long-awaited investment in the integrated vessel tracking system (VTS) will alleviate in this.
Cruise Liners Gibraltar continues to market this sector actively. 2009 was a very positive year with the arrival of 238 vessels bringing in a total of 348,000 passengers. However, the outlook for 2010 currently looks as though there will be a small decrease in the number of vessels calling, although passenger numbers might still increase given the growing capacity/size of vessels calling. In order to keep the Port of Gibraltar competitive against the neighbouring Ports of Malaga and Cadiz, the Port Authority has, wisely in our view, not increased passenger tax and continues to
give discounts on liners that make multiple calls here. Given the competitive nature of the sector it is critical that Gibraltar seeks to preserve, and where possible increase, volumes as once a cruise line stops calling it may prove harder to encourage them to return.
Port Authority 2009 has seen the transition of the Port Department into a Port Authority, and with this, an increase in port tariffs. Initially this caused some concern within the industry, but has shown no indication of affecting our competitiveness. We will, however, need to monitor this years proposed increases closely and be alert to any signs of these affecting numbers of vessels calling. The investment in a new fully integrated VTS system (see above) is an important step forward given the increase in marine traffic in the Bay and just as important will be the training of the staff that operates it. The opening up of the Eastern Anchorage is also an important step forward, and this has given the Port Authority a new revenue stream. At the same time it has enabled the Authority to take control of vessels anchored there. Political considerations aside, it has also opened up new business for local agents. All vessels that are not calling into Port for bunkering can now be serviced on the Eastern Anchorage and this has alleviated congestion in the Bay anchorages. Although bunkering is not allowed on the Eastside this should be seriously considered if volumes are to be grown. With the Authority now essentially self-funding, it is hoped that this will result in an upgrade and improvement in the Port’s infrastructure facilities.
Gibraltar is seen as a safe, efficient and friendly jurisdiction to carry out ship arrests on behalf of mortgagors who seek to protect and reclaim their assets.
TWENTY NINE
Port & Shipping cont. Agency/Port Operators There remain a healthy number of local agents and there has been a steady increase in the number of Port operators being licensed. However, as we have said in previous annual reports and elsewhere on many occasions, a level playing field must be enforced and non-licensed operators should not be allowed to trade in the Port area. Restrictions at the Spanish land border restrict further growth. Local companies are prohibited from servicing vessels in neighbouring ports such as Algeciras with goods supplied from Gibraltar unless these companies are fully registered in Spain. Within the sector locally, there is a widely felt and justifiable view that Gibraltar should maintain a mutual stance. We look to Government and in particular to Gibraltar Customs to remain vigilant in ensuring that any goods entering Gibraltar “in transit” should be handled by a locally licensed operator. If not, the goods should not be permitted to enter Gibraltar.
Despite the current economic crisis not having affected the Port’s core bunkering business, there have been other spin-off benefits that the Port has brought to the economy. There has been an increase in vessel arrests that generate lucrative work for specialist local lawyers, the Port Authority itself and for agents who have to attend to the vessels and crews. Gibraltar is seen as a safe, efficient and friendly jurisdiction to carry out ship arrests on behalf of mortgagors who seek to protect and reclaim their assets. Crew changes, stores, charts and spares are all important and steady revenue earners for the local economy and many in the sector have continued invest in all these areas to provide greater facilities for the seafaring community calling at Gibraltar. The very positive secondary economic effects of crew changes on local hotels, taxis, restaurants and travel operators should never be under-estimated. These activities continue to provide much-needed revenue at a time when elsewhere many are feeling the pinch.
In order to comply with new international regulations there is a recognition that the work of a Port Agent has become more complicated. There is an increased need for staff training in order to maintain the high standards required.
General Ship Chandlers & Suppliers to Industry Supplying vessels in Gibraltar, Spain and off port limits
Tel: +350 200 44101 • Fax: +350 200 42411 Email: enquiries@euroshipsupplies.com • Web: www.euroshipsupplies.com
THIRTY
THIRTY ONE
Tourism Sector The Tourism Sector It is with increasing concern that the Board submit our Tourism report noting very little has changed in 2009. During the latter part of 2008 and early 2009 the Board Directors engaged key industry players to formulate a Chamber strategy for Tourism and this was discussed with the incoming Minister Britto as well as members of the GTB. Whilst our conclusions and ideas were enthusiastically received we have seen no tangible progress and now really must question whether this Government views Tourism as a pillar of the economy or as a convenient cash cow whilst not really understanding the indirect benefits to our economy and the importance of maintaining a more diverse income base which this Government proudly defends. Taking all the above into account, this years report reiterates a great deal of what has already been said.
Our product No one will argue that our proposition is becoming increasingly tired, lacking of investment and innovation in terms of product development. This is against a backdrop of recognition by many international locations of the value of tourism as a wealth generator. Very few of these locations however have our natural appeal and unique characteristics. The Upper Rock, our jewel in the crown, remains under-invested in and is missing an opportunity. The Chamber feels the Reserve would be better managed through private enterprise requiring significant
Tourism Sector cont. long-term investment and this would produce the desired visitor experience. Even if kept under Government control, any proper investment would in our opinion be self-financing through a proper charging structure which would then have plenty of scope to be increased significantly. We would suggest that a properly designed, developed and smartened up Nature Reserve experience could easily attract an entrance fee of £20 - £25. The hotel sector also needs new players for both the business traveller (a potential new source of higher spending tourist) and a family style operation. The Government could look to complement Gibraltar’s on-going success as a finance centre to develop a higher calibre of discerning visitor creating far greater cross-selling opportunities to our small and medium sized business sectors as well as creating opportunities for enterprise and entrepreneurs. The Chamber acknowledges the Government are keen to see progress in bringing hotel operators but as at the time of this Report going to press we are unaware of any tangible progress.
Cruise Liner Calls Whilst an effect of the global downturn as opposed to the Government’s positive support of this sub-sector it is clear from available information that 2010 will see a marked downturn. This has been the flag bearer of the Government’s tourism strategy for the last 10 years so whilst we believe this should bounce back in 2011-12, more importantly this proves that with the right energy and vision we
can create a highly valued, diverse income source for a vast range of Gibraltar based businesses through expansion of our tourism product. As we reported in our last Annual Report, the Chamber is not aware of any significant study to be conducted on the sector since 1996 - 14 years ago. One point which became clear was that the Government had implemented a number of the recommendations made in both these papers in the intervening period, ranging from the beautification programmes to infrastructural improvements to tourist facilities such as the land and sea entry points. The success in the development of the cruise line sub-sector was of particular merit. But other destinations have also been hard at work and further improvements in the tourist infrastructure are still needed urgently. The Chamber therefore recognises that, at the time, the Government did indeed implement and progress a number of recommendations however this invigoration driven by Minister Holliday now needs a new lease of life.
Other niches continue to develop albeit from small bases: Ornithology tours, botanical tours, natural history and military heritage tours are all niches which Gibraltar could develop and serve well.
Granted the Government is currently spending unprecedented sums on the airport and related works. The timing might be unfortunate given the current economic downturn but such infrastructure improvements are necessary. Nevertheless, a much lesser amount could make some stunning and long overdue improvements to the tourist product, particularly on the Upper Rock. And as each year passes the state of dereliction worsens.
Suite 10B, Leanse Place 50 Town Range PO Box 842, Gibraltar Email: mainoffice@aquagib.gi
Our other prized asset, our shoreline, is another example of poor innovation and investment. Given our size, why can’t Gibraltar have some of the nicest beaches in the area? This is a low cost development in relation to other big spending projects Government seem keen to invest in. Why can’t we replicate beaches and facilities such as that in Torreguadiaro or Estepona?
Telephone (350) 200 41288 Telefax (350) 200 40465 CUSTOMER SERVICE
Telephone (350) 200 40880 Telefax (350) 200 40881
We repeat what we stated in our last Annual Report in that our real growth potential lies in specialist sectors.
One key point raised early on in the consultation process was the apparent lack of reliable statistical information which would help both Government and private sector operators interested parties fully understand the economic benefit to Gibraltar and to plan accordingly. This is because tourist related spending has a number of spin-offs into every reach of our commercial, wholesale and retail sectors. The Board remains of the view that Government should pro-actively seek to assess this data in order to help shape a tourism policy and investment plan for the next 5 years.
MAIN OFFICE
200 73659
Specialist Sectors
The Weddings market has been very successful and local hotels have been instrumental in developing this valuable market segment. The increase in the number of Registrars is a welcome development as is the expansion in the number of locations where ceremonies can be conducted.
As we noted last year, if the Government has the vision to spend £12m of taxpayer’s money building a modern leisure centre for the local population then surely with a little imagination and a similar sum some fantastic improvements could be made to refurbish many of the derelict sites on the Upper Rock. Gibraltar’s heritage and its tourist sites belong to the people of Gibraltar and the Government should use taxpayer’s money to ensure that these state assets are maximised for the benefit of all its citizens.
24 Hour Emergency Service
The staple Rock Tour is tired and offers in reality quite a limited experience for the tourist. Also the price of these Rock Tours for the tourist crossing the land frontier is expensive even with a stronger euro. A growing trend over the years has been by Spanish tour operators who organise group tours from along the coast charging a premium to their customers on the one hand, but secure discounts from Gibraltar tour operators on the other. The real winner here is the Spanish tour operator who brings them into Gibraltar. We need to regain more control of the Gibraltar tourist product and keep the money spent in Gibraltar.
From consultations made by the sub committee, there is a growing belief that tourism requires a higher rung in the priority ladder of Government, building on some of the good foundations that have been created over the last ten years or so.
The most damning statistic based on current criteria is the average visitor spend. Why benchmark Gibraltar’s success in tourism by the rise in overland visitors when everybody knows that at least 70% of them are using Gibraltar as a petrol station or a place to buy cigarettes? How does that impact on our roads and infrastructure? - a thorn in Gibraltarian’s everyday life. Ever heard of quality not quantity? This is fundamental to our vision of a new product.
AQUAGIB GIBRALTAR’S WATER UTILITIES PROVIDER
Update the Tourist Product
Then there is the whole sporting-related area. Over the last few years Gibraltar has hosted very successful dog shows, chess and darts tournaments among several other well-attended competitions. These events give a very worthwhile boost to local business as the participants spend money in local hotels, bars and restaurants and additional visitors are drawn to the Rock to attend these events.The hosting of some events during the quieter winter months also boosts hotel room occupancy. It is premature to be looking at the developing the conference and seminar niche over and above what Gibraltar already caters for. However, once the airport developments are complete new hotels may be attracted to set up on the Rock. In time, a purpose-built conference and exhibition centre would be something to aim for. Only then could Gibraltar target this market more actively.
Conclusion The tourism sector carries the greatest growth potential given the opportunity for job creation and significant wealth generation both to Government and to local private enterprise. To achieve success in the various niche markets, however, the product and infrastructure require major investment followed by a structured marketing and promotion plan. The Government would also need to provide incentives to encourage private sector investment into a coherent and long term strategy. Central to all of this will however again need to be a commitment to “liberalise” the transport system servicing the industry. Only through long term plans can the business sector be expected to invest capital and innovation. We call on the Government to come clean on Tourism and acknowledge its value through a real commitment to a medium to long term strategy in partnership with key stakeholders. A coherent investment programme involving public and private sector funding can then be developed which will benefit a significant number of local businesses on the Rock as well as the Government purse.
THIRTY TWO
THIRTY THREE
Financial Highlights Annual turnover up at (2008: £94,163)
£87,038
Cash balance at year end (2008: £65,216)
£51,568
Report of the Auditors To the members of the Gibraltar Chamber Of Commerce. We have audited the financial statements on pages 32 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 Honourary treasurer, directors and auditors It is the responsibility of the Honourary 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 Honourary 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 2009 and of its deficit 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 inappropriate to presume that the Chamber will continue in operation. The Honourary 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.
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.
BAKER TILLY (GIBRALTAR) LIMITED Chartered Accountants Honourary Auditors
Date: 26th March 2010.
THIRTY FOUR
THIRTY FIVE
THE GIBRALTAR CHAMBER OF COMMERCE INCOME & EXPENDITURE ACCOUNT
THE GIBRALTAR CHAMBER OF COMMERCE BALANCE SHEET
for the year ended 31 December 2009
at 31 December 2009
INCOME
Notes
Subscriptions Deposit interest Other income
1
2009
2008
£
£
48,455
46,725
107
1,389
38,476
46,049
2009
2008
Notes
£
£
3
10,573
10,360
Stocks
4
552
552
Debtors
5
13,640
21,083
Cash at bank and in hand
6
51,568
65,216
65,760
86,851
(11,474)
(16,796)
54,286
70,055
64,859
80,415
64,859
80,415
TANGIBLE FIXED ASSETS
CURRENT ASSETS Total income
87,038
94,163
EXPENDITURE Staff remuneration and social insurance
39,537
37,001
Office rent
6,408
6,408
Rates, electricity and water
1,309
1,034
45,159
37,617
4,616
2,610
5,565
5,534
102,594
90,204
General administration
2
Bad debt written off Depreciation
3
Total expenditure
CREDITORS: amounts falling due within one year
NET CURRENT ASSETS
TOTAL ASSETS LESS CURRENT LIABILITIES
ACCUMULATED FUND (DEFICIT)/SURPLUS FOR THE YEAR
There are no recognised gains or losses other than those shown above.
8
(15,556)
7
3,959
Approved by the board on 26th March 2009.
G A Olivera Honourary Treasurer
8
THIRTY SIX
THIRTY SEVEN
THE GIBRALTAR CHAMBER OF COMMERCE CASH FLOW STATEMENT
THE GIBRALTAR CHAMBER OF COMMERCE PRINCIPAL ACCOUNTING POLICIES
for the year ended 31 December 2009
NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES
2009
2008
Notes
£
£
9
(7,977)
12,752
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
107
1,389
CAPITAL EXPENDITURE Payment to acquire tangible fixed assets
(DECREASE)/INCREASE IN CASH
(5,778)
6
(13,648)
(1,979)
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
12,162 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.
THIRTY EIGHT
THIRTY NINE
THE GIBRALTAR CHAMBER OF COMMERCE NOTES TO THE FINANCIAL STATEMENTS
THE GIBRALTAR CHAMBER OF COMMERCE NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2009
for the year ended 31 December 2009
1. OTHER INCOME ATA Carnets Fees for certificates of origin and invoices
2009
2008
£
£
1,318 16,252
3. FIXED ASSETS Furniture and fittings
Office equipment
Air conditioning
Computer equipment
Total
1,180
Leasehold improvements
19,037
£
£
£
£
£
£
35,515
9,748
22,481
6,527
9,349
83,620
240
2,024
1,227
2,120
167
5,778
35,755
11,772
23,708
8,647
9,516
89,398
As at 1 January 2009
32,226
8,766
18,686
6,527
7,055
73,260
Charge for the year
3,315
458
753
424
615
5,565
35,541
9,224
19,439
6,951
7,670
78,825
214
2,548
4,269
1,696
1,846
10,573
3,289
982
3,795
-
2,294
10,360
Cost
Surplus on: - Business centre
7,210
9,315
As at 1 January 2009
- Chamber dinners
4,885
4,684
Additions during the year
- Publications
7,624
9,430
- Other sales and services
1,187
2,403
38,476
46,049
As at 31st December 2009
Depreciation 2009
2008
£
£
Advertising
5,699
3,435
Telephone
3,503
2,795
Printing, postage and stationery
4,533
4,842
Miscellaneous expenses
234
664
Net book value
Insurance
381
378
As at 31st December 2009
Entertaining
5,611
4,379
Office cleaning
2,068
1,828
Net book value
Repairs and maintenance
2,094
1,698
As at 31st December 2008
Training
3,454
3,295
974
603
1,000
1,250
15,608
12,450
45,159
37,617
2. GENERAL ADMINISTRATION EXPENSES
Subscriptions Accountancy fees Reports and Surveys
As at 31st December 2009
FORTY
FORTY ONE
THE GIBRALTAR CHAMBER OF COMMERCE NOTES TO THE FINANCIAL STATEMENTS
THE GIBRALTAR CHAMBER OF COMMERCE NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2009
for the year ended 31 December 2009
4. STOCKS
8. ACCUMULATED FUND
2009
2008
£
£
Commemorative books, booklets and First Day Covers
252
252
Balance at 1 January
Ties and shields
300
300
(Deficit)/Surplus for the year
552
552
Stocks at the year end comprised of the following:
Balance at 31 December 5. DEBTORS
2009
2008
£
£
80,415
76,456
(15,556)
3,959
64,859
80,415
2009
2008
£
£
Subscriptions
3,865
6,551
Other debtors
8,837
14,280
2009
2008
938
252
£
£
13,640
21,083
(15,556)
3,959
(107)
(1,389)
(15,663)
2,570
Depreciation
5,565
5,534
7,443
(6,361)
(5,322)
11,009
(7,977)
12,752
Prepayments and accrued income
9. NOTES TO THE STATEMENT OF CASH FLOWS Reconciliation of results for the year to net cash flow from operating activities
(Deficit)/Surplus for the year Interest on deposit account
6. CASH AT BANK AND IN HAND
At 1 January Net cash (outflow)/inflow At 31 December
2009
2008
£
£
65,216
53,054
Decrease/(increase) in debtors
(13,648)
12,162
Decrease in creditors
51,568
65,216 Net cash (outflow)/inflow from operating activities
7. CREDITORS: amounts falling due within on year
Creditors and accruals PAYE and Social Security
2009
2008
£
£
10,574
12,994
900
3,802
11,474
16,796
10. OTHER FINANCIAL COMMITMENTS
Operating leases on land and buildings which expire: £ Over five years
6,408
FORTY TWO
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:
HM 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:
£5.00 per hour (£195 per week)
Average earnings:
£22,266 (2008)
Registered employed:
20,509
Registered unemployed:
2.5%
Imports:
UK: 60%, Spain: 30%, Other EU: 10% Employment Growth 1997 - 2008
20000
USEFUL WEBLINKS: www.gibraltar.gov.gi www.fsc.gi www.gibraltarport.com www.companieshouse.gi www.gibraltarlaws.gov.gi www.gibyellow.gi
AIRLINES & HOTELS:
GDP Growth 1997 - 2009 (£m) 900
18000
800
16000
700
14000
600
12000
500
10000
www.ba.com www.flymonarch.com www.easyjet.com www.andalus.es www.caletahotel.com www.rockhotelgibraltar.com www.ocallaghanhotels.com/eliott
400
8000
300
6000 200
4000
100
2000
0
0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Females
1997/8 1998/9 1999/00 2000/01 2001/2 2002/3 2003/4 2004/5 2005/6 2006/7 2007/8 2008/9
£m
Males
Corporation Tax Resident Companies Small companies rate (Profits of less than £35,000 pa)
Tax Payable 22% 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 for Category II resident status.
Tax Payable 2% of worldwide income subject to a maximum tax payable of £20,000 per annum.
Applications should be made to the Finance Centre Director, info@financecentre.gov.gi