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GIBRALTAR, the small 6.5 sq kilometres (2.5 sq miles) of land on the south-west tip of mainland Europe dominated by the 360m high Rock that is its enduring symbol, is strongly promoting itself internationally as a politically stable, trouble-free and welcoming place to visit or relocate business.
The jurisdiction has largely ridden out the recession and comparatively is one of the most successful European economies, with strong business regulation and an enviable tourist appeal.
Multicultural Gibraltar – said to be home to the oldest of humans – has a history of conflict, having been overrun numerous times through the centuries by people from all over the Mediterranean and twice by the British. After a joint Anglo-Dutch force captured the Rock in 1704, it was ceded 9 years later to Great Britain in perpetuity ending the War of the Spanish Succession.
The Union Flag has flown from this peninsula ever since, despite numerous wars and sieges inspired by Spain, and more latterly through its political manoeuvrings within the EU, the UN and directly with the UK to try and win back the territory.
None of this has affected the stability of Gibraltar. The economy’s GDP has risen 130% in a decade and at sub £1bn is still growing at 5% a year; the budget is in healthy surplus, public debt a lowly 15% of GDP and there’s near full employment. Peter Caruana, Chief Minister since 1996, points out, "The economy of Gibraltar has enjoyed, so far, a more comfortable passage through both the financial crisis and the global recession than larger countries in Europe."
A key factor in the success is economic diversity, based on four pillars – a deep water port, tourism, the finance centre and Internet gaming – that have helped insulate this small territory from the global crisis, essentially by spreading the risk. The first two sectors depend on exploiting Gibraltar’s natural resources, whereas the latter are the result of astute political initiatives.
When Gibraltar introduced a law in 1967 creating Tax Exempt Companies (TECs) with nil rate tax for international companies as a means of creating inward investment, it became the first territory in Europe to trade as an offshore centre. TECs became the backbone of the finance centre, but also earned the territory its reputation as a ‘tax haven’ serving as an offshore branch for City of London businesses and individuals who took advantage of tax planning and investment opportunities.
Gibraltar became part of the EU in 1973 wrapped up in the UK’s membership, but with special status; it’s not part of the Custom Union, so there’s no VAT, but it forms part of the single market in services, capital and freedom of movement of people.
After pressure from the EU the tax exempt status has ended and from January a 10% corporation tax implemented for all – good news for local firms paying 22% previously, and good news for the finance centre that now says it is an "EU on-shore international finance centre" looking to broaden further its appeal.
Positive IMF reports on implementation of anti-money laundering measures and more recent completion of sufficient tax transparency agreements with other world finance centres has put Gibraltar on the OECD ‘white list’ of compliant jurisdictions and, in the process put pressure on Spain, which still regards the Rock as a ‘tax haven’.
The territory also saw the advantage from 1999 of hosting online gaming companies that would help generate inward investment, although the earliest, such as Victor Chandler, were attracted by the more generous tax treatment of betting revenue than in the UK. Since then, gaming companies’ interests have grown. William Hill is the latest to move in more of its UK operation; another gamer has just been licenced to open.
The Port, historically dependent on the Navy, is now the focal point for ship refueling in the region having built a reputation for price competitive and rapid at-anchor bunkering, along with crew transfers and ship repair services.
Cruise line business has taken a recession hit just as the specialist terminal is being doubled in size. But as with the new Gibraltar airport terminal that trebles handling capacity from summer when the number of scheduled flights is at a low, the government believes it’s essential to invest for the future.
Tourist numbers have held up, although the four main hotels are reporting fewer bookings and lower yields. But hoteliers seem to have confidence and plan new Gibraltar ventures - a 5-star Hilton and a 4-star Lester Hotel adjacent to the airport - with offices.
Work starts on a Gibraltar World Trade Centre in spring to meet office demands from new businesses – particularly, insurance, funds and gaming – attracted by the jurisdiction’s firm regulation, English-based legal system and support services, plus a quality lifestyle in the sun.
Caruana is concerned that there should be sufficient office space to house the newcomers and has considered financial backing for schemes such as Midtown, a giant £120m, 4-block project that has been dogged by bank funding and other problems.
The building industry has been hard hit by the recession with local companies suffering bankruptcy and job disruption when building firms collapsed and the government stepped in to finish projects.
Local subsidiaries of UK and Danish-owned retail banks have had lending quotas and criteria tightened by parent companies, leading to hardship claims for small and medium-sized businesses.
Retailers too have experienced patchy demand even in the run-up to Christmas when locals usually join large numbers of Spaniards to take advantage of the euro exchange rate.
With an election in the offing this year, a European Court of Justice (ECJ) tax ruling due that can make or break Gibraltar’s appeal as a finance centre, and Spanish claims on the territory’s land and sea, there is a slight uncertainty over the future direction for this once strategically important military garrison town.
In the last decade, the aim has been to establish and then protect the jurisdiction’s reputation – its most valuable asset – in part by implementing "a high entry bar" to only a few businesses; it’s all that is needed to make a positive impact on a small economy.
"One of the reasons why we have entered this almost unprecedented international financial and economic crisis in relatively good shape," argues Caruana, "is precisely because we have never conducted our socio-economic policies and actions on the assumption that we were entitled by some sort of divine right to prosperity." |
