Gibraltar Chamber of Commerce 2012 Annual Report by Chamber of Commerce Gibraltar

The Gibraltar

Chamber Commerce of

2012 ANNUAL REPORT & ACCOUNTS

President E J Nicholas Russo Vice President John Isola Honorary Treasurer George Olivera Honorary Secretary Jeremy Nicholls Directors Jose Luis Bonavia Marvin Cartwright Franco Cassar George Desoisa Ernest Felipes Andrew Haynes Christian Hernandez Mike Nicholls

Board Members

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

Honorary Auditors Baker Tilly (Gibraltar) Limited Regal House Queensway Gibraltar

Your satisfaction is our bonus. Jyske Bank does not offer its employees personal bonus schemes – and never did. jyskebank.gi/whyjbpb

JYske Bank (GiBraltar) ltd. • Private Banking 76, Main Street • P.O. Box 143 • Gibraltar Tel. +350 200 59205 • Fax +350 200 76782 info@jyskebank.gi • www.jyskebank.gi

Jyske Bank (Gibraltar) Ltd. is licensed by the Financial Services Commission, Licence No. FSC 001 00B. Services and products are not available to everybody, for instance not to residents of the US.

Foreward Foreward Foreword

p24

Gaming GamingGaming Sector

Politics Politics Politics

p27

Finance Finance Insurance Sector

p11

Economics Economics Economics

p29

Shipping Shipping Port & Shipping

p17

Distibution Distibution Wholesale & Distribution

p32

Tourism TourismTourism

p19

Retail RetailRetail Sector

p34

Property PropertyProperty

p21

Banks BankBanks Sector

p37

Accounts Annual Accounts Accounts

p22

Insurance Insurance Funds Sector

p33

Contents

2012 ANNUAL REPORT & ACCOUNTS

Foreword Twelve months into the new administration’s term and the shape and tenor of the government’s priorities is becoming clear. There have been some remarkable challenges, both economic and political for the new government and these have had a knock-on effect on our members. The well-publicised fishing dispute has, to many people, been an unwelcome and unnecessary distraction taking up inordinate amounts of time and energy when other more pressing concerns need to be addressed: bringing greater efficiency to the civil service or clamping down on the growing problem of illegal labour with increasing numbers of unregistered people coming to work in Gibraltar from across the frontier. The resources allocated to prevent illegal fishing give rise to the perception that the fish have more rights or are more important than local businesses which have to compete against unregistered traders. The quest for greater economic self-sufficiency is a worthy goal set against an economic outlook which remains uncertain elsewhere. Our two most important trading partners - the UK and Spain both face sluggish growth for many years to come and it feels at times that Gibraltar is stuck in an economic time warp. A wise plan then to seek out new niches and new markets. Bringing new investment to Gibraltar will be a key test for the government which has set out its economic stall by promising stellar-like GDP growth rates of 10 per cent or more in each of its four years of office. One year on and the political sands continue to shift. Peter Caruana who has dominated the political and economic landscape of Gibraltar and beyond since the mid-1990s has formally handed over the reins of the GSD to a new leadership. His considerable legacy is likely to endure for several years to come. Ideologies and economic achievements aside, perhaps his greatest legacy of all is that he gave Gibraltar and Gibraltarians a stronger sense of their place in the world and the confidence to deal with much greater political and economic powers in a reasoned and usually calm but robust manner. He has shown that despite the odds, a small town of 30,000 people can have a voice and that voice justifies being heard, regardless of how much others protest. So what of the lasting challenges for Gibraltar? Last year we commented on the huge capital expenditure of a new power station. Interim measures have been taken and whilst there have been fewer power cuts in the last 12 months the main issue of a lasting solution remains unresolved. We also commented that the unbridled increases in running the Health Service which accounts for one fifth of all government recurring expenditure. This

Foreword

“The UK and Spain both face sluggish growth for many years to come and it feels at times that Gibraltar is stuck in an economic time warp.”

too needs to be tackled. It is not obvious that anything substantive has been done to address these two big issues in the last 12 months. Over and above the political challenges there remain a number of significant economic ones for our economy. The UK Treasury’s shameful attempts to plunder revenues from Gibraltar’s online gaming sector under the guise of improved consumer protection are ill-thought through. If the UK’s planned consumption tax is brought in the affected Gibraltar-based entities will in all likelihood comply. However, those operators based elsewhere who decide to flout the new UK legislation will remain unregulated and beyond reach. How is the UK consumer protected against these operators? And it is far from being a zero sum game. If Gibraltar-based operators are forced to comply with the UK legislation they are likely to adjust their UK cost bases accordingly: investment in staff and promotional costs in the UK will almost certainly fall. It would appear that HMRC has not factored this into its calculations. It needs to be more realistic. Another gathering cloud is the growing impact of internet shopping. This offers Gibraltar some excellent prospects and the online gaming sector has shown how big an opportunity the internet can be. The combined effects of the prolonged UK recession and the consumer’s search for best-priced goods has turned many UK high streets into ghost towns. Even out of town purpose-built shopping malls with free parking are suffering. Gibraltar is showing the early stages of this demise. A number of Main Street premises which would ordinarily have been snapped up by enterprising retailers remain vacant. Key money, once the perk of the lucky landlord, is becoming increasingly rare as take-up reflects the economics of low demand and increased supply. The challenge for local retailers and wholesalers as well as others is how can they exploit this phenomenon to their advantage. Apart from the obvious online gaming operators, a few local businesses have embraced the internet so that it is at the core of their operations. More local businesses need to do this. Our local market is tiny, but the online world opens up new markets. Gibraltar’s small size makes it exposed to the vagaries of the ups and downs of the larger partners with whom we trade. But lying within that is an opportunity which we should all be positioning ourselves to exploit. It goes to the heart of what a trading community like ours does best. We should grab hold of it with both hands.

Politics Politics December 2012 saw the completion of the GSLP’s first year in office. Their style of Government has gradually become more defined and allows Ministers more leeway within Government. Greater independence, however, does have its downside and the manner in which a renewal of the fishing dispute of the 1990’s was triggered is the clearest example of the cost of loose party discipline: the Minister for Health appears to have acted unilaterally when he pressed for withdrawal from the 1997 Fishing Agreement on Facebook. The Minister’s comments led to ‘tit for tat’ retaliations involving the Guardia Civil in hostile face-offs with the RGP. The party leadership were quick to close ranks after the event and Gibraltar found itself centre stage as the Spanish media picked-up the story. Confrontation quickly escalated to crisis level and spilt out of a local into a national context. The crisis has required the attention of the British and Spanish Foreign Secretaries and brought the Royal Navy into the frame. Despite considerable provocation, to their credit, the RGP and the Royal Navy have carried out their duties without allowing confrontation to lead to violence or injury. Similarly, although some of the Spanish Foreign Secretary’s comments have been of an incendiary and intentionally provocative nature, the Chief Minister has shown maturity in the restraint with which he has resisted these open invitations to escalate the crisis further.

Given that Gibraltar has no commercial fishing interest to defend and the symbolic value of the waters to be protected, it is not unreasonable to question the wisdom of having interfered with the status quo in the first place. A peaceful co existence had been established between the Government of Gibraltar and the local fishing fleets in 1997. There was little to be gained by resiling from the 1997 Fishing Agreement and a lot to lose. It seems however that the new administration was either unable to exert party discipline over the Minister for Health or unconcerned as to how the Spanish fishermen and Spanish politicians would react. As it appears the intervention of William Hague has been sufficient to save us from the worst excesses which the crisis threatened to bring about but one important sequel remains. It seems likely that the renewed attack on our tax laws, once again raising issues in connexion with both Regional and Material Selectivity, was part of the orchestrated response by the Government in Madrid to the fishing dispute. Hopefully it will follow earlier attempts to derail our Parliament’s sovereignty on matters of tax legislation and come to nothing. In the meantime a new period of uncertainty arises and this, as always, has negative consequences.

“ Success will be measured by reference to the Queens Speech in the Spring.”

A new Administration brings new ideas and new energy but it often comes at the expense of a learning curve and the fishing dispute, which is hopefully soon to be forgotten, has “rookie error” written across the front. Of the coming challenges for 2013 some are already visible and others will catch us by surprise. The visible threats include those alluded to earlier: the complaint filed with the European Commission by the Spanish Government alleging breaches of Regional and Material Selectivity and the ‘point of consumption’ tax for the Gaming Industry. These challenges will need all the Chief Minister’s considerable energy and powers of persuasion if we are to prevail. Your Chamber report last year argued that the British Government position in Europe as champion of the free market was at odds with the concept of introducing a tax at the ‘point of consumption’ for Gaming. In the twelve months since publication, events have only served to strengthen the argument that the British championing of free market principles by advocating a consistent ‘open market’ philosophy is at odds with its position on Gaming where it is proposing a ‘restrictive’ market. In 2012 the UK Treasury made public its report proposing the new tax and inviting responses. The Gibraltar Betting and Gaming Association and the Gaming Regulator (on behalf of the Government of Gibraltar) filed their responses in January of this year. The position taken by the GBGA is that the proposed legislation is flawed both for socio/ political and legal grounds. The process to be followed before the draft legislation finds its way to Parliament is for the UK’s Department of Culture, Media & Sport to take oral representations. The Chair of the Committee set-up by the Department of CMS, John Whittingdale, has been asked to visit Gibraltar. In parallel the Government of Gibraltar and the Gibraltar Betting & Gaming Association will appear before the committee in London and lobby MPs in Westminster. Success will be measured by reference to the Queens Speech in the Spring. If the new Bill is not included then the representations can be deemed effective. In the event of a Bill being presented then the legal route will likely argue that among other flaws the proposed legislation is contrary to State Aid Rules. The case will be made that the legislation is intended to encourage repatriation of the Gaming companies to the UK not just from Gibraltar but also Malta and other well regulated

territories by having clear advantages offered to those who transfer to the UK. The GBGA will argue that this is in breach of free market rules because under the proposed rules a company trading in Gibraltar would be required to pay tax in respect of non UK customers but the same company would be exempt from these taxes if it repatriated to the UK. A clear example of “restrictive” practices. In respect of the Regional and Material Selectivity complaints made by Spain these are at a procedural stage within the Administration and by the second quarter of 2013 Gibraltar should learn whether the complaint has been dismissed by the Commission or if the decision has been taken to open a formal investigation. If the answer is negative then this will give rise to a process which will likely last a year, or more, before any conclusion is notified to the parties. 2013 is the tercentenary anniversary of the Treaty of Utrecht. The only part of the Treaty that is still relevant today is Article X, itself a short paragraph dealing with Gibraltar.

political struggle with Madrid. It should be possible, however, to consider the anniversary as a fitting occasion to burnish the legal arguments that have supported us for so long by commissioning a review of the constitutional implications of the treaty, three hundred years on. The Chamber would support a fresh insight into the Treaty and for a distinction to be made between ‘executed’, (i.e. completed), and ‘executory’, (i.e. continuing) clauses within Article X and their relevance in light of subsequent Treaty obligations entered into by the parties. It is germane to establish that the “executed” clauses, such as the transfer of sovereignty, are completed and therefore no longer open for discussion whilst the “executory” clauses which contain on-going obligations, including the ban on Jews residing within the City, are to be interpreted by reference to subsequent Treaties, in particular the United Nations Charter. The relevance of this legal analysis is with respect to Gibraltar’s entitlement to Self Determination. The tercentenary anniversary is a fitting occasion to review the legal framework.

For some the Treaty may seem anachronistic and therefore not the most robust legal foundation for our continuing

www.pwc.gi

Local business expertise Audit

Accounting

Tax

Payroll

The value you’re looking for

PwC employs over 60 partners and staff in Gibraltar who provide industry-focused audit, accounting, tax and payroll services to enhance value for their clients. Our teams have the expertise to provide you with solutions that allow you to maximise your productivity. Find out more by visiting www.pwc.gi. © 2013 PricewaterhouseCoopers Limited. All rights reserved. PwC refers to the Gibraltar member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.

Politics

Barclays. A bank with a tradition of strength. Itâ&#x20AC;&#x2122;s a tradition that has lasted in Gibraltar for over 125 years, delivering the highest levels of local knowledge combined with unrivalled international reach. As one of our clients you will have access to our team of highly experienced professionals who provide seamless banking and corporate solutions. They are your gateway to the vast range of support and expertise available from Barclays globally. Whether you operate locally or internationally, our tradition of strength will help you create a culture of success. To find out more about how Barclays can help, call our Gibraltar office on +350 200 41222* or visit barclays.com/wealth

Barclays offers banking, wealth and investment management products and services to its clients through Barclays Bank PLC and its subsidiaries. Barclays Bank PLC is registered in England and authorised and regulated by the Financial Services Authority. Registered No. 1026167. Registered Office: 1 Churchill Place, London E14 5HP. Barclays Bank PLC is authorised by the Gibraltar Financial Services Commission to conduct banking and investment business in Gibraltar. *Calls divert to our Servicing Centre in the UK. Local rate applied. Lines are open 8am to 5.30pm Monday to Friday UK time, except on UK bank holidays. Calls may be recorded for training and security purposes.

Economics World economic output is expected to continue positive for 2013, but the rate of growth is slowing down as countries struggle to balance the conflicting goals of re balancing tottering fiscal structures, while trying to encourage growth. The latest IMF edition of their “World Economic Outlook” was published in October 2012. The latest update to this was published on 23 January 2013. In the space of just 3 months, the outlook worsened across most countries.

Change in Economic Output Growth Forecasts Shown as % Country

October 2012

This set of numbers show a number of things • The inescapable fact that in 3 short months, the global outlook has deteriorated. • Even so, the 2013 outlook remains better than for 2012, although Spain is an exception, facing a worse 2013 than 2012. • Spain is not set to return to growth until 2014 and, even then, growth is marginal. • The Euro zone is also set to reduce in 2013 although at a lower rate than 2012, so an improvement of sorts.

January 2013

2012 2013 2012 2013 2014 World

3.3

3.6

3.2

3.5

4.1

Edvanced Economies

1.3

1.5

1.3

1.4

2.2

USA

2.2

2.1

2.3

2.0

3.0

Euro Area

-0.4

0.2

-0.4

-0.2

1.0

Germany

0.9

0.6

1.4

Spain

-1.5

-1.3

-1.4

-1.5

0.8

Japan

2.2

1.2

2.0

1.2

0.7

-0.4

1.1

-0.2

1.0

1.9

China

7.8

8.2

7.8

8.2

8.5

India

4.9

6.0

4.5

5.9

6.4

Brazil

1.5

4.0

1.0

2.5

4.0

Russia

3.7

3.8

3.6

3.7

3.8

Emerging & Developing Economies

5.3

5.6

5.1

Economics

“ World economic output is expected to continue positive for 2013.”

5.5

5.9

Source: IMF NB. Interpretation of the above figures. Looking at the figures for the world economy, in October 2012 the expectation was for 3.3% growth for 2012 and 3.6% for 2013. By January 2013, these growth expectations were reduced to 3.2% (2012) and 3.5% (2013). (The forecast for 2014 is as per January).

• Overall world growth is being upheld by the fast growing emergent and developing economies, as has been the case for some time now. • In turn, this underpins a change in the balance of economic power, from the established Western economies to the new “East”. • The good news, however, is that the outlook for 2014 is better, and looks set to stabilise as from that year onwards. The concerns surrounding the global economy are essentially a progression of the 2008 crisis. Sovereign debt issues are very much to the fore. The UK recently lost its triple ‘A’ credit rating, reflecting some nervousness in the markets. As countries address the debt issue by reducing expenditure and/or increasing taxes, these very actions in themselves dampen growth. In situations where both consumer demand remains slack and financial institutions continue weak these factors contribute to recession and worsening unemployment numbers. This is the case in the Euro Zone where we continue to show recession and where unemployment hit a record high in January of 11.9%. The challenge facing policymakers everywhere is the balance between measures that are needed for fiscal consolidation and those that are needed to stimulate growth and reduce unemployment. Recently, the US government, in avoiding the “fiscal cliff’, chose to increase its debt ceiling to avoid expenditure cuts and or tax rises that would have otherwise been required, thus opting for the growth side of the equation. This action by the US Government allayed fears of a new crisis and the outlook for the US economy remains positive. In turn, this will have a positive impact on the world economy. At the time of writing, the Dow Jones index was hitting record highs, which is encouraging.

Economics

â&#x20AC;&#x153;Gibraltar was, conservatively, responsible for some 12% of the total economic activity in the Campo area.â&#x20AC;?

The outlook for the UK economy remains weak. This is the underlying message behind the downgrade in credit rating. The pound is forecast to lose more value against the US dollar and the Euro. Further quantitative easing is expected in a bid to stimulate growth and keep borrowing costs low, although the British Chambers of Commerce (BCC) is wary of this. The UK went into a double dip recession, with the last two quarters of 2012 showing a negative growth. The BCC has downgraded its forecast for UK GDP growth for 2013 from 1% to 0.6%, which is below official estimates. A TUC study showed that real wages decreased by 4.5% between 2007 and 2011. This does nothing for domestic demand, reflecting UK manufacturers’ concerns that markets remain weak both at home and abroad. The prospect of the UK economy continuing to flat line remains real and rifts are being seen in the Coalition Government concerning alternative policy actions. In the Euro area, the commitment by Greece to further austerity measures has reduced the risks of Greece and other peripheral countries leaving the Euro. Additionally, the European Central Bank (ECB) commitment to do “whatever it takes” to save the Euro has had a positive

effect on the bond markets. The interest rates on both Spanish and Italian 10 year bonds have fallen to about 2.5% below the July 2012 peak, when fears of a break-up of the Euro were at a peak. Additionally, the big banks in Italy and Spain are managing to sell long term bonds. Also, it is predicted that European banks may begin to repay monies advanced by the ECB in 2011 and 2012 for the banking bailout. While there is some welcome positive news in the bond markets, the underlying economic picture for the Eurozone remains grim. Even Germany showed contraction in the last quarter of 2012. Unemployment remains high in the peripheral countries and their economies are expected to shrink further in 2013. Spain and Italy risk missing their deficit reduction targets. Bank finance for SME’s remains scarce and, when it is available, invariably expensive. In sum, the outlook remains uncertain. 2013 will be a watershed year, particularly for Eurozone economies. If the policy actions to do with fiscal stability remain in place and are successful, then we could be looking towards the beginning of a real recovery and turnaround in 2014.

Pure Focus Enabling growth in business and society Deloitte provides a full range of services which include auditing, tax and financial advisory services. As a member of Deloitte Touche Tohmatsu our services are guided by global common principles that influence the way we perform our daily work and ensure all our services are consistently of the highest quality. Our service philosophy centers around strong partner involvement and understanding of your business needs. We listen to you and work with you. We understand the environment you operate in. We communicate regularly and provide information in a form you can use to make effective business decisions.

For more information, call Joseph L Caruana or Stephen J Reyes on: Tel: +350 200 41200, Fax: +350 200 41201 info@deloitte.gi

Economics

Economics cont. This would be a real achievement. The overall state of the Spanish economy is well known. Unemployment at a national level remains historically high at over 26% and contraction set to continue in 2013, but there seem to be a few signs of a turnaround, with the IMF predicting a marginal upturn of 0.8% for 2014 after years of decline. In its latest “Economic Outlook” the Spanish Treasury reports some positive trends, such as an increase in exports for 2012 and 2013 helping to offset negative growth. The policy to address the imbalances that the Spanish economy has accumulated over the past few years is based on a three pillar approach: A clear commitment to restore public finances to a sustainable path. • A thorough clean up and recapitalisation of financial entities in order to guarantee a sound and solvent financial system. • Structural reforms to boost the potential growth of the Spanish • economy: labour market reform and liberalisation measures. The above is a formidable task, with negative political consequences for Mr Rajoy’s government as witnessed by major demonstrations in Madrid and Barcelona. Nevertheless there is progress on the plan and, hopefully, Spain will start on the road to recovery. The crucial question, as always, is whether these policies will, on balance, lead to the growth that is needed. When we consider the Gibraltar economy it would seem that, like on previous occasions, the economy remains relatively robust in relation to main trading partners, the Eurozone, the UK and, in particular, Spain. There are, of course, some concerns. One is the general economic outlook, as described above. This cannot be positive for a small open economy like Gibraltar’s. It is likely that

contagion effects of the global economic situation, and in particular that of Spain, will reduce consumer confidence locally. The upheavals in financial institutions elsewhere mean that local consumer lending remains tight. Additionally retailers are facing increasing competition from the internet. This will have an adverse effect on the Gibraltar shopping experience, as has already happened in the UK and other places. This is an issue your Board will be taking up with the Government. While perhaps not a direct effect, there nevertheless remain a number of empty premises in Main Street and other areas. It is also disappointing that expected Hotel projects are yet to come to fruition. On a positive note, the Chamber welcomes the Chief Minister’s initiatives in promoting Gibraltar in the United States and hopes that these will bear fruit in due course. Other areas of concern include the challenges to our taxation system and our internet gaming industry, as explained elsewhere in this report. Negative results here could really hurt the economy in the medium term. In general though, and with some caveats, Gibraltar’s economy continues to do relatively well. The issues of Government debt and recurrent expenditure have concerned the Board for quite some time. Indeed, national debt was a big issue in the 2011 election campaign. From the number of publicly funded projects announced recently, there would appear to be no crisis and the matter has gone relatively quiet of late. It will be interesting to see how this year’s Budget session addresses the issue and how the promised reductions in National Debt have turned out. Major questions remain on the issue of power generation and the completion of the airport tunnel project, as both of these should impact substantially on the public purse. The other concern is the expansion in personnel of some Government

“The Chamber thinks it is now time to update this study and will be looking to do so in the next 12 months. Having this factual review available would support Government in its overtures towards the Campo.”

Departments. While this is not necessarily bad news, as some of these posts in Education and Healthcare may well have been needed, the increase in recurrent expenditure that this entails is a long term commitment. While likely affordable today, Government must be wary of the dangers of runaway recurrent expenditure, as has been witnessed in many countries now facing economic and financial difficulties. Such increases should be kept to a minimum in the interests of good governance and would be well accompanied by efficiency savings elsewhere, minimising the effect on the public purse. Lastly, the lamentable state of relations with Spain cannot be good news for Gibraltar’s economy. There is little doubt where Madrid sits in all of this and the aggressive stance towards Gibraltar from the Partido Popular Government is neither new nor surprising. For this reason, the Chamber fully supports the Chief Minister’s efforts at building bridges at a local regional level, as typified by the recent meeting with the Mayor of San Roque, where issues of regional co-operation were discussed. Also previous contacts with the Mayor of La Linea. These contacts need to be extended and developed. Better relations at a local level can only be positive. Gibraltar has a lot of support in the hinterland and this must be built upon. In

2009, the Chamber commissioned a report which looked at the economic impact of Gibraltar on the economy of the Campo area. The report was well received and showed, among other results, that Gibraltar was, conservatively, responsible for some 12% of the total economic activity in the Campo area. This is hugely significant. Gibraltar Inc. is probably the Campo’s single biggest employer. The report also showed the high level of interdependency between both economies. (Figures from the Junta de Andalucla underlie this relationship, showing that exports from Andalucia to Gibraltar topped €960 million in the first 10 months of 2012, of which €910 million were fuels and lubricants!)

25 Years of excellence in Gibraltar credit suisse (Gibraltar) limited, neptune House, Marina bay, Po box 556, Gibraltar. tel: +350 2000 4000 www.credit-suisse.com/gi Credit Suisse (Gibraltar) Limited is authorized and regulated by the Gibraltar Financial Services Commission to provide Banking and Investment services.

Politics

Saccone & Speed (Gibraltar) Limited. Wine & Spirit merchants since 1839

Importers and distributers of wines, spirits, beers, liqueurs, cigars & cigarettes in Gibraltar to a tied estate of hotels, bars & restaurants & also to the many off-licences, convenience stores & supermarkets on the Rock. Operating since the 1920â&#x20AC;&#x2122;s and joining the group in 1985, Louis J Abrines Limited has since expanded to frozen & chilled foods, as well as health & personal care products, cleaning materials & over the counter & pharmacy only pharmaceuticals.

Members of the

Saccone & Speed (Gibraltar) Group of Companies 35 Devilâ&#x20AC;&#x2122;s Tower Road, P.O.Box 120, Gibraltar t: +350 200 74600 | f: + 350 200 77031 | e: mail@sacspeed.gi www.sacconeandspeedgibraltar.gi

ISO 9001:2008 | ISO 22000:2005 | PAS 220:2008 | KORE

On a year by year basis it is not so noticeable. But the signs are still there. Visiting business people and tourists alike frequently comment how well Gibraltar is doing economically. Main Street is often crowded with people but the tell tale signs of reduced consumer expenditure are evident by studying the small number of people carrying bags as proof of their retail activity. Even the mighty Morrisons is feeling it. The “it” in question is what the Spaniards have labelled as “el Crisis”, and the UK media refer to as “downturn”, slump”, “double dip” or “recession”. So has the recession arrived in Gibraltar three years after it took hold of many European economies? In short, No, but the chill economic winds blowing through the rest of Europe are having a decidedly downbeat effect on many local retailers and wholesalers. It is a testament to the resilience of these two sectors which are mutually dependent on each other that they are still in remarkably good shape: collectively they employ around 3,000 people or nearly one fifth of Gibraltar’s private sector workforce. That’s quite a lot of social insurance and PAYE receipts from just two sectors. The cracks are starting to appear though: there are still a number of retail premises which are vacant on Main Street and on some of the neighbouring streets there are shop units which have been empty for many years. If the retail

economy was so buoyant someone would have snapped these up by now. Anecdotally, rents are not as firm as they once were and the last 12 months have seen a few cases where shopkeepers have simply handed the keys back to their overzealous landlords who thought they could strong-arm their pliant tenant. In a more upbeat era maybe, but times have changed and the trade is simply not there to support upward only rents and increases in rates and utilities. Once stock and staff are paid there is little if anything left for the business owner. Granted, the prolonged period of ever upward sales fuelled by ridiculously cheap credit was never going to last forever. But the longer it lasted, the more everyone got used to it and with fingers firmly crossed hoped it would last a little bit longer. It is now five years since Bear Stearns and Lehman Brothers disappeared in two puffs of sub-prime smoke. The knock-on effects on the wider economies show there is little sign that either Spain or the UK are due to emerge from their prolonged recessions any time soon. This fact has a direct and lasting impact on Gibraltar and on those businesses whose market is local. None more so than the retail and wholesale sectors. When money is tight everybody is more cost-conscious and the higher costs which local businesses have to pay compared to those in Spain make it virtually impossible to compete with our neighbours.

Wholesale & Distribution

“It is a testament to the resilience of these two sectors which are mutually dependent on each other that they are still in remarkably good shape.”

Politics

Retail Sector The new administration has committed itself to setting up an Office of Fair Trade and as part of this, updating the archaic legislation that is known as the Trade Licensing Act. The Chamber has taken an active role in making proposals on how the existing laws can be improved so that local traders are not unfairly prejudiced by crossborder traders who do not have the costs of local infrastructure to contend with. With the continued slump in Spain, Gibraltar has become even more of a magnet to these unregistered traders who come in all too easily to sell into the local economy and leave little of value behind. The new Act should provide powers of enforcement to dissuade such illegal practices. The Chamber is keen to promote competition, provided it is truly equitable. Many things are cheaper in Spain than in Gibraltar. But very few of those shops and businesses in Spain employ Gibraltarians. This point is often forgotten. A brief campaign to support local traders was mounted jointly with the GFSB in the busy pre-Christmas shopping season to remind the public of the value of shopping locally. It is difficult to know for certain the impact this had, but the long frontier queues and good weather seemed to convince many people to keep their Christmas shopping local this year.

During the year internet shopping continued to leech sales from the local retail sector. Granted that in a small town the choice and availability is by definition limited in what can be supplied. Nevertheless the double digit growth of deliveries arriving at the parcel post highlight that increasingly purchases are being made online. Apart from food and drink there is barely a product category that cannot be found online and delivered to Gibraltar. Some e-tailers are now offering free delivery to Gibraltar as an added bonus. The effects of this trend are clear to see in the number of UK high streets which have been hollowed out apart from the almost mandatory charity shops and betting shops. Is this really what we want for the future of Main Street? A number of people have commented on this publicly. The Chamber has already made initial representations to the government about its concerns. In the coming year the Chamber will redouble its efforts to take the lead on this important issue. It is a structural threat to many of our members, but if left unchecked it will affect us all in due course.

Retail Sector

â&#x20AC;&#x153; Some e-tailers are now offering free delivery to Gibraltar as an added bonus.â&#x20AC;?

The specialists in Gibraltar for ďŹ ne wines, spirits and accessories from all over the world.

Call in and ask about our exclusive Wine Club 5-7 Main Street | t: 200 77210 shop@anglo.gi | www.anglo.gi Follow us on Facebook

Follow @AngloGibShop

Life has moved on...line Sapphire Networks, growing with your needs

www.sapphire.gi +350 200 47 200 - info@sapphire.gi Suite 3.0.3 Eurotowers, PO Box 797, Gibraltar

Bank Sector The year started with a bang with the Government of Gibraltar clearly wanting to deliver on its manifesto promises by igniting the issue of the Gibraltar Savings Bank. Premises were purchased in a prime location and the Bank was finally launched in late 2012 with the promise to deliver a Bank for local savers and more intriguingly borrowers. Of course, the mere act of widening the scope of a ‘municipal’ savings bank has many other implications, not least licensing and regulation. Details of how the bank will be regulated are still to emerge as we write. Additionally many competitor Banks in the market, whilst accepting that they do not always take strategic decisions with Gibraltar in mind, have been heard to mutter that any perception of unfair competition or inordinate use of their infrastructure to make up for shortfalls in the Government Bank, could lead to an untenable position. This at a time when Banks worldwide are still in the midst of grappling with the various regulatory and political pressures that followed the collapse of Lehman Brothers in 2008; we are still to see the worst of the effects of that, as more onerous capital requirements start to bite and the Banks adjust to a harsher political environment and less dynamic global economy.

Another aspect of regulation is the effect that ever increasing (necessarily) money laundering controls are having on the ability for local Company Managers to open accounts for businesses not based in Gibraltar. There is a balance to be struck between the need to encourage properly established businesses to use Gibraltar companies (and legally accepted tax structures) and therefore Gibraltar bank accounts, and the need to ensure that less than scrupulous concerns from passing their ill gotten gains through the jurisdiction and damage our collective reputation. The Banks play an important ‘gate keeping’ role in this process but the cost of analysing and controlling what goes on cannot be borne by anyone other than the businesses themselves. The maxim must continue to be ‘we cannot do business we do not understand’ The onus has to be on everyone involved to ensure we do not open ourselves up to unnecessary attention in view of how highly we prize the reputation of Gibraltar.

Bank Sector

“This at a time when Banks worldwide are still in the midst of grappling with the various regulatory and political pressures that followed the collapse of Lehman Brothers in 2008”

Representation locally has been static at best; EFG will close in 2013. Banque Audi closed and some other players have reduced their activity to recognise the environment; it is no secret that mortgage lending in particular has tightened. It is generally accepted that Banks are lending less worldwide, as they are forced by governments to hold ever more capital than before.

Gibraltar Banks, with one exception, are Branches or subsidiaries of Groups based elsewhere. Whilst this has insulated us from some of the effects that we saw and continue to see in say, Cyprus, we continue to suffer from decisions made by Boards of large Banks who’s Head Offices operate in economies where macro decisions take little to no account of what happens locally.

Funds Sector 22

â&#x20AC;&#x153;GFIA and the FSC has discussed a streamlined process for the preparation of passporting documentationâ&#x20AC;?

Funds Sector The Alternative Investment Fund Managers Directive (“AIFMD”) and Gibraltar offers new opportunities: Stand by for Super EIFs As from 22 July 2013, European Alternative Investment Fund Managers (“AIFMs”) managing EU Alternative Investment Funds (“AIFs”), such as Gibraltar AIFs, will be able to obtain authorisation under AIFMD and therefore benefit from the EU marketing passport provided for by AIFMD. Such AIFMs will be able to market to professional investors (as defined in MiFID) freely within the EU. There is the possibility that managers from third jurisdictions such as those in the US, the Caribbean and the Channel Islands will be able to obtain authorisation and therefore access to the EU marketing passport under AIFMD subject to certain conditions but only as from mid-2015 at the earliest. This gives Gibraltar a notable advantage against other jurisdictions. In their implementation of the Directive the Member States will have to decide how they wish to exercise the derogations provided for in AIFMD. They will also need to decide whether they wish to “gold plate” the Directive by adding provisions to their national fund regimes that are not required by the Directive. Critical distinctions in implementation may exist in such topics as regulation of the national fund regimes for funds and managers that are below the de minimis thresholds of the Directive (i.e. €100 million for open-ended funds and €500 million for closeended funds), including application of the depositary regime in the Directive to funds that are out of scope of the Directive, permission of AIFMs to conduct MiFID activities such as portfolio management in addition to their core activities of fund management under the Directive and applicability of any private placement regimes.

Whereas European AIFMs wishing to establish in scope AIFs will have to undergo the process of authorising those AIFs (which can take anywhere between a few weeks and several months depending on the fund and jurisdiction), AIFMs wishing to set up Gibraltar funds will be able to do so by establishing Super EIFs. The process for this would be simply to establish and commence trading the EIF on the basis of the pre-authorisation launch and then concurrently with the submission of the EIF documentation to the FSC (either immediately or within 10 business days of launch), submit the AIF documentation including the passporting notices to the FSC. The FSC will then have up to 20 business days to consider the documentation and to process the passporting notices. GFIA and the FSC has discussed a streamlined process for the preparation of passporting documentation. For funds that wish to market before this process has been completed, it may even be possible to conduct their initial marketing via the private placement regimes where such marketing is conducted by the fund’s directors rather than by the AIFM. This, Gibraltar’s solution, is a product of cooperation of the industry along with the FSC and Government and is illustrative of the positive working relationship between regulator, legislator and market participants. In an age where promoters are seeking regulatory arbitrage, Gibraltar because of its size and the close working relationship of the parties involved can offer solutions that provide flexibility within the European framework without compromising the protection of investors.

The Gibraltar approach to the above issues, following an in-depth consultation involving a collaboration of Government, the FSC, the Gibraltar Funds & Investments Association (“GFIA”), the representative body of Gibraltar’s funds and investment industries, is likely to retain as much flexibility as is offered by the Directive as possible. Indeed Gibraltar will keep its Experienced Investors Fund (“EIF”) regime for those funds and managers that are out of scope of the Directive while allowing those that wish, in order to avail themselves of the marketing passport, to opt in to the AIFM regime. Clearly, once they do opt in, they would have to abide by all the terms of the AIFM regime as if they had been “in scope”. It is also anticipated that EIFs will form the basis for the regulatory regime to be used as the “in scope” AIF. Because they have to comply with the terms of the Directive they will essentially be “Super EIFs”. This is very significant because as we will see, this is likely to dramatically reduce the licensing time of “in scope” AIFs thus retaining Gibraltar’s place as the European jurisdiction with the quickest potential for time to market for new funds.

Gaming Sector “Indeed, the UK’s remote gambling market is viewed by the rest of the world as a model of excellence.”

Gaming Sector A summary of what has been going on in Gibraltar’s gambling sector in the past twelve months is going to be dominated by the United Kingdom’s proposals to introduce a new Gross Profits Tax based on the point of consumption. This update deals exclusively with that serious threat. Anyone following the remote gambling industry in 2012 will be aware of the continued stated intention of the UK Government to change the way online gambling is regulated for British punters. These proposals are unquestionably an attempt to implement a new tax regime and not - as advertised by Whitehall - a genuine attempt to solve a regulatory problem. How can you solve a problem when it simply does not exist? The reality is actually the contrary to the picture which London tries to paint and people in the United Kingdom who like to gamble online have never had it so good. They benefit from such a safe, competitive and responsibly-run market place. Indeed, the UK’s remote gambling market is viewed by the rest of the world as a model of excellence. Here’s the rub: the central reason for the very healthy UK market is the standard of regulation enforced here in Gibraltar. This is because a great deal of the UK market is serviced by the world-renowned operators based here

who are subject to sensible and effective regulation. Yet the UK’s proposal to introduce a Gross Profits Tax based on the place of consumption (rather than based on the place of supply) has the propensity to cripple the industry in Gibraltar and by implication the Rock’s wider economy. Like many businesses, online gambling works on thin margins and the imposition of a new and unwelcome tax will do more than upset the applecart. Ironically it will also severely damage the prospects of the very group the UK is saying they wish to better protect (the UK consumer). The legal arguments against such measures being introduced are touched upon elsewhere in this report, but it is fair to say that the operators in Gibraltar who have an interest in the UK market have received clear advice that such proposals are very challengeable with a realistic chance of success by way of Judicial Review. It can’t be on anyone’s wish list to take on HM Government on this but it is a very distinct however expensive option. One thing very much in Gibraltar’s favour is the united front being presented by the Gibraltar Betting and Gaming Association, the Government of Gibraltar, cross-party political supporters, leading local advisors and industry and economic experts.

Politics

communica y t i l a u Q tion s yo

Fixed Mobile Internet

u ca n trust

• Extensive portfolio of fixed, mobile and internet services • Resilient local and international communications • Dedicated staff providing high levels of customer care • 24/7 technical support, network monitoring and call centre services

Gibtelecom… it just gets better!

20052200 - www.gibtele.com - info@gibtele.com

Insurance Sector Gibraltar’s insurance sector continues to be impacted by the wider uncertainty of financial markets and the ongoing troubles of the euro zone. Nevertheless, Gibraltar managed to hold its own during the year. By year end there were 65 insurance companies licensed by the FSC with around one quarter of these being captives or reinsurance captives. There are also 8 insurance managers based on the Rock. Many of these passport their services into Europe, principally back into the UK. One little known fact is Gibraltar-licensed companies now insure around 10% of the UK motor market. Unlike certain captive domiciles elsewhere, Gibraltar insurance companies write both direct and captive business and therefore the insurance community has the skills and connections to assist captive owners with the front end solutions required in writing direct third party business. The jurisdiction’s low corporation tax at 10% combined with zero tax for insurers on investment income will ensure that Gibraltar continues to attract new operators. Being small, Gibraltar is likely to continue to focus on particular niches where its combination of underwriting expertise, ability to maximise precious capital and robust compliance structures can be used to maximum advantage. What Gibraltar lacks in size it more than makes up for in terms of quality and specialist knowledge,

not just among insurance practitioners themselves, but critically among the network of qualified professionals which support the industry locally. There is increasingly a market requirement for EU captives that can cede European risks where the parent is not licensed to write direct insurance in Europe or to access reinsurance markets. Gibraltar’s insurers will be looking to build on their reputation as a gateway to European markets in the future and not just focus on passporting back into the UK. In last year’s report we commented that the bigger issue facing local operators was the impact of Solvency II or the Omnibus II Directive. The final legislation was expected to be issued by December 2012 for enactment by 2014. It is important to get this right but the ongoing uncertainty about the specific requirements which practitioners need to comply with is an unnecessary interruption. The objectives of this EU legislation are broadly sound and are aimed at replacing the patchwork of various pieces of national regulation. However, the evidence suggests that the various EU bodies are making heavy weather of the process. They want to bring in new EU rules but are not yet fully clear what they should be or how they will work. The ongoing consultations are an added cost to business and create unwelcome uncertainty as it makes it harder for local firms to plan effectively.

Insurance Sector

“ One little known fact is Gibraltar-licensed companies now insure around 10% of the UK motor market.”

TRIAY STAGNETTO NEISH Barristers & Solicitors

Burns House, 19 Town Range, Gibraltar Tel: (+350) 200 79423 / 200 73530 • Fax: (+350) 200 71405 Email: tsn@tsnlaw.com • www.tsnlaw.com

Politics A. Mateos & Sons Ltd. Local Agents Unit 2, Ground Floor Candytuft House Waterport Terraces, Gibraltar  container@mateos.gi  +350 200 71241 www. mateosandsons.com

The world recession and increased competition from neighbouring ports has resulted in the total number of ships calling at Gibraltar falling for a second year in succession with over 750 fewer calls compared to 2011 and approximately 1500 less than the figure achieved in 2010 which was a record year for the Port. However the total tonnage of the ships calling has remained at similar levels for the last few years and it is apparent that there has been a considerable decline in the number of small ships calling at the Port.

Ship calls to Gibraltar by type and purpose of call 2008 - 2012 Year

Cruise Cargo Bunkers Repairs Off Ships Limits

Other

Total No of Calls

Gross Tonnage

2008

222

253

5965

154

2006

301

9749

288,409,608

2009

238

193

6712

132

1460

543

10042

276,370,000

2010

175

178

6724

128

1365

505

11134

258,148,181

2011

187

164

6181

117

1492

597

10350

275,168,505

2012

173

161

6362

127

1259

444

9581

277,483,060

Port & Shipping

â&#x20AC;&#x153;Cruise ships have been attracted by the various services that the Port can provide as well as by the tourist attractions that are on offer to their passengers.â&#x20AC;?

Source: Gibraltar Port Statistics There has been some investment in the Port over the last couple of years most notably in the area of traffic management through the installation of a VTS system which will help make the Port more efficient and maximise the utilisation of anchorage slots. Nevertheless, there is still a crying need for investment in other areas if the Port is to survive the challenges that it faces in the coming years from competition from the others in the Straits which have all been investing to upgrade their facilities. Gibraltar still remains the port of choice in the area for many services but the lack of space in the western anchorage and the limited use allowed of the eastern anchorage more often than not results in there being a queue of ships slow steaming east of Gibraltar waiting for an anchorage slot and which make rich pickings for our competitors. This also gives rise to the perception that Gibraltar is an overcrowded port. Time is money and ship owners and charterers will not wait but take their business elsewhere instead.

Bunkering Gibraltar continues to be one of the most important ports in the Mediterranean/Black Sea region. However, the number of ships calling for bunkers rose by 3% in 2012 to 6362 in part reversing the 8% decline in 2011 over the previous year. Operators continue to invest in upgrading their delivery barges yet the Port is still heavily reliant on floating storage and the reduction of alongside quay delivery facilities due to a lack of investment has resulted in calls by smaller ships being lost to another port. Towards the end of the year one of the Gibraltar-based operators suspended the use of their floating storage vessel opting instead to store fuel at a new onshore facility on the other side of the Strait with their barges shuttling across to supply ships in Gibraltar. The lack of anchorage spaces, the availability of cheaper offshore anchorages across the Strait and the lack of an onshore fuel storage facility could see a further decline in numbers in the future.

In the short term the Chamber believes that a designated area in the Eastern Anchorage should be opened up as an overflow anchorage for bunkering in daylight hours and of course, only in favourable weather conditions. There is little difference environmentally in supplying bunkers to ships which are anchored on the east side or on the west side of the Rock. Provided strict protocols and operational procedures are followed it should be permitted within BGTW. Otherwise Gibraltar will continue to lose this business to other ports. Renewed consideration should be given to the construction of onshore storage facilities.

Cruise Liners The Cruise industry has always been of great importance to the Port, to the local tourist industry as well as to Main Street traders. It is therefore disappointing that passenger numbers have declined to pre 2008 levels when in contrast neighbouring ports have experienced year on year increases over the last few years. Cruise ships have been attracted by the various services that the Port can provide as well as by the tourist attractions that are on offer to their passengers. It is encouraging to see that the Minister for Tourism and the Port has invested much time and effort during the course of the year to engage the cruise companies and it is good to see the direct results of his efforts already bearing fruit with bookings for 2013 looking better than for 2012. He will no doubt have been given feedback on the areas that need to be improved if Gibraltar is to grow this business. Undoubtedly separating the cruise liner business from other port-related industrial businesses will be high on the list of priorities. The Chamber encourages the Minister to take the cruise companiesâ&#x20AC;&#x2122; comments on board and to implement whatever changes are required for the benefit of the wider economy.

Port & Shipping 30

â&#x20AC;&#x153;Generally it is essential that Gibraltar keeps abreast of competitorâ&#x20AC;&#x2122;s port charges and other costs and acts accordingly to remain competitive.â&#x20AC;?

Port & Shipping Ferry and Cargo services

Other services

All that remains of the many services that used to call at Gibraltar is one fortnightly container service to and from the UK and Northern Europe. This is because Gibraltar has opted for less environmentally friendly road haulage services from northern Europe. Similarly the ferry service to Morocco runs solely at weekends to service the needs of the members of Moroccan community that are unable to cross into Spain to return home. The Chamber has expressed concern that a demise of these services would leave road haulage across the border as the only option for imports and it has made representations to government that it looks at incentivising the operators of these services to increase their frequency.

Gibdock continues to achieve success in a number of specialist markets. Apart from being the yard of choice of most ferry operators in the region, the yard has been particularly successful in the containership and offshore vessel markets. During the year it also carried out repairs on a semi -submersible rig, the first to call in Gibraltar for many years, as well as he conversion of the Jubilee Trust’s ex Royal Navy fleet tender into a hospital ship.

Ship to Ship transfers This type of operation has become very popular in the last few years due to the current world economic climate and the need to break up oil cargoes into smaller parcels as trading conditions permit. Gibraltar had found a niche in the market for international operators to store their equipment, fenders and hoses used in these operations which were mostly being carried out in controlled conditions offshore in international waters. Due to environmental concerns the government decided late in the year to reign in this activity and to only allow this to be carried out in Gibraltar waters in the already congested western anchorage much to disapproval of local operators. The resultant increase in costs may drive most of this business away to other offshore locations in the central Mediterranean area. An alternative option may be to allow these operations to be carried out in the Eastern Anchorage at more favourable rates.

The further decline this year in off-limits calls to 1259 is significantly less than the record of 2000 ships that called in 2008 and is due in part to competitors reducing their charges. Generally it is essential that Gibraltar keeps abreast of competitor’s port charges and other costs and acts accordingly to remain competitive. However there is little that agents can do as their margins have now been trimmed to the bone. It is also as important to ensure that there is a level playing field for all operators in the port. There were a number of ship arrests during the year confirming the jurisdiction’s favourable conditions for this activity which provides work for the legal community as well as for ship agents, ship chandlers and other suppliers during the ship’s stay in Gibraltar.

Port Authority Following the resignation of Captain Peter Hall late in 2011, Captain Roy Stanbrook was appointed as Captain of the Port and to lead the Port Authority. He brings considerable experience to the job following a career at sea serving in the RFA and on other merchant vessels, and for the Port of London authority prior to his appointment in Gibraltar.

Ship Registry Gibraltar’s ‘blue chip’ registry continues to go from strength to strength since it was re-launched in the late nineties and now boasts a record number of ships providing business for Gibraltar’s professional community. At the end of the year there were 330 ships on the registry representing over 3 million tons which, whilst respectable, is tiny when one compares this to other similar jurisdictions which compete directly with Gibraltar in other areas of business such as Bermuda with 10 million tons and Malta with over 70 million tons.

“Generally it is essential that Gibraltar keeps abreast of competitor’s port charges and other costs and acts accordingly to remain competitive.”

Tourism

Tourism With over a year under their belt the new administration appears to have focused much needed attention to the tourism sector, which the Chamber recognises as a positive step.

or boutique operation not only makes the offering more modern, but increases our capacity, and also creates new opportunities in conferencing and banqueting. Currently these facilities are very limited.

The fact is that in the times of economic uncertainty, where core pillars of our economy remain much more prone to external factors (political or macro-economic), this has highlighted further that tourism remains the lost pillar of our economy, yet one with arguably the greatest upside potential. Looking at the figures of visitor numbers, locally and from across the border, there is noticeable growth. Spain may be in economic turmoil, but there is no doubt the fact the Sun still attracts many northern Europeans to the Costas. This in turn is of benefit to Gibraltar, as we are top a destination for day trippers whilst they are on holiday.

We also recognise the Chamber has a role to play in a longterm strategy. It is true that Gibraltar can improve in its overall service proposition and training and development for the hospitality sector is a cornerstone of this. Opening un-friendly hours, lack of multi-lingual facilities and other commented on elements of poor service do not fit in well with a policy to grow our touristic potential. We believe that if industry sees that Government is serious about investing in this sector then further partnerships should be formed to support such a strategy and associations such as ours have an important role to play. Inward investment needs to be encouraged and the customer experience transformed.

The Chamber applauds the new Investment of £1m per annum to improve our Upper Rock product, which is a positive start, but the Chamber would like to see much more. A telling indicator of our success in the Upper Rock can be found in the official visitor numbers to the Nature Reserve – 800,000 v land frontier visitors of 11,000,000 ! This surely indicates something is wrong – both in the type of visitor Gibraltar attracts but how we get them to see our “jewel in the crown”. The critical aspect here is the transport system: Without significant changes to the way in which we move customers around the Upper Rock, there is little hope of increasing the revenues from the Nature Reserve. So we urge the government to take this key project forward. Transport and tourism must go hand in hand. A fresh impetus is being focused on a back to basics philosophy – reviewing web based access to the Gibraltar, developing new air routes and making fundamental improvements to Upper Rock in areas such as wheelchair access, viewing platforms, toilet facilities are all greatly needed. A new pro-active approach to cruise operators, who we need to attract to achieve new business targets is also a necessity and underway. In the same vein the efforts to develop event-led niche tourism with introduction of the Jazz Festival and Literary Festival is also of great benefit to the market place. With our limited total room night availability, we must continue to think laterally in looking at ways to attract new business. There are obviously still some core issues that still needing to be resolved. As we mentioned earlier a holistic approach to transportation remains a key Chamber objective, so as to deliver greater efficiency and decongestion of the Upper Rock whilst widening opportunities for new tours, and increasing the all-important revenues. In the current government’s manifesto they made a commitment to improving the taxi service. We suggest that a back to basics approach to resolve the city service taxi service is implemented, as locals as well as visitors remain poorly served in this area. Our key desire remains an ambitious vision for tourism as a key pillar of the economy. Tourism is one of the few sustainable economic activities which cannot be uprooted and moved elsewhere. But unless there is more significant investment to upgrade the attractions and facilities, the visitor may choose to holiday elsewhere. We remain firmly of the belief that improvements to the tourist infrastructure are badly needed: the development of a new branded hotel

In summary, we are still not entirely clear whether a long term strategy is fully formed yet, but the Hon. Neil Costa is certainly showing a high level of pro-activity and focus in addressing a number of issues including air links, developing the cruise destination and improvements to the infrastructure in the Nature Reserve. We welcome this invigorated approach. With the start of necessary works to the Nature Reserve we hope this will be built on further and transform the visitor experience. The Chamber is pleased to be able to report good access to the Department and Minister and looks forward to supporting this new drive in an area we have always maintained is crucial to the diversity of our economic base.

Property

Property The year started with high hopes that an office and/or hotel development would start some time in 2012. Outline planning consent had already been awarded for a number of different schemes, none of which have begun and none of which appear to be any closer to a project start date.

Most of our members have not seen any year on year growth in retail spend. Anecdotally, the local spend would appear to be holding up, but expenditure from tourists and Spaniards is falling due to the economic situation elsewhere.

The key reason for this is the lack of funding available from banks which seem to have lost all appetite for development finance. Without such finance, the funding matrix and required return on capital for developers prevents new developments. It is difficult to see how 2013 will be any different. This lack of new supply, especially in the office market, is an issue for both the existing and incoming business sector.

Possibly the main threat to Main Street however, is from the growth in online retail sales. Although the reduced import duty on a variety of goods in the 2012 budget was welcome in one sense, the flip side is that buying over the internet became cheaper for local residents. Gibraltar does not have the warehouse space to compete in that sector and is exposed to the shift from “High Street” to online.

Office

Last year, some 110,000 parcels entered Gibraltar, which is some 20% up on two years ago. In the UK, in December 2012, total online sales were up 15.5% from a year earlier, led by a 36% increase by websites of department stores such as John Lewis. Online sales now account for 10.6% of retail spend in the UK up from 9.4% in 2011 (Office of National Statistics).

The demand is for open plan offices with good natural light, air-conditioning and modern cabling capacity. This demand remains steady with the continued demand from existing companies seeking to expand and new companies coming in. We have not seen any slowing in this steady demand in the last twelve months and do not predict any change in the near future. The supply of new offices is now from refurbished older buildings around the town centre. Irish Town, for example, has seen a number of schemes where either disused or previously old residential properties have been sympathetically converted into new office space. This trend is continuing in Main Street and we are aware of a good pipeline of new offices that will be available over the course of the next twelve months.

In the lead up to Christmas, the Chamber joined forces with the GFSB with a campaign to buy locally. Such campaigns focus on the customer service, and the ability to return goods with ease, which a high street retailer can give but online cannot. This campaign was welcomed by all sectors. However, we cannot halt the tide forever. Ultimately, most consumers will choose based upon price, choice and ease of purchase.

This new supply is satisfying a certain level of demand. However, rents in these newly refurbished offices are now pushing the £300 per square metre per annum level, which is an issue for many local businesses. The supply of newly built modern office (as opposed to refurbished old buildings) has all but ceased. Yet many of the businesses Gibraltar tries to attract in the gaming and financial service sectors, rely on such offices often with larger floor plates that a refurbished old building cannot deliver. Ocean Village, Europort, Regal House and other office developments are all fully let. Annual rents above £350 per square metre per annum are not uncommon as a result. The challenge for Gibraltar and the wider business community is how to attract more businesses into Gibraltar when the new office premises supply is restricted to refurbishments, the footplates are often too small and rents are rising ahead of inflation.

Retail It was another challenging year for Gibraltar’s retail sector generally. Consumer spending remains under pressure due to the tough economic climate. The growth in online retail sales is a real challenge for Main Street retailers who have no such online presence. And premises costs are not easing to reflect these issues.

“ We have not seen any slowing in this steady demand in the last twelve months and do not predict any change in the near future.”

Since the start of 2013, famous retail brands HMV, Blockbuster and Jessops have all gone into administration. These businesses have lost out to the internet where the relatively high costs of maintaining retail premises and employing staff cannot compete against the online business model.

we start to plan for niche areas around the side streets to help smarten those areas and to offer more interesting products to tourists, assisted perhaps by discounted rates and other premises costs? The UK high street is very much in decline. We need to manage our own high street to prevent the same fate.

Should the above trends continue, there is a worrying future for Main Street. The retail offering is popular amongst locals and Main Street is a key tourist attraction for Gibraltar. However, if prices and product choice cannot compete with online, then it must follow that Main Street will see its own business failures in due course. In theory, rents should ease to address this. Thus far this has not happened as far as we can tell, although the premiums paid to obtain a lease in the first place are not at the levels of some years ago. Last year we called for an open debate to address the future of Main Street. This year we urge all interested parties to collaborate to help manage Main Streetâ&#x20AC;&#x2122;s future. What will it look like in five or ten yearsâ&#x20AC;&#x2122; time? Should

Gibraltarâ&#x20AC;&#x2122;s leading commercial agent 20 Ocean Village Promenade Ocean Village Gibraltar

T: + 350 200 400 41 F: + 350 200 440 11 enquiries@chesterton.gi chesterton.gi

Politics

To the members of the Gibraltar Chamber Of Commerce. We have audited the financial statements on pages 38 to 45, which have been prepared under the historical cost convention and on the basis of the accounting policies set out on page 41. Respective responsibilities of the Honorary Treasurer, Directors and Auditors It is the responsibility of the Honorary Treasurer to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Chamber and of the surplus or deficit of the Chamber for that year. In preparing those financial statements the Honorary Treasurer is required to: • Select suitable accounting policies and then apply them consistently; • Make judgements and estimates that are reasonable and prudent; • State whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and • Prepare the accounts on the going concern basis unless it is inappropriate to presume that the Chamber will continue in operation. The Honorary Treasurer is responsible for keeping proper accounting records, which disclose with reasonable accuracy at any time the financial position of the Chamber. The Directors are also responsible for controlling the funds of the Chamber and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Basis of opinion

Annual Accounts

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. 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 2012 and of its surplus for the year then ended, according to the best of our information and the explanations given to us and as shown by the books of the Chamber. Ian Collinson Statutory auditor for and on behalf of

BAKER TILLY (GIBRALTAR) LIMITED Chartered Accountants Honorary Auditors

Annual Accounts

The Gibraltar Chamber of Commerce INCOME & EXPENDITURE ACCOUNT for the year ended 31 December 2012

2012 2011 INCOME Notes £ £ Subscriptions & other income

82,212

84,986

Deposit interest

268

216

Total income

84,480

85,202

Staff remuneration and social insurance

39,909

Office rent

7,089

6,927

EXPENDITURE

Rates (4,556)

2,137

Electricity and water

1,021

1,084

25,620

22,635

Bad debt written off

801

Provision for bad debts

495

1,230

General administration

Depreciation

3 2,070 2,359

Total expenditure SURPLUS FOR THE YEAR

71,648

8 12,832

There are no recognised gains or losses other than those shown above. The Gibraltar Chamber of Commerce

77,082 8,120

BALANCE SHEET As at 31 December 2012

2012 2011 Notes £ £ TANGIBLE FIXED ASSETS

3 7,842 9,221

CURRENT ASSETS Stocks

4 552 552

Debtors

5 17,753 11,876

Cash at bank and in hand

69,044

73,105

87,349 85,533 CREDITORS: amounts falling due within one year 7 (3,506)

(15,901)

NET CURRENT ASSETS 83,843 69,632 TOTAL ASSETS LESS CURRENT LIABILITIES 91,685 ACCUMULATED FUND Approved by the board on 5th March 2013 G A Olivera Honorary Treasurer

78,853

8 91,685 78,853

Annual Accounts 40

The Gibraltar Chamber of Commerce CASH FLOW STATEMENT for the year ended 31 December 2012

2012 2011 Notes £ £ NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES

9 (3,638) 20,773

RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest on deposit account

268

216

(691)

(2,582)

CAPITAL EXPENDITURE Payment to acquire tangible fixed assets

(DECREASE)/INCREASE IN CASH

6 (4,061) 18,407

The Gibraltar Chamber of Commerce PRINCIPAL ACCOUNTING POLICIES

BASIS OF ACCOUNTING The financial statements have been prepared under the historical cost convention and in accordance with Gibraltar Accounting Standards. DEPRECIATION Fixed assets are depreciated over their expected useful lives as follows: Furniture and fittings 15% on cost Office equipment 15% on reducing balance Computer equipment 25% on reducing balance Air conditioning units 20% on cost Leasehold improvements Over 9 years STOCKS Stocks are valued at the lower of cost or net realisable value. FOREIGN CURRENCIES Transactions denominated in foreign currencies are recorded at the rates of exchange ruling at the dates of the transactions.

Annual Accounts

The Gibraltar Chamber of Commerce NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2012

1. INCOME 2012 2011 £ £ Subscriptions 49,457 48,620 Other income

34,755

36,366

84,212 84,986 2012 2011 2. GENERAL ADMINISTRATION EXPENSES £ £ Advertising 3,302 2,690 Telephone 2,730 2,624 Printing, postage and stationery

3,143

3,004

Miscellaneous expenses

158

138

Insurance 590 413 Entertaining 4,795 3,567 Office cleaning

2,186

2,121

Repairs and maintenance

2,874

4,084

Subscriptions 1,135 1,192 Accountancy fees

1,200

1,650

Professional fees

3,507

1,152

25,620 22,635

The Gibraltar Chamber of Commerce NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2012

3. FIXED ASSETS Leasehold Furniture Office Air Computer Total improvements and fittings equipment conditioning equipment £ £ £ £ £ £ Cost At 1 January 2012

35,755

11,856

24,538

8,647

11,764

92,560

444

247

691

At 31st December 2012 35,755

11,856

24,982

8,647

12,011

93,251

35,595

10,153

20,644

7,799

9,148

83,339

451

651

424

517

2,070

At 31st December 2012 35,622

10,604

21,295

8,223

9,665

85,409

133

1,252

3,687

424

2,346

7,842

160

1,703

3,894

848

2,616

9,221

Additions during the year

Depreciation At 1 January 2012 Charge for the year

Net book value At 31st December 2012 Net book value At 31st December 2011

Annual Accounts

The Gibraltar Chamber of Commerce NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2012

4. STOCKS Stocks at the year end comprised of the following:

2012 £

2011 £

Commemorative books, booklets & First Day Covers Ties and shields

252 300

552 552 5. DEBTORS 2012 2011 £ £ Subscriptions 2,863 730 Other debtors 14,321 10,415 Prepayments and accrued income 569 731 17,753 11,876 6. CASH AT BANK AND IN HAND 2012 2011 £ £ At 1 January Net cash (outflow)/inflow

73,105 (4,061)

54,698 18,407

At 31 December

69,044

73,105

7. CREDITORS: amounts falling due within one year 2012 2011 £ £ Creditors and accruals PAYE and Social Security

2,954 552

15,901 -

3,506 15,901

The Gibraltar Chamber of Commerce NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2012

8. ACCUMULATED FUND

2012 2011 £ £

Balance at 1 January

78,853

70,733

Surplus for the year

12,832

8,120

Balance at 31 December

91,685

78,853

9. NOTES TO THE STATEMENT OF CASH FLOWS Reconciliation of results for the year to net cash flow from operating activities 2012 2011 £ £ Surplus for the year Interest on deposit account Depreciation

12,831

8,120

(268)

(216)

12,563 7,904 2,070 2,359

(Increase)/decrease in debtors

(5,876)

5,093

(Decrease)/increase in creditors

(12,395)

5,417

(3,638)

20,773

Net cash (outflow)/inflow from operating activities

10. OTHER FINANCIAL COMMITMENTS At 31 December 2012 the Chamber had annual commitments under non-cancellable operating leases as set out below: Operating leases on land and buildings which expire: Over five years

31 December 2012 31 December 2011 £ £ 7,089 6,927

Key Information

Population:

29,752 (2011)

Total land area:

6.5 sq km

Natural resources:

None

Head of State:

Her Majesty Queen Elizabeth II

Chief Minister:

Hon Fabian Picardo, MP

Legislature:

Parliament (no upper house)

Languages:

English & Spanish

Business hours:

9 am – 5 pm Monday to Friday

Inflation rate:

2.1% per annum

Minimum wage:

£5.70 per hour

Average earnings:

£25,831 (2011)

Registered employed:

22,247

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

AIRLINES & HOTELS www.ba.com www.flymonarch.com www.easyjet.com www.caletahotel.com www.rockhotelgibraltar.com www.ocallaghanhotels.com/eliott

(£222.30 per week)

Registered unemployed: 3.0% lmports UK: 60%, Spain: 30%, Other EU:10%

Employment Growth 1996 - 2011

GDP Growth 1996 - 2012 1200

25000

1000

20000

800 15000

600 10000

400 5000

200

Female

10/11

08/09

09/10

06/07

07/08

04/05

05/06

02/03

03/04

00/01

01/02

98/99

99/00

96/97

2011

2010

2009

2007

2008

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

Male

97/98

£m

Personal Income Tax Rates

Tax is calculated on gross assessable income:

First £17,000*

16%

£105,001 to £500,000

25%

£17,001 to £25,000*

19%

£500,001 to £700,000

18%

£25,001 to £40,000

25%

£700,001 to £1m

10%

£40,001 to £105,000

28%

Over £1m

Corporation Tax Resident Companies Utilities Companies

Tax payable 10% 20%

No capital gains taxes No tax on dividends No Inheritance tax/death duties or estate duty No wealth, gift or capital taxes

Special Status personal tax rates

Tax payable

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

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

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

Built on solid foundations A full service international law firm, offering tailor-made services and advice to help you meet your objectives, since 1892 For further information contact: info@isolas.gi Portland House Glacis Road PO Box 204 Gibraltar Tel +350 2000 1892 www.gibraltarlawyers.com