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The Gibraltar

Chamber CommerceOF

Annual Report

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 2006

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The Gibraltar Chamber of Com-merce was founded in 1882. It was established for the “promotion of

measures calculated to benefit and pro-tect the trading interests of its members and the general trade of Gibraltar”.

Nearly 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 Finan-cial Services, the Port & Shipping Services, Tourism, Online Gaming and a very well-developed Professional Services sector.

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

2006AnnualReport

President:

Vice President:

Hon Treasurer:

Hon Secretary:

Directors:

E J Nicholas Russo

John Iso la

George Ol ivera

Jeremy Nichol l s

Bruno Cal laghanMarv in CartwrightFranco CassarGeorge DesoisaErnest Fe l ipesAndrew HaynesChr ist ian HernandezPeter Iso la

B o a r d M e m b e r s

Watergate House2/6 CasematesP O Box 29Gibraltar

T: + 350 78376F: + 350 78403E: info@gibraltarchamberofcommerce.comW: www.gibraltarchamberofcommerce.com

R e g i s t e r e d O f f i c e :

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Contents

Contents05 Foreword

07 Politics

09 Economy

�4 Wholesale & Distribution Sectors

�6 Retail Sector �9 Financial Services Sector Banking Insurance Online Gaming

25 Port & Shipping Services Sector Bunkering Cruise Liners Other Port Activities

29 Tourism Sector Airlinks Hotel Sector �� Telecommunications

�4 Property �7 EU Funding

�9 Gibraltar: Key Information

2006Annual Report

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Foreword

I am delighted to present to you the 2006 Annual Report of the Gibraltar

Chamber of Commerce. As you read through the report, you will not fail to notice just how many times the word “Cordoba” pops up in almost every individual report, and quite rightly so.

The Cordoba Agreement of the 18th September 2006 has been historic on so many counts and several of these are referred to within this year’s report. Perhaps the most important point about the Tripartite process though, of which Cordoba was the first tangible outcome, is that it signalled a new spirit of engage-ment which offers opportunities and practical benefits. This is not to abandon long-held political principles. But it shows that pragmatism and the benefits that ac-crue from it, can be pursued as an agenda in its own right.

Following on from Cordoba, the Board

has also been busy opening doors in Spain for our Members by holding exploratory meetings with the Mayor of La Linea, attending the “Primer Encuentro Puer-tos del Estrecho” and recently hosting a meeting with the Campo de Gibraltar Chamber of Commerce. It is vitally im-portant that Gibraltar plc uses its entre-preneurial skills to expand its horizons to do business in the surrounding area.

2006 also saw the culmination of years of hard work with the new Constitution coming into effect on the 1st January 2007. The direct effect on the business community is not expected to be great but taken with the advances made under the Tripartite process these two changes have given a greater level of certainty to the business sector. As this certainty continues to permeate abroad we believe that this will increase confidence in Gi-braltar as a dynamic and innovative busi-ness jurisdiction. Greater certainty gives investors greater confidence and it is this, coupled with Gibraltar’s entrepreneurial flair, which will drive economic growth for the benefit of all.

However, we must not rest on our lau-rels. Gibraltar continues to be a high cost

base and whilst we are glad that Govern-ment took on our advice to reduce gener-al rates in the last budget, this must only be the starting point. We are also looking to Government to introduce long awaited legislation on counterfeit goods, revamp the Statistics Ordinance and in particular the calculation of the Retail Price Index. On a positive note and after many years of lobbying by the Chamber, the Govern-ment announced the legislation to change social insurance contributions and in particular as to how they apply to part-time employees. Whilst this did not go as far as we would have liked, it is a step in the right direction and we shall continue to lobby Government on this and on all aspects that would be more beneficial to the business community. Similarly, we welcome moves by Government to reduce the personal tax burden with the introduction of the twin track income tax scheme later this year. We hope that tax burdens will continue to be reduced over time.

I am extremely grateful for all the hard work and time the Directors have donated to the Chamber during 2006 as indeed I am to the contributors of this Annual Report 2006.

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Politics

Events in recent months, namely the Cordoba Agreement last Sep-

tember and the referendum for a new Constitution in November, indicate that 2006 may be established as a watershed year. These two events are themselves the culmination of two long sepa-rate processes with strong pedigrees stretching back years rather than months.

The task of formulating the text for a new Constitution was put to a cross-party committee of the House of Assembly. Traditionally cross-party committees are a forum for bi-partisan politics where elected members put aside party rivalries and mutual mistrust for the common good. Given the personal animosity that underlies the frequent political exchanges between the Chief Minister and the Leader of the Opposition the bi-partisan nature of the cross-party committee charged with presenting the framework of a new Constitution was a hazardous undertaking. To the credit of both parties however the functions of the committee were not impaired by any shortcomings in the personal relationships of the mem-bers and, after approximately four years of deliberation, a draft was agreed. The unravelling of the bi-partisan approach to the new Constitution began after the Committee had reported to the House of Assembly and Government referred the text to Westminster for consent to the grant of a new Constitution and for a Preamble that was both robust and unambiguous.

The process of lobbying Westminster for consent to the grant of a new Constitu-tion was met with conditional support. Reading between the lines of the tight-lipped status reports of negotiations leading to the Cordoba Agreement, the question of consent for the new Constitu-

tion was treated holistically by Westmin-ster, in parallel with the tri-lateral process established in 2005.

This process was initiated to attempt a breakthrough over the impasse that was blocking the Gibraltar Airport Agreement, the Spanish pensions and the acceptance of the ‘350’ international code. The trilat-eral process involving London, Madrid and Gibraltar with equality of status between the parties was itself a welcome break from the stagnant political thinking of the previous two decades and was heralded by your board in last year’s report as a positive and welcome development which deserved all our support.

The trilateral process maintained its early reputation for confidentiality and ‘radio silence’ by all parties was another novel feature of the negotiations.

The trilateral process and the Cordoba Agreement have passed their first test both in Gibraltar and Spain

Nonetheless repeated delays in the date for an announcement were clear indica-tors of stumbling blocks in the negotiating process which were rumoured variously as being attributed to either the new Constitution being a “bridge too far” for the Spanish team or the Spanish pensions as a potential issue for the British Govern-ment at national level.

From a Gibraltar perspective the contrast between the new Constitution and the trilateral negotiations was that the first had the advantage of bi-partisan support and the second, like all discussions or initiatives dealing with the subject of Spain since 1984, was conducted by the ruling party without the inclusion of the Op-position in the framework. The inevitable threat of Opposition disapproval has never been far away and uppermost in the minds of the majority of Gibraltarians

is the need for unity on the Spanish ques-tion. Until now it was received political wisdom that, without a broad consensus across the political divide, no Agreement addressing the Spanish question would be achievable. Cordoba seems to have broken the mould in this respect also.

Currently we have entered a period of unfamiliar calm, where despite the best efforts of the Opposition parties to rub-bish the Cordoba Agreement the

public response remains favourable to the Agreement, despite the growing unpopularity of a Government that is showing the wear and tear of 10 years in office.

Across the border the reaction from the Spanish political classes has also been muted. Locally the Mayor of La Linea, who has never enjoyed a good working relationship with the Chief Minister, is proving himself a staunch ally by work-ing hard to ensure that all aspects of the Spanish administration, including the Guardia Civil, perform their side of the bargain. In particular your board wel-comes the appointment of Juan Carmona as La Linea’s special adviser to promote the Cordoba Agreement. Elsewhere locally the response by media and politi-cians alike has been favourable with the exception of some branches of the PP,

P o l i t i c a l D e v e l o p m e n t s

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which have taken their lead from the PP in Madrid.

The PP’s strong rejection of the Cordoba Agreement has been ignored by the PSOE Government and the media have not taken up the story. Unusually there-fore the beating of the nationalist drum by the PP has not produced the expected response and it would appear that, in the context of discussions for increased autonomy in Cataluña and the Basque country, the Gibraltar question pales into insignificance.

The new Constitution passed its first hurdle when, with the timely intervention of Geoff Hoon, Minister for Europe, the text for the preamble was approved lo-cally by all parties. This should have paved the way for a coronation when the new Constitution was put to a Referendum in November. In the event the Opposi-tion’s ambiguous response to the ques-tion posed by the Referendum did little to enhance the reputation of Gibraltar

politics and a low turnout added to the disappointment. The political process was saved however by the spirited debate that took place thanks only to the well-or-chestrated NO Campaign put together by individuals outside the party system and ably led by Robert Vasquez.

The trilateral process and the Cordoba Agreement have passed their first test both in Gibraltar and Spain, nevertheless the probability remains that the gen-eral elections scheduled for 2008 (both Gibraltar and in Spain) will prove crucial to the evolution and development of the Cordoba Agreement. If the Agreement is allowed to fulfil its potential then 2006will be celebrated as a watershed year but if the door is closed on ‘Cordoba’ it is back to the drawing board and in all prob-ability a long wait for the right configura-tion of the stars of political fortune.

Politics

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E c o n o m i c D e v e l o p m e n t s

The effect of the Cordoba Agree-ment on the Gibraltar economy will not be measurable for some

time, as the effects of a better flowing frontier, which is already apparent, and the expanded utilisation of the airport, are only just beginning to be felt. Certainly the impact of the Agreement is expected to be positive.

What, then, can we say about the per-formance of the Gibraltar Economy in 2006? As usual, we are obliged to use year old data for any attempt at quantifi-cation, in this case from 2005. Part of the reason for the lateness of official statistics is the Statistics Ordinance itself, which has not been revised since its inception in the early 1970s! The Ordinance requires, among other issues, that the various statistical reports need to be passed by the House of Assembly (or should we now say our Parliament?) before it can be made public. This outdated procedure also means that partial numbers are not available. In today’s world of the internet and on line information availability, this is positively stone age! Surely, it is possible to have at least provisional numbers avail-able on line that are more up to date. For example, if by say December of a given year data up to the end of September could be published that at least would be a help. Other countries do this. Why not Gibraltar?

Economy

In a value added open economy like Gibraltar, with little or no manufacturing sector or agriculture, trade and employ-ment data are the main economic indica-tors.

One of the issues facing the Wholesale/Retail Sector is the high cost of doing business in Gibraltar

Looking at the value of imports first, 2005 saw an increase of some 3.8% over 2004. After taking inflation into account, this gives an increase of just over 1% on the real value of imports, suggesting a retail sector that is just keeping station and not

growing in any significant way. This is in line with the results of the Trading Condi-tions Survey for 2005 and also with the expectations of the retail and wholesale sectors as recorded in the survey.

There are a number of issues that face the wholesale/retail sector in Gibraltar. One of them is the high cost of doing business in Gibraltar, an item that will feature in the 2006 survey being prepared now. Clearly, given the size of Gibraltar, the fact that we insist on having our own (high cost) water and electricity supply and other cost related issues, such as rates, competing with Spain is not easy. It is also apparent that some retailers are doing better than others as they have revisited their product lines and invested in their premises. While the constraints that we know all too well do exist, trad-ers can do better within these constraints and progress, as some clearly have. Your Board continues to lobby Government on cost related issues. In combination with the entrepreneurship that ‘Gib Inc’ has shown over the years, it should be pos-sible to turn around this important sector.

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TheEconomy

I n f l a t i o n

The local Retail Price Index is the most commonly used and accepted measure ofinflation. The index is a composite of awhole basket of goods and services which make up the average consumer’s spending basket. The different groups of expenditure items are monitored for price movements. These price move-ments are then ‘weighted’ according to the proportion the different groups form of the spending basket and the result is the general, or ‘all-items’ index, which is calculated on a quarterly basis in Gibraltar.

The current index used in Gibraltar dates from April 1998, when the weights were last revised, following the 1996/97 Family Expenditure Survey. The annual rate of inflation since 1998 is shown in the graph above.

The latest twelve months for which data are available (January 06 - January 07) shows an underlying annual inflation rate of 2.55 %. This is slightly lower than for the previous (January 05 - January 06) comparable year of 2.77%. This latest rate is in line with the 2.5% rate pegged by western economies as being a figure that should not be exceeded if inflation is to remain under control.

The main causes for the rise in inflation are the increases in the price of food and

housing, the latter clearly reflecting the impact of increasing interest rates on mortgages, as well as increases in prop-erty values locally. This rise in property values reflects continued confidence in Gibraltar’s strong underlying economy.

Finally, the issue again needs to be raised of how accurate the current Index is in measuring the local rate of inflation. The answer is to be found mainly in how representative the 1996/97 consumers’ “spending basket” is of today’s expendi-ture patterns. To say these have not changed in 10 years is unrealistic. An ob-

vious example is home ownership among Gibraltarians being far more prevalent nowadays. The percentages of household income spent on other items will have also changed over time. Government should now consider either updating the Family Expenditure Survey or carrying out a new one, as the accuracy of the current weights must now be seriously called into question.

E m p l o y m e n t

Approximately 900 additional jobs were created between 2005 and 2004. These came overwhelmingly from the private sector, with only some 100 emanat-ing from the public sector. While some may say that this is 100 too many, with the well known cost implications of an expanding civil service, the employment

scenario shown by the private sector con-tinues to be positive, reflecting a strong economy.

During the latter half of 2006, we of course had the ‘scare’ of the US Port Security Act which prohibited US citizens from online gambling. This did cause some employment reductions in Gibral-tar’s online gaming industry but not the mass exodus as many had feared. Indeed, the sector seems to have adjusted quickly to these new conditions and recruitment, if local job advertisements are any guide, seems to be once again on the up. The other big employment issue during 2006 was, of course, the move by the MOD to privatise some of its functions locally, to the detriment of the Gibraltar labour force who have been employed in this sector for many years. The Gibraltar Government and the Trades Unions had been resisting the move and the signingdate with the MOD’s preferred private contractor was put back on two occa-sions as a result. As we go to press the eventual outcome was still undecided but hopefully a workable solution can be arrived at with a minimal loss of local jobs. Although the MOD now represents a fairly small proportion of the economy, at some 6-7%, it remains a major employer and all efforts must be made to try and maintain this position. Maintenance is all we can hope to achieve in this respect. There are few if any growth prospects for employment from this once dominant player. It has been clear for some years now that employment and economic growth in Gibraltar can only come from the private sector. The latest develop-ments with the MOD serve to reinforce

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TheEconomy

this point.

Since the double event of 1984/85, with the closing of the dockyard and the open-ing of the frontier, Gibraltar has success-fully transformed and grown its economy. There is no evidence that this is not set to continue into the foreseeable future.

One effect of the resilient growth is that the economy is running at full or near full

employment. The latest anecdotal evi-dence indicates that the number of regis-tered unemployed in Gibraltar is around 550 people or just over 3 per cent of the number of registered employed. At one level this may be taken as a sign of suc-cess. However, this success has brought

with it the increased difficulty of finding and retaining staff locally. In last years Trading Conditions Survey this was one viewed by members as being the second most influential factor affecting the future success of their business (after increased business costs).

What this means is that any new job that is created increasingly has to be filled by someone from outside Gibraltar. The local labour pool has all but been used up.

Source: Dept. of Employment

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TheEconomy

What this means is that any new job that is created increasingly has to be filled by someone from outside Gibraltar. The local labour pool has all but been used up. Gibraltar is an attractive and stimulating work location if local employers can af-ford to supplement imported workers sal-aries so that they do not suffer financially. Those employers who cannot afford to do this by definition have their growth restricted. It is hoped that the new twin track tax arrangements being brought into force by the Government in 2007 will go a long way to alleviating this problem.

The huge economic shift, which has taken place since the garrison left at the end of the 1980s, has left Gibraltar with a greatly invigorated service-based economy. There is still potential to increase the level of employment but only if companies and their workforces are sufficiently attracted to invest and live here.

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Wholesale&DistributionSector

This past year has not seen any major developments for this sec-tor and your Board continues to

pursue its original objectives to improve the trading scenario for wholesalers/dis-tributors. Needless to say, it continues to be a tough trading environment where pressure on margins continues, the ever increasing costs to operate continue to rise and unfair competition from non-es-tablished companies is still evident. The need for an updated/revamped Trade Li-cence/Trading Standards legislation seems ever more prevalent.

In the latter part of the year, however, there was a significant development regarding Morrisons announcement to keep its Gibraltar store and its proposed expansion plans. The Board will be mak-ing the appropriate representations to Morrisons management seeking, in as far as possible, assurances that this sector will not be overlooked and that a fair share of trade will be passed on this way.

It is also important to note that our Chief Minister, in his Budget speech, for the first time highlighted the important contribu-tion that this sector makes, and in fact, going as far as to say, “the wholesale and retail trade is important to Gibraltar economically and socially. It employs 2692 people, of whom, 1422 are Gibraltar-ians. And this is perhaps the sector of our economy that is most challenged by a combination of factors…The Govern-ment will seek to work closely with the new Board of the Chamber of Commerce to see what Government can sensibly and realistically do to help these important sectors”. (See Retail article).

There are a number of areas highlighted below which your Board has been, and continues to pursue, which will lead to improvements for this sector:-

a) Loading/unloading Bays (L.U.B.):- Following our meetings with Government where we carried out a full analysis of all L.U.B’s in Gibraltar and the changes required (which, in most cases, has been achieved), we are now making represen-tations directly to the Gibraltar Police in order to help with enforcement and to make sure that these bays are actually

used by goods carrying vehicles, as is the intended purpose.

b) Trade Licencing/Trading Standards legislation – Generally speaking our recommendations are as follows:-

1) All individuals, companies wanting to trade in or from Gibraltar have to comply with the Trade Licencing Ordinance.2) It should be clearly stated whether the Trade Licence is for Wholesale or Retail.3) Items, which require a Trade Licence, should be categorised. Meaning that goods of a certain category only can be sold from appropriate/suitable premises for that category.4) Premises at which the trade is to be carried out are entirely suitable for that purpose. Input required here from Cus-toms and Environment (Health standards, etc)5) Trade Licences should lapse if the premises are closed for more than a specified period of time.

6) Delivery vehicles should be licensed as in the Tobacco Ordinance, to prevent those vehicles from Spain coming into Gibraltar to effect deliveries.7) There should be a system for the revocation of existing licences or parts thereof if the licencee does not meet the criteria set to apply for a licence.8) Last, and probably most importantly, an EFFECTIVE ENFORCEMENT SYS-TEM needs to be in place, with en-forcement officers appointed to ensure businesses comply with the terms of their licence and the Trade Licencing Ordi-nance generally. Non-compliance would result in hefty fines or revocation of licence. (e.g Labour Inspectors today)9) Finally, as a side point, the Chamber has recommended that the Government studies the possibility of having different rates of import duty for individuals and businesses in the same way as the exist-ing system for motor vehicles. This aims to incentivise people to buy locally and not always look elsewhere as their first

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Wholesale&DistributionSector

choice. c) Customs Review Members of the Board met with the Customs Review team who had been engaged by the Government of Gibraltar to conduct a root and branch review of Gibraltar Customs. Under the leadership of the recently appointed Collector of Customs, John Rodriguez, these pro-posed changes entail substantial capital investment in new IT systems and will, when implemented, enable Gibraltar Customs to allocate resources across a wider sphere of operations. Although the findings have not been made public, the Chamber fully supports the objectives of the Review and hope that members will see the benefits of these changes in due course.

d) Rates Discount:- Government decided in the last budget to re-instate the Rates discount for all those compa-nies in our sector whose bills are up to date. This decision will go some way to alleviating the cost burden for wholesal-

ers/distributors. There is no doubt that the Chamber’s continued efforts through-out complaining about this in every public forum have had a positive effect.

e) Import Duty for Commercial Vehicles:- We welcome Government’s decision to help this sector by making it more cost effective to re-invest in its distribution infrastructure.

Finally, we take this opportunity to wel-come the Chief Minister’s positive com-ments regarding this sector but would also remind Government of the following (taken from last years Annual Report on Wholesale/Distribution article):-

“Many of the COC members who operate in the W&D sector have done so for many generations; they want to continue con-tributing to our development and to benefit from “this growth” in our economy. Whilst the COC acknowledges the tremendously beneficial role that gaming companies for example are playing, it is crucial our Gov-

ernment does not lose sight of those sectors and “traditional” companies that have been trading and surviving in Gibraltar throughout its turbulent history – they have been here through thick and thin. It is important to remember that these gaming companies, for example, are here because it is beneficial in terms of fiscal costs and ultimately bottom line results”.

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RetailSector

Ten years ago this year Main Street was in the throws of the pedes-trianisation and beautification

works. The scheme, the brainchild of this Chamber and to have been financed by its members, was later adopted and financed by Government. Nobody in the retail sec-tor can deny that the scheme has brought immeasurable benefits by improving Gibraltar’s shopping experience. To have kept still would certainly have sounded the death knell of many a business in the sector. In response many businesses have invested to improve their outlets and the Main Street of today is now almost unrec-ognisable compared to ten years ago.

However, during this period much has happened on the other side of the border. Many new shopping centres have opened; their product offering has improved considerably and their prices have fallen. Whilst ten years ago shops in Gibraltar were able to offer the latest products well before their competitors in Spain, this is no longer the case. Furthermore in

many areas of business prices in Gibraltar are no longer as competitive, with local businesses having to compete with the stronger purchasing power of the large retailers in Spain.

It must be noted that many of the shop-ping visitors to Gibraltar are only attract-ed here either because of specific retail

businesses operating franchises which are not available in Spain or because of a small basket of specific products which offer huge savings. However, whilst it is true that there is a vast array of products that do offer savings, in the main the sav-ings on these are not significant enough to attract the visitor. As the small basket becomes smaller the attraction to the

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RetailSectorvisitor diminishes.

2006 has proved a mixed year with some retailers reporting improved levels of business. In the main however business has either been flat or marginally below last year. In his budget speech the Chief Minister specifically referred to the retail and wholesale trades recognising the contribution that these businesses make to the economy employing over 2600 peo-ple. He also recognised that this sector is facing much more competition and that consequently they were working in a much tougher environment. The Chief Minister announced that a discount on rates for businesses in these sectors would be introduced and that other measures would be forthcoming following consultation with this Chamber and with businesses operating in these fields. The Chamber welcomes the intro-duction of these measures and will make further representa-tions to Government during 2007.

In particular there is concern in the sector that with all the property development going on in Gibraltar there is a risk that other centres for retail will open up outside the city walls when, given the competition being faced by existing retailers from shopping centres outside Gibraltar, there is no business potential. The Chamber is of the view that everything must be done to maintain and to preserve Main Street and the old town as Gibraltar’s shopping centre.

That retailers in Gibraltar must adapt and change to survive is certain. There are too many retailers trading in the same goods. Businesses need to specialise and invest. Whilst compe-tition is healthy, margins have been shaved to the bone and this in conjunction with increasing costs, is muting confidence and

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RetailSector

precluding investment. Those that do invest or specialise, have to compete in an unfair environment often having to face competition from cheaper substandard or counterfeit products. The Chamber will ensure that the Govern-ment delivers its promise on introducing legislation to curb the importation of counterfeit products. It will furthermore make representations to Government so that it introduces trading standards legisla-tion with a properly resourced trading standards office.

Late in 2006 Morrisons announced that it had decided to retain its store in Gibraltar and revealed its plans to invest in expand-ing the store. The Chamber welcomes this announcement as in all likelihood the expansion will make Gibraltar more attractive as a shopping destination to those living along the Costas. However it must be said that other smaller retail-ers rightfully view this with trepidation as it could result in the store increasing

its range and expanding into other areas of business. The Chamber urges Mor-risons to consider its options carefully in

this regard as many of its customers are themselves employed by local wholesalers and retailers.

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FinanceSector

B a n k i n g S e c t o r

Despite continuing uncertainty sur-rounding Gibraltar’s fiscal status and more particularly the future of the

corporate tax regime, we are pleased to re-port further steady growth across the whole spectrum of Financial Services on the Rock.

Potentially good news was embraced by the Industry as a whole in September following the Azores Ruling in the European Court of Justice. As a result of the ruling, which challenged Portugal’s ability to maintain separate tax arrangements for the Islands under State Aid Rules, Gibraltar’s case be-fore the European Courts looks far clearer. This should now lead the way for a positive ruling which will allow local legislation to be passed implementing a new tax structure for Gibraltar companies. Most observers strongly believe the new rate of Corporate Tax will be around 9% - �2% and this will undoubtedly be welcomed by local busi-nesses. It is also expected that the new rates will be suitably attractive to protect most of

our more internationally focused activities that have historically benefitted from exempt or qualifying status.We hope the Government will act quickly as soon as a ruling is obtained in order to provide more stability to the Financial Services and Gaming sectors given increased competition from new Member States such as Malta.

Most observers strongly believe the new rate of Corporate Tax will be around 9% - 12% and this will undoubtedly be welcomed by local businesses.

Financial Services continue to provide qual-ity employment and career opportunities which stimulates further investment in our economy. The sector now accounts for c. �4% of all jobs and employment is growing annually at around 5%.

2006 has been a good year for the Funds sector with the Experienced Investor Legislation taking full effect and this has seen several companies seeking to expand their services by requesting Fund Administration licences to meet the anticipated increase in demand. At least 6 EIF’s were incorporated during the year.

As reported in last years report, the creation of a Gibraltar Stock Exchange will add sub-stance and a new dynamic to the Industry. We hope to hear further progress on this soon and look forward to seeing the launch of the Exchange during the course of 2007.

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FinanceSector

Financial Services continue to provide quality employment and careeropportunities...

On the legislative front, 2007 will see the Markets in Financial Instruments Direc-tive (MiFID) transposed locally and this will improve the organisation and functioning of Investment Firms, facilitate cross-border trading and encourage the integration of EU Capital Markets as well as ensuring stronger investor protection.

Towards the end of the year, the Financial Services Commission invited the Industry to a consultation process prior to the launch of the revised anti-money laundering guid-ance notes. The revised notes, whilst taking stock of new legislation and developments to combat money-laundering, also aim to introduce a more risk-based approach when taking on and assessing business. The Chamber hopes that the revised notes will provide a more subjective environment for entities such as Banks when these are con-sidering account opening requirements.

With the increased climate of confidence created by the tri-partite agreement and the on-going endorsement of our Finance Centre as a reputable and well-regulated Jurisdiction, the Chamber is confident 2007 will see a further period of growth through new activities, investment and employment.

I n s u r a n c e S e c t o r

2006 saw Gibraltar’s non-domestic in-surance market consolidating its posi-tion as the viable alternative European

Union jurisdiction to that of Dublin, although Malta is a clear present threat to the Rock’s ascendancy as the de facto alternative.

The number of insurance companies throughout the twelve month period

increased by five and we now have fifty four insurance companies in total together with eight insurance managers, three of whom are the leading insurance and reinsur-ance global brokers being Marsh, Aon and Willis proving that Gibraltar’s reputation is extremely sound and allowing practitioners within the insurance market to continue the further expansion of the insurance sector throughout 2007 and beyond. It must be remembered that although the growth seems relatively small in 2006 compared to the greater growth in 2005, the type of activity that emanates from Gibraltar by virtue of the EU passporting mechanism is, in the main, slow to process but this is not from an Financial Services Commission point of view: Clients deliberate for many months before “pressing the button” and therefore the full process can take up to �5 months once the client has arrived at an “in principle” agreement to proceed. Because of this time lag, it is believed that a lot of the background preparation carried out during 2006 by the Gibraltar insurance sector will lead to a fruitful outcome in 2007.

2007 will also see within the insurance sec-tor a positioning of Gibraltar by large capital providers of special purpose vehicles (SPV), albeit trading as insurance companies to provide insurance vehicles for the run-off sector. This is a significant market and it is hoped one that Gibraltar will be able to ex-ploit fully. It can do this by positioning itself as the premier port of call for alternatives to schemes of arrangement, finality solutions to long term books of business and a home for the run-off of non core business portfolios.

This is very much an emerging market that is hugely significant in value and was valued at approximately £�7 billion in 2005 alone. The decisions by capital providers to choose Gibraltar over any other EU domicile will be based upon such important measures and conditions as capital efficiency, speed of licensing and most importantly, the tax position Gibraltar will enjoy moving forward (in respect of the demise of tax exempt companies and qualifying status companies). It is hoped by the industry at large that the Government of Gibraltar will be able to negotiate a corporate tax figure of no more than �0% in order to remain competitive with Dublin and Malta.

2007 will also see the EU reinsurance directive coming into force. This should give Gibraltar’s insurance industry a positive advantage over other EU jurisdictions.

The Solvency II Directive will, when it is implemented, provide the most far-reach-ing changes to the framework that has governed insurance companies in the EU for over 20 years. The final draft of the Solvency II Directive is set to appear in July 2007. It is thought the likely date for implementation will be in January 20��. The final shape that the legislation will take is still unclear. However, there is no excuse for inaction or delay either by insurance companies themselves or indeed individual jurisdictions. Solvency II must be seen as a business opportunity and not a compliance burden. Gibraltar by making an early start to designing and implementing the measure-ments that will set new risk-based capital targets and minimum capital requirements as well as the appropriate allocation of time and resources, will ensure that Gibraltar has a successful transition.

It is currently anticipated that the Directive could instruct each jurisdiction to impose their own limits and requirements on sol-vency limits, provided that a standard set of rules are followed. A competitive advantage will, however, be created for those that

22

use economic insights for management over those who rest at compliance-focused measurement. If underlying capital require-ments are inappropriately increased, there could be significant disadvantages for the international competitiveness of European insurers.

During 2006, the Government, through the Finance Centre and its team led by Jimmy Tipping, attended together with various members of the Finance Centre, RIMS in the United States in positioning Gibraltar as an alternative to Dublin. For histori-cal reasons Dublin has been favoured by the majority of US corporates wishing to transact business in the EU, be it as captive insurance companies or as third party writ-ers. In February 2006, a Gibraltar insurance seminar was hosted on a joint venture basis by the private sector and Government which will be repeated in 200�.

O n l i n e G a m i n g

The first half of the year saw continued good

FinanceSector

performance from local operators even though the online gaming market continued to attract new market entrants.

Uncertainty over the legal position of online gaming, particularly in the US continued to dog the sector during the year. The US Government’s position became clear in September when it effectively outlawed on-line gaming by tacking the piece of legislation on to the unrelated Safe Port Act. Its impact was immediate and felt throughout the sec-tor worldwide, not just in Gibraltar.

Apart from loss of US business, its effect has been twofold. The first is that it has catalysed operators to seek out and develop new markets. The second is that it has sped up the consolidation process that had already begun to happen. Nevertheless, it is likely that the leading local operators will continue to be the protagonists in both of these processes. It is somewhat ironic that the government of the world’s biggest economy has had to resort to such extreme protectionist measures.

Gibraltar is still regarded by many as the gold standard of online gaming as a jurisdic-tion and also as an industry at the forefront of changes in the sector. Evidence of this is the close interest taken by other regulators and governments, not least that of the UK. The UK Minister for Culture, Media and Sport visited several of the Rock’s gaming firms to learn more about the sector as a precursor to the UK’s own gaming summit during the year.

The number of licence holders has re-mained the same during the year and the Chamber supports the Government’s posi-tion of restricting the issue of new licences unless there are compelling reasons to do so. That is not to close the door on new applicants but to be selective about new operators.

2�

FinanceSector

24

25

B u n k e r i n g

Buoyant growth in the global economy ensured that demand for shipping remained strong through-

out 2006. Gibraltar has maintained its position as the second largest port in the Mediterranean for bunkers. However, total volumes supplied from Gibraltar fell

slightly from just over 4 million tonnes in 2005 to 3.98 million tonnes in 2006 reflecting the withdrawal of one operator from the market. The remaining opera-tors managed to take up much of the slack but the net result was that volumes remained virtually unchanged year on year.Nevertheless, bunker calls remained by far the main reason for ships calling at Gibraltar during 2006. In keeping with competition from other ports, Gibral-tar has been upgrading the quality and improving the capacity of its barges. With this added investment it is hoped that the Port will see increased yields per call on non-bunkering activities. This in turn will require a more co-ordinated and efficient use of resources and Port assets.

In recent years there has been a view that Gibraltar is reaching capacity for supplying bunkers. The Port has a finite number of anchorages and the new floating storage which occupies a permanent berth, cou-pled with a reduction in ship calls, makes is hard to see how bunker volumes can be increased. Now may be the time to

consider the possible use of the Eastside Anchorage when whether conditions per-mit. In the final quarter two new entrants were due to begin supplying bunkers adding further competitive pressures to what is becoming an increasingly crowded market. The one operator, which pulled out entirely during the year, took the view that the margin generated did not justify the wider reputational risk to its group

activities. It is hoped that recent changes to the Port Authority along with planned invest-ments in port technology in the year head will show that by allocating resources more efficiently there is still further room for expansion.

Bunker calls remained by far the main reason for ships calling at Gibraltar during 2006

The impact of the Cordoba Agreement is likely to lead to even greater cooperation between members of Gibraltar’s shipping community and their counterparts across the Bay. One of the challenges for local operators will be to ensure that non-lo-cal firms do not create an uneven playing field and use their lower cost bases to

hollow out the Gibraltar market. Port Authority & Related IssuesNegotiations to transfer Port Department staff to the Port Authority continue and it is hoped that this long awaited move will soon be completed. Government has increased the human resources available at the Port. This is welcome news in that improvement in berth management is becoming increasingly necessary, given traffic increases, swift turnaround times and the limited number of berths availa-ble. The very success of bunkering and, to some extent, cruise liner operations, constrains the development of other areas of activity, making the issue of berth management crucial. The steady increase in Off Limits operations (from 283 in 1996 to 1,390 in 2006) underlines another development of port operations.

Other DevelopmentsAs a result of the improved climate of the overall relations with Spain following from the Tripartite Process, your Board has participated in a number of events connected with shipping. One was the participation at the “Primer Encuentro Puertos del Estrecho”, organised by the Algeciras Port Authority in October 2006. Other than the host and Gibraltar, Ceuta, Tangier and Tangier Med were also rep-resented. Useful contacts were made as well as interesting exchanges of informa-tion. The opening up of the Gibraltar Air-port was seen as a very positive event for shipping in the region. The development of the impressive Tangier Med facility will also be a catalyst to the development of the Straits of Gibraltar as the Southern European shipping hub.

C r u i s e L i n e r s

The number of cruise liners calling at Gibraltar continues to grow and with this growth, the spending

power that this sector generates for the local economy. Not only did the number of liners increase from 170 calls in 2005 to 205 in 2006 but more importantly the passenger capacity of those vessels increased 20% from 187,937 to 226,190.

In light of this trend and with figures for 2007 approaching the 300,000 passenger

Port&Shipping

26

27

mark onboard 213 liners, we can be satisfied with progress.However, a quick review of reports from market leaders will reveal that cruise operators are increasingly searching for new destinations and more adventurous attractions to entice pas-sengers aboard.

We must be careful therefore, not to rest on our laurels. Certainly, the basic product is already in place with Duty Free shopping in a pleasant and safe environment, tourist sites of historical interest and a Cruise Terminal admired by all.Yet closer scrutiny of the facilities and services that Gibraltar offers shows that a general upgrade is required in the manner that we handle this particularly high yield tourist called the “cruise passenger”. Cruise Lines require movement of pas-sengers in large numbers but in a fluid and organised manner; they expect their passengers to be entertained in inventive style to extremely high standards at the sites they visit includ-ing trained guides, the use of new technology, access to plenti-ful and clean public facilities and all within a limited timeframe.We are at a crossroads both geographically and in our state of development as a tourist destination. The cruise sector can be the corner-stone of a tourist industry that if nurtured properly can generate much more to the economy than it is presently allowed to contribute. The arrival of two mega-liners, Disney Magic and the new Princess Cruises “Love Boat” on the same day in May 2007 will be a good test for us all. It is important that we are not left wanting as the ever-dynamic cruise prod-uct sails on.

O t h e r P o r t A c t i v i t i e s

The Port continues to achieve significant success in vari-ous fields of operation. Gibraltar maintains its status as the premier bunkering port in the region and with

new operators soon to commence operations, the mood is buoyant.

The establishment of the Gibraltar Port Authority, which one hopes will provide direction and assistance to port opera-tors is welcomed and in response to this move, the Gibral-tar Shipping Association has initiated a drive to recruit new members from within the port agency sector. The intention is to reinforce the communication link between the private and public sector so that new initiatives can be discussed and implemented in a coherent manner.

It is the Association’s belief that the Port Authority’s role is to create the stable and competitive environment within which the private sector can then seek out the commercial opportu-nities that will bring benefits to the economy. This will best be achieved by consulting the professionals in the industry who have the experience and knowledge of their markets to tailor each product to the demands of a highly competitive industry.

Certainly, the potential exists to develop the port beyond those markets that it presently serves so efficiently. The de-velopment of the eastside marina with the capability for han-

Port&Shipping

2�

dling a significant number of super yachts has met with enthusiasm which, along with the news that Cammell Laird will be redirecting their business plan to focus on offering a premier service to this sector, should open new avenues of business.

It is important too for the private sector to seek out cross border opportuni-ties on the back of the recent Cordoba agreement. Along the lines of the Hong Kong-Kowloon model, Gibraltar and its hinterland need to harness the resources that the region has at its disposal, espe-cially in light of the developments happen-ing across the Strait as Tangier develops its new port facilities.

29

A i r L i n k s

2006 has been an eventful year for Civil Aviation in Gibraltar. After a stable first quarter, the relative calm was

shattered by an unseemly row between Monarch Airlines and the Government of Gibraltar.

It transpired that the UK’s Ministry of Defence had without warning imposed an �.5% increase on the exorbitant Landing Fees charged for aircraft wishing to land at Gibraltar and made this rise retrospective to the �st of January. The Landing Fees, already the highest in Europe had long been blamed for stifling air traffic at Gibraltar’s grossly underutilised airport. (Industry experts advised the Chamber that the MOD’s fees were already between three hundred per cent and two thousand per cent higher than other European airports even before the increase.)

Tim Jeans, the recently appointed Chief Executive of Monarch chose to blame theGovernment for not having heeded his airline’s warnings that the cost of operating to Gibraltar was unsustainable. In the middle of this war of words, the MOD carelessly stoked the heated atmosphere by advising the airlines that with hindsight an above infla-tion increase of �.4% was not appropriate after all and instead they felt it was necessary to increase the Landing Fees by an additional 25%!

Many in Gibraltar blamed the British Gov-ernment for not dealing with this longstand-ing problem earlier. Few doubted that Britain’s ill fated �9�7 Airport Agreement effectively denying Gibraltar access to Euro-pean “Open Skies” had forced the econom-

ics of running the airport into a subscale cul de sac.

The outcome of the row was that Monarch announced they were not going to maintain their locally popular Manchester service. This was eventually axed some months later on �9th July and was an unwelcome blow

to an already fragile Tourism Sector. The Government of Gibraltar in the mean-time agreed to grapple with the MOD and solve the issue of high costs once and for all. Rumours circulated that they planned to put a case to the British Government whereby the civil operations at Gibraltar would in future vest entirely with the local Govern-ment. These would consequently be taken out of the hands of the MOD which had as a result agreed to maintain a freeze in their proposed increases until the process had run its course. This move was it to prove to be possible would be an important step forward and would undoubtedly result in a substantial reduction in the cost of flying to Gibraltar. The Chamber awaits news of the outcome of these negotiations with keen interest.

No sooner were signs of normality begin-ning to prevail again at the airport when the Irish entrepreneur, Robert Noonan, announced the creation of Fly Gibraltar. This news was warmly welcomed in Gibraltar. Although there have been many teeth-ing problems in trying to meet the tight deadlines imposed on themselves, the team behind Gibraltar’s second locally established airline remain confident that they will be up and flying for the Summer 2007 season. They plan to fly up to �2 flights daily to Ireland, Barcelona and a number of regional airports in the UK from Gibraltar.

To cap this good news the announcement in Cordoba on the ��th September, that the Governments of Gibraltar the UK and Spain had reached agreement on the expanded use of the airport was received enthusiasti-cally by many involved in commerce. This political act of courage by all three parties in-volved effectively removed the unnecessary and highly damaging restrictions that had blighted Gibraltar and its Campo’s economic progress for almost �0 years.

Within days both Iberia and GB Airways had announced their intention to com-mence scheduled services linking Gibraltar with Madrid. On the �6th December Iberia launched the first direct air service to the Rock from Spain since BEA pulled off the Madrid Gibraltar route on �0th March �979. For its part GB Airways operated a symbolic first flight in the opposite direction that same day. The Chamber has been told that by mid May 2007 both airlines aim to be flying a coordinated double daily service with convenient day visit schedules adding a second international hub linking Gibraltar to the rest of the World.

H o t e l S e c t o r

One benefit of Gibraltar’s booming economy is that the number of business visitors to the Rock has

continued to rise. In 2006 this group con-tinued to displace the tourist in Gibraltar’s hotels. Details vary but a straw poll among the leading hotels indicates that tourist stays at local hotels fell by up to 20 per cent over the year on beds per night basis. This is cause for concern especially when set against a backdrop of a decline in the overall number of hotel beds in the last ten years. Fortunately the business visitor has taken up the slack and this has helped to maintain occupancy levels.

The Chamber commented on this trend in last year’s report and urged the Govern-ment to do more to attract hoteliers to invest in Gibraltar. It is pleasing that some heed has been paid to this although more needs to be done. The greater certainty provided over the Tripartite Agreement should encourage existing hoteliers to invest and also bring new operators to Gibraltar.

Tourism

�0

Another cause for concern is that one or two tour operators who have been coming to Gibraltar for a number of years dropped Gibraltar from their regular schedules in 2006. Reasons for this are understood to be that other destinations offer a greater variety of attractions and activities at a more attractive price. Visitors have commented that parts of Gibraltar are not as clean and presentable as other destinations.

Last year the Chamber also made reference to the clearing of Europa Point’s derelict buildings. Twelve months have passed, the rubble has gone but there has been no further activity undertaken to improve this vast area. Hopefully it will not take another �2 months.

By contrast, good progress is being made with the Kings Bastion Leisure Centre that will be a welcome addition for locals and visitors alike when it opens later this year.

This raises a broader issue about Gibraltar’s competitive position as a tourist destination. In the last �0 years Gibraltar has been very good at managing to increase the number of visitors to the Rock. The most recent Gov-ernment figures available show that overall visitor numbers are up from 6.4 million in �996 to 7.� million in 2005. We have been less good at getting them to spend more whilst they are here. The figures also show (see table) that the average spend per visitor in 2005 was slightly lower at £26.9� than

Tourism

it was in �996 when each visitor spent just over £2� on average. Allowing for inflation this is quite a fall.

We need to give visitors as many oppor-tunities as we can for them to spend more during their visits and make them feel that the trip has been memorable, not only as a tourist experience but also in terms of value for money. Having a broader range of well-maintained sites with a good selection of merchandise would go some way to raising the average spend per visitor.

That said, some local operators continue

to carve out some unique and interesting niches. The weddings market continues to demonstrate good growth.

We need to give visitors as many opportunities as we can for them to spend more during their visits

Some concern has been raised over the shortage of registrars available to conduct ceremonies and also the degree of flexibil-ity over where and when ceremonies are conducted. The Chamber would welcome some positive developments in helping to fulfil the evident demand.

The hotel sector has also benefited from substantial investments in IT systems. Book-ings made online at some local hotels are up by as much as 40 per cent year on year. There has been some reduction to margin but there is balanced by the benefit of forg-ing direct relationships with guests that can be useful for ongoing marketing purposes.

��

Gibtelecom is committed to help-ing shape Gibraltar’s economic future, is responsive to the needs

of the Rock’s business community and has been instrumental in bringing local telecom-munications to a level comparable to that enjoyed in many other jurisdictions. Cus-tomers’ increasing demands for enhanced, high quality and resilient telecommunications services, with support available on a 24 hour basis, have been the major catalysts driving Gibtelecom’s programme of change management.

As the leading communications provider to Gibraltar’s vibrant business community and its significant international financial serv-ices and e-gaming industry, Gibtelecom is conscious of its responsibilities and alert to the demands of the business community. During 2006 the Company continued to upgrade its communications links, investing in additional bandwidth capacity to enable the Company to continue to provide IP bandwidth on demand. New routes to and via Spain have been established, providing

enhanced resilience and eliminating potential single points of failure. Since the merger between Gibraltar Nynex Communica-tions Ltd and Gibraltar Telecommunications International Ltd in 200�, the Company has invested over £�5 million in enhancing Gibraltar’s state-of-the-art fibre network infrastructure and increasing its bandwidth capacity some thirty-fold.

Another pillar of the Company’s advance-ment last year has been the development of a high tech Network Operations Centre [NOC] operating round the clock every day of the year. This Centre combines the latest computerised tracking technology with mul-ti-skilled and professional staff, to meet the ever increasing demands of customers. The success of this development was recognised at the twelfth meeting of Telecom Opera-tors of Small States hosted by Gibtelecom in Gibraltar in June 2006. The NOC not only offers technical and engineering support to e-commerce and internet businesses 24/7, but provides Gibtelecom Call Centre services to all customers.

Gibtelecom continues to face challenges arising from external influences. As part of the Cordoba Agreement, made between the Governments of Gibraltar, the United Kingdom and Spain in September 2006, Gibraltar’s international ‘�50’ code was

Telecommunications

�2

recognised by Spain. This will facilitate normal international dialling when calling a Gibraltar number from Spain and an end to number constraints in Gibraltar. Roaming agreements with Spanish mobile operators are also currently being progressed.

Gibtelecom has worked with the Gibraltar Regulatory Author-ity [GRA] to facilitate the liberalisation of the telecommunications market in Gibraltar. In 2006, Gibtelecom produced its first Reference Unbundling Offer [RUO], under which the Company will share its fixed network with authorised operators. In addition, Gibtelecom completed its third Accounting Separation Report [ASR], in conjunc-tion with a revised Reference Interconnect Offer [RIO]. These documents set out the conditions and rates under which Gibtelecom allows authorised operators to interconnect with, or alternatively have access to, its fixed network. The Company is also working with the GRA on Carrier Pre-Selection [CPS] which allows customers to have their preferred provider’s access code prefixed in a way that the code does not have to be dialled every time, amongst other liberali-sation initiatives.

Gibtelecom acknowledges that its employees are one of its great-est assets and recognises the importance of continuously develop-ing its staff if it is to enjoy continued success. The Company invests substantially in training to ensure that all members of staff have the appropriate skills to fulfil their responsibilities in a competent and professional manner. Amongst many training initiatives the Company prides itself in having developed its own modern and sophisticated training suite at its Mount Pleasant premises, which is being used to host an in-house development programme being run in collaboration with Durham University Business School.

Consequent to a major programme of change management, Gibtelecom has offered various staff Early Retirement and Voluntary Separation packages which have contributed considerably in helping the business to refocus to continue meeting technological challenges and changing market conditions. Since 2002, some �9% of staff have left the organisation, which has concurrently enabled Gibtelecom to create development opportunities for its staff and to recruit new personnel with the skills and expertise required to continue to take the business forward. Gibtelecom’s human resources expertise is now being tapped by other organisations in Gibraltar. Some of these Companies have shown a particular interest in the running of people selection assessment centres and the improved management of sick leave. The Company’s revenue streams change year-on-year as is evident from the pie-charts below. The traditional telephony business has declined substantially whilst the mobile, internet and leased band-width sectors have grown significantly. An area of major develop-ment has been the high-speed internet [ADSL] market. Compared to last year the number of ADSL customers in Gibraltar has increased by nearly 60%. As at the end of October 2006, ��% of the popula-tion and an estimated 50% of Gibraltar households were connected to the internet via ADSL.

The Company’s success is dependent on meeting and anticipating customers’ needs. Throughout 2006 Gibtelecom followed a com-

Telecommunications

��

Telecommunications

prehensive marketing campaign, launching an initiative every month to enhance its services and products and improve value for money. In 2007 and going forward, the Company will continue to expand on these initiatives.

Gibtelecom recognises the important role it plays in the growth of Gibraltar’s economy and will continue to invest in infrastruc-ture, technology and its people to further enhance and develop the products and services it offers. Gibtelecom believes it delivers a service to Gibraltar of which many of the other bigger international telecom-munications companies could be proud. Gibtelecom is jointly owned by Verizon Communications Inc, one of the major tel-ecommunications companies in the world, and the Government of Gibraltar. The CEO of the Company is Tim Bristow.

Corporate Affairs Unit, Gibtelecom

�4

M a n h a t t a n o r H a v a n a ?

A visitor with no knowledge of Gibral-tar’s social and historic development taking his first walk around the Rock

might be forgiven for thinking that Gibraltar-ians have fallen prey to a bout of collective schizophrenia. On the one hand he will see the gleaming new towers of glass and steel, which proclaim to the world the success story of Gibraltar Plc. He will marvel at the myriad of modern residential developments emerging from behind the forests of cranes that dominate our skyline, and he might wonder that here, on this rocky foothold at the southern tip of the Iberian Peninsula, we are building our own little Manhattan – complete with eye-watering property prices that on a per square foot valuation are already exceeding those obtainable in the more fashionable reaches of upper east side with views over Central Park.

Then he may decide to take a walk through the old town to see how this dynamic, bustling community was treating its more historic townscape only three or four hun-dred yards away. And as he makes his way over Line Wall, through the bustle of Main Street and starts the gentle climb up Bell or City Mill Lane, he will mutter to himself with surprise at the peeling masonry, chaotic wiring, broken guttering and general state of decay which will greet him the higher and further eastwards he progresses until, finding himself surrounded by dank, dingy tenements, he may wonder whether he had been mysteriously transported to Castro’s Cuba. He might well ask himself then why the entrepreneurial energy which has evidently transformed this city has not also worked it magic on the old historic quarter. And the answer to his question could be enunciated in one short phrase: The Land-lord and Tenant Ordinance.

This piece of legislation, which can trace its local ancestry back to the �9�0s has, through the carelessness of successive administrations, become the pernicious instrument of social and urban blight. The idea of using the blunt instrument of protected tenancies and controlled rents to address the social problems caused by a dire shortage of housing was understandable in

the circumstances prevailing 50 years ago. To maintain the system, essentially un-changed, for two generations has been utter folly. The lessons learnt in other developed countries, where Governments realised decades ago that heavy handed interference with free market mechanisms in the housing market simply deteriorated and reduced the housing stock available for private lettings, have been ignored by successive Gibraltar-ian Governments who were more anxious to show off their “socialist” credentials (see…low rents! See how we punish capi-talist landlords!) than actually to do anything to alleviate the housing plight of the socially deprived. The figures speak for themselves.

So bad had the situation become that in 200�, in a brave display of judicial fortitude in the face of administrative neglect and incompetence, the Supreme Court declared the Ordinance unconstitutional because it breached the fundamental right of landlords not to be deprived of their property without compensation.

Whereas in �970, private rented accom-modation accounted for �5% of the housing stock in Gibraltar, by 200� this had declined

to ��%. And in the same period, whilst the number of housing units in Gibraltar almost doubled, the number of private rented ac-commodation units in Gibraltar declined by 40%. And what did Government expect, when levels of rent established at what were already artificially low levels in �9�2 have (unbelievably) remained unchanged for 25 years? This has left some tenants paying as little as £�5 per month for a decent sized flat in the central town area. It has long been the case in Gibraltar that protected tenants pay much more for garaging their cars than they do for their own housing.

It is not the figures, however, that tell the

real story of this abject failure in policy. The ugly, run down, unhygienic tenements of the upper town area, which are either vacant or

Property

�5

the circumstances prevailing 50 years ago. To maintain the system, essentially un-changed, for two generations has been utter folly. The lessons learnt in other developed countries, where Governments realised decades ago that heavy handed interference with free market mechanisms in the housing market simply deteriorated and reduced the housing stock available for private lettings, have been ignored by successive Gibraltar-ian Governments who were more anxious to show off their “socialist” credentials (see…low rents! See how we punish capi-talist landlords!) than actually to do anything to alleviate the housing plight of the socially deprived. The figures speak for themselves.

So bad had the situation become that in 200�, in a brave display of judicial fortitude in the face of administrative neglect and incompetence, the Supreme Court declared the Ordinance unconstitutional because it breached the fundamental right of landlords not to be deprived of their property without compensation.

Whereas in �970, private rented accom-modation accounted for �5% of the housing stock in Gibraltar, by 200� this had declined

�6

populated by an urban underclass, render eloquent testimony to the failure. In fact, it would be a misnomer to refer to this shameful record of inactivity as “policy” at all, unless somebody is trying to argue that reducing the available housing stock and worsening the living conditions of the most disadvantaged Gibraltarians has been Gov-ernment policy for the last twenty-five years.

The Report of the Select Committee of the House of Assembly which drafted the cur-rent Landlord and Tenant Ordinance stated that the policy of the Ordinance should be to strike a balance between the interests of landlords and tenants. This was to guaran-tee reasonable standards of accommoda-tion at affordable rents for the latter whilst allowing a reasonable return from their property for the former. Owing to the cynical neglect of successive administrations, the law has achieved neither of these ends. It has guaranteed virtually free housing of an ever-deteriorating quality to a select and ever diminishing number of “untouchable” protected tenants, whilst depriving landlords of their property without any compensa-tion. Meanwhile Gibraltar’s historic housing stock has slowly faded to a state of general-ised disrepair as landlords cannot afford to maintain their properties, whilst flats which become vacant frequently remain unlet because landlords are not prepared to allow them to become ensnared in the attritional nightmare of protected lettings. As a result a significant stock of housing which could have significantly alleviated the housing problems of many young Gibraltarians, possibly look-ing for a flat to rent as their first foray into the housing market, has been lost. It is not easy to dream up an Alice in Wonderland type situation of a law, passed with perfectly good intentions, which ends up achieving the very opposite of what it set out to do. The history of this piece of legislation is exactly such a case.

So bad had the situation become that in 200�, in a brave display of judicial fortitude in the face of administrative neglect and incompetence, the Supreme Court declared the Ordinance unconstitutional because it breached the fundamental right of landlords not to be deprived of their property without compensation. Unfortunately the following year the Court of Appeal, demonstrat-ing rather less appetite for confronting

Property

the iniquities of the unprincipled abuse of governmental power, reversed that decision and found that although the Ordinance was confiscatory and thus at first glance a breach of the landlords’ fundamental rights, it was nevertheless legal because it constituted “an administrative provision of general applica-tion”, whatever that might mean.

Now at last, however, it appears that there may be light at the end of the dingy alley-way. As part of its housing policy which has seen government announce the construc-tion of hundreds of government subsidised affordable homes for co-ownership as well as the first fully fledged government rental housing estate since the construction of the Varyl Begg estate more than �0 years ago, Government has signalled its inten-tion of publishing a Housing White Paper which will, for the first time, rationalise not only Government’s own public housing

policy but will, it is understood, completely review the law relating to private lettings. Rumour has it that this will include not only a significant revision of statutory rents for the first time in a quarter of a century, but also will provide for wholesale decontrol of vacant properties and the provision of rent relief for the socially disadvantaged. If these rumours prove to be true this may signal the return of sanity and commonsense to the local private rental housing market. With any luck we may yet see the upper town area transformed into a pleasant thriving cityscape of charming, well-maintained traditional townhouses populated by young Gibraltarian families. And who knows, the Chief Minister may yet get the opportunity to invite the ailing President Castro for a walkabout to show him how things should really be done.

�7

EUFunding

O b j e c t i v e 2 S i n g l e P r o g r a m m e 2 0 0 8 s e e s t h e e n d o f t h e c u r r e n t p r o g r a m m e

200� will see the end of the current Objective 2 Single Programme. This Programme will run for eight years

and will have contributed over £�2m in EU funds to local projects. The overall size of funds made available by the Programme is

small compared to other EU regions. Nev-ertheless, they have made a welcome and critical contribution to Gibraltar’s economy in terms of generating employment oppor-tunities and in creating a number of innova-tive projects.

The EU Funding Advisor which administers the Programme, is based at the Govern-ment’s Department of Trade and Indus-try. One of their main responsibilities has been to provide assistance and advise local businesses with regards to the eligibility for EU funding along with the ongoing project development. During the current Pro-gramme they have helped many applicants to develop a robust business plan and when required, have helped applicants complete and submit the necessary applications for funding.

Many of the projects approved under the five year Programme have been processed or approved under the fast-track Small

Grants Scheme. To qualify for awards under this scheme, a project’s total approved ex-penditure must not exceed £��,��� and the total grant must not exceed £�0,000, due to the fact that under the terms of the Single Programming Document �0 per cent is the

maximum intervention rate for the private sector projects.

The same basic principles have applied to all EU co-funded projects, regardless of size or whether they have been sponsored by the public or private sector. The main difference is that under the terms of the Gibraltar Objective 2 Programme, public sector projects have been able to benefit from a maximum grant rate of 50 per cent of the total eligible project costs, whereas in the case of the private sector, the maxi-mum grant rate allowable has been �0 per cent, but up to a maximum of €�00,000 (c£6�,000) over a three year period, this being the cap imposed by State Aid Rules.

Prospective applicants seeking funding have needed to contact the EU Funding Unit at the outset. There have been a few unfortu-nate cases where businesses had set up and incurred expenditure and then applied for co-funding retrospectively. These applica-

tions were rejected as the claimant needed to seek approval for funding prior to any expenditure having been incurred.

The programme just ending targeted specific sectors and activities within those sectors for funding. The sectors targeted for assisted funding were:

• Tourism, Heritage and Urban Regenera-tion• Small and Medium-sized enterprises and E-commerce• Transport & Port Infrastructure• The Environment The total allocation of the 2000-2006 Objective 2 Programme was some £�4.9 million (€2�.� million). Of this total, (£5.9 million (€�.7 million) was provided by ERDF, a further £7.2 million (€�0.6 million) by the Government of Gibraltar, and the remain-ing £�.7 million (€2.5 million) by the private sector. The following tables summarises the total allocation under each of the Measures, broken down by the three different sources. (Please see chart on the next page)

2000-2006 Programme Achievements

During the period nearly �20 different projects received co-funding across both the public and private sectors. Over �0 small local businesses have received funding for startups of for business development. Other milestones included:

• £�,000,000 Private Sector funds helped to fund new start-ups or business expansion• �000 m2 of industrial units for SME premises created• £�5m per year visitor spend increase over the period with a 20% increase 2004-2006

Applications for funding are evaluated ac-cording to merit and scored against a set of pre-determined outcomes judged to be beneficial to the local economy. They include such factors as increase in number of people employed in the applicant’s business, increase in the use of information technol-ogy and the likely environmental impact on the applicant’s business if it were to secure EU funds. Applications that achieved

��

EUFunding

the required score (or higher) were then submitted to the Joint Local Advisory Group or JLAG for wider consideration. (This only applies to projects whose grant element exceeds £�0,000.)

At least two separate quotations are required for works or intended purchases which form part of the project to be submit-ted with the application.

The documentation is forwarded to the EU Programmes Secretariat’s Funding Advisor for checking prior to submission to the pre-appraisal Sub-Group, a committee set up specifically for the purpose of appraising andscoring project applications. The sub-Group is composed of representatives of the EU Programmes Secretariat, the Chamber of Commerce, the Environment Agency and the Federation of Small Businesses.

The JLAG committee has a far wider repre-sentation than the Sub Group and includes representatives from a number of Govern-ment departments and trade organisations. As well as the members of the Sub Group

the Committee is represented by members from the Employment Service, the Technical Services Department, the Gibraltar Tourist Board, the Department of Education and Training and also by the Transport & General Workers Union, the Gibraltar Ornithological and Natural History Society.

As it is a larger committee JLAG meets less frequently than the fast track Small Grants Committee although by definition the projects are larger and tend to be more complex.

Although JLAG meetings have not been held as regularly as for the Small Grants Scheme, the Committee would always try to ensure that a final decision on whether to award grants was reached within one month of the application having been received.

A requirement of the Programme meant that items approved for funding had to be purchased first and would then be reim-bursed against receipts. On receipt of a claim, an officer from the Programmes Sec-retariat would visit the claimants’ premises

to verify the claim. Gibraltar is the only jurisdiction across the whole EU Funding Programme that operates a �00% verifica-tion process. Similarly, the Programmes Secretariat had had to satisfy themselves that a clear audit rail has been established for all submitted claims so that purchased items could be reconciled with submitted claims. Therefore, cash transactions have not been eligible for EU co-funding in the current Programme.

Another requirement has been that a com-memorative plaque acknowledging that the project has been co-financed by the EU had to be placed in a prominent location in the claimant’s premises. These plaques are now evident in all the premises that have received funding during the period.

2007-2013 Programme

After two years of negotiations, the EU has finally agreed the regulations and budget for the next round of Structural Funds Programmes for 2007-20��. Due to the enlargement of the EU by new Member States there will be less funding for the 2007-20�� Programme than in the previous Programmes . The EU has also determined that “richer” Member States such as the UK and by default, Gibraltar, will have a corre-spondingly lower level of funding as a result during the next period.

Under the new budget Gibraltar has been allocated €5.�47 million under the ERDF Competitiveness and Employment Pro-gramme and €2.9�� million under the ESF Competitiveness and Employment alloca-tion.

There will also be a sharper focus on employment and skills issues. A number of major changes within the Regulations have also been introduced and these will be explained to applicants seeking new funding by the Programmes Secretariat. The new Regulations strengthen the strategic focus of the Structural Funds on the EU’s Lisbon and Gothenburg Agendas.

Gibraltar is currently negotiating for an al-location in the Co-Operation Objective the old INTERREG Programme. It is expected that the final budget allocation for this will be decided by summer 2007.

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Gibraltar: KeyInformation

Population:Total land area:Natural resources:Head of State:Chief Minister:Languages: Business hours:

28,7796.5 sq kmNoneHRH Queen Elizabeth IIHon Peter Caruana QCEnglish & Spanish9 am – 5 pm Monday to Friday

Inflation rate:Minimum wage: Average wage:GDP per capita:lmportsRegistered employed:Registered unemployed:

2.8% per annum£4.50 per hour (£175.50 per week)£19,383 per annum£20,848UK: 60%, Spain: 30%, Other EU:10%16,8743.3%

( A l l f i g u r e s r e l a t e t o 2 0 0 5 u n l e s s o t h e r w i s e s t a t e d )

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.caletahotel.com

www.rockhotelgibraltar.com

www.ocallaghanhotels.com/eliott

Corporation TaxResident CompaniesSmall companies rate (Profits of less than £�5,000 pa)Personal Income Tax£0-£4000 Annual gross income£400� - £��,000 Annual gross incomeOver £��,000 Annual gross income No capital gains taxesNo Inheritance tax/death duties or estate duty 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. Applications should be made to the Finance Centre Director, info@financecentre.gov.gi.

Tax payable�5% 20%

�7%�0%42% No tax on dividendsNo wealth, gift or capital taxes Tax payable 2% of worldwide income capped at £20,000 per annum.

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