- October 27, 2020
- Posted by: Ben Begu
- Categories: Brexit, Economics, Enterprise, Finance & accounting, Gibraltar
Sir Joe Bossano has served Gibraltar since 1972 when he was elected into the House of Assembly. Currently, he serves as the Minister for Economic Development, Enterprise, Telecommunications & the Gibraltar Savings Bank. He recently gave an interview to Come to Gibraltar where he speaks about Gibraltar’s economy and his post-Brexit national Plan. This article will summarise the points made in the video that are available on our site.
So what makes Gibraltar attractive?
When asked why Gibraltar? What makes Gibraltar so attractive to do business? The Minister of Economic Development for Gibraltar replied stating while Gibraltar has characteristics that it holds in common with other competing jurisdictions, some things are specific to Gibraltar that gives it a competitive advantage. Gibraltar has a level of self-government that is equivalent to an independent Member State and importantly can legislate in a matter of days, things that in other places take a much longer.
He went on to say Gibraltar has a philosophy that is very proactive to changes in the market. All small territories have an advantage as they can respond faster to their smaller markets that those larger territories.
Gibraltar’s economy prior to that in the 1970s was primary dependant on a military base, that changed and Gibraltar is now in effect, a totally open economy with trade all over the world, selling services and buying products. As the Minister points out, Gibraltar has one of the highest per capita incomes in the world (4th), in Europe Gibraltar are second, behind Luxemburg.
So, what can explain Gibraltar’s thriving economy? The Minister was quick to point to the workforce as evidence of this. Gibraltar’s workforce is nearly as large as the population. This is due to the large number of imported workers that commute between the hinterland and Gibraltar to work. The Minister goes on to say that in fact, they outnumber the resident workforce. Gibraltar’s population is 32,000 and a workforce of 30,000. This is part of the explanation of why the per capita income is so high.
What to Expect Post-Brexit?
As briefly touched upon at the start of this article, Sir Joe Bossano served Gibraltar since 1972, meaning he has been in a political role before, the UK and by extension, Gibraltar’s entry into what was the EEC, and will see Gibraltar’s exit for the EU. Therefore, there is no one more qualified than him to explain Gibraltar’s relationship with the EU. So, what does the Minister’s say about what will happen outside the EU? As he states leaving the EU is an opportunity to explore new areas and have access to markets that Gibraltar have not had. He used the UK negotiation with Japan as an example, the agreement that Gibraltar has with the UK means every international agreement the UK signs after Brexit, Gibraltar have the opportunity to say if they want to be included or not. Currently. Gibraltar have a reexport trade in Japanese cars. The operation is Gibraltar based and mainly supply NATO and UN organisation where donations are made to developing countries. Cars are imported to Gibraltar and customised before being reexported.
Therefore, would Gibraltar see any real change after the Transition period? Well, the bulk of Gibraltar’s trade is providing services. Gibraltar has never been a normal member of the EU, the Minister himself was part of the negotiation process in 1972. The government negotiated terms specific to Gibraltar, in practice, they are in the single market for the things they sell and not for the things they buy. Essentially, they sell services and free movement of capital and workers are included in the terms while the fisheries and agricultural agreements are not. The Minister goes on to say this combination has been beneficial for Gibraltar as they do not have VAT, low-level direct taxation, a maximum personal income tax is 29%, no capital gains tax, no debt duties.
All these factors make Gibraltar a competitive place. Gibraltar’s taxes are geared to make it attractive to do business. The Minister was quick to stress, that Gibraltar is not a place to hide money, a business being eradicated rightly so across the globe. Therefore, the change that Brexit brings with it will not be as dramatic for Gibraltar as it is for the UK because the UK’s relationship with the EU is predominately exporting and importing products. The Minister goes on to explain that if you move from free-market products to WTO and customs checks, it can increase costs and delay in deliveries, Gibraltar has always been outside, they buy from the world market, guaranteeing best value for money. That flexibility has been the core element in Gibraltar’s economic model and will continue to be there in the future.
Although the government has prepared in the election a new national economic plan that was predicated to continue to deliver economic growth even there is a hard Brexit. Anything is less than the hard place is a bonus comments the Minister.
So what is the National Economic Plan?
The National Economic Plan assumes that the Brexit would have a negative effect, but not to the extent that it has to the UK comments the Minister. The Plan consists of areas to compensate for potential loses resulting from Brexit, although the bulk of the financial services, gaming and insurance industry sells into the UK market and will remain unaffected.
He went on to explain that Gibraltar is required while being a member of the EU to apply the higher of the standards of the UK or the standards of the EU. Once they leave the EU it will be the standards of the UK that will apply, therefore, we will continue to have UK passporting rights. That is to say the agreement in Gibraltar 96% voted to stay, that is a moral obligation the UK that the Rock is leaving because the UK is leaving too and they do not want to be in a different place from the UK.
The UK also recognises that it would be morally wrong to restrict access to the UK’s market. This would be unaccepted, the Minister states, and it has been recognised by every Prime Minister since 2016. Theresa May, Cameron, Boris Johnson are very clear as is the parliament, that the relationship which Gibraltar had with the European Union will continue to be the relationship that Gibraltar will have with the United Kingdom. Essentially Gibraltar will retain with effect market access to the United Kingdom, market access to whatever is agreed if there is a Brexit deal and market access with 3rd countries which will become available to the UK and were not available previously.
So in a way, there are more opportunities and not less according to the Minister. However, the National Economic Plan is not based on those opportunities but is based on the worst-case scenario. It has a lot of investment in land reclamation in creating new industries and property. The one thing for example for people investing in property should know about Gibraltar is that unlike the UK in the 48 years he has been in parliament, property prices have only gone in one direction, up, they have never come down in 48 years! So it is not unreasonable to assume that they will keep going in one direction. This is due to the limited amount of land, the population is growing and there are attractions to taking up residency in Gibraltar.
Currently, Gibraltar is developing a program in attracting new investors who will want to go to Gibraltar, to do business from Gibraltar. The Minister goes on to say that there is much more money to be made by doing business from Gibraltar than by doing business in Gibraltar. Doing business in Gibraltar means selling to a population of 30,000, 15,000 cross border workers and to 10 million visitors. The 10 million visitors are the bit of the economy that has now suffered not because of the pandemic. but because the lockdown created the places where the pandemic is happening. Currently, no cruise liners are sailing into Gibraltar because no cruise liners are sailing out of any port in the world. So has the Covid-19 pandemic impacted the government’s plan? The reality of it is Gibraltar was not prepared for the pandemic admits Joe Bossano. He goes on to explain that the pandemic t has affected Gibraltar, some 450 cases but no deaths. This is a reflection of the quality of Gibraltar medical services in Gibraltar.
The government expect that eventually, that part of the economy will come back to life, but it is not In their hands. Therefore, the National Economic Plan is predicated to deliver 15% growth over the next 3years which is lower than the average that Gibraltar has enjoyed in the past which is been 8% or 9% per annum. So we are now talking about growing at something of 2% or 3% per cent per annum against a background where both the United Kingdom and the EU will be in recession.