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

The Gibraltar

Chamber CommerceOF

2009annual report & accounts

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The Gibraltar Chamber of Commerce was founded in 1882.It was established for the Òpromotion of measures calculated tobenefit and protect the trading interests of its members and thegeneral trade of GibraltarÓ.

More than 125 years later the ChamberÕs role is as important todayas it was then. Our members employ more than 6000 people whichis around half of Gibraltar’s current private sector workforce. It isthe largest organisation representing the interests of private sectorcommerce in Gibraltar.

The nature of GibraltarÕs economy has been transformed,particularly over the last two decades.Today the Rock is a serviceeconomy revolving around Financial services, the Port & ShippingServices, Tourism, Online Gaming and a very well developedProfessional Services Sector.

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ANNUAL REPORT

Contents

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Foreword 07

Politics & Economics 08

Wholesale & Distribution 16

Retail Sector 18

Finance Sector 19

Online Gaming 25

Port & Shipping 27

Tourism 30

Annual Accounts 32

Gibraltar : Key Information 42

FIVE

SEVEN

ForewordI am delighted to once again to present the 2009 Annual Report of the Chamber of Commerce. Like in recent years, 2009 has been a particularly eventful year with political developments again creating thehighest level of interest closely followed by the recession and the financial turmoil that has gripped the world.

The highlight of the year was undoubtedly the Tripartite meeting held inGibraltar in July attended by the UK Foreign Secretary, Mr DavidMilliband, The Spanish Foreign Secretary, Sr Miguel Angel Moratinos andthe Chief Minister of Gibraltar, Mr Peter Caruana. Whilst it was the firstvisit to Gibraltar of a governing Spanish Foreign Minister, it highlights the importance of the Tripartite Forum, and the importance it plays inour daily and future lives in a modern world which we all aspire to onboth sides of the frontier. The Chamber, for its part, has long been a supporter of this process and members will recall that the last time aSpanish Foreign Ministry representative came to Gibraltar in 2007,the speaker at our Annual Dinner was Sr Jose Maria Pons who had alsojust concluded Tripartite talks in Gibraltar.

Here in the Chamber we have also being doing our bit with the publi-cation of the Economic , which was commissioned precisely as a resultof the dinner speech made by Mr Pons.The Study has exceeded all ourexpectations and is dealt with in greater detail within the Annual Reportbut it is worth highlighting briefly the enormous impact that Gibraltarplays on the Campo in economic and employment and our Membersshould grasp this to seek further opportunities in the hinterland.

2009 also brought many political clouds to our horizon in the way ofthe waters dispute and the continued diatribe from the ex Mayor of La Linea who attempted to make access to Gibraltar difficult during thesummer months. Gladly there is now a new Mayor in La Linea and theChamber has already invited him to lunch and to discuss aspect ofmutual benefit. On the former, we are glad that the British Governmenthas lodged its own legal challenge with the EU and we hope that thiswill bring a quick solution to the problem.

Gibraltar has historically been fairly insulated from recession and we areparticularly glad that the current recession is blowing over withoutmany traces in Gibraltar. Of-course the Banks have tightened up butgenerally speaking, businesses have held their own and this is due to theresilience of our business community and in some cases to the strengthof the euro over sterling which has made Gibraltar cheaper to eurobased tourists. Employment is still at almost 100% and in fact statisticsrecently issued showed that employment was on the up. If anything,recession usually has had a delayed impact on Gibraltar and coincidesas the UK is coming out and therefore 2010 may still bring some surprises.

We in the Chamber have always looked for positive signs that may bringgrowth to our members and the introduction of the 10 per cent ratefor company tax as from 1st January 2011 should produce this andallow further expansion and growth in many sectors of the economy.

However, one area that is of concern is the reduction of flights toGibraltar from the UK and Madrid/Barcelona. easyJet reduced theirschedule to just one return flight in the winter and have announced noincrease for the summer 2010. British Airways are rumoured to beincreasing their schedule to twice daily in 2010 and this would be muchwelcomed as they alone offer Business Class which is so vital to ourfinance centre. Andalus Airlines continues to provide a sketchy serviceto Madrid and during part of the summer to Barcelona. The fact thatduring the winter a round trip to or from Madrid was not available doesnot augur at all well. It is hard to see this service having a long termfuture due to the high prices charged and poor service levels.

In the 2007 foreword, mention was made that we felt that the trafficarrangements at the Spanish side of the border were not in the spirit ofCordoba. Whilst we urged the Spanish authorities on this issue in 2007, unfortunately the flow and particularly the appearance has deteriorated to an appaling level and we again urge for a rethink in thisimportant area.

By all accounts the Finance Centre has had another good year in 2009and this is reported in depth in this Report. However the recent scandal involving Marrache & Co was not good news to Gibraltar andit is particularly important to be extra vigilant to safeguard our hardearned reputation as a Finance Centre of excellence.

Mention has already been made that 2010 may bring surprises to commerce and perhaps no more so than to the Retail and Wholesalesectors who will have new challenges in an already tough market. Withcontinuing unemployment in the Campo area reaching well over 20%,increased competition and price inflation due to the strong euro, it isimportant to control costs in all areas and as stated in the Retail Report,particularly on the already high level of rents.

I am extremely grateful to the time and hard work dedicated by theDirectors to Chamber especially in an age where demands are placedon our time. I would also like to thank our Chief Executive, EdwardMacquisten and Sue McGowan who have worked hard and tirelesslythroughout the year.

Grant Thornton Gibraltar is a member firm within Grant Thornton International Ltd (Grant Thornton International). Grant Thornton International and the memberfirms are not a worldwide partnership. Services are delivered independently by the member firms.

Grant Thornton (Gibraltar) Limited is a registered audit firm under the Financial Services (Auditors) Act 2009, registration number FSC0010AUD. GT Fiduciary ServicesLimited is licensed by Gibraltar’s Financial Services Commission as a Professional Trustee, licence number FSC00603B. Grant Thornton Fund Administration Limited islicensed by Gibraltar’s Financial Services Commission as a Collective Investment Scheme Administrator, license number FSC00926B.

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Politics & Economics Politics & Economics cont.2009 proved Gibraltar impermeable to the threat of recession

even when this engulfed our two most important commercial

partners as are Spain and the United Kingdom. Collectively this

was our greatest achievement for the year.We can all be proud of

the result: Parliament for more than two decades of competitive

tax policies, local banks for prudent lending practices, the private

sector for organic growth and diversification principles and the

general public for the stability provided to our economy by a large

proportion of home owners whose efforts are the backbone of

our economy.

One other event stands out as significant. Specifically the first

ever visit by a serving Spanish Foreign Secretary. Credit for this

landmark achievement goes to the component members of the

Tripartite process. Political success has many fathers or at least

many claimants to paternity but not in this case. It is as if, despite

the diplomatic success, opponents to the Tripartite process are

still hopeful of a major reversal to put the clock back to a more

“comfortable” position. A default position where siege politics

offers the security of familiarity. The courage shown by the Chief

Minister and the Spanish Foreign Secretary, in particular, to chart

a path into unknown territory, despite a hostile Spanish media

deserves special praise. The risk remains, however, that it may

all have been in vain. Success for the Tripartite in 2009 gives no

guarantee for success in subsequent years.The prospects for 2010

are cast in shadow. The looming dispute over territorial waters

could prove a “bridge too far” for the Tripartite Process. It seems

that the issue is unavoidable. In recent years the limit of our

territorial waters has been tested as a result of the treasure claims

on the seabed in a disputed area. The Odyssey saga has been

further complicated by an apparent turf war between Sevilla and

Madrid and also by partial success for the Spanish Government in

the Florida courts. Gibraltar has found itself in a difficult position,

as if in partnership with the Americans when the fact is that from

the limited information available it appears we stand to gain little

or nothing from this episode.

The New Flame, the Fedra and the latest incident of the VEMAOIL

XX, which broke its moorings and was beached off La Linea,

all point to the need for greater cooperation between Gibraltar

and Algeciras for maritime rescue operations. Similarly numerous

complaints and denials of pollution incidents in the Bay will serve

to feed suspicion and mistrust. Equally incursions by the Guardia

Civil into Gibraltar waters need to be classified into two categories:

policing for environmental infringements pursuant to the newly

designated “Site of Community Importance” as designated by the

EU Commission, and policing for criminal, customs or immigration

offences.There has long been a need for better police and customs

coordination between Gibraltar and Spain. This need has been

highlighted by the recent incident which resulted in the

Guardia Civil chasing suspects inside Gibraltar harbour waters.

An agreement which allows for mutual “hot pursuit” provisions and

recognition of our respective criminal courts would establish the

kind of working relationship as befits close neighbours who profess

the supremacy of the Rule of Law.

Taken all together and bundled under the heading “sovereignty”

the issue is primarily a question of territorial waters. As such it is

probably beyond the remit of the Tripartite Process and if it

remains on the agenda it will only damage the process. A more

pragmatic approach perhaps, with considerably less glory attached,

is to cut and dice the various matters into their component parts

under the heading “maritime issues”. These are clearly more

manageable when they can be dealt with separately. If additionally

the issue of sovereignty can be parked with the proviso that all

sides reserve their position then the prospects of success are

enhanced further.

EIGHT

Success for the Tripartite in 2009

gives no guarantee for success

in subsequent years

NINE

Turning now to the economy, there are a number of issues that

need to be aired.

A good starting point is to review what has happened on the

world economic stage in 2009 and to consider the outlook for

2010 and beyond. Much as we predicted last year, 2009 really was

an annus horribilis, with practically all advanced economies

experiencing a significant drop in GDP. World output, according to

January figures released by the IMF, declined by 0.8%. Across the

advanced economies, the decline was some 3.2%, with the Euro

zone suffering a 3.9% decrease.The US economy shrank by 2.5%

in the same period. It was only the 2.1% output increase shown by

emerging and developing economies that mitigated the overall

downturn for the year. Closer to home, the UK declined by 4.8%

and Spain by 3.6%.

This overall drop in output was reflected in unemployment rates,

which also worsened across virtually all advanced economies.

Examples include: Advanced Economies (as a whole) 8.2%;

USA 9.3%; Euro Area 9.9%; UK 7.6% and Spain a massive 18.2%.

(In fact, the only country with a worse unemployment rate than

Spain was beleaguered Latvia at 22%). Overall, a truly horrible set

of numbers.

What, then can be expected in 2010?

In general terms, the recession triggered by the financial crisis of

2008/09 appears to have bottomed out in late 2009, with many

advanced economies beginning what will likely be a slow recovery

for 2010, although recovery rates will not be uniform. In this

general scenario, the biggest concern is the sustainability of central

government financing, giving rise to worries about sovereign

risk. This has resulted from the unprecedented level of central

government spending on various economic stimulus packages,

the absence of which would have resulted in a deeper and more

prolonged recession, given the serious reduction in consumer

spending resulting from the near meltdown of financial systems.

Although the legacy effects of the high level of public spending

(read borrowing) remain to be played out, many economies will

see modest growth over the coming year, although at a level

of activity well below pre crisis levels. A brake on this will be the

ability of central Governments to keep on borrowing at a time

when the private sector led elements of the recovery may be too

fragile to be sustainable. Some pundits are concerned that this

could lead to a ‘double dip’ recession.World trade is also beginning

to recover, with major emerging economies like China, India and

other Asian countries showing strong growth in comparisons to

their ‘Western’ counterparts. The recovery in commodity prices

has also contributed to this.

Again relying on the latest IMF figures the year on year projections

for selected economies (for GDP, 2011 numbers are also included)

are:

GDP Growth Forecast (%)

Country/Region 2010 2011

World 3.9 4.3

Advanced Economies 2.1 2.4

U.S.A. 2.7 2.4

Euro Area 1.0 1.6

Spain -0.6 0.9

United Kingdom 1.3 2.7

Emerging/Developing Economies 6.0 6.3

Source: IMF

The above figures reveal a Euro zone showing only modest growth

over the next two years, with the UK doing a little better while the

Spanish economy is expected to contract further in 2010 and only

returning to growth in 2011, with this growth expected to be only

marginal. Also of note is the continuing strong performance of the

developing economies, reflecting increasing manufacturing output

as well as the continued firming up of commodity prices.

While a modest recovery on output is expected, the picture

on employment is not positive, with unemployment in the

advanced economies expected to increase further in 2010.

Modest recovery in the labour market is not generally expected

until 2011, although some countries will be seeing improvements

in the latter half of 2010.

Unemployment Rates (%)

Country/Region 2009 2010 (E)

Advanced Economies 8.2 9.3

U.S.A. 9.3 10.1

Euro Area 9.9 11.7

Spain 18.2 20.2

United Kingdom 7.6 9.3

Once again, it is the Spanish economy that is lagging behind on this

indicator. (When we look at Andalucía, things are worse.)

The recession is technically over but, much as predicted last year,

the recovery will be modest and gradual. It needs to be realised

that the recovery has generally been led by the expanding fiscal

policies of central Governments, rather than by any consumer

fuelled increases in final demand through the private sector.

Banks continue to place emphasis on rebuilding their balance

sheets and the flow of lending to both households and small to

medium enterprises continues to be tight. Clearly, this is

constraining the recovery.

The other issue is the huge budget deficits that have resulted

from central governments’ unprecedented levels of spending

(borrowing) for bank bailouts and the various stimulus packages

ELEVEN

Politics & Economics cont.that have been central to keep economies more or less tottering

along in the expectation of eventual market led recovery. This is

a delicate balancing act, with attendant increases in perceived

sovereign risk, as reflected by high yields in the bond markets.

The risk of cutting off assistance packages at a time when private

sector led recovery elements remain tenuous, and risking a double

dip recession needs to be weighed up against mushrooming

national debt levels. This is the essence of the problem affecting

Greece, whose budget deficit at 12.7% is a huge distance away

from the 3% Euro zone rule. (Greece is not alone in flouting these

rules but it has the biggest problem in this respect. However,

it would seem that at the recent EU summit talks, broad agreement

has been reached in supporting Greece, in a bid to avoid a

currency crisis for the Euro). Once again, it is the Spanish

economy, the Euro zone’s fourth largest, that is of major concern

in this respect, given that, apart from a very high budget deficit,

unemployment rates are the highest of any advanced economy

and the banks are considered weak. (We have yet to see the full

balance sheet effects of highly reduced property values registered

as loan collateral, which is considered a time-bomb for Spanish

financial institutions.)

At the January World Economic Forum in Davos, renowned

New York University economics professor Nouriel Roubini, who is

widely credited for forecasting the credit crisis/banking crash,

had this to say in relation to the Euro zone issues. “If Greece goes

under, that’s a problem for the Euro. If Spain goes under, it’s a

disaster.” He also went on to say “…even the largest economies

were now vulnerable, as financial markets were looking harder

at the new phenomenon of rising sovereign risk on the ability of

governments to service mushrooming national debt”.

This exposition by Roubini elegantly focuses on the crux of

the matter. Uneasy times are still ahead and there will be a

concomitant need for Governments to tighten their belts further.

Indeed, some of these expenditure restricting measures are either

already being put in place or being mooted as reality grips,

including freezes and cutbacks in public sector pay, the raising of

the retirement age, cutbacks on capital spending, defence budget

cuts and other unpleasant things. In this context, in mid-February

2010, the Bank of England, at the first sign that the UK economy

may have come out of recession, albeit very tenuously, quickly put

its Quantitative Easing (read printing money) programme on hold,

in an attempt to tone down escalating public debt.

What now of the Gibraltar economy? A quantitative analysis is not

possible, given that publicly available data on relevant economic

indicators is, notwithstanding our persistent lobbying, out of

date. Currently available data reflects 2008 and is of little use,

so we are once again consigned to the crystal ball and a qualitative

assessment. What is evident, however, is that Gibraltar, to date,

appears to have been largely unaffected by the economic turmoil

discussed above. For this we must be grateful. Employment remains

stable, GDP is provisionally estimated to have grown by some

5% to £850m in the year to March 2009 and a guesstimate would

indicate further growth to some £890-£900m to March 2010.

Government finances appear to be robust. Clearly, we are doing

something right and the combination of Government policies and

the development of the private sector continues to produce

results.

However, although there appear to be no major setbacks on the

horizon, some issues are worth raising at this juncture.As the Chief

Minister said in his June 2009 budget speech, Gibraltar is not

immune to happenings in the world. Although there has been no

major impact yet, can we assume that this will forever be the case?

Given that Gibraltar fundamentally depends on outside prosperity

for its economic well-being, this would be a bold assumption.

There are some signs that would herald a prudent view as to what

the future may hold. Some major planned developments are

on hold, as banks take a more cautious approach to commercial

lending. (What is happening to the East Side reclamation? There has

been silence on this lately.) At a time when there is said to be

increasing demand for office space, this would constrain economic

growth. The banks’ more cautious approach is also affecting

households for house purchasing and general loan financing. Local

businesses are also being adversely affected by this new stance from

the banks. While this attitude is understandable, in view of world

events, the constraints this implies for economic progress are clear.

Another potential risk is the evolving story about alleged

improper activities at one of Gibraltar’s high profile legal

firms. While this issue remains to be played out, the potential

repercussions for our finance centre, if the allegations prove to be

substantiated, can only be negative. For the benefit of all,

an early resolution is needed.

What then is our message? In reality, it is simple. As has been said

‘Gib. Inc’ is currently in good health. Our Government should take

advantage of this situation and use the opportunity to take a long

hard look at both capital and recurrent expenditure, (We aired our

feelings on this amply in last year’s Annual Report, so there is little

point in repetition), and seek ways to contain this without

prejudicing the level of service. We believe there is sufficient slack

in Government service provision for this to be achievable at the

recurrent expenditure level. In other words, let us strive for a

more efficient public sector. One action could be to aim for a zero

expenditure increase for our next budget. Given the uncertain

effect the 10% corporate tax rate will have on treasury coffers

come January 2011, as well as the expected concomitant

reductions in income tax, efforts to contain budget excesses can

only be prudent in a challenging world. This would have benefits

all round. In the event that Gibraltar avoids serious economic

shocks in the short to medium term, we will be able to increase

our competitiveness in comparison to other jurisdictions. This will

stand Gibraltar in good stead in the long term. Alternatively, if

things do go bad, we will be better placed to ride out the

consequences of a recessionary impact. There is a lesson to be

learnt from what has happened to other Governments recently,

as discussed earlier in this report. Ignoring these events is an

unnecessary risk.

Politics & Economics cont.

THIRTEEN

Finally, on economic events of 2009, we need to mention the

report commissioned by the Chamber on “The Economic Impact

of Gibraltar on the Campo de Gibraltar”. This study has been well

received both in Gibraltar and elsewhere. It quantified what we

had always felt but were unable to prove irrefutably: that the

contribution of our economy to the Campo was both positive and

significant. However, it is fair to say that the quantum exceeded

our expectations. The headline figures show that in 2007,

Gibraltar was responsible, conservatively, for over £420m worth of

expenditure in the Campo, representing some 12% of the GDP of

the hinterland. Also that Gibraltar accounted for one out of every

six jobs in the Campo region! The study also showed the strong

links between the two economies.

Earlier in this report, we expressed our concerns at the state of the

Spanish economy in general. The situation is worse in Andalucía.

In the last quarter of 2009 alone, the economy of Andalucía shrank

by 3.9%. Unemployment reached 26.3%, with Malaga province at

27.3% and Cadiz province at 28.7%. These are seriously bad

figures. Prospects for recovery are weak. In the Campo area alone,

there are around 37,000 registered unemployed. The financial

woes of the La Linea city council are known to all. In the context

of this sad state of affairs, with the resulting negative social

impacts, we have seen the new Mayor of La Linea looking at

Gibraltar in a positive light as a source of employment for Linenses.

Even Mr. Landaluce has begun to soften somewhat of late.This is

an opportunity to be grasped, as an impoverished neighbour does

us no favours in the long term. “Needs must” is an appropriate

metaphor, in this case even emanating from traditionally hostile

PP politicians.This apparent change in attitude, if sustained by action,

can eventually lead to good things for both communities. The

Tripartite Forum is the appropriate vehicle to see this through and to

evaluate what could be done for mutual benefit. We like to think that

the Chamber’s economic study has been instrumental in this respect.

Budgetary ConcernsIn our 2009 report the Chamber called on Government to comeforward with radical proposals to bring efficiencies to the leastaffordable items of recurrent expenditure. “In particular proposalsto mitigate the costs of running a general hospital by joint venturing with a private sector entity”. This idea appears to havefallen on deaf ears as has the suggestion that we should embracemedical tourism as a solution rather than despise it as some formof stigma.

Gibraltar, like the rest of the Western world spends a high proportion of its tax income on providing health care for its citizens.

In the Estimates of Revenue and Expenditure for 2009/10,expenditure on the Health Service was estimated at £68.4mor 23% of total recurrent expenditure of £295.6m. Using a population figure of 30,000, this gives a spend per head 2,280 on an annual basis or £6.24 per day for every man, woman andchild in Gibraltar. To put things into perspective, this would easilybuy quality private medical insurance for all.

The level of expenditure, already at an all time high, can only go up if current population trends persist. Gibraltar, in common withthe rest of the Western world, has an ever-ageing population.This demographic trend will bring considerable extra burdens toits taxpayers: increasing budgets for health-care as well as evergreater demands on a Pension pool with proportionally smallernumbers of contributors.These are the consequences of an ageingpopulation and the role of Government is to find a balance whichdoes not overburden the younger working generation whilst notdiminishing its care for the elderly. The challenge therefore is toanticipate future requirements and address the changing demandswithout either mortgaging future generations or skewing the economy. Much as we like to believe that the “status quo” of ourHealth budget is sustainable and that the current arrangements willlast forever, the facts are otherwise.The provision of a free health

Whilst a modest recovery on output is expected,

the picture on employment is not positive,

with unemployment in the advanced

economies expected to increase

further in 2010.

Politics & Economics cont. Politics & Economics cont.

FOURTEEN FIFTEEN

service for all citizens has been in place for less than 50 years.It may seem that it has been there since time began and that it will continue in the same way, without costing the tax payer proportionally any more than at present and providing the samelevel of service as today, but these assumptions are misguided.We can take nothing for granted when it comes to meeting thefuture cost of health provision for our ageing society.

Standing still is not an option.

It is important to note that the General Medical Council in theUnited Kingdom now requires doctors with any speciality to produce a “licence to practice”, without this they will not be eligible to work in clinical medicine in the UK.To meet the “licenceto practice” standard the requirement is for an annual “appraisal”and a five yearly ‘revalidation’. It is not clear how many but a largenumber of the medical posts in the Gibraltar Health Authority willno longer be accredited by the General Medical Council in theUnited Kingdom. Doctors in those GHA posts will fall short ofGMC requirements for revalidation and will not meet the five yearly ‘revalidation’ tests.This would make Gibraltar a “dead end”,from a career perspective, for any young doctor contemplating anopening at St. Bernard’s Hospital.

The GHA will find it increasingly difficult to recruit doctors fromthe UK and if the “licence to practice” standard is exported to theEU then the catchment area for new doctors will be furtherreduced. This can only be detrimental to the ultimate quality offuture healthcare in Gibraltar.

Public sector services are required to meet ‘value for money’ testsby comparing like with like between differed providers or by comparison with similar services in the private sector.Hospitals are subject to these tests just as any other service andsimilarly they are subject to general economic principles includingthat of ‘economies of scale’. This means that, to remain competitive, to warrant attracting the top consultants and recruiting the best doctors and nurses and to justify state of theart facilities, a hospital needs a significant number of patients. Thisminimum turnover correlates to ‘economies of scale’. A populationof Gibraltar’s size would not normally warrant its own GeneralHospital because the minimum patient turnover would not beavailable. If, however, as a community we have decided, for goodpolitical reason, that independent Health provision, is a priority weshould approach the challenge with an open mind.This challengemust be met on two fronts; we need to maintain and improve thestandard of healthcare and also mitigate the cost of its provision.

There is a growing debate in the United Kingdom, and elsewhere,about the long term sustainability of the provision of Nationalhealthcare. Gibraltar needs to open up this debate.

It makes increasing sense, therefore, to consider options like sharingthe costs of maintaining St. Bernard’s with a Private Sector HealthInsurance provider. A joint venture or an agreement to outsourcethe hospital to a reputable entity would result in an influx of patientsfrom outside Gibraltar. Increased numbers would satisfy the minimumturn-over required to provide a top level cost effective hospital.

Medical Tourism is an opportunity which our proximity to the largeexpatriate community in Spain provides if we are willing to explorefurther. A successful venture may not only achieve sustainability for

our healthcare budget but even release funds to provide enhancedfacilities for the elderly, including home assistance for those whowish to continue leading independent lives but need a safety netand back-up services.

Employment ServiceA recurring theme during the year has been the problem manymembers have experienced in their dealings with various government departments. This has been referred to in severalannual reports over the years. At the risk of sounding like ascratched record there is still a lot of room for improvement in anumber of departments.

The Chamber was taken to task at the annual dinner by the ChiefMinister himself who defended the civil service and refused toaccept that the public sector is bloated. To refine the argumentsomewhat and in order to avoid “odious generalisations”,the Chamber’s principal concern about the civil service is less oneof its overall size but one of its efficiency and in particular the availability of personnel to deal with issues that affect the businesscommunity. Let us be clear. Some departments are better thanothers and we recognise that there have been improvements inrecent years that are welcome. Nevertheless certain perennialnettles still need to be grasped.

The public counters for the submission and collection of documents at many government offices are only open to the public until 1pm throughout the year.

For some departments where there is a continual need to interface with the private sector such as Employment (ETB) thesepublic counter hours should be extended to include afternoons.Business does not stop at lunchtime. An alternative might be tohave a satellite office located in the centre of town that would bemore convenient for the majority of businesses in town.

There needs to be greater coordination between the Tax Officeand the ETB in regards to employment contracts and in particularto the administration of terminations.

Members have also commented to the Chamber than that therehave been instances of poor record keeping of employment contracts and especially terminations that will not necessarily helpITO to monitor PAYE.

Overall there seems to be inconsistencies in the co-ordinationbetween the three key departments of Employment, SocialSecurity and Income Tax. This has the twin adverse effects ofpotential loss of government revenue which costs us all in the endand in the additional time that businesses need to reconcile issuesthat should have been addressed at the outset. This is not a witch-hunt and the Chamber does not seek to apportion blame.Our members want to help government departments but inreturn the business community would like feel that taxes and otherlevies which they pay towards the cost of the public sector are valued and used efficiently. Ultimately, who is the customer?

Some members take the view that the Employment Service is likean unofficial union as in some cases they have appeared to sidewith the employee as a matter of course rather than investigate anissue and resolve it equitably.

Gibraltar CustomsThe volume and value of imports continues to rise significantly.Government statistics show that import duty receipts rose fromjust over £35m in 2006/07 to £47m in 2008/09. The increase inthis single revenue line by one third in just two years highlights theimportance of Gibraltar Customs, not just to Government, but alsoto traders and to the wider public.

However, it is not just the role of revenue collection that Customsfulfils. They are one of the key mechanisms that enable Gibraltar’seconomy to run. It is crucial therefore that the equipment,processes, personnel and training are all geared to ensuring thisdepartment functions as smoothly as possible.

The implementation of the upgraded ASYCUDA computer system is an important and necessary investment. It should alsohelp to speed up entry processing at the East Gate. There are times when this process takes an inordinate amount of time.The new system should enable the re-assignment of personnel toconduct direct vehicle inspections and reconciliation with itemslisted on the invoice.

Established traders who have funds in their Customs accountsshould be able to leave the import paperwork at the East Gate oremail electronic versions direct to Customs and be permitted toimport their vehicles without delay.

The Chamber looks to Customs to ensure that trucks enteringGibraltar have the necessary paperwork to make deliveries to localsuppliers. This is especially if the goods are in transit for deliveryto a vessel calling at Gibraltar. Unregistered or unlicensed traderswho take orders over the internet for fulfilment in Gibraltar shouldbe prevented at the frontier from entering unless they pay importduty on the goods they are delivering.

At the civilian frontier entry it is noticeable that Customs officershave increased their vigilance of personal imports.The strong eurohas also reduced the numbers of locals shopping in Spain.However, the Chamber is aware of several instances where dutyvalues charged appear to have little or no relation to the value ofthe goods being imported. This is a bonus for the personalimporter but again creates an unfair playing field for local traders.

Customs officials should be able to check the value of VATexports and compare this with the import duty actually collected.To further assist with this Customs should ask for VAT exportoffice to be located close to the frontier to facilitate the interchange of invoices.

Those individuals or traders who are found to be in breach of therules, particularly for under declaration or non-declaration ofgoods, should be fined heavily or where they are unable to payhave their trade licence or other permits suspended.

Moving towards e-GovernmentThe Chamber is aware that Government is moving some of itsactivities towards an e-commerce platform.The implementation ofthis e-government policy is most welcome and the Chamberencourages the speedy implementation of this on behalf of itsmembers and the wider private sector. If businesses were able tocomplete and submit forms to the ETB electronically or emailEntry Clearances to Customs on the internet or via an intranet thiswould have many benefits for all sides: speed of processing,reduction in invalid data entry, improved cash flow and free up personnel to be re-assigned to other tasks and at the same timeprovide an up to date source of statistics.With so many benefits itis difficult to foresee any drawbacks in rolling out this platform intoas many areas of government as possible.The sooner the better.”

The Chamber was taken to task at the annual

dinner by the Chief Minister himself who

defended the civil service and refused

to accept that the public sector

is bloated.

Wholesale & Distribution Wholesale & Distribution cont.

SIXTEEN SEVENTEEN

This decade started with high expectations for the global economy, the dot.com revolution was steaming ahead, the Euro was in its infancy having being introduced in January 1999 and allcomputer systems were expected to fail the second we enteredinto the new Millennium, the infamous Y2K. During this decade we also witnessed the effects of corporate and social globalisationon our lifestyles and aspirations. This global economic confidenceand growth suddenly died in 2008 with the collapse of the banking sector, which in turn has affected countries and marketsthroughout 2009.

This year has followed the closing trends of 2008 and has once againthrown new challenges to the wholesale and distribution sector as well as Gibraltar as a whole.

The major problem that has affected a cross section of Gibraltarianbusinesses has been the collapse of two of Gibraltar’s leading construction companies PCG Group Overseas Limited, HaymillsGibraltar Limited and their associated companies. Whereas theGovernment has lost millions of pounds of unpaid PAYE and socialinsurance contributions, an equal amount of money has been lost bythe local businesses, at a total cost to the Gibraltar economy that isestimated at over £5 million. Gibraltar’s leading builder’s merchants,hire specialists, plumbing suppliers, transporters and sub-contractorshave borne the majority of this loss, yet they have not been offered any type of compensation from Government in relation to materials and services given to Haymills in respect of the low costGovernment housing schemes. As a result of this, these businessesenter 2010 with a larger hurdle to surpass than other sectors.

During 2009 we have seen two companies cease trading and their businesses or obligations passed onto what would appear to be related 3rd party companies. These were the Ministryof Defence contract awarded to PCG Group for works at Devil’s Tower Camp and Celebrities Wine Bar at Ocean Village, bothwith the apparent blessing of the counter party, namely the Ministryof Defence and Ocean Village.This practice of condoning “phoenix”

operations, where one business rises out of the ashes of another isdamaging for the Gibraltar economy and its reputation for beingwell regulated, whilst at the same time leaving Gibraltarian businesswith unrecoverable bad debts. It is essential that this practice isnipped in the bud with relevant changes to our legislation.

As we are all aware, Gibraltar is a sterling-based economy, yet dueto its physical connection to Spain it is highly intertwined with andaffected by the euro. The strength of the euro has fluctuated overthe last year, reaching lows of near parity to highs of 1.18 to thepound over twelve months. These fluctuations are a double-edgedsword for the Gibraltar economy and in particular the wholesaleand distribution sector.

The strong euro has increased the cost of the majority of importsinto Gibraltar such as clothing, food products, wines and spirits,cigarettes, water and other consumer products as well as buildingmaterials, bedding & furniture. However, in many cases theseincreased costs have been absorbed by the importer, as otherwiseGibraltar’s competitiveness would be adversely affected. Businessescontinue to explore sourcing from countries outside the eurozone,where the effects of the weak sterling are not as noticeable.

The other side of the coin is that businesses have undoubtedly benefited from the weak pound, which in 2009 saw residents fromthe Campo and from further afield visit Gibraltar to maximise theirspending power and stretch their household budgets. By the sametoken, due to the high levels of unemployment in the Campo,the spending power of these shoppers is not as strong and their visits not as frequent as last year.This curious mix of shoppers hashelped the wholesale sector smooth an extremely challenging year.

The effects of the turmoil in the banking sector have been felt in Gibraltar in 2009. Banks appear reluctant to offer new facilities tobusinesses and when they do, the terms being offered are considerably higher than those being offered 12 or even 24months ago despite historically low base rates. Gibraltarian businesses have a reputation for being conservative yet

Gibraltarian businesses have a reputation for

being conservative yet entrepreneurial and

steady, something the banks could

learn from, yet they seem to be

paying the cost of the mistakes

made by the

banks.

entrepreneurial and steady, something the banks could learn from,yet they seem to be paying the cost of the mistakes made by thebanks. Following the credit crisis one of the newest problems facing local wholesalers and other importers is the inability of credit agencies and their insurers in the United Kingdom, Spain orother European countries to cover risk of the goods sold byexporters in these countries to Gibraltar-based businesses. This inturn has resulted the withdrawal of credit facilities and lowering of credit ceilings to some Gibraltar business, as a consequence ofwhich goods have to be paid in advance.This has a significant impacton the company’s cash-flows and its ability to do business.

Traffic problems and congestion have continued to plague Gibraltarin 2009 and this problem has been further aggravated by the works on Devil’s Tower Road and also at the new Trafalgar interchange. On a normal day, it can take a delivery by anyother types of vehicle up to 30 minutes to travel west along Devil’s Tower Road and reach the Cross of Sacrifice roundabout,before it reaches its final destination. The cost of these delays isimmeasurable and is adversely affecting the delivery times of businesses. Those businesses that are located along Devil’s TowerRoad, the North Front area and Sir Herbert Miles Road and haveto deliver into Main Street and other pedestrianised areas are struggling to reach and deliver to their customers before the 10 amwindow closes. It is surprising that works on these two sites are notcarried out seven days a week. Working on weekends would accelerate the completion dates of these two projects as the number of commercial and other vehicles on the roads is lower.

As mentioned in last year’s report, the 5% ad valorem tax that was introduced on alcoholic beverages a few years ago has beeninstrumental in the demise of the duty-free sector as Gibraltar hasbecome uncompetitive in the supply of alcoholic beverages on a duty-free basis to vessels calling at Gibraltar. This is further aggravated by the uncontrolled and liberal access to the Gibraltarmarket by Spanish ship chandlers.As their goods are in transit to thevessel, the Gibraltar economy does not earn any revenue from thisoperation, and in turn undermines Gibraltarian businesses that do pay duties, taxes, and overheads and contribute to the economy.This loophole must be closed through legislation, so thatGibraltarian businesses can exploit opportunities in this sector andsafeguard the employment of their work force.

As we enter a new decade, 2010 is expected to be evenmore challenging on the entrepreneurial spirit of the business community. The ripples of the collapses in the construction industry will be felt even more strongly once the Government’s lowcost housing projects are completed and the many purchasers paymortgages and utility bills for the first time. It is expected thatunemployment in the construction sector will rise as the projectsnear completion. Businesses will need to be keep a tight control onoverheads and capital expenditure programmes and possibly deferring non essential expenditure. Being a partially closed economy, any expenditure curbs by one company will inevitablyaffect another business that is dependant on this revenue.

EIGHTEEN NINETEEN

Retail SectorGenerally speaking 2009 has proved to be a difficult year for most retailers. Whilst the weakness of sterling has attracted more visitors to Gibraltar it is noticeable that these visitors have had less to spend. Certain retailers such as Morrisons and a few others havebenefited from this situation. However most have suffered as there hasbeen little or no growth, costs have increased and margins have fallen.

In the Chamber’s opinion, the long-term prospects of the retail sectorin Gibraltar are not good.This is of concern especially as, together withwholesale, the sector currently employs nearly 3,000 people.

Increasingly traders are finding it difficult to compete with similar businesses in Spain or with Internet sites even though the strong euroshould benefit Gibraltar. Currently most visitors are attracted by specific retail businesses operating franchises, which are not available inSpain or by a very small basket of specific products, which offer veryattractive savings. The Government urgently needs to look at the general competitiveness of retail products and consider restructuringhow it collects import duty as a way of improving the situation.

We have long advocated that the retail trade must adapt and changeto ensure that the sector survives and to their credit, many businesses have invested significantly over the years to adapt theirretail offer. Today Main Street and Irish Town in particular bear littleresemblance to how they looked twenty or even ten years ago.Nevertheless, there are too many retailers trading in the same products. Many outlets are engaged in outdated practices that are

counterproductive. For example many do not display their prices andthe price for their products is subject to negotiation. Others offer amismatch of products many of which cannot be properly displayed.Retailers must be encouraged to display their prices and to limit theirrange to categories that go hand in hand.The Chamber does not wantto be prescriptive about how or what retailers should sell but sometraders need to move with the times an modernise not just theirstores but their way of operating.

Some retailers have invested considerable sums and have diversified into other areas of business. However the risks are considerable. Costs are high with rents in some areas of Main Streetat unrealistic levels. In many cases retailers are faced with unfair competition from substandard or counterfeit goods or from traderswho do not properly register their staff.The Chamber has continuedto lobby the Government to introduce Trading Standards Legislationwith a properly resourced Trading Standards office. The Chamber further urges the Government to increase resources to ensure thattraders employing unregistered labour are dealt with firmly.

One long established and diversified retailer with a number of outlets recently commented to the Chamber that there are a couple of new lines of business that he would ideally like to introduce but at the current levels of rent and costs, the risks were too great. It is poignant to note that there are currently eight vacantpremises in Main Street.

S. M. SERUYA

2, 59, 107, 151, 165, 187, MAIN STREET GIBRALTAR

With the compliments

of

specialists inPerfumes & Cosmetics

Finance SectorBankingAs we noted in last year’s Report, 2008 was the year that saw theglobal economies and the relationship between those that supplyfinancial services and those that buy them change forever. 2009 hasbeen a year of two halves and also a year where those that ended2008 stronger and made the right decisions. or indeed were ableto, emerged stronger whilst those that did not, or could not, wereleft behind in many respects. Unquestionably the global economyhas shifted and those companies and individuals with a strongstrategic direction and a fair bit of luck have improved their lot.Inevitably, there are others that now feel poorer and are unable tomove quickly enough into those areas of opportunity that presentthemselves at times of such upheaval.

So the man in the street generally feels poorer and is being hit byrising costs from all sides.Those that have been able to curtail theirexpenditure and who, importantly, are not highly leveraged, haveweathered the storm well. Equally at the corporate level, mostcompanies have to borrow for cash flow purposes and that thebanks have not been immune to this upheaval is well recorded.Banks have been forced to curtail their lending because both governments and regulators have forced them to rebuild their capital bases and have tightened the rules on what is acceptable.The interbank market also eased up from its 2008 seizure as governments stepped in to provide much needed liquidity.

The year of two halves was defined by the perception (if not necessarily backed by figures) that the recession ‘bottomed’ out inthe UK in the summer. We have seen some easing of the global situation towards the beginning of Q3 but the recovery, if we maycall it that, has been fragile and is likely to remain so.

Gibraltar continued to buck the trend in many respects during theyear, although the slowdown elsewhere became more noticeableas the year progressed. We do not see the extremes as much inour economy and we have seen a number of Government-ledprojects filling the economic gap. That is not to say that we arecompletely immune from what happens in the UK and Spain,our two closest and most significant trading partners. Britain continues to show signs of a fragile recovery but has the spectreof a general election in 2010 hanging over it. This is not good forleadership out of a financial mess. Spain similarly has many issuesto deal with and these have unquestionably had an effect onGibraltar. For example, on those banks that lent to buy propertiesacross the border whose prices are starting to fall in value or whodepend on the flow of HNWIs to the costas.

Our banks have continued to play their part in oiling the wheels ofthe local economy, the larger ones being UK-centric in particularhave been affected by their Group strategies elsewhere.Nonetheless, they continue to lend to both individuals and companies and we have seen little hard evidence of the predicted

TWENTY ONE

Finance Sector cont.doom and gloom on Main St or in the related property market.However, it is true to say that a reality check has been evident and those that in the past may have been allowed to overstretchthemselves or who may have got away with less than up to datetrading figures, are now finding the going harder than ever. This isno bad thing.

On the other hand, those banks that have private wealth management at the core of their offering have seen the rich getricher but even so there was a pronounced reduction in the number of Cat II compared to the previous year. Lawyers,accountants, fund and investment managers as well as insurers haveall felt the pinch, but the finance sector continues to motor onalbeit at three quarters speed for now.

In all of this it is true to say that companies will take opportunitiesto restructure their operations and blame the recession. This is partially true but one has to consider that the object is survival and jurisdictions will be affected in different ways, depending sometimes on nothing more than luck.

We have seen some of our competitor jurisdictions being askedsome stiff questions about their level of regulation; we may yet face this and complacency is not something we should allow.Our regulations, the quality of the players in the finance sector,our taxation structure and our workforce and geography will all

continue to be attractive draws. Nevertheless, small jurisdictionslike ours will always suffer disproportionately by issues that largerjurisdictions would otherwise easily absorb. eg, Gibraltar wouldsorely miss even one bank closing down, particularly a retail bank.It is critical that all players in the sector are encouraged not only to stay, but to raise their game and expand their services and products and ensure greater competition and quality of service.For locals and non-locals alike, the sector must continue to striveto make Gibraltar their destination of choice.

InsuranceGibraltar’s insurance sector ended the decade in 2009 with thenumber of insurance and reinsurance companies licensed in thejurisdiction totalling 63, which compared to 13 at the start of thedecade in 2000. In addition there are also over 30 cells belongingto 5 Protected Cell Companies.

The growth of the insurance sector started with captive insurancecompanies set up to insure the “first party” risks of the parentcompany. It is very much more diversified today including PCCsand long-term, aka life insurance companies.There are many moreopen market insurance companies established today in Gibraltarwriting ‘third party’ risks, that passport their services into the EEAmember states.

TWENTY THREE

Finance Sector cont.

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P.O. BOX 1418GIBRALTAR.

TEL: (350) 200 46579

Valuing Gibraltar• Surveys • Valuations • Property Advice

Gibraltar now boasts a motor insurance market of internationalsignificance, which underwrites approximately 8% of all business inthe UK motor sector, more than Lloyds of London. Markerstudy,the first entrant into the Gibraltar motor market has recentlybought one of the later entrants, Zenith although the biggestnames are probably Admiral & Saga presently.

The motor market, in common with all other Gibraltar insurancecompanies, benefits from a close level of engagement with theRegulator. The rapid response of the FSC as Regulator has beenan abiding advantage of Gibraltar relative to other jurisdictions andone that Michael Oliver has been excellent in sustaining since hearrived in Gibraltar.

The Gibraltar Insurance Institute (GII) sits alongside the GIA witha focus on training and education in insurance. Led by PresidentAndy Baker the GII is extremely active and membership at31.12.2009 stood at 149.An application has been made for the GIIfor Associated Institute status of the Chartered Insurance Institute,last achieved by Ireland some 20 years ago.

2009 was the final year of Penny Hudson’s 3 year tenure as Chairman of the Gibraltar Insurance Association. During herterms in office the engagement levels of the member insurers and intermediaries has increased substantially. The outlook forinsurance industry growth is extremely positive having been given further impetus by the development of tax certainty andGibraltar’s achievement of a “white listing” by the OECD. The GIA

has a clear strategy for the future, which will be driven by the newChairman Paul Sykes and Vice Chair, Angelique Linares.

The Funds SectorIt was a year of further steady growth in the popular ExperiencedInvestor Fund regime with the number of EIF Funds now standingat over 60. The main sector participants believe that there aremany reasons why the fund industry in Gibraltar will continue to grow.

The financial market crisis which deepened during 2009 set off awitch hunt looking for someone to blame for the whole meltdown.The dealings of hedge funds came under particular scrutiny fromgovernments and regulators alike. Investors themselves beganto shun some offshore centres and turn to the relative safetyof transparent and sound regulation offered by fund vehicles particularly in EU jurisdictions. This trend has been furtheradvanced within the hedge fund world, by the spectre of the EU’sproposed Alternative Fund Managers Directive, currently due forimplementation in 2011.This Directive will tighten the regulationsapplying to hedge fund managers and seeks to restrict the distribution of non-retail funds which are not based (i.e. registered,managed and administered) within the EU. As a consequence,many managers are now looking to relocate to EU fund centres asa base for their products to facilitate distribution.

TWENTY FIVE

Online GamingThe move from tax-exempt status to the new tax regime inJanuary 2011 has still not been resolved and this is a cause for concern within the sector. It is less than twelve months away andcompanies need to be able to forecast and plan accordingly.

In a similar vein there are concerns from sector participantsaround EU VAT provisions and the supply of electronic entertainment services.The treatment of these provisions remainsunclear in certain jurisdictions and at the general EU-wide level.

In the last few years there has been an increasing trend amongauthorities, particularly within the EU, to introduce their ownlocal/national regulation which requires offshore operators toestablish themselves and their infrastructure within the nationalterritory in order to obtain a licence. Some of these licenses haveunattractive commercial terms attached. In addition, some of theconditions set by EU member states are in direct conflict withArticle 49 of the European Treaty that sets out the principles ofFreedom of Establishment and the rules governing freedom toprovide cross border services. These principles should be defended robustly and not be permitted by nation states to beinterpreted to suit individual wants or protect local monopolies.

The UK government is reviewing the White List, which currentlyallows Gibraltar-licensed operators to advertise and market within Great Britain.The Chamber has made representations alongwith the sector on this matter in the past and it is disturbing to seethat vested national interests have resurrected this once more.One change being mooted is that there may be a requirement toobtain a licence to advertise nationally which may in turn attract atax liability.The review is at an early stage so it is too early to offerdetailed comment.

Competition within the sector remains as intense as ever and theeconomic slowdown continues to squeeze operator margins for all participants. There have been some new arrivals on the Rockduring the year but the usual challenge of the small talent poolcontinues to make recruitment of locals more difficult than in manyother jurisdictions.

Finance Sector cont.In the retail funds world, the EU Directive on UCITS IV is nearlyupon us.This Directive further opens up distribution of retail fundsin the EU and presents opportunities for Gibraltar to participate.

Gibraltar’s drive to obtain “white list” status on the OECD list oftax jurisdictions also bore fruit towards the end of the year, and thisshould help to attract further business to the jurisdiction.

The Gibraltar Funds and Investments Association,“GFIA”, formerlyGASIM, underwent internal change and modernisation during theyear, and now, through its new working committees on Technical,Training and Marketing, is ready to meet the challenges presentedby this emerging market place.

ATCOMThe Association of Trust and Company Managers locally known asATCOM is a representative association that has a membership inexcess of 30 companies, which includes well known names such asPWC Abacus, Deloitte, Sovereign, STM Fidecs and Finsbury amongothers. These companies employ hundreds of the people in theFinance Centre and through taxation and social insurance theycontribute significantly to the social welfare of Gibraltar.

ATCOM’s role is to represent its views, on behalf of its members,directly to Government, regulators and other members of thefinancial services industry. Additionally, ATCOM forms part of theFinance Centre Council, a Government consultative body thatcomprises of the head of all finance centre associations (Law,Accounting,Trust, Company Managers, Banks, Investment Advisors,Insurance, Funds Managers and Fund Administrators). Its role within the FCC is therefore important as representations throughthe FCC can often by sheer mass of support be more effective.

Inevitably the industry faces challenges.These include Exchange ofInformation Agreements. Tax avoidance or simply basic tax structuring will be confined to the history books as more andmore exchange of information agreements are signed, but asChairman of ATCOM I can safely say we are well placed to facethose challenges and more and more business is about find quitelegitimately competitive tax jurisdictions from which to manageones business or personal assets. The business is becoming moresophisticated and as a result so are our members. Moreover, whilstthe traditional business model involved high volume of clients withrelatively modest fees, most of our members are finding that wehave better and bigger clients many corporate clients looking for acompetitive edge which they can establish within a low tax jurisdiction. The savings can be considerable and inevitably clientsare prepared to pay higher fees.

Gibraltar already on the OECD white list will see 10% corporatetax by January 2011 and the Government has committed itself tolowering personal tax soon after.With no capital gains tax, no VAT,no investment tax and no inheritance tax and the professionalismof the community, Gibraltar is increasingly becoming a place fromwhich many serious companies want to do business.This all meansto the industry that despite the current changes and the globalslow down we are well placed to flourish. I believe the future forour members will be more profitable than ever and that generalfeeling of cautious optimism can be found throughout the industry.Whilst this year may be a little tough, roll on 2011.

Nicholas Cruz, Chairman, ATCOM

TWENTY FOUR

Gibraltar’s drive to obtain “white list” status

on the OECD list of tax jurisdictions also

bore fruit towards the end of the year, and

this should help to attract further

business to the jurisdiction.

Gibraltar is seen as a safe, efficient and friendly

jurisdiction to carry out ship arrests on behalf

of mortgagors who seek to protect

and reclaim their assets.

TWENTY SEVEN

Port & ShippingBunkering ActivitiesBunkering volumes continued to increase year on year with thetotal volume delivered in 2009 rising 11% to 4.7 million tonnes.These volumes were delivered by the same number of participantswith no new entrants seeking to enter the market during the year.Volumes in the neighbouring ports of Algeciras and Ceuta alsoshowed growth, and it became clear that both ship owners and charterers have been scrutinising each of the three ports andmaking their choice on price, availability and speed of delivery.Bunkers remains the principal purpose of call for all vessels callingat Gibraltar with bunker vessel calls from increasing by 14.5% compared to the previous year. These figures are encouraging given the world recession and highlight some of the unique andattractive features that Gibraltar can offer : good geographical positioning and healthy competition. The only area of concern iscongestion, often caused by bad weather when vessels have towait entry into Port for many hours. It is hoped that the long-awaited investment in the integrated vessel tracking system(VTS) will alleviate in this.

Cruise LinersGibraltar continues to market this sector actively. 2009 was a verypositive year with the arrival of 238 vessels bringing in a total of348,000 passengers. However, the outlook for 2010 currently looksas though there will be a small decrease in the number of vesselscalling, although passenger numbers might still increase given thegrowing capacity/size of vessels calling.

In order to keep the Port of Gibraltar competitive against theneighbouring Ports of Malaga and Cadiz, the Port Authority has,wisely in our view, not increased passenger tax and continues to

give discounts on liners that make multiple calls here. Given thecompetitive nature of the sector it is critical that Gibraltar seeks topreserve, and where possible increase, volumes as once a cruiseline stops calling it may prove harder to encourage them to return.

Port Authority2009 has seen the transition of the Port Department into a Port Authority, and with this, an increase in port tariffs.Initially this caused some concern within the industry, but hasshown no indication of affecting our competitiveness. We will,however, need to monitor this years proposed increases closelyand be alert to any signs of these affecting numbers of vessels calling. The investment in a new fully integrated VTS system(see above) is an important step forward given the increase inmarine traffic in the Bay and just as important will be the trainingof the staff that operates it. The opening up of the EasternAnchorage is also an important step forward, and this has given the Port Authority a new revenue stream. At the same time it hasenabled the Authority to take control of vessels anchored there.Political considerations aside, it has also opened up new businessfor local agents.

All vessels that are not calling into Port for bunkering can now be serviced on the Eastern Anchorage and this has alleviated congestion in the Bay anchorages. Although bunkering is not allowed on the Eastside this should be seriously consideredif volumes are to be grown. With the Authority now essentially self-funding, it is hoped that this will result in an upgrade andimprovement in the Port’s infrastructure facilities.

TWENTY NINE

Port & Shipping cont.

Agency/Port OperatorsThere remain a healthy number of local agents and there has been a steady increase in the number of Port operators beinglicensed. However, as we have said in previous annual reports andelsewhere on many occasions, a level playing field must beenforced and non-licensed operators should not be allowed totrade in the Port area.

Restrictions at the Spanish land border restrict further growth.Local companies are prohibited from servicing vessels inneighbouring ports such as Algeciras with goods supplied fromGibraltar unless these companies are fully registered in Spain.Within the sector locally, there is a widely felt and justifiable viewthat Gibraltar should maintain a mutual stance.

We look to Government and in particular to Gibraltar Customs toremain vigilant in ensuring that any goods entering Gibraltar“in transit” should be handled by a locally licensed operator. If not,the goods should not be permitted to enter Gibraltar.

In order to comply with new international regulations there is a recognition that the work of a Port Agent has become morecomplicated.There is an increased need for staff training in orderto maintain the high standards required.

Despite the current economic crisis not having affected the Port’score bunkering business, there have been other spin-off benefitsthat the Port has brought to the economy. There has been anincrease in vessel arrests that generate lucrative work for specialistlocal lawyers, the Port Authority itself and for agents who have to attend to the vessels and crews. Gibraltar is seen as a safe,efficient and friendly jurisdiction to carry out ship arrests on behalfof mortgagors who seek to protect and reclaim their assets.

Crew changes, stores, charts and spares are all important andsteady revenue earners for the local economy and many in thesector have continued invest in all these areas to provide greaterfacilities for the seafaring community calling at Gibraltar.The very positive secondary economic effects of crew changes on local hotels, taxis, restaurants and travel operators should never be under-estimated. These activities continue to providemuch-needed revenue at a time when elsewhere many are feelingthe pinch.

General Ship Chandlers & Suppliers to IndustrySupplying vessels in Gibraltar, Spain and off port limits

Tel: +350 200 44101 • Fax: +350 200 42411Email: enquiries@euroshipsupplies.com • Web: www.euroshipsupplies.com

Tourism SectorThe Tourism SectorIt is with increasing concern that the Board submit our Tourism report noting very little has changed in 2009. During the latter part of2008 and early 2009 the Board Directors engaged key industry players to formulate a Chamber strategy for Tourism and this was discussed with the incoming Minister Britto as well as members of theGTB. Whilst our conclusions and ideas were enthusiastically receivedwe have seen no tangible progress and now really must questionwhether this Government views Tourism as a pillar of the economy or as a convenient cash cow whilst not really understanding the indirect benefits to our economy and the importance of maintaining a more diverse income base which this Government proudly defends.Taking all the above into account, this years report reiterates a greatdeal of what has already been said.

Our productNo one will argue that our proposition is becoming increasingly tired,lacking of investment and innovation in terms of product development.This is against a backdrop of recognition by many international locationsof the value of tourism as a wealth generator. Very few of these locations however have our natural appeal and unique characteristics.

The Upper Rock, our jewel in the crown, remains under-invested inand is missing an opportunity.The Chamber feels the Reserve wouldbe better managed through private enterprise requiring significant

long-term investment and this would produce the desired visitorexperience. Even if kept under Government control, any properinvestment would in our opinion be self-financing through a propercharging structure which would then have plenty of scope to beincreased significantly. We would suggest that a properly designed,developed and smartened up Nature Reserve experience could easily attract an entrance fee of £20 - £25.

The hotel sector also needs new players for both the business traveller (a potential new source of higher spending tourist) and a family style operation. The Government could look to complementGibraltar’s on-going success as a finance centre to develop a higher calibre of discerning visitor creating far greater cross-selling opportunitiesto our small and medium sized business sectors as well as creatingopportunities for enterprise and entrepreneurs. The Chamberacknowledges the Government are keen to see progress in bringinghotel operators but as at the time of this Report going to press weare unaware of any tangible progress.

Cruise Liner CallsWhilst an effect of the global downturn as opposed to theGovernment’s positive support of this sub-sector it is clear from available information that 2010 will see a marked downturn.This hasbeen the flag bearer of the Government’s tourism strategy for the last10 years so whilst we believe this should bounce back in 2011-12,more importantly this proves that with the right energy and vision we

THIRTY

Tourism Sector cont.

THIRTY ONE

can create a highly valued, diverse income source for a vast range ofGibraltar based businesses through expansion of our tourism product.

As we reported in our last Annual Report, the Chamber is not aware of any significant study to be conducted on the sector since1996 - 14 years ago. One point which became clear was that theGovernment had implemented a number of the recommendationsmade in both these papers in the intervening period, ranging from the beautification programmes to infrastructural improvements totourist facilities such as the land and sea entry points. The success inthe development of the cruise line sub-sector was of particular merit.But other destinations have also been hard at work and furtherimprovements in the tourist infrastructure are still needed urgently.The Chamber therefore recognises that, at the time, the Governmentdid indeed implement and progress a number of recommendationshowever this invigoration driven by Minister Holliday now needs a new lease of life.

From consultations made by the sub committee, there is a growingbelief that tourism requires a higher rung in the priority ladder ofGovernment, building on some of the good foundations that havebeen created over the last ten years or so.

One key point raised early on in the consultation process was the apparent lack of reliable statistical information which would helpboth Government and private sector operators interested parties fully understand the economic benefit to Gibraltar and to plan accordingly. This is because tourist related spending has a number of spin-offs into every reach of our commercial, wholesale and retailsectors. The Board remains of the view that Government should pro-actively seek to assess this data in order to help shape a tourismpolicy and investment plan for the next 5 years.

The most damning statistic based on current criteria is the average visitor spend. Why benchmark Gibraltar’s success in tourism by therise in overland visitors when everybody knows that at least 70% of them are using Gibraltar as a petrol station or a place to buy cigarettes? How does that impact on our roads and infrastructure? - athorn in Gibraltarian’s everyday life. Ever heard of quality not quantity? This is fundamental to our vision of a new product.

Granted the Government is currently spending unprecedented sumson the airport and related works. The timing might be unfortunategiven the current economic downturn but such infrastructureimprovements are necessary. Nevertheless, a much lesser amountcould make some stunning and long overdue improvements to thetourist product, particularly on the Upper Rock. And as each year passes the state of dereliction worsens.

As we noted last year, if the Government has the vision to spend£12m of taxpayer’s money building a modern leisure centre for thelocal population then surely with a little imagination and a similar sumsome fantastic improvements could be made to refurbish many of thederelict sites on the Upper Rock. Gibraltar’s heritage and its touristsites belong to the people of Gibraltar and the Government shoulduse taxpayer’s money to ensure that these state assets are maximisedfor the benefit of all its citizens.

Our other prized asset, our shoreline, is another example of poorinnovation and investment. Given our size, why can’t Gibraltar havesome of the nicest beaches in the area? This is a low cost developmentin relation to other big spending projects Government seem keen toinvest in. Why can’t we replicate beaches and facilities such as that inTorreguadiaro or Estepona?

Update the Tourist ProductThe staple Rock Tour is tired and offers in reality quite a limited experience for the tourist. Also the price of these Rock Tours for thetourist crossing the land frontier is expensive even with a strongereuro. A growing trend over the years has been by Spanish tour operators who organise group tours from along the coast charging apremium to their customers on the one hand, but secure discountsfrom Gibraltar tour operators on the other. The real winner here isthe Spanish tour operator who brings them into Gibraltar. We needto regain more control of the Gibraltar tourist product and keep themoney spent in Gibraltar.

Specialist SectorsWe repeat what we stated in our last Annual Report in that our realgrowth potential lies in specialist sectors.

The Weddings market has been very successful and local hotels have beeninstrumental in developing this valuable market segment. The increase inthe number of Registrars is a welcome development as is the expansionin the number of locations where ceremonies can be conducted.

Other niches continue to develop albeit from small bases: Ornithologytours, botanical tours, natural history and military heritage tours are allniches which Gibraltar could develop and serve well.

Then there is the whole sporting-related area. Over the last few yearsGibraltar has hosted very successful dog shows, chess and darts tourna-ments among several other well-attended competitions. These eventsgive a very worthwhile boost to local business as the participants spendmoney in local hotels, bars and restaurants and additional visitors aredrawn to the Rock to attend these events.The hosting of some eventsduring the quieter winter months also boosts hotel room occupancy.

It is premature to be looking at the developing the conference andseminar niche over and above what Gibraltar already caters for.However, once the airport developments are complete new hotelsmay be attracted to set up on the Rock. In time, a purpose-built conference and exhibition centre would be something to aim for.Only then could Gibraltar target this market more actively.

ConclusionThe tourism sector carries the greatest growth potential given theopportunity for job creation and significant wealth generation both toGovernment and to local private enterprise.

To achieve success in the various niche markets, however, the productand infrastructure require major investment followed by a structuredmarketing and promotion plan.The Government would also need toprovide incentives to encourage private sector investment into acoherent and long term strategy. Central to all of this will howeveragain need to be a commitment to “liberalise” the transport systemservicing the industry. Only through long term plans can the businesssector be expected to invest capital and innovation.

We call on the Government to come clean on Tourism and acknowledge its value through a real commitment to a medium tolong term strategy in partnership with key stakeholders. A coherentinvestment programme involving public and private sector funding canthen be developed which will benefit a significant number of local businesses on the Rock as well as the Government purse.

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THIRTY THREE

Report of the AuditorsTo the members of the Gibraltar Chamber Of Commerce.We have audited the financial statements on pages 32 to 41,which have been prepared under the historical cost conventionand on the basis of the accounting policies set out on page 37.

Respective responsibilities of the Honourarytreasurer, directors and auditorsIt is the responsibility of the Honourary treasurer to prepare financial statements for each financial year which give a true and fairview of the state of affairs of the Chamber and of the surplus ordeficit of the Chamber for that year. In preparing those financialstatements the Honourary treasurer is required to:

• Select suitable accounting policies and then apply them consistently;

• Make judgements and estimates that are reasonable and prudent;

• Prepare the accounts on the going concern basis unless it isinappropriate to presume that the Chamber will continue in operation.

The Honourary treasurer is responsible for keeping proper accounting records, which disclose with reasonable accuracy at any time the financial position of the Chamber. The directors arealso responsible for controlling the funds of the Chamber andhence for taking reasonable steps for the prevention and detectionof fraud and other irregularities.

Basis of opinionWe conducted our audit in accordance with International AuditStandards. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financialstatements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements and of whether theaccounting policies are appropriate to the Chamber’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary inorder to provide us with sufficient evidence to give reasonableassurance that the financial statements are free from material misstatements, whether caused by fraud or other irregularity orerror. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.

OpinionIn our opinion the financial statements give a true and fair view ofthe state of affairs of the Chamber at 31 December 2009 and ofits deficit for the year then ended, according to the best of ourinformation and the explanations given to us and as shown by thebooks of the Chamber.

BAKER TILLY (GIBRALTAR) LIMITEDChartered AccountantsHonourary Auditors

Date: 26th March 2010.

Financial HighlightsAnnual turnover up at £87,038(2008: £94,163)

Cash balance at year end £51,568(2008: £65,216)

THIRTY TWO

THE GIBRALTAR CHAMBER OF COMMERCEBALANCE SHEETat 31 December 2009

2009 2008

Notes £ £

TANGIBLE FIXED ASSETS 3 10,573 10,360

CURRENT ASSETS

Stocks 4 552 552

Debtors 5 13,640 21,083

Cash at bank and in hand 6 51,568 65,216

65,760 86,851

CREDITORS: amounts falling due within one year 7 (11,474) (16,796)

NET CURRENT ASSETS 54,286 70,055

TOTAL ASSETS LESS CURRENT LIABILITIES 64,859 80,415

ACCUMULATED FUND 8 64,859 80,415

Approved by the board on 26th March 2009.

G A Olivera

Honourary Treasurer

THE GIBRALTAR CHAMBER OF COMMERCEINCOME & EXPENDITURE ACCOUNTfor the year ended 31 December 2009

2009 2008

INCOME Notes £ £

Subscriptions 48,455 46,725

Deposit interest 107 1,389

Other income 1 38,476 46,049

Total income 87,038 94,163

EXPENDITURE

Staff remuneration and social insurance 39,537 37,001

Office rent 6,408 6,408

Rates, electricity and water 1,309 1,034

General administration 2 45,159 37,617

Bad debt written off 4,616 2,610

Depreciation 3 5,565 5,534

Total expenditure 102,594 90,204

(DEFICIT)/SURPLUS FOR THE YEAR 8 (15,556) 3,959

There are no recognised gains or losses other than those shown above.

THIRTY FIVETHIRTY FOUR

THE GIBRALTAR CHAMBER OF COMMERCEPRINCIPAL ACCOUNTING POLICIES

BASIS OF ACCOUNTING

The financial statements have been prepared under the historical cost convention and in accordance with Gibraltar Accounting Standards.

DEPRECIATION

Fixed assets are depreciated over their expected useful lives as follows:

Furniture and fittings 15% on cost

Office equipment 15% on reducing balance

Computer equipment 25% on reducing balance

Air conditioning units 20% on cost

Leasehold improvements Over 9 years

STOCKS

Stocks are valued at the lower of cost or net realisable value.

FOREIGN CURRENCIES

Transactions denominated in foreign currencies are recorded at the rates of exchange ruling at the dates of the transactions.

THE GIBRALTAR CHAMBER OF COMMERCECASH FLOW STATEMENTfor the year ended 31 December 2009

2009 2008

Notes £ £

NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES 9 (7,977) 12,752

RETURNS ON INVESTMENTS AND SERVICING OF FINANCE

Interest on deposit account 107 1,389

CAPITAL EXPENDITURE

Payment to acquire tangible fixed assets (5,778) (1,979)

(DECREASE)/INCREASE IN CASH 6 (13,648) 12,162

THIRTY SEVENTHIRTY SIX

THE GIBRALTAR CHAMBER OF COMMERCENOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2009

3. FIXED ASSETS

Leasehold Furniture Office Air Computer Totalimprovements and fittings equipment conditioning equipment

£ £ £ £ £ £

Cost

As at 1 January 2009 35,515 9,748 22,481 6,527 9,349 83,620

Additions during the year 240 2,024 1,227 2,120 167 5,778

As at 31st December 2009 35,755 11,772 23,708 8,647 9,516 89,398

Depreciation

As at 1 January 2009 32,226 8,766 18,686 6,527 7,055 73,260

Charge for the year 3,315 458 753 424 615 5,565

As at 31st December 2009 35,541 9,224 19,439 6,951 7,670 78,825

Net book value

As at 31st December 2009 214 2,548 4,269 1,696 1,846 10,573

Net book value

As at 31st December 2008 3,289 982 3,795 - 2,294 10,360

THE GIBRALTAR CHAMBER OF COMMERCENOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2009

2009 2008

1. OTHER INCOME £ £

ATA Carnets 1,318 1,180

Fees for certificates of origin and invoices 16,252 19,037

Surplus on:

- Business centre 7,210 9,315

- Chamber dinners 4,885 4,684

- Publications 7,624 9,430

- Other sales and services 1,187 2,403

38,476 46,049

2009 2008

2. GENERAL ADMINISTRATION EXPENSES £ £

Advertising 5,699 3,435

Telephone 3,503 2,795

Printing, postage and stationery 4,533 4,842

Miscellaneous expenses 234 664

Insurance 381 378

Entertaining 5,611 4,379

Office cleaning 2,068 1,828

Repairs and maintenance 2,094 1,698

Training 3,454 3,295

Subscriptions 974 603

Accountancy fees 1,000 1,250

Reports and Surveys 15,608 12,450

45,159 37,617

THIRTY NINETHIRTY EIGHT

THE GIBRALTAR CHAMBER OF COMMERCENOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2009

8.ACCUMULATED FUND 2009 2008

£ £

Balance at 1 January 80,415 76,456

(Deficit)/Surplus for the year (15,556) 3,959

Balance at 31 December 64,859 80,415

9. NOTES TO THE STATEMENT OF CASH FLOWS

Reconciliation of results for the year to net cash flow from operating activities

2009 2008

£ £

(Deficit)/Surplus for the year (15,556) 3,959

Interest on deposit account (107) (1,389)

(15,663) 2,570

Depreciation 5,565 5,534

Decrease/(increase) in debtors 7,443 (6,361)

Decrease in creditors (5,322) 11,009

Net cash (outflow)/inflow from operating activities (7,977) 12,752

10. OTHER FINANCIAL COMMITMENTS

Operating leases on land and buildings which expire:

£

Over five years 6,408

THE GIBRALTAR CHAMBER OF COMMERCENOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2009

4. STOCKS 2009 2008

Stocks at the year end comprised of the following: £ £

Commemorative books, booklets and First Day Covers 252 252

Ties and shields 300 300

552 552

5. DEBTORS 2009 2008

£ £

Subscriptions 3,865 6,551

Other debtors 8,837 14,280

Prepayments and accrued income 938 252

13,640 21,083

6. CASH AT BANK AND IN HAND 2009 2008

£ £

At 1 January 65,216 53,054

Net cash (outflow)/inflow (13,648) 12,162

At 31 December 51,568 65,216

7. CREDITORS: amounts falling due within on year 2009 2008

£ £

Creditors and accruals 10,574 12,994

PAYE and Social Security 900 3,802

11,474 16,796

FORTY ONEFORTY

FORTY TWO

Gibraltar: Key Information(All figures relate to 2009 unless otherwise stated)

Population:

Total land area:

Natural resources:

Head of State:

Chief Minister:

Legislature:

Languages:

Business hours:

28,779

6.5 sq km

None

HM Queen Elizabeth II

Hon Peter Caruana QC, MP

Parliament (no upper house)

English & Spanish

9am - 5pm Monday to Friday

Inflation rate:

Minimum wage:

Average earnings:

Registered employed:

Registered unemployed:

Imports:

3.4% per annum

£5.00 per hour (£195 per week)

£22,266 (2008)

20,509

2.5%

UK: 60%, Spain: 30%, Other EU: 10%

AIRLINES & HOTELS:www.ba.comwww.flymonarch.comwww.easyjet.comwww.andalus.eswww.caletahotel.comwww.rockhotelgibraltar.comwww.ocallaghanhotels.com/eliott

Corporation Tax Tax PayableResident Companies 22%Small companies rate (Profits of less than £35,000 pa) 20%

Personal Income Tax Tax Payable£0 - £4000 Annual gross income 17%£4001 - £16,000 Annual gross income 30%Over £16,000 Annual gross income 40%

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

Special Status personal tax rates Tax PayableQualifying individuals who are non-resident and derive no 2% of worldwide income subjectincome from Gibraltar other than from an exempt company to a maximum tax payable ofcan apply for Category II resident status. £20,000 per annum.

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

0

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18000

20000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Employment Growth 1997 - 2008

2007 2008

Females Males

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1997/8 1998/9 1999/00 2000/01 2001/2 2002/3 2003/4 2004/5 2005/6 2006/7

GDP Growth 1997 - 2009 (£m)

2007/8 2008/9

£m

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