Gibraltar: the Chief Minister’s story

Sponsored post: Recent border skirmishes with Spain have highlighted the tensions between the British territory’s history and geography. However, Fabian Picardo believes the place is a sound place to invest.

The Rock: a stepping stone for business.

Recent blockades on its border have thrown the news spotlight on to Gibraltar once more. The Spanish, to outsiders, seem to have an excellent argument; just look at the map and where the Rock is located – this is obviously Spanish territory. It’s an understandable point of view.

History, however, can make a mockery of common sense. If the territory is obviously a part of Spain, then Spain, as it’s part of the same land mass, is surely part of Portugal. Or the other way around. Or part of a single country called “Europe”. And how come Europe isn’t part of Asia, anyway? Countries and their boundaries have for a long time been defined by agreement and treaty following conflict, Gibraltar among them. This is why it is currently British and has been for 300 years – in other words, longer than America has been American. And the people are very pro-British – one way to ensure a population is fiercely proud of its nationality is to challenge it. If self-determinism means anything, the Rock is British.

It’s important to understand this point of view even if you don’t share it, to comprehend the backdrop against which the Hon Fabian Picardo became Chief Minister of Gibraltar in December 2011. Heading up a coalition between the Liberals and the Gibraltar Socialist Labour Party, which had been in opposition for 16 years, he has found himself in the middle of the latest in a long line of tense exchanges between Gibraltar and its immediate neighbour. Normally, however, the 30,000-strong population conducts its business as usual and connects not only with Spain and the UK, but with Africa, visible on a clear day from the top of the Rock.

For such a small place it attracts a lot of interest, the chief minister agrees. “Gibraltar represents added value as a place to do business within the European Union,” he explains. “It’s a kind of stepping stone for people who are establishing themselves within the EU from outside, and it’s a great place for headquarters if you are already within it. We apply all the standards you would expect to see within the City of London to, for example, the financial services that are provided here, and in respect of gaming we are undoubtedly the most highly regulated ju- risdiction in the world.” This might come as a surprise to people who have bought into the classic caricature of Gibraltar as some sort of tax haven. The facts are straightforward; tax is low (the jurisdiction’s Finance Centre outlines them on page 10), but regulation of certain industries and the imposition of these taxes is strict. Contrary to the beliefs of some people in the UK and elsewhere, Gibraltar doesn’t cost us anything. There are British military bases there, as there are in a number of countries, but in every other sense the Rock is financially self-sufficient.

Picardo is in no doubt that as a combination it works. “It’s why we have attracted the biggest names in online gaming. I like to describe Gibraltar as the Silicon Valley of online gaming and I believe all sectors here are striving for that same level of excellence.” By this, he explains, he means an excellent environment in which to do business, “and, to boot, in southern Europe, so better weather!”.

Gaming has certainly been an important facet of Gibraltarian business and it is instructive to consider the other industries it has brought through in its wake. “We’re seeing a software industry develop around those who are established in gaming here,” he says. The gaming companies needed website developers, then suddenly those companies found they needed apps for the various different devices on which their clients wished to play and the skills to accommodate these changes are migrating towards the Rock. “We can also see an industry building up throughout the financial services industry based around software,” he adds. “We have a critical mass of people with the software skills. Not as much as we’d like, but there is a body of people gathering around the industries that give them work.” They have skills in the new computer language, HTML5, and the move towards different devices for the end customer. “It reminds me of Silicon Valley. We may not produce a Microsoft or Apple every year but there’s always a company doing well and innovating.”

If London has its Silicon Roundabout, though, isn’t there a danger of simple band- waggoning when it comes to encouraging technology firms to set up on the Rock? Picardo acknowledges the possibility, but points to the immediate and direct consequences of what is happening in Gibraltar. “In our economy, if I were to inject an extra £1m into the health service we would all see a huge change in the health services we received. That’s the sort of immediacy there is in an economy the size of Gibraltar,” he says, and the impact of large amounts of new companies is evident very quickly in the same way. “It’s possible to see what software companies around the financial services and gaming industries are doing and how likely they are to achieve critical mass and survive in the context of how the industries they serve are doing.”

The economy was strong before remote gaming arrived, but its arrival meant the Rock had to be ready for an increase in modern business. “There has been investment in Gibraltar airport, by the previous administration and there are investments in infrastructure by the current government. These are not just in relation to broadband availability, but also in relation to power, port infrastructure – all these things are essential to run a proper diversified modern European economy,” says Picardo. Not that he feels the government should be in charge of business. “The government has a role to play in that, which we see as facilitator rather than intervenor.”

So much for the sales pitch. What can people expect from Gibraltar when they turn up with a view to setting up a business or putting an existing company on to the Rock? “We are governed by the rule of law and this is very much part of what Gibraltar represents. The British way of doing things is hugely important in a place where people want to establish themselves,” says Picardo. “In a place where there is certainty, where resolution of disputes is fair, equitable and quick – in that context, what we do from the point of view of taxation, what we do from the point of view of social insurance, it’s a good place to have large numbers of employees and to set up a corporation.” Tax competition, he says, is a good thing to offer positively.

He does not accept the commonly held view that it’s some sort of tax dodger’s haven, though. “In response to the suggestion that Gibraltar is anything but an onshore financial services centre, you just have to look at the position of the UK,” he says. “The difference between corporation tax in the UK and Gibraltar is smaller than the difference between corporation tax in the UK and Spain, or the UK and Germany.” Gibraltar is not on any reasonably established blacklist, he points out. “We are on the whitelist of the OECD, we’re on the whitelist of the IMF, we’re signatories to six information exchange agreements, we comply with European Union rules on money laundering and on directives that affect financial services.”

In addition, Gibraltar complies with all European directives and is ahead of many member states in this respect, he adds – including Spain, which allows SICAVs – investment vehicles allowing investors to pay 1 percent tax. “I think often people have to look beyond the rhetoric,” he says. It is worth noting, however, that Spain is far from the only country to allow SICAVs – the term itself is French, short for société d'investissement à capital variable, they also operate in Luxembourg, Switzerland, Italy, Belgium, Malta, France and the Czech Republic and there are restrictions. So, people wanting simply to avoid tax should also avoid Gibraltar? “Gibraltar is completely opposed to tax evasion and any mechanism somebody may want to put in place to facilitate it,” says Picardo. “You would find it very difficult to find people who were in Gibraltar to evade tax.”

As laid out clearly many times, the Gibraltarians feel very strongly about their right to be British. Nonetheless, one can’t help wonder whether “British” is really such a badge of quality for investors from elsewhere. “The kitemark of the UK rule of law is so attractive,” argues Picardo. “It’s well known that people have come to London to sue in defamation actions, and in commercial actions.” This is not because the laws are skewed in favour of the claimants, he believes, but because there is a recognition that the UK’s justice system is very good indeed.

This has been replicated by Gibraltar for a number of years. People who have done business in other areas may find, he says, that foreign systems are less familiar and take longer in dispute resolutions, shareholder disputes and so forth. “We do that very well in Gibraltar. We do ship arrest very well because of our location and because we can apply the English rules for the arrest of ships subject to the modifications necessary for Gibraltar’s circumstances.” Replicate that rigour across the sectors and Gibraltar is well known for its even-handedness.

Unless you’re just across the border in Spain. It is indeed the case that many Spanish people commute to Gibraltar every day; there is little or no issue on a personal level. In terms of leadership, recent times have seen the Spanish authorities complain to the UN about British dominion over Gibraltar and, of course, the blockade. What would the chief minister say about setting up in a territory in which, realistically, this issue is going to flare up every few years? “It depends on which sector you’re in,” he says. “If you were thinking of opening up a small shop in our main street that depends on people crossing the frontier as tourists to come and shop, you might take one view.” Just about every other sector of the economy has been insulated, he says. “There has been a lot of noise from Madrid, but in terms of action there’s just been an annoyance as people wait for long periods to cross from Gibraltar into Spain and vice versa.”

It would have more of an effect on people wanting to live in one territory and work on the other, he suggests, but even they aren’t suffering unduly. “In fact, most people who live in Spain and work in Gibraltar have known this can be an issue, so people tend to park their cars in Spain and walk to work in Gibraltar.” Given the size of the Rock, this is achievable for most people. It's an annoyance, he says, because life should be easier.

Day to day, the Rock is up for business as usual and Picardo is considering which industries are likely to be successful in the future as well as in the present. There is a thriving retail sector on the main street and he believes this will soon be backed by a substantial online e-commerce market. “That is already developing very nicely. It uses the internet as a portal for the sale – we’re looking at sale of actual goods from Gibraltar either to countries outside the EU or into the EU,” he says – and the point of entry will be where the VAT is paid. This could play well for the customer, who gets a lower price; but didn’t some e-commerce companies in the UK get a rough press for registering in different places, such as Jersey, to avoid tax? “That is really down to the operator. If the operator wants to have a successful business model, then it needs to do it in a way that is fully compliant with all of the jurisdictions to which it wants to retail,” he says. “The lessons of the Jersey experience have been learned by those people wanting to operate this kind of business.”

The other major industry on which the territory is dependent is tourism. Rather than simply get tourists along to see the apes – which are great fun if you want a sandwich or something stolen – the government has started a programme of events throughout the year to attract different audiences. Ideally, they will be good for people who live on the Rock as well as visitors. The best example to date has been the Tradewise Gibraltar Chess Tournament organised by Brian Callaghan. This is now ten years old and has been recognised in the press, including the Telegraph, as the biggest in the world. “What happens is that hotels are now full in January, when people would not traditionally have come to Gibraltar,” says Picardo.

The government now plans to develop niche tourism to fuel the other fallow months of the year. A jazz festival is happening this month, headlined by Jools Holland. A literary festival is also planned. Hopefully, tourists will now begin staying for more than a day. “It is absolutely true that you could have done Gibraltar in a day,” Picardo believes. “The challenge to us has been to add touristic strings to the bow, and that is what I believe you will start to see very shortly.” The events will help; going to a jazz festival on one day and seeing the rest of the Rock on another, for example, will fuel businesses. The government doesn’t see it as its job to come up with ideas for these events, but will facilitate them.

There is also more to the territory itself than a Rock and some macaques (although nobody should miss these). The proximity to and shared history with Africa as well as Europe has influenced the culture; there is a distinct gastronomy and much else. “I love Gibraltar’s beaches,” comments Picardo. “I’d like to spend as much of the 90-120 days of sunshine we can enjoy at full-on summer heat level for as long as I could, not just for a day.”

He may be in the wrong job for spending time on the beach just at the moment. Meetings with people like the Prime Minister and Foreign Secretary are reminders of the tensions in the background. There are, though, major areas in which Gibraltar is doing well. The economy has stood up to the financial crisis. Banks represented there have not been lending any more than any banks elsewhere and this has held up growth, but it has slowed rather than stopped. In 2013, the government reported growth of 7 per cent, and Picardo’s manifesto in 2011 said Gibraltar would have a GDP of £1.65bn by the time of the next general election. “It doesn’t sound like much in global terms, but if you consider that we were at £1.1bn when we drafted our manifesto that’s important growth.” In terms of the budget, there has been a surplus during every year in which the rest of the world has been in crisis. The most recent was £37m, the highest in Gibraltar’s history.

Picardo is very confident of his territory. “Gibraltar is continuing to do well. Taxes are continuing to come down, we are continuing to have record surpluses, and every year is marked by an increase in GDP growth. We are continuing in the right direction of travel.”

A gamble with phone lines

The importance of remote gaming to Gibraltar has been stated often, and indeed the New Statesmandevoted a supplement to it as a subject in its own right two weeks ago. It is worth reiterating how it came to be such a key industry. “The first remote gaming licence granted, in the days before the word ‘online’ surfed into our lives, was for Ladbrokes for telephone betting in the 1990s,” explains Picardo. “This was followed by Victor Chandler just after the expiry of the initial period of exclusivity that the then government had given to Ladbrokes.” Telephone morphed into online betting, followed by a huge explosion in such services around the world.

It may be seen as ironic, then, that Gibraltar has one of the lowest levels of licensees in the world. “But they are the blue-chip entities in the worldwide market,” says Picardo. “Therefore the link with Gibraltar starts with the telephone and ends with some of the most resilient broadband available in the world, able to ensure the gambling industry is provided for in a way that ensures that we do business here that does business with the rest of the world.”