A deal at last

by John Isola, President of The Chamber of Commerce

As we approach the date of publication for the draft treaty text, all of Gibraltar’s business community waits to see the reality of how it will impact on their individual businesses.

A free-flowing frontier is the prize which we have all been repeatedly reassured by our political leaders is achievable and has been the principal objective of the negotiations, which have now gone on for the best part of five years. The Chamber very much welcomed the political announcement made in June as the alternative would have had a very negative impact on Gibraltar as a whole, as well as on the neighbouring Campo region.

Over and above the frontier, the detail of the treaty will bring the biggest legislative and economic changes to Gibraltar since the border fully reopened 40 years ago.

Those companies currently providing services will be relieved by the announcement as, by and large, they will be able to continue as before and may not be directly affected. However, by comparison, those companies which import physical goods will see a big jump in costs as import duty morphs into the new (higher) transaction tax.

The Government has been at pains to emphasise throughout, that since Gibraltar’s service sector has been the main driver of Gibraltar’s economic progress, every effort must be made to maintain its success. The unspoken subtext for many members is that the retail and wholesale sectors are likely to become the sacrificial lambs in the new environment.

A widely-held perspective locally is that the prosperity and wealth created in Gibraltar has been shared for many years, as witnessed by the circa 15,000 cross-frontier workers employed on the Rock. The fear is that the new transaction tax will make the sharp cost increases unsustainable for a number of Gibraltar’s retail and wholesale businesses, and these in turn employ thousands of cross-frontier workers. The old adage of “that’s just business, I suppose”, might be the reaction of many who are not directly affected. In reality, the longer-term effect could be much tougher.

The Chamber recognizes the importance of Gibraltar’s financial services and gaming sectors; with no manufacturing base, our entire economic model is service-based. However, every effort must be made to secure the future of Gibraltar’s retail and wholesale sectors. Together these two sectors employ 3,600 people or around 15 per cent of the Rock’s private sector workforce.

The salaries of workers in these sectors may not be as high as those in some areas of the professional services industry, but their contributions to social insurance and PAYE are critical sources of the government’s annual revenues and go to help pay civil service wages, pensions and the other costs of running the public sector.

The Government has run various revenue projections on how much the new transaction tax will generate, but it is keeping tight-lipped to avoid raising expectations which may turn out to be wildly different in reality. Nevertheless, the Government must stand ready to assist those sectors which will be adversely affected by the changes the treaty will bring as these local businesses make the necessary adjustments to the new trading environment.
The Chamber would like to see a proportion of the extra revenue collected from the transaction tax invested in infrastructure and other projects that will directly benefit businesses in the retail and wholesale sectors. The free-flowing frontier has the potential to attract many more visitors to Gibraltar. It is essential that these visitors experience Gibraltar at its best. It is only reasonable that every effort is made to ensure that visitors are given the best possible chance of reaching the areas of Gibraltar where retail businesses operate. The Chamber has long advocated the need for significant improvements to be made to our tourist and transport infrastructure for this to happen.

Further investment in tourist infrastructure needed
The Chamber fully acknowledges the significant and welcome progress that has been made in the last ten years or so, with the Skywalk, Windsor Bridge, St Michael’s Cave and most recently, the WWII Tunnels. The Chamber looks forward to the completion and opening of the ongoing projects of the Northern Defences and Moorish Castle. These will add greatly to Gibraltar’s tourist offering. The investment in the new cable car will also increase capacity for moving tourists to the Upper Rock in an environmentally sustainable way.
Many of these projects demonstrate what can be achieved with private capital, so that the Government can benefit from the recurrent tourism revenues each year without the need to fork out the initial capital expenditure.

Enhancing the main entry points into Gibraltar should be a priority and there needs to be further investment in the townscape as well to make Main Street and the surrounding streets a more attractive destination for locals, as well as for visitors.

The Chamber is currently discussing with the Government how best this can be done and we hope to be in a position to announce some meaningful news early in the New Year. These changes will benefit members as well as the general public.

Once the treaty is fully implemented, the benefits of a free-flowing frontier should quickly become evident. The anticipation is that there will be an increase in the number of visitors coming to Gibraltar as people realise and overcome the perception that frontier queues into and out of Gibraltar are (hopefully!) banished to history. But we must not let this increase in visitors turn an opportunity into a threat. The Government needs to address this ahead of time so that these increases in tourist numbers can be accommodated. These visitors will bring spending power which will help local businesses, create employment (with more cross frontier workers) and generate additional government revenues. This is how shared prosperity can be extended under the treaty.

Current transport arrangements are an improvement on what was available ten years ago. However, we will need a reorganisation in the provision of mass transit if we are to avoid constant gridlock that an increase in visitors will bring. This could start with a Park & Ride scheme for visitors which encourages them to leave their car in Spain and use a frontier shuttle service from La Linea into Gibraltar’s town centre. As a demonstration of its ongoing commitment to making the treaty a success, initial capital investment for this could be provided by the EU under the scope of a European Grouping of Territorial Cooperation (EGTC) grant, as has been suggested in the past by the Cross Frontier Group, in which the Chamber plays an important part.

Within Gibraltar, the changes to the Rock’s transport network need to go further. As we set out in our Tourism Manifesto a few years ago, Gibraltar needs to provide convenience and efficiency for locals and visitors alike in its transport network. The introduction of a full hop-on/hop-off bus service around Gibraltar is a must. This is pretty standard for most tourist centres around the world. There is no reason why Gibraltar cannot offer this in the future.

Similarly, there is little point in trying to attract more cruise ships to call at Gibraltar if we don’t make it easy for passengers to come into town. It is a well-known fact that more than half of the passengers that arrive on cruise ships calling at Gibraltar do not leave their ship. Surely a missed opportunity. The additional revenue generated by these passengers spending money in local shops and restaurants would more than offset the operating costs of a free shuttle service, something that the Chamber proposed some years ago.

There will be additional costs involved in bringing these changes about, but the expected additional revenues should make these investments easily affordable.

LONGER TERM VISION

This is only the first part of the promise of what the new treaty might bring.

One of the bigger but more subtle changes which the treaty offers is the prospect of building mutual trust in officialdom on both sides of the border. Apart from the brief period following the Cordoba Agreement, this has never really been possible because of the lack of sustained political engagement. Agreements and cooperation were left almost entirely to individuals and entities from within the business communities.

If trust can become sufficiently developed politically so that Gibraltar and their counterparts in the Campo region can each play to their strengths, they can then capitalise on adopting a collective regional approach to attract inward investment, infrastructure development and tourism promotion. And it would be for everyone’s benefit.

That may seem like a distant dream and there are likely to be many other hurdles to overcome along the way, but if there is a collective will, it might just become possible.

This article was first published in Gibraltar Business, the Chamber’s magazine, and is reproduced with permission.