As David and Goliath stories go, the Gibraltarian economy would definitely fall into the camp of the plucky small contender when set against the major trading nations of the world.
Yet, while larger countries all around Europe, and indeed globally, have been embracing austerity measures and struggling to achieve any significant economic traction in recent years, Gibraltar has produced four years of double digit growth, securing an ambitious five-year GDP target almost a year earlier than predicted.
So how has this relative minnow, at just 2 square miles in size, bucked the trend so it now enjoys the world’s third highest per capita income (£50,941) out of 187 jurisdictions?*
In fact its small size is perhaps Gibraltar’s biggest advantage. With a population of around 32,000, comparatively small steps forward have a significant impact on economic growth – as proven in recent years during which the economy has grown from £1.1bn in 2012 to £1.64bn in 2015.
Being small means Gibraltar can be more nimble than its larger neighbours and this has inherent advantages for commerce as the jurisdiction can adapt quickly to changing circumstances – successive governments have been decidedly pro-business and this is felt for example in the speed with which laws can be changed for the better.
Gibraltar’s status within the EU as a well-regulated, low tax regime has long been an attraction for financial services companies and more recently the jurisdiction has also been able to draw operators from the burgeoning online gaming industry: a selective approach to licensing, coupled with the significant tax and lifestyle advantages apparent to executives, has positioned the territory as an EU centre of excellence and a jurisdiction of choice for many of the biggest operators in the business.
Helped by high profile events such as KPMG’s highly successful eGaming summit which attracts over 250 industry professionals from all over the gaming world, the transition has been so successful that eGaming is now the highest contributor to the economy ahead of financial services, insurance, shipping and tourism.
As well as being hugely significant in terms of additional employment, the growth in eGaming has brought other benefits such as reinvestment in the local economy and a sense of entrepreneurialism to a reinvigorated business community: Gibraltar now enjoys virtually full employment and the economy as a whole benefits.
But it is not just its size and agility which serves Gibraltar so well – its location on the European mainland and its position as the only British Overseas Territory within the European Union offer a unique set of opportunities to businesses operating there. Not only can financial services products be passported to the EU, Gibraltar also benefits from the positives of EU membership such as free movement of workers ensuring there are no skills gaps as there are in other similar jurisdictions, all the while within a legal framework based on UK common law.
EU membership and the implementation of EU directives give Gibraltar additional credibility as a low tax jurisdiction and further reassurance to incoming businesses.
Whilst Spain still harbours historical sovereignty ambitions over the territory, in many ways that situation has helped foster the environment which has made Gibraltar so attractive for entrepreneurs and established businesses: for example governments in Gibraltar go to great lengths to ensure there is a robust and reliable infrastructure – all of the nation’s electricity supplies are generated from within its borders, for example, and undersea telecoms links (so important to the gaming sector) are available to operators to ensure uninterrupted supply. Spain’s claim also worked for the jurisdiction as it transitioned many years ago from offshore centre to a mainstream low-tax EU finance centre, ensuring as it did that Gibraltar retained focus on a culture of compliance and best practice, fully aware that anything less would have received heavy criticism and publicity on the other side of the border.
In fact, whilst the long-standing sovereignty dispute occasionally hits the news and grabs headlines, any change in the status quo seems extremely unlikely, and recently the biggest threat to Gibraltar’s continued success comes more from what is happening in the UK than its neighbours. The result of UK’s EU membership referendum planned for June 2016 will be a key factor for Gibraltar’s economy. A British departure from the EU, which would necessarily include Gibraltar, could, depending on how Gibraltar’s status within the EU were to change, significantly reduce the attraction of the jurisdiction to the financial services sector.
So whilst the chances are that Gibraltar’s 2016 budget will report back another year of phenomenal growth, there is a degree of caution. Gibraltarians, who are far more pro-EU than their UK counterparts, will be following the debate around the referendum closely and hoping the result will help and not hinder their positive growth performance.
* According to figures from the International Monetary Fund
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