Economy and Trade
Strategically located on the Strait of Gibraltar linking the Mediterranean Sea and the North Atlantic Ocean, Gibraltar was only ceded to Great Britain with extreme reluctance by Spain in the 1713 Treaty of Utrecht. The British garrison on the Rock was formally declared a colony in 1830. The economy of Gibraltar was adversely affected in the period from 1969 to 2006, the former date being when Spain closed its border to Gibraltar, the latter when the border was opened after the signing of the Tripartite agreement between Spain, the United Kingdom, and Gibraltar. The majority of Gibraltar’s citizens voted overwhelmingly against any sharing of sovereignty with Spain in 2002. Following the signing in 2006, Spain agreed to remove restrictions on air movements, to speed up customs procedures, to implement international telephone dialing, and to allow mobile roaming agreements. Britain agreed to pay increased pensions to Spaniards who had been employed in Gibraltar before the border closed. Gibraltar has no natural resources and no arable land, and is just 6.5 square kilometers in size.
Economic Policy over 12 Months
Gibraltar benefits from an extensive shipping trade, and from a well-developed offshore banking sector. It has also built up a reputation as an international conference center. The British military presence has been sharply reduced, and now contributes about 7% to the local economy, compared with 60% in 1984. The financial sector, tourism, shipping services fees, and duties on consumer goods also generate revenue. The financial sector, the shipping sector, and tourism each contribute some 25–30% of GDP. Telecommunications accounts for another 10%. In recent years, Gibraltar has seen major structural change from a public to a private-sector economy, but changes in government spending still have a major impact on the level of employment.
Gibraltar’s economy grew at a rate of 12.7% in 2006–2007 (source: Gibraltar Budget). Gibraltar has received substantial assistance from the EU Secretariat. Some 191 separate projects were co-funded by the European Union in the period 2000–2006, and a new round of EU funding for the period 2007–2013 began on July 1, 2008. By far the largest number of these projects involved helping small-to-medium-size enterprises on Gibraltar start up, or expand business activities. One of the flagship projects for the government is the new air terminal building, which is expected to be operational by early 2010. Gibraltar is also upgrading the frontier access road and the tunnel, both of which will have a beneficial impact on tourism once the global economic downturn eases.
According to Gibraltar’s 2009 Budget, public debt has stayed static at £93 million, amounting to less than 12% of GDP. This compares extremely well to the United Kingdom’s debt of 40% of GDP in 2008, and the EU’s convergence maximum of 60%. The government has said that it intends to take advantage of this low debt level to part-finance its extensive capital investment program for the next few years, although total debt raised will still be within prudent levels.
The government closed 2007 with a budget surplus of £15.1 million, which was broadly in line with the surplus it had predicted in last year’s budget, although both spending and income levels were above those predicted. It also plans to use part of the surplus generated from the strong economic showing since 2006 to improve and expand public services, especially healthcare and care for the elderly. Accordingly, it increased the health budget by 8% for 2008–2009, and elderly care expenditure by the same amount.
Economic Performance over 12 Months
The Gibraltar government began the 2008 fiscal year, which ends on 31 March 2009, with a good position carried forward from 2007. Overall revenue increased by £19.5 million, from £261.2 million in 2006–2007 to 280.7 million in 2007–2008. This represents a rise of 7.5%, derived mainly from higher income-tax receipts produced from higher employment levels (despite last year’s budget tax cuts), and also from higher import-duty receipts.
2007 was another good year for tourism in Gibraltar, with the number of visitors reaching almost 9.5 million (source: Gibraltar budget, June 2008). This was an increase of 15.2% on 2006. The figure slightly overstates the tourist element, in that it also includes what Gibraltar calls “frontier workers” domiciled in Spain and crossing to the Rock to work. With these persons stripped out, some 8 million visitors travelled to Gibraltar in 2007 via the land frontier with Spain. This was despite a downturn in the Spanish package tourist market. Tourist arrivals by air rose 141.12% in the period between 1996 and 2007, and arrivals by sea over the same period were up 156.7%. The total expenditure by tourists in Gibraltar in 2007 amounted to £230.58 million, an increase of 9.54% on the figures for 2006. The government has an active program of encouraging more hotels to be built, to increase the number of hotel beds available.
Gibraltar also runs an improvement and development fund, which it uses to fund a number of projects designed to benefit or beautify the country, or provide amenities. It anticipates expenditure of £25 million through the I&DF fund in 2008–2009, most of which will make Gibraltar an even more appealing place for tourists to visit, and will help Gibraltar’s citizens. New roads, new affordable housing schemes, a new prison, and the new air terminal are all projects underway.
Financial services, business and real estate, and government and other services are the biggest contributors to Gibraltar’s economy, generating more jobs and more income than any other sectors. The government’s budget was predicated on 8% growth to March 2008, generating GDP of £800 million. However, by the time the budget was presented in June 2008, it was clear that actual growth was 10%. It is extremely doubtful, though, that its assumption that this level of growth would be maintained through 2009 will turn out to be correct, given the scale of the global downturn.
The official inflation rate in Gibraltar during 2007 was 2.6%. Most of the price increases come through price inflation in the United Kingdom and Spain, which together account for around 80% of Gibraltar’s non-petroleum products. The Gibraltar pound is the equivalent of the United Kingdom Pound.
Support for Inward Investment and Imports
The Gibraltar government’s InvestGibraltar office is the frontline organization, which acts as a bridge between the government and the private sector. It focuses both on helping Gibraltar businesses, including start-ups, and foreign investors.
Information can be obtained from InvestGibraltar.
GDP growth: 8% (Gibraltar Budget 2008)
GDP per capita: US$38,200 (2005)
CPI: 2.6% (2007, Gibraltar Budget 2008)
Key interest rate: N/A
Exchange rate versus dollar: GIP per US dollar—1.475 (April 2009)
Current account surplus: N/A
Source: CIA World Factbook except where stated