It is safe to say that since the 2016 “Brexit” referendum, there has been an economic uncertainty not only in the United Kingdom, but also a much less talked about economy, Gibraltar. The small overseas territory was faced with the same question that was brought to the voters in the UK. To leave the European Union or to remain, despite an overwhelming support to remain part of the Union, with just under 96% of the vote, Gibraltar will be leaving, alongside the UK. Therefore, we will be having a look at what is next for Gibraltar’s economy post-Brexit.
Brexit and Gibraltar
In order to understand what Gibraltar’s post- Brexit economy will look, we must first look at what changes it will entail. We will not be looking at a so called “soft Brexit” as it would have a relatively minimum impact. The economic uncertainty comes from a hard/no-deal Brexit, which looks more likely in the currently political climate. When it comes down to it, a hard or a no-deal Brexit essentially means that on the 31st January 2020, will have no special relationship with the EU. Any trade between the EU and Gibraltar will be treated as a third country. The loss to the EU single market could be detrimental for the finance industry of the Rock.
In addition, the border between Gibraltar and Spain will become and external border of the EU. This is not just a footnote in the negotiations with the Government of Gibraltar maintaining from the outset of the Brexit negotiations the main issue was the operation of the land border with Spain. Gibraltar is dependent on goods and labour crossing the border every day and in theory, a hard or no deal Brexit will impact the fluidity at the border.
This could have serious impact on Gibraltar as the lack of agriculture on the Rock means delays at the border when importing perishable goods. Gibraltar currently has no inspection post, meaning the closest one is at the port of Algeciras. This means that trucks carrying perishable goods may have to travel the extra miles in order to pass through there.
It is important to keep in mind that we have only barely touched upon the complexities when talking about the implications of Brexit. In addition, there are a vast number of issues that could have a direct or indirect impact on Gibraltar’s economy such as the recognition of professional qualifications, the ability to study abroad, air travel, tourism or even continued access to health services in the rest of the EU.
In order for the Government of Gibraltar to effectively come up with an economic plan, they had to predict the economic implications of leaving with a no deal. The current Government in Gibraltar is the GSLP and they have come up with a 4-year plan to restructure the economy in a case of a no deal. They have come to the assumptions that the UK and the EU will enter into a recession. This in turn will also reflect a slowdown in the global economy due to a variety of factors such as the US and China’s trade war.
In addition to the slowdown in the economic growth of the economy, the Pound to Euro exchange rate has seriously hurt Gibraltarians purchasing power when buying goods and services abroad.
According to their manifesto, Gibraltar is expecting the national income to grow by 15% over 4 years. This is a far cry from the economic growth Gibraltarians become used too, with its economy often described as running on all cylinders. Gibraltar has had a nominal GDP growth of 8% this year and has seen their GDP double since 2012 to a level of £2.5bn. Although there is an expected slowdown in growth, it is still growth nevertheless. This is important to keep in mind when we consider countries such as Germany, often referred too as the engine of Europe, escaping recession with a growth of 0.1% in the third quarter of this year.
Glimmer of Hope
While it is easy to focus on the negative aspects, as briefly touched upon in this article, it is all not doom and gloom. The Government of Gibraltar still has predicted economic growth in the coming years. So, the question becomes, how does Gibraltar intend to limit the impact of Brexit or in fact find an opportunity waiting to be taken?
The overseas territory has always had a close relationship with the United Kingdom. This relationship will be vital for the continued growth as we will discuss as we carry on through this article.
Currently, the UK has laid Statutory Instruments which preserves passporting arrangements between the UK and Gibraltar. Furthermore, it will ensure that existing regulatory treatments in relation to Gibraltar continue to function effectively in UK law after Brexit.
In addition to this, the UK has confirmed that the current access arrangements for Gibraltar financial services firms to the UK market and vis-versa will continue. All this information can be found in the Gibraltar government’s immense public information campaign, reassuring and preparing business on the future relationship with the UK in the case of a no deal Brexit.
It has been agreed between the EU and the UK, that Gibraltar will continue to take part in all EU programmes for the rest of the 2020 Multiannual Financial Framework. Furthermore, the UK Chancellor of the Exchequer has agreed that the UK will guarantee funding for specific EU projects in Gibraltar. This essentially means that Gibraltar will not be left with the bill if projects are not completed by the time, they leave the EU.
Gibraltar has also taken precautions when it comes to its financial services. Contingency plans have been drawn up in the case of a hard or no deal Brexit. The Gibraltar government intends to use its own EU Withdrawal Act in order to continue to have a functioning financial services regulatory regime in the case of a no deal.
Without elaborating too much, Gibraltar will convert into domestic law the existing body of directly applicable EU law including EU Regulations. This has been referred to as “retaining EU law”, which is intended to smooth the transition to Gibraltar’s new position outside the EU. It will also prevent any failure of EU law to operate effectively in Gibraltar.
Continuing on the point of financial services, Gibraltar prides itself on its strong legislative framework and regulator. Therefore, once Gibraltar leaves the EU, the existing framework that already provides for third country operators providing their services in Gibraltar can be relied on to ensure continued cooperation the EU financial service firms.
Furthermore, in order to limit the economic impact of a no deal Brexit, the Government will be introducing a Temporary Permission Regime. This essentially allows EEA firms to continue operating in Gibraltar for a limited-time. This will allow those firm ample time to apply for full authorisation from the GFSC. Those companies incorporated and headquartered in Gibraltar will be able to take advantage of UK-Gibraltar passporting arrangements.
So why can all this be seen as a gimmer of hope? Well essentially, Gibraltar has been hard at work making sure that the economic implications of a hard or no deal Brexit will be as minimum as possible. While the predicted economic slowdown of the economy would suggest the impact will still be felt, this will not be limited to Gibraltar.
Furthermore, Gibraltar remains attractive to companies wishing to continue to provide their services to the UK Market. Having looked at the Government of Gibraltar’s plans for a hard Brexit, it will be beneficial to look at some of the industries and how they will fair in the future.
Gibraltar is one of the largest hubs for gaming and the first country to properly open its doors to online gaming industry. As Nigel Birrel, the CEO at Lottoland says in his article the Gibraltar Business magazine, Gibraltar Licencing Authority has a robust and stringent approach to license applications. Only granting licences to “blue chip companies”, these must have a proven track record in gambling as well as good financial standing, Furthermore, the Government of Gibraltar has made its budget speech about the technology infrastructure being used to bring about a regulatory regime fit for the future.
In addition, it has been suggested that Gibraltar operators would be able to target the Asian markets which traditionally the jurisdiction has been stricter on. The Minister of Digital and Financial Services, Albert Isola has mentioned the fact that Gibraltar has issued new licences to Gambling companies and the emergence of well-invested gambling start-ups.
This seems to suggest Gibraltar continues to attract gambling companies despite the economic and political uncertainty surrounding Brexit. While it is important to note, Bet365’s decision to move majority of its operations to Malta, large companies already have licences in multiple countries. This means that firms can use one entity to have access to the single market, for example in Malta while the UK facing business will be based in Gibraltar.
The continued access to the UK market is essential to Gibraltar’s economy, as the UK market accounts for over 90% of all business conducted by Gibraltar-based companies under the EU single market rules. So, what is one of the main issues for gambling companies based in Gibraltar? Briefly touched upon earlier, free flow of labour as a large number of workers cross the border each day. While Gibraltar is not part of Schengen Area and European Customs Union, meaning there would be little difference to entering the Rock, political tensions with its neighbour could result in unnecessary delays.
Distributed Ledger Technology (DLT)
With increased capitalisation of cryptocurrencies Gibraltar has seen opportunity in the DLT industry. Gibraltar introduced regulations and implement a DLT licencing framework, these are one of the first of its kind globally, putting Gibraltar at the forefront of this emerging market. Gibraltar has been able to attract some large names, for example, Xapo. So, what does mean for Gibraltar going forward? Well as countries roll out their own regulations increasing competition, Gibraltar has placed itself strategically in the market, with other jurisdictions playing catch up.
While this is still relatively a new market, with many lessons still needed to be learnt. Gibraltar’s approach of trying to be a market leader, trying to attract the right businesses, while still regulating the market, Gibraltar will be ready to catch the upside of this growing market.
Gibraltar’s Ship Registry
The last topic we will be touching upon in this article is the ship registry. Gibraltar has historically been a maritime centre due to its strategic location. You may or may not know, Gibraltar has not only enjoyed maritime trade, but also been providing services such as bunkers and providing provisions. A key factor to the attractiveness of registering a vessel in Gibraltar is being considered part of family of British registered ships. Any ships registered in Gibraltar are British and therefore, entitled to all protections and privileges afforded to any other British registry. In addition, any ship carrying th
e Red Ensign of Gibraltar is entitled to the protection of the Royal Navy.
Gibraltar is still currently an EU member and therefore, considered an EU Member State’s Registry. Combined with the fact that Gibraltar is exempt from the VAT regime, Gibraltar has enjoyed significant growth for companies wishing to trade within the EU. It is also important to note that the attractive tax climate of Gibraltar has helped in this growth. Therefore, one may believe the departure from the EU would lead to decreased number of registered vessels.
While this may be in fact true, similar to the economic forecast, while there will not be the same growth Gibraltar has become accustomed too. However, just like the economic forecast, there will be growth nonetheless, Gibraltar still offers plenty of advantages for those wishing to register their vessels.
So, why would someone wish to register their vessel in Gibraltar without its status as an EU Flag post-Brexit? Besides the already discussed advantages of being registered as a British ship, Gibraltar’s registry is a non-profit, adding a level of credibility, an ability to set its tonnage taxes and fees at competitive as it is unconstrained by commercial imperatives normally associated with the privately-run registries. Gibraltar is on the Paris MoU White List of International Flag States.
This essentially means Gibraltarian ships are targeted less by Port State Controls which can reduce delays to a ship’s voyage that can increase costs to their operations. Furthermore, Gibraltar was never part of the EU VAT regime, therefore, still be able to navigate through EU-waters Vat free through temporary importation relief.
All in all, the impending gloom known as Brexit may appear to be an economic disaster for all those involved. However, Gibraltar, while still wishing to remain part of the EU, have shown that a competitive market is still possible and continues to attract investment and businesses despite the economic uncertainty. While it is still important to note the economic slowdown expected as a result of what seems like the inevitable break up between the UK and EU, will still be felt in the Rock’s economy.
The long ordeal will continue to bring about challenges, but more importantly, opportunity. Gibraltar has seemed to weather the storm a lot better than most. While some may argue that Brexit may still be in its initial phase and we will not know the true reaching impact till the ink is dry of the agreement. It may also be argued that precautions and steps have already been made to limit the economic fallout of Brexit. One thing can be agreed is that a lot of work is still needed, but Gibraltar is well on its way to becoming a success story.