gcoc fletcher report

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An Economic impact study and analysis of the economies of Gibraltar and the Campo de Gibraltar Commissioned by the Gibraltar Chamber of Commerce. September 2009. by Professor John Fletcher of Bournemouth University.

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The Gibraltar Chamber of Commerce Fletcher Report

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Page 1: GCoC Fletcher Report

An Economic impact study and analysis of the

economies of Gibraltar and the Campo de Gibraltar

Commissioned by the Gibraltar Chamber of Commerce.

September 2009.

by Professor John Fletcher of Bournemouth University.

Page 2: GCoC Fletcher Report

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In February 2007, the Chamber held a member’s dinner at which Sr José Maria Pons Irazábal,

Spain’s then Director General for Foreign Affairs and chief negotiator in the Tripartite Forum was

guest speaker.

In discussions during the dinner between Chamber directors, other members and guests it became

clear that the perception about the workings of Gibraltar’s economy, its key economic activities and

in particular, Gibraltar´s economic infl uence on Campo de Gibraltar - the Spanish hinterland - was

quite different from the reality. The Board was invited to educate, inform and update the perception

of the extent of Gibraltar´s economic activities so as to enhance understanding, build trust and add

momentum to the tripartite process.

This independent report, funded entirely by the Chamber, is the Chamber´s response to the challenge

laid down at that dinner. To the Board´s knowledge such an extensive study has never been

conducted previously.

There are a variety of ways in which the economies of Gibraltar and Spain interact with each other

and this study provides an analysis of each type of interaction and thereby estimates the net total

effect that the Gibraltar economy has on the economy of the Campo. The study makes use of the

Gibraltar Input-Output Model, the Spanish regional Input-Output Model, the import data provided by

the Customs Offi ce of Gibraltar, the Employment Survey data together with data gleaned from the

previous Input-Output studies and a survey undertaken of Chamber of Commerce members.

What is clear is that Gibraltar has had and continues to have a signifi cant and positive economic

impact on the Campo de Gibraltar in direct and indirect terms. But the study is noteworthy for the

signifi cant role played by the Campo region in Gibraltar´s economic development as well. Both

economies and societies would be the poorer without the other but together the strengths of both

economies have ensured that the entire Campo region has developed to a greater extent than would

otherwise have been possible.

It is the Board’s wish that this report will be read widely in Spain, the UK as well as in Gibraltar. We

believe that it serves to illustrate the interdependence of the two economies and the many resulting

business opportunities that this creates.

It is hoped by the Board and on behalf of our members in general that this cooperation will persevere

in the future so that the region as a whole will continue to develop and prosper for the benefi t of all.

Signed by

The Board of the Chamber Of Commerce

Introduction

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The Gibraltar Chamber of Commerce commissioned Professor John Fletcher of Bournemouth

University, to undertake an economic analysis of the relationships that exist between Gibraltar and

the economic area of the Campo de Gibraltar.

Professor Fletcher has undertaken economic impact studies for governments and international

agencies around the world for the past 3 decades. He has constructed economic impact models for

counties in the Caribbean, the Indian Ocean, the Mediterranean, the Far East as well as mainland

Europe and the UK. In particular he has undertaken a variety of economic impact studies for the

UK and Gibraltar Governments since 1978 and is well acquainted with all aspects of Gibraltar’s

economy. Professor Fletcher undertook the analyses in this report with Professor Adam Blake and Dr.

Yeganeh Morakabati, both of whom are staff within the International Centre for Tourism & Hospitality

Research. Adam is a renowned economist who specialises and has been responsible for leading the

development of Computable General Equilibrium Models of economies and Yeganeh is a specialist

research methodologist who has written on international trade fl ows and undertaken a variety of

research projects concerned with trade and risk.

About the Research Team

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Introduction 3

About the Research Team 4

Executive Summary 6

Types of economic interaction between Gibraltar and Spain 7

Visitors from Spain 7

Business imports directly from Spain 8

Frontier workers 10

Gibraltar residents’ expenditure in Spain 11

Expenditure by Gibraltarians with Second Homes in Spain 12

The net output effect of the Gibraltar economy on the Campo de Gibraltar 13

The secondary economic effects of Gibraltar on the economy of the Campo de Gibraltar 14

The Role of the fi nance sector 15

Asset Effects of Gibraltar on the Campo de Gibraltar Region 18

References 19

Glossary and Defi nitions 20

About the Gibraltar Chamber Of Commerce 22

Contents

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• The Gibraltar economy has a signifi cant and positive economic impact on the Campo de Gibraltar region

when considered from the point of view of net recurrent expenditure.

• In 2007 Gibraltar businesses imported more than £174m of goods and services from Spain (excluding

petroleum imports).

• Spanish frontier workers earned almost £43m in 2007 and this money was repatriated and spent in the

Campo de Gibraltar region to generate further rounds of economic activity.

• Other frontier workers (excluding Spanish and Gibraltarian) earned £82.8m from within the economy

of Gibraltar.

• The number of jobs supported by the Gibraltar economy (within Gibraltar) is equivalent to 18% of the

total 102,468 jobs recorded in the Campo de Gibraltar region in 2007.

• Residents of Gibraltar spent almost £30m on shopping, food and other goods and services, in Spain,

during 2007.

• Gibraltarians with second homes in the Campo de Gibraltar spent more than £33.5m in the Spanish

economy during 2007.

• Gibraltar’s economy increased the level of output in the Campo de Gibraltar in 2007 by £301.745m. Total

visitor spending in Gibraltar in 2007 was £230.6m of which £176m was by visitors across the land frontier.

Of this £176m land frontier visitor expenditure, some £112.4m was attributable to Campo de Gibraltar

residents and a further £21.27m is assumed to be displacement from the Spanish economy, leaving a

total net direct output effect of £168m from recurrent spending (£302m-£134m).

• In 2007 the £302m direct output effect of the Gibraltar economy on the Campo de Gibraltar economy was

responsible for a direct increase in Gross Domestic Product (GDP) within the Campo de Gibraltar region

of £195m.

• Using the Andalucía Regional Input-Output model to estimate the secondary effects of the two economies’

interaction, the Gibraltar economy was responsible for a further increase in GDP in the Campo de Gibraltar

region of £125m, resulting in a total increase in GDP of just over £420m.

• The Gibraltar economy was responsible for approximately 12.2% of the total GDP in the Campo de Gibraltar

in 2007.

• In terms of a further wealth effect created by the Gibraltar economy, the evidence would seem to suggest

that property values within the Campo de Gibraltar region have increased by up to 40% because of the

proximity to Gibraltar. With just over 86,000 households in the region and using a conservative property

value (at 2007 prices) this could account for an increase in Campo de Gibraltar asset values of somewhere

between £1.4 to £5.4 billion. The reason for such large variation is explained partly through the lack of data

that are available without undertaking a detailed survey and partly because of the volatility experienced

by the Spanish housing market over the past year, where property prices, particularly in some areas, have

fallen dramatically. In part this fall in property prices is explained by the general economic downturn being

experienced by the global economy and in part by the effect of the falling £ with respect to the value of the

euro which will have put further downward pressure on property prices in the region.

• Gibraltar also imported approximately 1.5m tonnes of petroleum products from the Campo de Gibraltar

region for bunkering during 2007 and the value of this has not been included in the analyses. If the value

of this fuel is included as an import from the Campo de Gibraltar it adds almost another £300m to the

impact of Gibraltar on the region. [using Meyrick and Associates of fuel bunker prices for this period and

a £ to US$ exchange rate of 0.5049 being the mid-point in 2007].

Executive Summary

Page 7: GCoC Fletcher Report

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The economies of Gibraltar and Spain are connected not only geographically but also as a result of

various transactions that take place between companies and individuals that are based in the two

economies. Economic fl ows go both ways. For example, visitors to Gibraltar from Spain spend money

in Gibraltar’s retail and service sectors and similarly, Gibraltar residents spend money in Spain’s retail

and service sectors. Furthermore, Spanish frontier workers cross the border each day and earn

income from their employment in the Gibraltar economy; some Gibraltar citizens reside in Spain and

hence spend a signifi cant proportion of the income that they earn from within the Gibraltar economy

in Spain. From a commercial perspective, Gibraltar companies purchase goods and services from

their Spanish counterparts and vice versa. The purpose of this study is to analyse the magnitude and

nature of these fl ows to determine the net recurrent effect.

There is also a capital effect that occurs if the value of housing within the two economies is infl uenced

by the proximity of the two geographical areas. If property prices in either Gibraltar or Spain are

enhanced as a result of the two economies’ interaction then this provides a wealth element to

residents that can signifi cantly infl uence their economic well-being and spending habits.

Visitors from Spain

Visitor expenditure is a strong and signifi cant element of the national economy of Gibraltar. There

was strong growth in the number of arrivals and their expenditure in 2007 compared with 2006 and

the overall growth rate for that 12 month period was 15.2% with the number of visitors crossing the

land frontier increasing by 14.9% (visitors by sea increased 29.8% and by air 10.9%). The level of

tourist expenditure also increased from £167.15m in 2006 to £176.41m in 2007. The breakdown of

total visitor expenditure by type of visitor in 2007 is shown in Table 1:

Table 1: All Visitor Expenditure by Type of Visitor, Gibraltar, 2007

Visitor Type Expenditure £000’s

Staying Visitors (hotels) 26,876

Excursionists (cruise ships) 10,744

Visitors (yachts) 680

Visitors in Supplementary Accommodation 14,854

In-Transit Visitors 1,017

Excursionists from Spain 176,405

Total 230,576

Source: Derived from Gibraltar Tourist Survey, 2007

The importance of visitors from Spain is clearly evident from Table 1 where more than 76% of all visitor

expenditure was made by visitors who came across the Spanish frontier. It is estimated that 62%

of excursionists by land were Spanish nationals and a primary purpose of their visit was shopping.

Therefore it would not be unreasonable to assume that the total visitor expenditure in Gibraltar by those

Spanish nationals crossing the land frontier in 2007 was £109.374m. In addition to the land visitors from

Spain, there were also 8% visitors arriving by air that were of Spanish nationality, which in 2007, would

add another £3.05m to the total Spanish visitor expenditure. Thus, Spanish visitors by land and air are

associated with a total expenditure of £112.424m. Finally, as far as visitor expenditure in Gibraltar is

concerned, an estimated 1% of cruise ship visitors were of Spanish nationality, although they are unlikely

to be residents of the Campo de Gibraltar, resulting in a grand total spend of £112.531m. In the case

of the land frontier and air terminal visitors there is a likelihood that they are Campo residents and their

Types of economic interaction between Gibraltar and Spain

Page 8: GCoC Fletcher Report

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spending should be included in this analysis. However, the cruise ship visitors may not have all originated

from the Campo de Gibraltar although, of course, some may have done so. This is a relatively small

proportion of the total expenditure (less than 1%) and can be removed from the calculations without

signifi cantly affecting the end result. Therefore, removing the cruise ship visitor spending from the total

visitor spending, results in a value of £112.424m.

Table 2: Spanish Visitor Expenditure within Gibraltar, 2007

Visitor Type Expenditure £000’s

Land Visitors 109,374

Air Visitors 3,050

Sea Visitors 0

Total 112,424

Furthermore, there is the issue of the remaining £63.981m visitor expenditure that is attributable to

visitors crossing the land frontier (£176.405m-£112.424m). It could be argued that this expenditure

would not take place if Gibraltar did not have a common border with Spain, therefore in the absence

of Gibraltar, this expenditure would have taken place in Spain and should be included as part of the

benefi ts to Gibraltar. However, given the nature of the expenditure of these non-Spanish visitors, it

could be argued that in the absence of Gibraltar this money would have not been spent in Spain but

may have been spent elsewhere in Europe at another tourism destination, therefore it should not be

included in the calculations. In order to make acknowledgement of this expenditure, the researchers

have made the assumption that, in the absence of Gibraltar, one third of the £63.981m would have

been spent within the Spanish economy and that the remainder would either not have been spent or

be spent outside the Spanish economy. Thus, the amount of expenditure within Gibraltar attributed

to Spain can be increased by £21.327m making £133.751m in total.

Business Imports Directly from Spain

Businesses in Gibraltar clearly rely upon signifi cant levels of imports in order to produce their output.

Some of these imports come through the wholesaler/importer sector and others are purchased

directly by businesses from Spanish suppliers. Using data from the Gibraltar Input-Output business

expenditure survey, statistics taken from the Gibraltar Statistics Offi ce database and the information

provided by Chamber of Commerce members in response to an online and paper expenditure survey

the following picture of Spanish imports emerges.

Table 3: Business Imports of Goods and Services from Spain, 2007

Business Imports £’s

Goods 149,846,468

Services 24,396,664

Total 174,243,132

Table 3 shows that, during the 2007 period, Gibraltar businesses imported just over £174m of goods

and services from the Spanish economy. Table 3 also shows the distribution of those imports by

goods and services.

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To validate the pattern of expenditure derived from the Gibraltar Input-Output Model, the Chamber of

Commerce Survey and data from the Government Statistics Offi ce, the pattern of distribution of imports

from businesses within Gibraltar was compared with the pattern of goods and services exported from

Andalucía, according to the Andalucía Regional Input-Output Model. This comparison is shown in

Figure 1 and it can be observed that there is a strong similarity between the two distributions.

Figure 1: Patterns of All Exports and Gibraltar Imports, Andalucía, 2007

Gibraltar All Andalucian exports

Type of Goods / Service

Fo

od

Bevera

ges

Raw

Mate

rials

Man

ufa

ctu

red

Go

od

s

Oth

er

Go

od

s

Ad

v &

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Insu

ran

ce

Tra

nsp

ort

Tele

co

mm

Oth

er

Serv

ices

Go

vern

men

t

% of total45

40

35

30

25

20

15

10

5

0

Therefore the direct output effect of Gibraltar business imports from Spain is £174.243m and this is

associated with a direct GDP effect of £69.369m to the Spanish economy.

It is diffi cult to establish exactly where in Spain the imported goods and services that arrive in

Gibraltar originate. For the purpose of this study it has been assumed that the purchases for goods

and services by Gibraltar-based companies from Spanish suppliers were made through agents/

exporters based within the Campo Region. These imports were then run through the Andalucía

input-output model so that not only the direct and secondary effects of the imports were taken into

account, but also the leakages that arise because it is likely that a large proportion of the goods and

services that were imported into Gibraltar would have been produced outside the region of Andalucía

(from elsewhere in Spain). This leakage out of the Campo de Gibraltar has been taken into account

when making these calculations.

It should further be noted that there is also an issue with respect to the petroleum products imported

from Spain as they are not included in the above analysis. This includes not only the petroleum

products delivered into Gibraltar across the frontier to meet the demands of the service stations,

but also the petroleum products imported by Gibraltar’s bunkering sector where around 35% of

the total (4.3m tonnes) purchases would have originated in the Campo de Gibraltar (1.5m tonnes).

Page 10: GCoC Fletcher Report

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If these fi gures were included into the foreign trade calculations being made within this report they

would have dramatically increased the net wealth effect that the Gibraltar economy has on that of

the Campo de Gibraltar.

Taking the current bunker main fuel price of US$445 per tonne based on the price of IFO380cSt for 2007

and using a conversion rate of £1 = 0.5049US$ this results in an import from the Campo de Gibraltar of

almost £300m for the year.

Frontier Workers

There were 2,749 frontier workers of Spanish nationality in October 2007 and this fi gure is made

up from 2,344 full-time workers and 404 part time workers. Assuming that a part-time worker is

equivalent to 0.5 full-time the number of full-time equivalent (FTEs) frontier workers of Spanish

nationality comes to 2,546 (Gibraltar Employment Survey, October 2007) and these workers were

associated with a total earnings in 2007 of £42.968m. The distribution of frontier workers by sector

is shown below in Table 4.

Table 4: Spanish Frontier Workers & Earnings, 2007

Spanish Income Earned in Gibraltar

Sector £’s FTEs

Construction 11,864,433 671.0

Distribution 8,181,376 605.0

Education 114,539 1.5

Electricity & Water 328,392 6.0

Finance 1,713,892 63.5

Health & Soc Services 3,260,895 168.5

Hotels & Rest 3,704,725 312.5

Manufacturing 943,337 64.5

Other Services 3,504,260 193.5

Public Administration 31,080 1.5

Real Estate & Bus Services 4,509,331 273.0

Shipbuilding 1,820,861 48.5

Transport & Communications 2,990,871 137.0

Total 42,967,992 2,546.0

Table 4 shows that the largest single sector that supports the Spanish frontier worker is that of

construction (£11.864m) followed by distributive trade at £8.18m. These two sectors alone account

for Spanish earnings of more than £20m and 1,276 FTEs (50% of the total). These workers are likely

to take the vast majority of their earnings back to be spent in the Spanish economy, adding further

to Gibraltar’s economic impact on the Campo de Gibraltar region.

In the absence of any further information regarding how this £42.968m was spent within the Spanish

economy, the calculations used in this report have assumed that there is no signifi cant difference

between the spending patterns of frontier workers and those ordinarily based in and working in the

Andalucía economy. Assuming that Spanish workers who cross the frontier each day to work in

Gibraltar exhibit the same pattern of household spending as the average household spending for the

Spanish region the pattern of Spanish frontier worker’s spending within the economy of Andalucía

is shown in Table 5.

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Table 5: Pattern of Spending by Spanish Frontier Workers in the Economy of Andalucía

Spanish Frontier Workers’ Expenditure in Spain £’s

Distributive Trade, Restaurants, Housing Services, etc. 24,660,661

Raw Materials 12,860

Manufacturing 625,514

Other Goods 332,239

Adv & Prom 11,076

Insurance 302,706

Transport 698,743

Telecomm 605,872

Government 150,907

Total 27,400,578

The difference between the £42.97m and the £27.4m (£15.57m being spent outside Andalucía)

shown above being accounted for by the propensity of Andalucían residents spending a part of their

income outside of the regional economy.

In addition to the Spanish nationalities that cross the frontier each day to work within the Gibraltar

economy there are 2,689 frontier workers of other nationalities. This includes workers from Gibraltar

(discussed later), the UK (1,589), Morocco (14) and other nationalities (767). The total earnings associated

with these groups (excluding those of Gibraltarian and Spanish nationality) comes to just over £57.388m.

In the absence of any household expenditure survey for these frontier workers we have assumed that

their spending patterns are similar to the Spanish and thus, of the £57.388m income some £36.734m is

spent within the economy of Andalucía and the remainder is spent outside the region. Table 6 shows the

total spending distribution within the region.

Table 6: Pattern of Spending by Other Frontier Workers in the Economy of Andalucía

Other Frontier Workers’ Expenditure in Spain £’s

Distributive Trade, Restaurants, Housing Services, etc. 33,065,853

Raw Materials 17,243

Manufacturing 838,711

Other Goods 439,737

Adv & Prom 14,851

Insurance 405,879

Transport 936,898

Telecomm 812,374

Government 202,341

Total 36,733,887

Gibraltar Residents’ Expenditure in Spain

There is clearly signifi cant and regular spending in the Campo de Gibraltar by people that earn their

income from within the economy of Gibraltar, not only by Spanish frontier workers as shown above

but also by Gibraltarians. This spending occurs in two distinct ways: Firstly, where those normally

resident in Gibraltar cross the frontier to purchase goods and services from within the Spanish

economy; Secondly, where Gibraltarians have moved to Spain and cross the frontier each day to

Page 12: GCoC Fletcher Report

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carry out their employment. The expenditure patterns exhibited by both categories are likely to be

signifi cantly different. The former is likely to have a narrow range of goods and services that they

purchase from within Spain (such as food and beverages and household items) whereas the latter

are more likely to take on the expenditure patterns exhibited by their Spanish counterparts because

the property, insurance, fi nance and vehicular expenses, including the purchase of white goods and

media are more likely to be part of their normal expenditure within the Spanish economy.

Table 7 shows the estimated value and pattern of expenditure within the Spanish economy of those

normally resident within the economy of Gibraltar. Therefore, these fi gures relate to income that

is earned within the Gibraltar economy but is being spent within the economy of the Campo de

Gibraltar. There will also be leakages out of the Campo de Gibraltar region from this spending but

these are taken into account when the secondary effects are estimated using the regional input-

output model.

Table 7: Household Expenditure in Spain by those Residents within Gibraltar, 2007

Gibraltar Residents’ Spending in Spain £’s

Distributive Trade, Restaurants, Housing Services, etc. 26,072,293

Raw Materials 29,404

Manufacturing 1,430,208

Other Goods 759,649

Adv & Prom 9,741

Insurance 266,208

Transport 614,495

Telecomm 532,821

Government 132,712

Total 29,847,531

It can be seen from Table 7 that a large proportion of spending (87.4%) is on Retail, Housing, Food &

Beverage and Other Services. The total value of Gibraltar Household Expenditure directly within the

Spanish economy is conservatively estimated to be around £29.847m.

Expenditure by Gibraltarians with Second Homes in Spain

The Gibraltarians that have second homes in Spain and, therefore have a different expenditure

pattern to those that make day visits across the frontier spent an estimated £33.52m in 2007 and

the way in which this is broken down by type of purchase is shown Table 8. This expenditure

breakdown is taken from the regional household expenditure function that is used in the input-

output model for Andalucía. Although there may be differences between Gibraltarian’s with second

homes and indigenous residents in terms of the pattern of expenditure (particularly because of bias

introduced because of a skewed income distribution) it is felt that (a) this is the only breakdown

that can be used in the absence of undertaking primary data collection from those households and

(b) the estimate of numbers is suffi ciently broad that the error introduced from adopting the local

consumption function will not be excessive compared with other possible errors.

Page 13: GCoC Fletcher Report

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Table 8: Household Expenditure by Gibraltarians with Second Homes in Spain, 2007

Gibraltarians with Second Homes in Spain £’s

Distributive Trade, Restaurants, Housing Services, etc. 30,168,171

Raw Materials 15,732

Manufacturing 765,211

Other Goods 406,439

Adv & Prom 13,550

Insurance 370,310

Transport 854,795

Telecomm 741,182

Government 184,610

Total 33,520,000

The expenditure fi gures shown in Tables 7 and 8 represent the direct output effect of Gibraltar

household spending on the Spanish economy and total £63.368m.

The net output effect of the Gibraltar economy on the Campo de Gibraltar

Using the information provided from the above analysis it can be seen that there are positive

contributions made by the Gibraltar economy to the economy of the Campo de Gibraltar, namely

through business imports, the payment of frontier workers travelling from Spain to earn their income

within Gibraltar, through Gibraltar residents going across the frontier to spend income earned in

Gibraltar within the Campo de Gibraltar economy and fi nally, from those Gibraltarians and non-

Gibraltarians who are non-Spanish yet residing within the geographical area outside of Gibraltar but

within the Campo de Gibraltar region. The negative interaction occurs because of Spanish nationals

plus a proportion of the non-Spanish nationals, that are spending their income earned in Spain within

the Gibraltar economy after crossing the land frontier and this needs to be deducted to arrive at the

net output effect. The maths for this are shown in Table 9 and demonstrate that there is a direct net

positive output effect of £167.944m on the Campo de Gibraltar economy as a result of the activities

of Gibraltar, the Campo de Gibraltar and their economic interaction.

Table 9: Direct Net Output Effect of the Gibraltar Economy on that of the Campo de Gibraltar

Net effect

Gibraltar Business Imports 174,243,132

Spanish Frontier Workers 27,400,578

Other Frontier Workers Resident in Spain 36,733,887

Gibraltar Resident Spending 29,847,531

Gibraltarians with 2nd Homes in Spain 33,520,000

Sub-Total 301,745,128

Spanish Visitor Expenditure in Gibraltar -133,751,000

Net Output effect 167,994,128

Note: If the petroleum imports are included in the calculations the net output effect increases to £468m.

The contribution of Gibraltar’s economy to that of the Campo de Gibraltar can also be measured in

terms of its direct contribution to income levels. Table 4 has already shown that the local income

Page 14: GCoC Fletcher Report

14

level in the Campo de Gibraltar increases by £42.967m as a result of Spanish residents earning

their income from Gibraltar, if the non-Spanish frontier workers are included, this local direct income

contribution rises to £100.355m.

The Secondary Economic Effects of Gibraltar on the Economy of the Campo de Gibraltar

The net output effect shown in Table 9 relates to the total value of transactions that take place (+ve

and –ve) between the Gibraltar and local Spanish economies. In order to understand the full extent of

such effects it is necessary to explore the likely indirect and induced effects of this net output effect

(£167.994m) on the local economy of the Campo de Gibraltar.

The business imports of Gibraltar businesses leads to a direct increase in output for the Campo de

Gibraltar regions £174.243m (see Table 10). After the leakages out of the Campo de Gibraltar region

are taken into account this £174.243m output results in a direct increase to Gross Domestic Product

(GDP) in the region of £69.369m. As this level of economic activity stimulates reactions from other

sectors of the local economy the direct plus indirect effect of the business imports increases to

£112.926m of GDP and once the induced effects are taken into account they give rise to a direct plus

indirect plus induced effect on GDP of £159.802m.

The earnings of other workers who live in Spain and cross the frontier to work (excluding those of

Gibraltarian nationality) is £100.355m and when the indirect effect of this is taken into account this

increases GDP further by £44.809m and when the induced effect is taken into account it adds another

£63.405m bringing the total GDP generated by non-Gibraltarian frontier workers to £208.57m.

The direct GDP generated by the spending of Gibraltarians with second homes in the Campo de

Gibraltar is £14.842m, which rises to £21.469m when the indirect effects are added and ultimately to

£30.086m when the induced effects are incorporated.

Similarly, those Gibraltar residents who make direct expenditures within the Campo de Gibraltar

create a direct addition to GDP of £10.688m which increases to £15.758m when the indirect effects

are included and then to £22.143m when the induced effects are also included.

Thus the total effects of the interaction between the economies of Gibraltar and Spain in terms of

GDP can be summarised as:

Table 10: Direct, Indirect and Induced GDP Created by Gibraltar Spending, Campo de Gibraltar, 2007

Direct Indirect Induced Total

Source GDP £m’s GDP £m’s GDP £m’s GDP £m’s

Gibraltar Business Imports 69.369 43.557 46.876 159.802

Spanish Frontier Workers 42.968 19.185 27.147 89.300

Other Frontier Workers 57.388 25.624 36.258 119.270

Gibraltar Resident Spending 10.688 5.070 6.385 22.143

Gibraltarians with 2nd homes in Spain 14.842 6.627 8.617 30.086

Total GDP effect 195.255 100.063 125.283 420.601

Page 15: GCoC Fletcher Report

15

Therefore, as Table 10 demonstrates, the economic impact arising from recurrent spending in the

Campo de Gibraltar region accounts for £420.601m of GDP. This is clearly a signifi cant injection into

the Spanish region of Andalucía which is one of the least developed regions of the EU and where per

capita GDP is just 75% of the EU average and this contribution will be even more signifi cant at the

sub-regional level of the Campo de Gibraltar.

The GDP of Andalucía in 2007 was estimated to be £100,811m and using the gross effect of the

Gibraltar economy as shown in Table 9 (£420.601m) it can be seen that Gibraltar is responsible for

0.42% of the region’s total GDP. The level of GDP for the Campo de Gibraltar can be estimated by

using the population of the Campo as a proportion of that for the region. Although this probably

exaggerates the level of GDP in the Campo de Gibraltar by some margin, it is a defensible methodology

to use. In which case it can be estimated that GDP in the Campo de Gibraltar in 2007 was £3,455m

and some 12.2% of this was attributable to the economy of Gibraltar.

The Role of the fi nance sector

In 2006/7 the Gibraltar economy is conservatively estimated to have a Gross Domestic Product

of just over £720 million. The fi nancial services sector continues to be a strong externally facing

and internally supporting sector employing some 1,620 employees of whom 1,230 are normally

resident in Gibraltar. The offshore element of the fi nancial services sector employs 788 staff and

this is supported by 1,335 employees in the business, real estate and professional services sector

that are supporting the offshore fi nancial activities. The onshore fi nancial services sector employs a

further 832 staff who are, in turn, supported by 366 business, real estate and professional services

employees. The expenditure of the fi nancial services sector within the Gibraltar economy in 2006/7

was more than £296 million which is more than 15% of the total output of the economy. Table 11

shows the output by sector.

Table 11: Expenditure by Sector, Gibraltar 2006/7

Sector Output (£m) % of Total

Manufacturing 25.2 1.3

Electricity & Water 33.0 1.7

Construction 300.0 15.2

Wholesale, Retail and Importers 590.3 29.9

Hotels, Restaurants & Bars 37.5 1.9

Transport & Communication 156.0 7.9

Finance Sector 296.9 15.1

Business, Real Est. & Professional Services 95.9 4.9

Government 216.0 10.9

Other Services 182.1 9.2

MOD 41.3 2.1

Total 1,974.2 100.0

Note: Percentages do not add to 100.00 because of rounding errors

If the Government and MOD are taken out then it can be seen that the fi nance sector is accountable

for 17.3% of the total private sector output and this is shown in Figure 2 on page 16:

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16

Figure 2: Output of the Private Sectors of the Gibraltar Economy, % of Total by Sector, 2006/7

35%

2%

9%

17%

6%

11%

1%2%

17%

Output, by Sector %

Wholesale & Retail 35%

Hotels & Restaurants 2%

Transport & Communication 9%

Finance Sector 17%

Business Services & Real Estate 6%

Other Services 11%

Manufacturing 1%

Electricity & Water 2%

Construction 17%

However, because of the way that only expenditures made within Gibraltar are recorded in Table

11, an alternative way of looking at the signifi cance of each sector is to look at the direct level of

employment supported by each sector as in Table 12. Again the importance of the fi nance sector is

clear, accounting for 8.7% of total employees (FTEs).

Table 12: Employment by Sector, Gibraltar 2006/7

Sector Employment (FTE) % of Total

Manufacturing 438 2.3

Electricity & Water 295 1.6

Construction 2,087 11.2

Wholesale, Retail and Importers 2,484 13.3

Hotels, Restaurants & Bars 911 4.9

Transport & Communication 989 5.3

Finance Sector 1,621 8.7

Business, Real Est. & Professional Services 1,701 9.1

Government 3,735 20.0

Other Services 3,396 18.2

MOD 1,032 5.5

Total 18,688 100.0

Note: Percentages do not add to 100.00 because of rounding errors

However, the fi nance sector is a high income sector and this is demonstrated quite clearly by Table

13 which shows the Gross Domestic Product attributable to each sector, as well as the average GDP

per employee.

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17

Table 13: Gross Domestic Product (GDP) by Sector, Gibraltar 2006/7

Sector GDP £000s GDP per Employee

Manufacturing 12,738 29,082

Electricity & Water 15,042 50,989

Construction 55,677 26,678

Wholesale, Retail and Importers 104,849 42,210

Hotels, Restaurants & Bars 19,048 20,909

Transport & Communication 48,180 48,716

Finance Sector 141,073 87,028

Business, Real Est. & Prof. Services 66,476 39,081

Government 123,383 33,034

Other Services 112,497 30,120

MOD 22,367 21674

Total 721,330 38,599

Table 13 shows the fi nance sector to have the highest GDP per employee at £87,028. Furthermore,

the offshore fi nancial activity is associated with a direct impact on incomes in Gibraltar of £97.4m

which increases to £108.9m once the indirect effects are included and increases further to £142.4m

once the induced effects are included.

If the fi nance sector is associated with a total direct, indirect and induced income effect of £142.4m,

this is around 20% of Gibraltar’s GDP. Therefore, it would not be unreasonable to assume that 20%

of Gibraltar’s economic impact on the Campo de Gibraltar is attributable, directly and indirectly, to

this sector’s activities. This means that the fi nance sector conservatively contributes £84.12m to the

economy of the Campo de Gibraltar. This is considered to be a conservative estimate because the

fi nance sector employs higher income staff than the national average for Gibraltar and a number of

them are likely to have second homes in Spain and more than proportionately make up the numbers of

Gibraltarians who make excursions into the Campo de Gibraltar.

The activities of the fi nance sector in Gibraltar are conducive to the economic development of the

Campo de Gibraltar because they add to the quality and range of activities available in the region and

have a reputation for strong regulation. The nature of the fi nance sector activities is such that it brings

in additionality to the region rather than competition for existing services currently provided in the

region. The fi nance sector in Gibraltar is either supporting the businesses and residents of Gibraltar

or providing services for individuals and businesses that live outside Gibraltar or Spain and thus does

not compete with the largely retail banking sector that is located in the Campo de Gibraltar.

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Asset Effects of Gibraltar on the Campo de Gibraltar Region

The above analyses relate entirely to the recurrent spending that occurs between Gibraltar and Spain

within the local area. However, there is another effect, a wealth effect, which should be considered

when looking at the contribution that Gibraltar makes towards the economic prosperity of the Campo

de Gibraltar region.

It is diffi cult within the scope of this research to offer any precision with respect to the economic impact

that Gibraltar’s proximity has on the rest of the Campo de Gibraltar’s region. First, the relationship

between geographical proximity to Gibraltar and property prices is a complex issue and although there

clearly is a signifi cant positive effect on the prices of property close to the Gibraltar frontier, it is diffi cult

to determine what that relationship is in terms of £s. The problem arises because there are a number

of “gravitational pulls” that will result in increases in property prices, such as being close to Gibraltar,

Sotogrande, Estepona, Marbella, etc for quite different reasons. The development of Sotogrande

impacted on the local area’s property prices irrespective of its closeness to the frontier, but also because

of it. In terms of property prices in the region it creates a “high spot” from which property prices decline

then increase again according to whether you move closer to Marbella or Gibraltar. These gravitational

pulls work with and against each other. Secondly, there has been a major property price shock across

Europe as a result of the global economic downturn and the quaintly named but dangerous effects of

the credit crunch. Spain has suffered a double blow, however, because property prices have recently

tumbled from the effects of an oversupply of property, the sharply rising interest rates in Spain combined

with diminishing demand for second homes from the rest of Europe as well as within Spain.

Prior to this current economic downturn the anecdotal effect of Gibraltar on the property prices

in the Campo de Gibraltar has been a 40% increase in prices in the 21st century up to 2007. This

suggests an enormous input into the local region which has helped stimulate demand and economic

activity. Furthermore, property prices in the region of Andalucía, in spite of the economic ranking of

the region, have been increasing throughout the middle of this last decade at around 20% year on

year growth, which places it as Spain’s third fastest growing region with respect to property prices.

On the basis that there are 250,000 people residing in the region of the Campo de Gibraltar and using

the average Spanish household size for the region of 2.9 it can be assumed that there are 86,200

households in the area.

The property prices in the key areas of the region (based on a minimum size of 2 bedrooms) is

€303,000 and when this is weighted down to refl ect the property prices in local areas that are less

in demand, the average value of the same properties reduces to just over €235,000. The effect of

Gibraltar on those prices, if the 40% is considered valid, is an enormous €8.108 billion.

Even with the downturn in property prices in the Campo de Gibraltar the Gibraltar effect is likely to

have been signifi cantly positive in that any fall in property prices in the Campo de Gibraltar is likely to

have been mitigated by the relatively high and stable property prices in Gibraltar and this effect will

be more signifi cant the closer (geographically) one gets to the frontier.

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Gibraltar Input-Output Study, Update 2007, Government of Gibraltar, Statistics Offi ce.

Gibraltar Tourist Survey, 2007, Government of Gibraltar Statistics Offi ce.

Gibraltar Employment Survey, Oct 2007, Government of Gibraltar Statistics Offi ce.

Instituto de Estadística de Andalucía (1999): Sistema de Cuenta Económicas de Andalucía.

Marco Input-Output 1995. Volumen I y II. Edit. Instituto de Estadística de Andalucía.

Sevilla. España.

References

Page 20: GCoC Fletcher Report

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Multiplier Analysis

The input-output model allows the researchers to derive multiplier coeffi cients for each of an

economy’s productive sectors. These multiplier coeffi cients demonstrate the ability of any given

sector to generate income, employment, output and government revenue from any given change in

the demand for its output. The multipliers also show how dependent each sector is upon imported

inputs in order to produce any given level of output.

The multiplier values can be used to show the impact on an economy as a result of a given change

in any of its fi nal demands. These impacts can be sub-divided into three categories:

Direct Effects

The direct effects are those effects brought about directly in those sectors that are subject to the

change in fi nal demand. Therefore, a change in the level of activity of distributive trade in the Campo

de Gibraltar will be directly felt by those companies that are involved directly in the production of

such services i.e. shops, wholesalers, etc. in that region. Similarly, a change in the level of staying

visitors to Gibraltar will have a direct effect upon the hotel sector, the restaurants, taxis and shops

that directly receive the tourist’s money. Finally, a change in the level of demand for transport will

have a direct effect upon the transport companies that carry out those services.

Indirect Effects

When there is a change in fi nal demand for a sector’s output the sector’s that produce that output

will have a change in their input demands. For instance, the fi nance sector may need to purchase

additional communication services, other fi nancial services from companies within their sector and

supporting services related to, say computing legal and accounting services. The hotel that was

subject to an increase in demand may need to increase its purchases of food & beverages, laundry

services, cleaning services etc. The transport companies may need to acquire additional vehicle

spares, purchase engineering services, fuel and other, related costs. These effects that occur as

a result of the direct effect changes are known as indirect effects. They continue to occur as the

suppliers to each of the companies that have increased demand, are subject to increased demands

themselves as a consequence.

Induced Effects

Whenever a good or service is produced some income is accrued either as wages, salaries,

profi t, rent or interest (or some combination of these). Therefore, during the direct and indirect

effects, income is accrued as a result of the initial change in fi nal demand. When that income is

re-spent it triggers of another round of economic activity. This additional round of economic

activity generates income, employment, output and government revenue. The economic effects

that are the result of the re-spending of accrued income are know as the induced effects.

GDP is Gross Domestic Product and can be defi ned as: the total market value (at current prices) of

all fi nal goods and services produced within an economy within a given year, and is equal to the total

of consumer and government expenditure, gross fi xed capital formation and exports of goods and

services less the value of imported goods and services.

Glossary and Defi nitions

Page 21: GCoC Fletcher Report

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Methodology

The research methodology used to establish the results set out in this report was as follows:

The areas of economic interaction between the economies of Gibraltar and the Campo de Gibraltar

were identifi ed and secondary data were collected. This included the data on frontier workers

(GoG) the visitor numbers and expenditure (GoG) and import data for goods. These data were then

supplemented by primary data from a survey of Chamber of Commerce members, the input-output

data and some selected interviews with key people in Gibraltar. From these sources it was possible

to determine the direct fl ows of goods and services between the two economies.

The expenditures made in the Campo from income earned in Gibraltar (by businesses, frontier workers

and Gibraltar residents) were then subjected to multiplier analyses using the input-output model of

Andalucía to determine the indirect and induced economic impacts of Gibraltar spending on the

economy of the Campo de Gibraltar. To do this it was necessary to assume that (a) frontier workers

resident in Spain had expenditure patterns that were based on the average expenditure patterns of

residents of Andalucía, (b) similarly, those Gibraltarians that had second homes in the Campo de

Gibraltar were also assumed to have a similar pattern of household expenditure as that exhibited by

households across the region. The income fi gures for frontier workers were taken from Government

Statistics on employment and can be assumed to be a conservative estimate because of the practice

known as “detached workers” where payment is made to staff in their place of normal residence even

though the income is earned within the Gibraltar economy.

The expenditures in the Campo de Gibraltar made by Gibraltar businesses, frontier workers and

Gibraltar residents were then used to drive the Andalucían input-output model to determine the

secondary effects associated with this spending. The input-output model was also used to derive

the Gross Domestic Product arising from such spending.

The expenditures made by frontier visitors to Gibraltar were derived from the 2007 Tourist Survey

by the Government of Gibraltar’s Statistics Offi ce. The expenditure taken was that made by Spanish

nationals plus those that also visited Gibraltar across the land frontier crossing. If anything, this is

likely to overestimate the volume of spending originating from the Campo de Gibraltar region because

it will include those Spanish nationals living elsewhere in Spain who may have visited Gibraltar, as

well as those non-Spanish nationals visiting Gibraltar who are not normally resident in the Campo

de Gibraltar. Again this supports the view that the results set out in the this report are conservative.

Page 22: GCoC Fletcher Report

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The Gibraltar Chamber of Commerce was founded in 1882. It was established for the “promotion

of measures calculated to benefi t and protect the trading interests of its members and the general

trade of Gibraltar”.

More than 125 years later, the Chamber’s role is as important today as it was then. Our members

employ more than 7500 people which is around half of Gibraltar’s current private sector workforce. It

is the largest organisation representing the interests of private sector commerce in Gibraltar.

The nature of Gibraltar’s economy has been transformed, particularly over the last two decades. Today

the Rock is a service economy revolving around Financial Services, the Port & Shipping Services,

Tourism, Online Gaming and a very well-developed Professional Services sector.

The benefi ts of being a member of the Chamber include:

• Network and meet new business contacts and potential clients

• Advice on local legislation and regulations

• Email alert service on matters affecting the business community in Gibraltar

• Represent your views directly to Government

• Reduced rates on export documentation

• Use of Chamber meeting rooms and presentation suite facilities

• Free subscription to the Chamber’s quarterly publication “B2B”

Board Members

E J Nicholas Russo President

John Isola Vice President

George Olivera Hon Treasurer

Jeremy Nicholls Hon Secretary

Bruno Callaghan Director

Marvin Cartwright Director

Franco Cassar Director

George Desoisa Director

Ernest Felipes Director

Andrew Haynes Director

Christian Hernandez Director

Peter Isola Director

About the Gibraltar Chamber Of Commerce

Page 23: GCoC Fletcher Report

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Page 24: GCoC Fletcher Report

Gibraltar Chamber of Commerce

Watergate House

2/6 Casemates Square

PO Box 29

Gibraltar

T: + 350 200 78376

F: + 350 200 78403

E: [email protected]

W: www.gibraltarchamberofcommerce.com

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