gcoc fletcher report
DESCRIPTION
The Gibraltar Chamber of Commerce Fletcher ReportTRANSCRIPT
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.
2
3
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
4
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
5
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
6
• 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
7
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
8
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.
9
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 &
Pro
m
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).
10
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.
11
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
12
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.
13
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
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
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:
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.
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.
18
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.
19
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
20
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
21
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.
22
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
23
Gibraltar Chamber of Commerce
Watergate House
2/6 Casemates Square
PO Box 29
Gibraltar
T: + 350 200 78376
F: + 350 200 78403
W: www.gibraltarchamberofcommerce.com
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