The Economist Intelligence Unit

January 1984

Synopsis of Report

This Introduction added June 2002
- It is easy to forget in these more prosperous days that in 1984 the Gibraltar economy was in a poor state. The main industry and source of income, HM Dockyard, was about to close. Here is their roadmap for the future.

The Economist Intelligence Unit (EIU) was commissioned to carry out the present study as a measure of the concern felt by the Gibraltar Chamber of Commerce at the turn being taken by political and economic events in relation to Gibraltar.

The need was felt for an objective overview of economic prospects for the immediate future. There was also seen to be a requirement for similarly objective suggestions regarding the necessary strategy for Government and the business community to adopt in order both to reduce the potentially damaging effects of current events, and to ensure the maximum effective use of resources in the search for and pursuit of new economic direction.

Economic problems
The economic problems the effects of which the report considers are, first, the impending closure of the naval dockyard, and secondly, the partial opening of the frontier with Spain.

The need for a viable alternative
The report concludes that the closure of the naval yard is unquestionably the. most serious economic problem facing Gibraltar today, and that Government and the community now have what amounts to a last chance to plan for, and implement viable economic alternatives - the.need for which Government should have anticipated sooner, and suitable action taken.
Any change of heart on the part of the UK Government, or further stay of execution in regard to dockyard closure, must now be discounted.

The crisis of confidence
Apart from tangible economic problems there is clear evidence in Gibraltar today of a crisis of confidence in certain quarters of the business community, which arises from a justifiable feeling that its skills and expertise are under-utilised, and are not being effectively called upon to help formulate and implement new economic direction.

The central importance of the private sector
The report concludes in this regard that Government must give effective recognition to the central role which the private sector must now assume if Gibraltar is to survive as a viable economic entity.

The need for the private sector to be encouraged to assume a central economic role is now paramount, since it provides the only hope for successful economic diversification and development in the short-term.

The inadequacy in the short term of commercialisation
The proposed commercialised dockyard cannot guarantee an effective economic substitute to the existing naval yard. Even if successful, the attendant benefits will not be apparent for some years to come. The urgent need for a viable economic alternative meanwhile places the burden squarely on the private sector.

The dangers inherent in the status quo
The report reviews the critical situation resulting from dockyard closure, and assesses the economic implications of a perpetuation of the status quo in regard to the border situation and the state of development of the tourist industry.

In regard to the dockyard, this section demonstrates the urgent need to promote the development of other sectors of the economy, even in the event that commercialisation is successful.

In respect of the border situation, the report contends that Gibraltar's aim must be to secure implementation of the Lisbon Agreement, and that it is entitled to look to the UK Government for positive action in this regard. Any real improvement in the economy demands a full opening of the border, with no remaining restrictions.

The economic difficulties of the tourism sector
Because of the under utilisation of its facilities since the 1969 border closure, the tourism sector has been unable to maintain and improve its product to a standard comparable to and competitive with other tourist destinations.

Nonetheless, the sector's existing plant and infrastructure could readily accommodate a period of sustained growth in tourism.

The Gibraltar tourism 'product'
The quality of the Gibraltar tourism 'product' nonetheless demands considerable improvement, and a number of areas for immediate attention are recommended. Further development of the industry overall also remains a matter of urgency.

The need to increase longer-stay tourists
The 'natural' increase in tourism resulting from full opening of the border must be supplemented by a substantial increase in longer-stay tourism; failure in this regard would be to allow the hotel sector to decline, since cross-border tourism has traditionally consisted of day-visitors.

Gibraltar Tourist Office promotion budget
A substantial increase is needed in the promotion budget, as opposed to the overall Departmental budget, of the Gibraltar Tourist Office.

Tourist industry working party
The establishment by Government is recommended of a working party for the tourist industry consisting of representatives of the Gibraltar Tourist Office, the Gibraltar Chamber of Commerce, the Gibraltar Hotel Association, tour operators and airlines.

Its function should be the ongoing assessment of tourism development and promotion needs, and the preparation and implementation of plans of action. The working party should be established at the earliest opportunity, should have adequate resources, and the power to make decisions. It should not be a mere consultative body.

Trade and commerce
The trading and retail sector must be encouraged to regain its former competitiveness in order to fulfill its vital role as part of the tourism 'product'. A number of possible measures are recommended, including duty reductions on key items and pursuit of Main Street's pedestrianisation.

Economic imbalance
The economy of Gibraltar to-day is ill-prepared for the necessary effective substitution of viable alternatives to replace the economic contribution historically made by the naval dockyard and its associated M.O.D. local economy. A major factor contributing to this unfortunate situation is without doubt the small size of-the private business sector of the economic community relative to its public, or official counterpart, a situation which has led to the creation of an impossibly difficult commercial climate in which the private sector must operate, due to the financial implication for the economy of an unduly preponderant public sector.

A public sector of such disproportionate size as 60 per cent of the total workforce implies an unhealthy economic dependence on a sector comprised partly of a semi-permanent M.O.D. related workforce and partly an essentially non-wealth creating public service. This acquiescent reliance on the dockyard and M.O.D. spending has led to a largely illusory sense of economic stability and independence.

This seeming over-manning of the public sector has resulted in a framework of fiscal and municipal charges which is both a burden to the community in general and creates a hardly viable economic environment in which the business community must operate. Any future economic policy which envisages a flourishing private sector playing an effective economic role must have as a prerequisite the dismantling of this onerous burden on the sector's economic viability.

The port
In order to maximise the port's potential, the feasibility of a number of port-related activities should be thoroughly investigated, including competitive bunkering, in-shore chandlering, entrepot trading, and improved cruise ship facilities.

Dockyard activities
Diversification of dockyard activities must form part of the plan for medium and long-term economic development. The private sector should be encouraged to participate in such a programme, rather than allow this to become the exclusive preserve of the commercial operators.

The commercial environment
Care should be taken to nurture a viable business environment for the trading and commercial community. Gibraltar runs the risk of an outflow of investment capital at a time when it most needs to retain and attract it.

The financial sector
Gibraltar offers good scope for the development of the financial services sector, with political stability and good geographical location in its favour.

Problems clearly exist in relation to EEC directives and legislation. The most favourable solution would be for Gibraltar to be granted either special status or specific derogations.

Responsibility to pursue this on Gibraltar's behalf lies with the UK Government, whose contention that Gibraltar's claim for negotiation are inopportune must be met with resolute determination.

Assistance for funding of short-term measures for economic diversification should be allocated from Government revenues if necessary. For longer-term projects, while joint ventures between Government, private sector interests, and developers are to be hoped for, there is a strong moral obligation on the UK Government in this respect. The UK Government's financial support for the Gibraltar economy henceforward must go beyond merely supporting the commercialised dockyard.

Gibraltar should endeavour to seek 'assisted area" status.

The Gibraltar Government should urgently seek ways of providing incentives to developers, and should lower Development Aid ceilings.

The need for cohesion
Lastly, the report takes the view that Gibraltar can only solve its present economic difficulties, and successfully pursue new economic direction with a sense of civic cohesion and national purpose manifesting itself at all levels of the community.

In the report's view, the touchstone of this sense of civic cohesion has got to be a new awareness that the only hope for the successful development and maintenance of a new economic direction for Gibraltar lies in the active participation of a strong and confident private sector, with a strength derived from positive measures of encouragement from Government, and with confidence in that Government's commitment to the private sector's role in the economic life of the community.

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