Could Brexit Burst Gibraltar’s Booming Economy?
As Britain’s exit from the EU draws closer, leaked government reports into the economic impact of a range of post-Brexit scenarios are predicting a drop in the country’s growth by 2-7%, depending on the nature of the final deal.
It’s a development that is set to add to the simmering anxiety of the British Overseas Territory Gibraltar. This tiny, oft-disputed peninsula on the southernmost tip of Spain occupies a unique position and has close economic and political ties to the European mainland. It’s feared that any change in the status quo could torpedo its booming economy – particularly its lucrative online gaming industry – and stymie prosperity on the Rock for decades to come, to the benefit of those that remain in the EU.
A dispute long in the making
The Rock is the subject of an ill-tempered dispute between Britain and Spain that dates back to the early 18th century. And this dispute flared up again in full force after Theresa May triggered Article 50 last March, with a diplomatic row breaking out almost immediately between the UK and Spain over the post-Brexit future of the territory.
The European Commission (EC) has made it clear that it expects London and Madrid to secure a bilateral agreement to avoid a cliff-edge scenario on the day the UK leaves the single market, with Brussels already having agreed to a Spanish veto for any post-Brexit arrangements regarding Gibraltar.
A 21-month transition period has been offered by the EU27 following the UK’s exit in March 2019, designed to reassure businesses on both sides of the border, but Spain’s minister for EU affairs, Jorge Toledo, has already warned that unless the two countries agree otherwise, there will be no transition period for Gibraltar. For their part, British officials have stated that Article 50 negotiations apply to overseas territories, with transition arrangements forming part of the process.
Although the Spanish government has said it will not use the Brexit talks to discuss sovereignty issues, negotiations between the two parties are expected to be extremely strained. Madrid will likely veto any deal on post-Brexit aviation rights because of a row over the location of Gibraltar’s airport, and is also expected to push for greater tax regulation, arguing that Gibraltar’s tax haven status undermines the bloc’s anti-money-laundering objectives. Border arrangements are also expected to come under the spotlight as thousands of Spanish citizens cross the border to the Rock each day to work.
What’s at stake
Should the talks stall, Gibraltar has a lot to lose. In this tiny community of just 30,000 residents, the online gaming industry employs 12% of the workforce and accounts for 25% of GDP. Over the past fifteen years, the growth of online gambling has helped Gibraltar become one of the fastest growing economies in Europe, with an unemployment rate of only 1%.
Favourable conditions brought about by EU membership have played a big part in this boom. Gibraltar offers not only low tax rates and financial incentives, but also unfettered access to the EU market and its labour force, with many jobs filled by the roughly 10,000 people who commute from Spain to Gibraltar each day thanks to EU laws governing freedom of movement.
What’s more, economic dividends that Gibraltar enjoys from the industry had only been expected to grow, as the European online gaming market has surged in recent years to become the largest in the world. The global industry is now worth an estimated $44.5 billion, with the European market accounting for half of all worldwide revenues.
Gambling operations based in the UK, in particular, have benefited from more liberal regulations than those governing other countries, which has allowed British bookmakers to establish a strong online presence with significant international reach. Revenue from online gambling in Britain was £1.5 billion in 2016, one-third of its overall gambling income and around 13% of the total annual EU yield.
A tale of two micronations
Now, however, because operators based in Gibraltar are set to lose a number of key privileges post-Brexit, the territory risks ceding its competitive advantage to another online gaming hub of diminutive size – Malta. Offering low tax rates, financial incentives, and robust consumer protection clauses, Malta is another preferred destination for online gaming firms that could easily take over Gibraltar’s position in the market should the territory fail to maintain its access to the EU post-Brexit.
Currently, Malta’s online gaming industry accounts for 12% of the economy and employs close to 9,000 people, a large proportion for a country of only 436,000. In total, the tiny island nation hosts approximately 270 gaming operators, including major companies like Betfair, bwin, and Paddypower.
The island’s regulatory body for the industry, the Malta Gaming Authority (MGA), has also been proactive in setting up protections for those at risk of overuse or addiction. Problem gamblers, while a minority, have been on the radar of policymakers recently, with the World Health Organization recently listing gambling addiction on its list of mental health illnesses. Unlike the UK, the MGA has long been aware of this and has developed the industry’s gold standard: all Malta-based operators must provide “self-barring” mechanisms to their users, which allows them to set limits on the amounts they gamble, restrict the time they spend playing, or even cut themselves off completely.
What’s more, it only takes 12-16 weeks for a company to get a gambling license in Malta, so the ease of relocation are likely to make the island an attractive option to many firms currently based in Gibraltar.
With this in mind, Gibraltar’s Minister for Commerce Albert Isola, who is also the island’s head of online gambling, has been appointed to try and find the best way to preserve its share of the market. But the biggest problem for Gibraltar is that it doesn’t have a place at the table for the Brexit negotiations.
For the 30,000 citizens of Gibraltar, all they can do is sit and wait. Having been the most pro-EU group in the 2016 referendum – with an overwhelming 96% voting to remain in the union – it would be a cruel twist of fate if they were the ones to suffer the most when Brexit finally takes place.
*Gary Buswell is a freelance writer and a regular contributor to the New Londoners and Expatica.