2010 Trading Conditions Survey

Highlights
•    Two thirds of this year’s respondents had seen their year on year sales either flat or reduced.
•    Respondents said that 40% of their employees were frontier workers.
•    39% responded saying that banks were less willing to lend compared to the previous twelve months.
•    13% of respondents had made people redundant during the year. Collectively the number of people who had lost their jobs amounted to 39 people. 15% of respondents thought it likely that they would be making further redundancies during 2010 although more optimistically 65% of respondents had no plans for job losses during the year.
•    High business costs and competition from Spain have the biggest impact on local businesses.
•    Members returning completed questionnaires employed more than 1,761 people or just over 11% of the private sector workforce in Gibraltar.
•    32% response rate (87 completed questionnaires returned).

Employment levels
Members returning completed questionnaires employed more than 1,761 people or just over 11% of the private sector workforce in Gibraltar. Of this total, 572 (40%) were frontier workers.

One third of respondents said that they had increased the number of employees in the previous twelve months, whilst just over a fifth (22%) said that they had reduced their workforce during the same period.

Business Performance
Around one third of those responding (30%) said that they had seen an increase in sales compared with the previous year. This is down on last year’s survey where half of respondents reported a year on year increase. Just over one fifth of respondents (22%) said that they had seen a fall in sales which is an improvement on last year’s survey where one third had seen their sales fall year on year. The remaining half (48%) said that their sales had been flat compared with the previous year.

Taken together, two thirds of this year’s respondents had seen their year on year sales either flat or reduced. This gives cause for concern and is perhaps indicative that, as happened in the early 1990s, Gibraltar is starting to feel the chill winds of the economic downturn some 18 to 24 months later than elsewhere.

Asked what impact the global recession had had on their business during the previous twelve months, two thirds (64%) replied that it had had a negative effect. This is an increase from 54% last year reflecting a more pessimistic outlook in the short to medium term.
A further 7% said the recession had had a very negative impact. A quarter said that it had not had any impact. This was a fall from last year’s 37% who had seen no impact from the recession. A mere 3% said that it had had a positive impact.

Last year we commented that it was still relatively early in the downturn and if the 1990s recession was any guidance, Gibraltar was likely to feel the effects of the downturn elsewhere two years or so after it had hit the UK and Spain. These responses seem to bear this out.

Business Outlook
Despite this, the majority of respondents (41%) remained optimistic about future business prospects for the rest of the year and in particular (59%) for 2011.

There is however, some concern about the prospects for this year as 29% of those responding expect the outlook to deteriorate in the year ahead, although this reduces to just 11% for 2011. Most respondents predicting a worsening outlook are from the retail and wholesale sectors. The two sectors which are most upbeat about the future outlook are the Finance and the Port & Shipping sectors.
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Issues affecting business
As with last year, the increase in business costs was deemed to have the greatest impact on respondents’ business affecting 29% of them, around the same rate as last year. Competition from other local traders as well as from outside Gibraltar was the next issue likely to affect members’ businesses.

Other factors affecting members’ businesses which are worthy of note are wildly fluctuating exchange rates; banks restricting their lending; irregular frontier flows; and the general economic slowdown.

More specifically, we asked members what the impact of sterling’s devaluation against the euro and other currencies had been over the year. This is an important question as everything sold in Gibraltar is imported, mainly from the UK or Spain. One fifth (22%) said that sterling’s devaluation had had a positive impact; 38% said it had had a negative impact but 40% said it had had no impact on their business whatsoever. Those companies who had benefited had seen their sales increase significantly as more people were coming to Gibraltar to buy goods. What some traders lost out by sourcing goods in euros they made up from increased turnover.Click to enlarge

Impact of lower corporation tax
When asked about the impact of the lower corporation tax rate anticipated in 2011, two thirds (67%) responded that it would have a positive impact on their business. Nearly one quarter (23%) said it would have no impact and for some reason 10% thought it would have a negative impact on their business, although it is not clear why they thought this.

A number of respondents gave a positive reply on the condition that additional costs or taxes would not be introduced to offset any forecast reduction in tax receipts.

Banking costs
Last year we asked members about their banks’ willingness to lend. 39% of respondents said that they had found their bank less willing to lend compared to the previous year, but in contrast more than half of respondents (58%) said that there had been no change in their banks’ willingness to lend compared with twelve months earlier.Click to enlarge

Knock on effects of business failures
There have been a number of high profile business collapses in the last twelve months or so which have left a trail of unpaid bills to employees, suppliers and the Government. The Chamber wanted to get an idea of what proportion of its members had been affected by these failures.

One third of respondents (34%) said that they had been affected. Only one fifth (18%) said that they had not been affected and a cautious 48% said that they weren’t sure. Perhaps they’re waiting to see, but what seems certain is that either directly or indirectly, very few businesses in Gibraltar will escape entirely unscathed from these collapses.

Surveys & Reports
The survey asked members for their views on the Economic Impact Study which had been commissioned by the Chamber and published last autumn and in particular whether members thought similar or supplementary studies should be conducted by the Chamber. More than three quarters (78%) of the respondents were fully supportive and 16% were undecided.

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