On his desk in an office in the Caleta Hotel, Brian Callaghan, the hotel’s proprietor, keeps several thick piles of press cuttings from newspapers around the world. There are stories in English, Spanish and Arabic, snipped from newspapers and magazines or printed off the web. They have a common theme: Gibraltar, and chess.

Michael Adams, British nº1

For two weeks every year, the Rock becomes the focal point of the professional and amateur chess world. In less than a decade, the Gibraltar International Chess Festival, the brainchild of Mr Callaghan, has become a regular fixture on the global chess calendar, attracting players from five continents. Chess legend Boris Spassky dropped in for a private visit at the last edition, as did Magnus Carlsen, currently the world’s number one. In chess terms, this is now a major global brand. At the last event some 350 players from 51 countries travelled to Gibraltar to participate. There were keen amateurs, aspiring professionals and world champions in their ranks. For chess journalists everywhere, the competition offered rich pickings in terms of copy. For Gibraltar, it meant positive coverage of the sort PR gurus can only dream of.

Take this example. Traditionally, chess tournaments are dominated by male players. Women have often found it hard to break in and compete on a par with men. But that’s not the case at the Gibraltar Open, which last time attracted five of the top ten women players in the world, among many others. “There’s absolutely no doubt that, outside the women’s world championship, we’re the most important women’s chess event in the world,” Mr Callaghan said. “There’s a higher ratio of women who come to our tournament than to any other. They feel really comfortable here and I think they’re good for the tournament.” And it’s not just Mr Callaghan who thinks this. Leading chess journalists have noticed too. Here’s what the correspondent for the International Herald Tribune, one of the world’s leading global newspapers, had to say: “It was one of the strongest tournament showings by women ever. The results in Gibraltar may be the start of a trend.”

Mr Callaghan projects a tsunami of enthusiasm for the sport and for his event. Having worked hard to consolidate the competition and achieve its present critical mass, he believes the chess open offers a blueprint for the future of Gibraltar tourism, one led by international events of this nature. “We feel that this is a specific niche in the market which should be targeted with vigour,” he told B2B. “Gibraltar is not, on the whole, big enough for beach holidays because, frankly, if you look at our beaches, we can’t compete. One hopes for the future, but at the moment we’re not there.” As an alternative to the package holiday, event tourism is as attractive as it gets.

To trace the origins of the Gibraltar chess tournament you need to go back to Mr Callaghan’s childhood. “My wonderful but very radical mother sent me to a school where you didn’t actually have to learn any lessons,” he said. “One of the things that I learnt to do rather badly was play chess.”
As often happens, he played for many years, then drifted away from the game only to pick it up again as an adult, playing weekly games as a break from running his hotel and tourism business. Then one day, his hobby and his business overlapped. “I had a hotel with empty beds, and I knew that chess is played indoors and is a perfectly good winter season activity,” Mr Callaghan said. “It seemed perfectly suited for Gibraltar as a piece of event tourism, which I consider to be the future of tourism in Gibraltar.”

Back in 2000, Mr Callaghan and Franco Ostuni, the general manager of the Caleta Hotel, began to nurture the idea and explore ways of bringing it to fruition. As a first step, they went to see the competition and visited the largest chess festival in the UK, which takes place in Hastings. “We came away from there thinking that we could do very much better,” Mr Callaghan said. “Often these tournaments take place in gymnasiums, big halls, conference centres, and people go to play. But when they finish playing, they just leave.” Therein lay the opportunity. Setting up a world-class competitive event and blending it with social events. “One of the things that Gibraltar is famous for is its    hospitality and the way it welcomes people from outside,” he added. “What we felt we had to build was a social aspect to this, so that people didn’t just come to play but rather came to enter into the spirit of the festival. I think that we’ve majored in that.”

The next step was finding the funding and expertise to put the event together. Even before this, there had been early lessons. Prior to setting up the chess event, Mr Callaghan and his team had tried their hand at organising bridge and backgammon gatherings, but they didn’t work. To this day he’s not sure why, though he has an inkling. “Perhaps it was because we didn’t get inside it enough,” he said. “Now, with chess, we’re totally inside world events. We know exactly what’s going on, we know who the players are and I think it’s the amount of commitment that you make to these types of event, and the work that you put in to get to know the people, that make them work.”

Gibraltar’s chess festival is a true open tournament which means that, in the opening rounds at least, the weakest players can end up playing the best players. That provides a steep learning curve and incredible opportunities for aspiring players. Mr Callaghan did not hesitate to concede that he didn’t have the technical knowledge to make the tournament work from the outset. “I had the spirit and the will and the drive and the commitment, but not the technical knowledge,” he said. So he brought in chess professional Stewart Reuben, who for seven years led the secretariat as tournament director and was instrumental in establishing a top-notch format that is attractive to both established professionals and to players working their way up in the chess hierarchy. “We’re gathering momentum and reputation around the world every time,” Mr Callaghan said.

Critical to the success of the event was the backing and commitment of its many sponsors, both in terms of funding and less obvious behind-the-scenes support.

Sponsorship of the tournament is led by the private sector, though the Gibraltar Government provides vital financial support that has enabled the event to grow. Mr Callaghan said a turning point in the evolution of the Gibraltar open was reached when the government and sponsors committed to a three-year funding package. This offers an important lesson for future events. “When you’re running this sort of thing, you need to know that you’re there for a period of time,” he said. “That enables you to concentrate on obtaining the benefits of a world event, as opposed to having to run around trying to get the money every year. If you’ve got the passion to take these things forward, then you need to know that you can plan medium term and not have to go with a begging bowl every year to get the money. I don’t think you can get into these things unless you’re able to talk to organisers and say you’re here for at least three years.”

Although the government backing was essential to getting the tournament to where it is today, it’s the private sector that really drives it forward. From the outset the main sponsor was Gibtelecom – which offered other advantages too, not least in terms of technical support – but there are many others. During the interview Mr Callaghan asked B2B to print all their names in this article, but there are so many that do so would prove grammatically cumbersome. Suffice it to underscore the sentiment with a quote: “I can’t stress enough the support that we get from our sponsors,” he said. “They are integral to making it work.” As from the next edition of the tournament, the main sponsor will be local insurers Tradewise Insurance. “You know, chess and the financial world, they work well together,” Mr Callaghan said. “It’s a nice image. I think they’re great partners.”

Surprisingly perhaps, the figures involved in running an event like this are not that huge, particularly given the benefits to the Rock. The current budget for the tournament is about £210,000, of which £125,000 will be paid out in prizes. As for the offshoots for Gibraltar, consider these facts: during the last tournament, hotels in Gibraltar provided 5,000 room nights across the sector. Most of the players like to stay at the Caleta because they want to be where the event is being held, but inevitably many spill over to other hotels both in Gibraltar and Spain. “The numbers produced in that 12-day period are as much as two of Gibraltar’s largest tour operators in a year,” Mr Callaghan said. “It’s a substantial contribution.” And that’s just the hotel sector. With 350 people in Gibraltar for a week, the knock-on benefits for other sectors are obvious, if not so easily quantified.

So what now for chess in Gibraltar? What of the future? The open tournament is now well established and planning for the next edition is well under way. But Mr Callaghan and his team have, to coin a phrase, another queen up their sleeve. For a clue, look to Gibraltar’s schools. One offshoot of the tournament was a surge in interest in chess from youngsters. As a side activity, the sponsors of the tournament also backed a push to teach chess to youngsters and encourage an interest in chess from an early age through chess groups and lessons. Such has been the response that a new event has been born. Next summer, Mr Callaghan and his team plan to host the first junior international open tournament for under 16s and under 12s with assistance from the Calpe Chess Club. He is confident that the tournament will rapidly gain traction in the chess world, thanks to the success of the Gibraltar Open. He also believes it will help foster cross-border, cross-regional participation. His confidence in the idea is infectious, as is his belief in what is being achieved. “Whenever you see Gibraltar in the newspapers, it’s something contentious,” he said. “It’s because of some incursion by a Guardia Civil boat, or because something has happened at the frontier. The great thing about chess is that we are projecting Gibraltar around the world in a non-contentious manner. And I think that is important.”

We couldn’t agree more.

In April last year, amid much publicity and fanfare, start-up Spanish airline Ándalus Líneas Aéreas began flying between Madrid and Gibraltar. It was a service hailed at the time as opening a world of opportunity for the Rock, with the promise of new routes to follow thereafter. But by April this year, the airline was tangled in financial strife and the Madrid route cancelled. The demise of Ándalus offers a cautionary tale that underscores the challenge of sustaining air links outside the traditional London routes.

Ándalus stepped into the Madrid-Gibraltar air bridge after two airline majors had tried and pulled out. Both Iberia and GB Airways had served the route, but had found that passenger volumes did not justify the costs of the service, particularly at a time when the economic crisis and rising fuel prices was crippling the industry elsewhere.

Enter Ándalus with a different business model: where Iberia and British Airways had operated large passenger jets, the start-up airline – it operated just one other service at the time – was opting for a 50-seat plane. The idea was that a smaller capacity would result in higher passenger yields on a low-volume route.

The problem was that no one anticipated just how low those volumes would be. According to the 2009 Air Traffic Survey published by the Gibraltar Government, load factors on flights to Spain averaged a paltry 41.5% during the year. At times, services were pulled altogether because no one was booked to fly. The company tweaked its schedules and pricing, with flights aimed at enabling businessmen from the area to fly to Madrid and back in one day. Still however, the numbers were low.

Undeterred, Ándalus responded by launching a service between Gibraltar and Barcelona in July last year. But it was a short-lived exercise. By September, less than three months after they began, Ándalus pulled the Barcelona flights.

Carlos Pereira, the company’s chief operating officer, summed up the situation when he said at the time that the airline had “no interest in flying with an empty plane.” The Madrid schedule was also cut back, with the airline complaining – unfairly, according to the Gibraltar Government – that the promised help to promote the routes had not materialised.

Behind the scenes, the problems facing Ándalus were far deeper than simply low passenger volumes. In March this year, reports emerged that the company had allegedly built up un-paid debts running into hundreds of thousands of pounds. An Ireland-based aircraft leasing and financing company called GE Capital Aviation Services called in the lawyers and moved in. By April, Ándalus had announced that all flights between Gibraltar and Madrid were indefinitely suspended.

AIRPORT
After months defying an increasingly gloomy scenario, the abrupt collapse of the latest attempt at a Madrid-Gibraltar air bridge inevitably raised questions about one of the Gibraltar Government’s flagship capital projects, the construction of a new air terminal at a cost of £50m to the public purse.

In a series of statements to the local media, the GSLP/Liberals challenged the sense in spending such a huge amount on a terminal that, in their view, reflected the failure of the government’s aviation policy.

“The airline [Ándalus] has pointed to the poor load factors and the low demand that existed for the route to Madrid,” an Opposition spokesman said at the time. “This confirms the analysis of the Opposition that there was little or no market research conducted by the Government on the demand that existed in this part of the world for flights between Gibraltar and Spain. This should have been done before the decision was taken to embark on the costly air terminal project”.

The government’s aviation policy, the GSLP/Liberals said, was driven by party political interests and lay “in tatters”. Instead of investing £50m, the government should have opted for a more modest terminal.

The analysis drew a sharp rebuke from the Gibraltar Government. In a statement, No.6 Convent Place poked fun at the Opposition and said it remained “delighted to take full political responsibility for the excellent, correctly-sized, well-located and much-needed new air terminal project”.

The government said it was not responsible for the financial woes of foreign airlines and insisted that the terminal was a long-term project that had to be seen against the background of opportunities for air links under the terms of the Cordoba agreement, which allowed for ‘expanded use’ of the airport and the potential for flights from Gibraltar to destinations across Europe.

“The new air terminal is an investment in Gibraltar’s future, to satisfy Gibraltar’s present and future needs and opportunities, and to exploit our Europe-wide and international opportunities, the possibility of which the Cordoba Agreement delivered at a political level,” the government said at the time.

LOOKING AHEAD

As it ploughs ahead with the construction of the air terminal, the Gibraltar Government is engaged in a parallel exercise to drum up business.
Last May, transport minister Joe Holliday participated in the Routes Forum in Toulouse, accompanied by Chris Purkiss, the director of Civil Aviation, and Nicky Guerrero, chief executive of the Gibraltar Tourist Board.

The event was a major air conference that brought together airlines and airports to discuss new route proposals. The delegation met with both airline representatives and airport managers to explore possibilities for new business.

“The airline industry is currently experiencing difficulties as a result of the prevailing economic conditions worldwide,” Mr Holliday said.“However there is optimism that 2011, the year in which the new air terminal commences operations, will result in improved performance.”

One airline already known to have shown an interest in Gibraltar is Air Europa, which is linked to the Halcon Viajes and Globalia tourism group.
For the Opposition, however, the message was “propaganda” to justify the expense of the air terminal.

“The Government’s decision to attend the Routes Europe Forum conference in France in a bid to attract new airlines is a reflection of their desperation to bring in different players in order to justify the enormous cost of the new air terminal building,” said Dr Joseph Garcia, the Opposition’s spokesman for civil aviation matters.

“It is a fact that over many years, despite the propaganda, they have failed to attract new airlines and open new sustainable routes from Gibraltar airport.”

Dr Garcia said that while the government continued with its delusions of grandeur, air arrivals from the UK were static in 2008 compared to 2009, and dropped by 4000 in January and February this year.

“This is the harsh reality behind the propaganda,” he said.

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.
Click to enlarge
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.

The Gibraltar Government has published the long-awaited text of a new tax regime designed to ensure the continued international competitiveness of Gibraltar’s finance centre.

The reforms also introduce tougher measures to ensure compliance and allow for lower personal taxation, but the key element of the new Income Tax Act is a reduction in company tax from 22% to 10% as from January, 2011.

The new framework replaces the tax exempt regime, which Gibraltar has phased out following pressure from the European Union.

In a briefing paper issued alongside the text of the Act, the government said that the new company tax rate had been set at a level that would generate that required by the public purse. It would also stimulate and sustain quality economic activity in a fiscal climate that is conventional in structure and content, but competitive in terms of taxation rates.

“Thousands of local jobs, much Government revenue and thus our public services, depend on Gibraltar having an internationally competitive tax system,” said Chief Minister Peter Caruana. “Many previously tax exempt banks, insurance, investment, gaming and other companies will begin to pay profit tax in Gibraltar for the first time on the same basis as all other companies.

These companies are vital to our economy and to the social prosperity of all of us in Gibraltar”.

The new Income Tax Act is the product of a year of intensive work by the government and a group of advisors drawn from the legal and accountancy communities. The government has now published the text of the legislation as well as a detailed briefing document, inviting any feedback by July 23. The Act is expected to be approved by Parliament in October.

The new legislation ends all distinction between ‘onshore’ and ‘offshore’ business. Together with the tax information exchange agreements being entered into by the government – coupled to Gibraltar’s full integration in the EU and compliance with EU financial services regulation, money laundering and co-operation rules – the new Tax Act completes Gibraltar’s 14-year transition from ‘tax haven’ to mainstream European financial services centre.

The lower rates of taxation are accompanied by an improved culture of compliance and also by strong anti-avoidance provisions to ensure that all chargeable economic activity is effectively captured, thus producing the intended revenue yield to the government.Compliance is essential in order to ensure the success of the low company taxes, as well as the further lowering of personal taxes. The new Act therefore introduces tough anti-avoidance measures and default financial and legal penalties to help ensure that all pay the taxes that are due.

The legislation also introduces severe criminal consequences, as well as personal liability, for directors and managers of companies that withhold tax from workers’ pay and then fail to pay it over to the government promptly.

To level the playing field between PAYE payers on the one hand and companies and self employed people on the other, the latter will, in future, have to pay tax during the tax year on account of that year’s tax bill. The legislation also introduces a system of self assessment and
hefty financial penalties for defaulting on payment or returns.

“Tax is very important, but Gibraltar is more than about just tax: it is also about political and economic stability, good regulation and high standards and a safe business environment, high quality of personal lifestyle, good professional services and communications, and availability of well educated staff,”

Mr Caruana said.“The climate of compliance sought to be created by the new Act is also intended to enable the government to continue and proceed further with its long established programme of tax cutting for individuals as well.

Low tax must come hand in hand with an end to our historically benign tax administration and enforcement system.