Main characteristic features of the Andorran economy
Andorra is an advanced European country with a free-market, open, flexible and deregulated economy. Andorran GDP per capita is about €31,000 euros, which is higher than the European average and Spanish GDP and similar to that of France. Economic activity in Andorra is based mainly on services, just like in the other European economies. This sector accounts for 90% of the country’s companies and 83% of its employees, which is the highest level among all the countries of Western and Eastern Europe.
Commerce and tourism employ almost half of workers in the services sector in Andorra, which receives about 8.5 million visitors each year, mostly from Spain and France. Consequently, the economic evolution of Andorra shows a strong dependence on the economic situation abroad, especially in Spain and France. The limited national production of manufactures is compensated by high levels of imports to meet internal demand, especially the demand generated by foreign visitors to the country. This fact is translated into a very high ratio of imports per capita, which is only exceeded among the EU-27 group of countries by Luxemburg, Belgium, the Netherlands and Austria, a fact that highlights the economy’s high level of openness to the exterior.
Finance is another strategic sector for the country and it has undergone major reforms in recent years as it has attempted to fulfil the demands of the OECD and deal with the problems deriving from the international financial crisis that began in 2008. Andorra also has a wide offer of professional services (lawyers, economists, advisors, engineers, etc.), for both companies and private individuals, and these have allowed the full development of economic activity within the Principality. Furthermore, the participation of the public sector in the economy needs to be emphasized and it has increased in recent years, even though it still remains well below the level for European economies.
The Andorran economy has experienced a process of increased openness to the exterior over the last two decades. In 1991 a customs union was established with the European Union, which receives 90% of Andorra’s exports and from where 91% of its imports come. This step was followed by several agreements with other institutions and Andorra is now a member of 23 international organizations, including the United Nations, UNESCO, the Council of Europe, the World Tourism Organization, the World Health Organization, the International Organization of La Francophonie and the Ibero-American General Secretariat, to name just a few. Andorra has also held observer status at the Word Trade Organization since 1997.
Recent economic evolution
The major economic crisis suffered by developed economies, and Europe in particular since 2008, has also reached Andorra, and GDP fell by 3.4% in 2010 for the third year in a row, according to official estimates published for the first time in 2011. The consequence of this trend has been a loss of dynamism since 2005, following a long period of economic expansion between 1997 and 2004, with an average growth in GDP above the averages for Spain, France and Europe.
The decrease in economic activity can also be seen in the evolution of other relevant economic indicators such as the country’s employment rate (-4.0% in 2010) or the number of companies (-1.4%), and the flow of immigrants that the country traditionally attracted to meet its labour needs has slowed down because of the limited offer of the local population.
The crisis can be explained mainly by the fall in tourism and construction, sectors which in turn drove the activity of other related sectors, such as commerce and industry.
In this context, the authorities have adopted several measures for economic reactivation —including fiscal incentives— and structural reform measures to promote activity, generate new factors of economic attraction, modernize mercantile legislation and transform the growth model towards a more sustainable model based on human capital, competitiveness and knowledge.
Foremost among these measures we find the passing of the Law on Foreign Investment, which represented a step forward in terms of opening up the Andorran economy to foreign investment; the Law on Corporations and Limited Liability Companies, which, among other things, creates a register of mercantile companies and obliges companies from a certain minimum size to submit their annual accounts to audit; and the Law on the Accounting of Business People, which establishes the obligation for business people to present their accounts to the Registry and which has been developed with the approval of a General Accounting Plan.
At the same time, the Andorran economy has continued to show a high level of dynamism in recent years with the adaptation of new technologies and very significant growth in the use of the Internet, and the penetration levels attained are above the European average. This should see a progressive improvement in productivity and this ought to help the competitiveness of the economy in the future.