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Andorra: Country and Foreign Investment

Economy and Currency

With only a tiny amount of arable land - about 2% of its total area - Andorra's agrarian economy was historically based on livestock, especially sheep, pigs and cattle. In modern times, animal farming is still important, along with tobacco production, but tourism has come to dominate the economy, accounting for no less than 80% of GDP. The main tourist magnet is the absence of duties or VAT, although Andorra's relative advantage vis a vis France and Spain has diminished as those countries have begun to liberalise their markets.

Andorra is prosperous, with minimal government and taxation, however, in July, 2013, the Government provided clarification on a bill intended to introduce a personal income tax. Its per capita GDP was estimated at USD37,200 in 2012, unchanged from 2011 and slightly lower than 2010 when GDP was USD37,700.

According to the IMF, the growing financial services sector represented about 15% of the economy in 2006, but tourism is by far Andorra's biggest earner, accounting for more than 80% of GDP. Most goods have to be imported, and there is a structural trade deficit. Government finances are healthy, with a primary surplus most of the time, and a small amount of national indebtedness.

Growth rates have been volatile: Andorra's economy tends to be heavily influenced by its neighbours. the economy suffered from the global economic downturn experienced by Spain and France and the resulting stagnation of tourist numbers from those countries. Growth rates have declined in the last few years with figures of -1.6% for 2012, -0.4% in 2011 and -1.9% in 2010.

In December, 2012, ratings agency Standard & Poor's lowered its long-term sovereign credit rating on Andorra from "A/A-1"in 2011 to "A-/A-2". The agency cited the "difficult ongoing internal and external environments and the ongoing weak economic growth outlook" together with the need for new legislation to allow foreign direct investment as the main reasons for the downgrade. Outlook on the whole was rated as negative, given the broadly weak economic outlook. In December, 2011, the lack of a cental bank and external data constrained the rating according to the agency. Other negative factors included the low sector diversification and the relatively large size of the banking sector. Noting "stable political institutions and a relatively prosperous economy" the S&P analysis stated: "The negative outlook reflects our opinion of risks to the government's budgetary position emanating from the uncertain economic environment in Europe."

Andorra is a member of the EU Customs Union and is treated as an EU member for trade in manufactured goods and as a non-EU member for agricultural products. Therefore it applies the common external tariff of the EU for non-agricultural goods.

Andorra had no official currency and a wide range of currencies were accepted internally, the main one being the Euro from 2002. On June 30, 2011, Andorra signed a monetary agreement with the EU and has thereby adopted the Euro as its official currency.

 

 

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