Tourism and trade are the main economic pillars of the Principality of Andorra, along with the construction sector, which throughout 2002 maintained a remarkable growth rate.
The country's unique characteristics are evident in its tax system, which does not have a direct tax burden on assets, business profits, or individuals.
In a European context marked by economic uncertainty, the evolution of the Andorran economy has experienced a higher growth rate during 2002 than that of its European neighbors.
According to the latest economic report from the Andorra Chamber of Commerce, Industry and Services, indicators for the domestic demand of the Andorran economy show a more modest progression of private consumption during 2002 than the previous year, due to lower employment growth and a decrease in the number of visitors.
The occupancy rate, however, has remained one of the highest in Europe in recent years. In 2000, it reached 10 points above the European average (63,1%).
Economic sectors
Andorra's economic activity is primarily focused on the service sector, with trade and tourism accounting for almost three-quarters. Therefore, the Andorran economy is highly dependent on external factors, particularly the Spanish and French economies.
France and Spain have moderated the pace of economic activity during 2002, with growth rates of 2% and 1,2% respectively, which has slowed the pace of visitors to Andorra (the country's main source of income) and, consequently, has moderated the growth of services, the most important sector of the Andorran economy.
Pilar Escaler, director of the Chamber of Commerce, states that "there is practically no industry in the Principality." This sector has shown positive growth, although the effects of the economic slowdown during 2002 have been felt in the moderation of exports.
Finally, the primary sector has registered a reduction in tobacco production, due to the unfavorable weather, which indicates a negative performance of the activity.
On the other hand, construction has once again led Andorra's economic growth, according to the Chamber's economic outlook and the continued strong pace of job creation (3,8%), compared to the previous year.
For 2003, business forecasts, based on surveys conducted by the Andorran Chamber of Commerce, predict moderate growth in turnover across most sectors, except for the hotel industry, where expectations are less optimistic. However, the pace of expansion in construction and retail trade is expected to remain stable.
Investment
Escalar confirms that foreign investment is not promoted in Andorra, given the limitations on foreign participation in company capital.
As regards business investment, the indicators point to an improvement in capital goods, both in machinery (with an increase in imports of 17,4%), and in transport equipment (with an increase in truck registrations of 2,5%).
On the other hand, investment in construction has continued its expansionary trend, but at a slightly lower pace than the previous year, as evidenced by the slight growth in imports of construction materials (1,4%) and the slowdown in the rate of creation of companies in the sector.
As for the public sector, the performance during 2002 has been characterized by a greater investment effort by the General Administration which has resulted in an increase in the deficit.
In conclusion, the evolution of the main economic indicators and business opinions allow us to estimate that the Andorran economy grew by 2,5% in 2002. This rate is lower than the estimated 3% and represents the third consecutive year of economic slowdown. However, it is once again higher than the economic growth of the Eurozone, France, and Spain.
Foreign trade
The economic contribution of exports to the Principality remains secondary. Escaler points out that "there is no financial support to boost exports from Andorran companies" and adds that the basic functions of the Chamber of Commerce consist of "training, lobbying on behalf of companies, advising, and promoting the Principality's economic activity."
There has been an acceleration in the growth of non-tobacco imports, vehicle registrations, both passenger cars and industrial vehicles, and bank credit (13,4%).
The European continent remains the main destination for Andorran imports, accounting for 89,7% of the total, although it continues to show a slight decrease for the second consecutive year compared to 2001. Purchases from the Americas have also declined, maintaining the negative trend that began in 1998. These figures favor Asian countries, which represent 8,5% of total imports.
Taxes
The Principality of Andorra has a unique tax system. There are no direct taxes on business profits, personal income, or wealth.
The application of the agreement of June 28, 1990 between the Andorran State and the European Economic Community led to the enactment of the Indirect Goods Tax (IMI) Law, which entails the application of a tax on the production and import of goods, which remains very low compared to the rest of the European countries.
Furthermore, the Law modifying the consumption tax applies to the import of agricultural products, with a specific rate that taxes live livestock and a higher rate for tobacco and alcohol.
Currently, the Andorran tax system must comply with the European Union's final agreement on savings taxation and banking secrecy. Last September, Andorra proposed a series of measures to the European Union to implement savings taxation, which would allow it to cease being considered a tax haven. The agreement permits the exchange of information on bank deposits, which will only be applied in cases of criminal activity.
Tourism
The tourism sector is one of the most important economic drivers of Andorra, attracting more than 11 million visitors a year.
The area's wide range of attractions includes skiing, with 286 km of slopes spread across five different resorts; a rich cultural and natural heritage; shopping in over 1.500 stores; and the Caldea thermal spa. This leisure offering is complemented by excellent hotel infrastructure and a wide variety of restaurants.
The tourist services offered by the Principality serve as an ideal complement to business tourism, which is the tourism of the future, according to Carmé Tinturé, director of the Exhibition and Congress Centre of Andorra la Vella.
The center boasts facilities suitable for all types of conferences, exhibitions, and other cultural events, both national and international. The success of its conference activity has led to the need to open a new Conference and Exhibition Centre with a total area of 14.000 square meters.
Relations with Spain
Spanish influence has been a constant throughout the history of the Principality of Andorra. Proof of this is the number of Spaniards residing in the country (more than 26.000 were registered in 2002).
In trade relations, Andorra imported 635 million euros from Spain during 2002 and exported 35 million euros to Spain.
In that same year, a total of 6.434.312 Spanish tourists visited Andorra.
These data demonstrate the degree of integration between both countries, which translates into excellent bilateral relations.
César González, Spain's ambassador to Andorra, emphasizes the importance in this regard of the signing of the Trilateral Agreement between Andorra, France and Spain in December 2000, given the historical links between the three states.
The treaty outlines the specificities of the relationship between Spain and Andorra, particularly regarding the entry, movement, residence, and settlement of their inhabitants.
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