Tourism, the backbone of Andorra’s small but prosperous economy, contributes for approximately 80% of GDP. An estimated 10.2 million visitors visit Andorra each year, drawn by the country’s duty-free status as well as its summer and winter resorts. Andorra’s comparative advantage has lately diminished as the economies of neighboring France and Spain have opened up, allowing for more product availability and reduced tariffs.
Tourism from ski resorts, which total approximately 175 km (109 mi) of ski terrain, is one of the major sources of revenue in Andorra. Currently, the sport attracts over 7 million people and generates an estimated 340 million euros each year, supporting 2000 direct and 10000 indirect employment.
With its tax haven status, the banking industry also contributes significantly to the economy (the financial and insurance sector accounts for approximately 19 percent of GDP). Five banking groups, one specialized credit organization, eight investment undertaking management entities, three asset management firms, and 29 insurance companies, 14 of which are subsidiaries of international insurance companies authorized to operate in the principality, make up the financial system.
Agricultural output is limited—only 2% of the land is arable—and the majority of food must be imported. Tobacco is cultivated locally in certain areas. Domestic sheep rearing is the most important livestock activity. The majority of manufacturing production is comprised of cigarettes, cigars, and furniture. Natural resources of Andorra include hydroelectric electricity, mineral water, wood, iron ore, and lead.
Andorra is not a member of the European Union, but it has a unique relationship with it that allows it to be regarded as an EU member for trade in manufactured goods (no tariffs) and as a non-EU member for agricultural products. Andorra lacked its own currency and relied on both the French franc and the Spanish peseta in financial operations until 31 December 1999, when both currencies were replaced by the euro, the EU’s single currency. Until December 31, 2002, coins and notes in both the franc and the peseta were legal currency in Andorra. Beginning in 2014, Andorra negotiated the issuance of its own euro coins.
Andorra has always maintained one of the lowest unemployment rates in the world. It was 2.9 percent in 2009.
Andorra has traditionally benefitted from its position as a tax haven, with all income generated solely via import duties. However, during the European sovereign-debt crisis of the twenty-first century, its tourist industry experienced a downturn, which was exacerbated by a decrease in Spanish goods prices, which undercut Andorran duty-free shopping. This resulted in an increase in unemployment. A 10% corporate tax was implemented on January 1, 2012, followed by a 2% sales tax a year later, which generated slightly over 14 million euros in its first quarter. On May 31, 2013, it was reported that Andorra planned to legislate for the implementation of an income tax by the end of June, against the backdrop of growing discontent among EU members with the presence of tax havens. The declaration came after a meeting in Paris between Antoni Marti, the Head of Government, and François Hollande, the French President and Prince of Andorra. Hollande praised the decision as part of Andorra’s efforts to “bring its taxes in line with international norms.”