Andorra: Economy

Andorra's national income in 2009 was approximately $3.6 billion, with tourism as its principal component. The country has been attractive for shoppers from France and Spain because of low taxes and duty-free allowances, and it has developed active summer and winter tourist resorts. With some 270 hotels and 400 restaurants, as well as many shops, the tourist trade employs a significant portion of the domestic labor force. There is a fairly active trade in consumer goods, including imported manufactured items, which, because they are taxed at lower rates, are less expensive in Andorra than in neighboring countries.

Many Andorrans have supported the country's reform initiatives over the years, believing that Andorra's continued prosperity required fuller integration with the European Union. Andorra's tax status has had a significant effect on its relationship with the EU, with which Andorra began negotiations in 1987. An agreement that went into effect in July 1991 set duty-free quotas and placed limits on certain items--mainly milk products, tobacco, and alcoholic beverages. Andorra is permitted to maintain price differences from other EU countries, and visitors enjoy limited duty-free allowances. In June 2004 Andorra signed a series of accords with the EU in the fields of economic, social, and cultural cooperation. Tax legislation was also approved that taxed interest from monetary products and fixed-interest investments belonging to non-residents, while maintaining bank secrecy.

Although less than 2% of the land is arable, agriculture was the mainstay of the Andorran economy until the upsurge in tourism. Sheep-raising had been the principal agricultural activity, but tobacco-growing is lucrative. Most of Andorra's food is imported.

In addition to handicrafts, manufacturing includes cigars, cigarettes, and furniture for domestic and export markets. A hydroelectric plant at Les Escaldes, with a capacity of 26.5 megawatts, provides 40% of Andorra's electricity; Spain provides the rest.

Sources:
CIA World Factbook (September 2009)
U.S. Dept. of State Country Background Notes (September 2011)