Main characteristic features of the Andorran economy and recent economic development

FOREIGN SECTOR

Balance of facts and payments

As a pole of consolidated economic and social development, the Principality of Andorra generously redistributes its wealth to the neighbouring Spanish and French regions. The economic mechanisms used to redistribute income generated in Andorra to Spain and France include: construction (which imports most of the materials used), direct spending by Andorrans made outside Andorra, the purchase of electricity from the neighbouring countries, the Andorran population studying abroad, direct investment by Andorrans outside Andorra, immigrants’ remittances, Andorrans owning second homes abroad, visitors’ participation in consumption of public assets in Andorra and frontier workers.

Moreover, other channels of redistribution also come into play, and these include the delegation expenses of the Principality of Andorra, the purchase of services from foreign companies, the payment of capital returns resulting from foreign companies’ involvement in Andorran companies, insurance premiums which are repatriated to foreign companies, expenditure associated with the maintenance of overseas real estate belonging to Andorran companies, spending on tourist and telecommunications services, etc.

In comparison to all these income flows from Andorra to other countries and, especially to the neighbouring economies, there is a series of economic flows from abroad towards Andorra, which are based mainly on the consumption of non-residents.

Foreign Trade
Foreign trade has a very important influence on economic activity in Andorra, especially in terms of the volume of imports. Accordingly, the internal demand for goods depends greatly on purchases from abroad, while the relatively small importance of industry in the Andorran economy means that the volume of exports is much less important.

Spain and France are Andorra’s two main trading partners. At the beginning of the 1990s these two countries had a similar share of the flows of Andorran foreign trade, but in recent times, the commercial relations with Spain have experienced greater dynamism than those of France, and this situation has tilted the balance in favour of Spain.

Imports
Machinery and electric material are the main import sectors, and to a large extent these are electronic products, which accounted for 17.5% of imports in 2006, food products, beverages and tobacco (12.6%) as well as transport material (10.8%).

Spain is the leading country supplying Andorra, with 57% of all purchases from abroad coming from there, while France is in second position with a share of a little more than a fifth. The remaining countries of the European Union divide a further 12.8% of Andorran imports between them with only 9.1% coming from countries from the rest of the world, among which only the United States and some countries from Asia have any major relevance.

The evolution over the past few years has been characterised by an uninterrupted upward trend between 1993 and 2005, which was broken in 2006 with a fall of 1.8%. The annual accumulative growth rate for imports was 5.2% between 1993 and 2006.

Throughout this period, the greatest importing dynamism in terms of sectors corresponded to groups of art objects and antiques –where the average annual increase was 16.3%– mineral products (9.2%), chemical industry products (7.1%) and common metals and their by-products (7%).

Exports
The sectors with the highest volume of exports are food products, beverages and tobacco, which accounted for 33% of exports in 2006, machinery and electrical material (18.4%) and transport material (16%). These sectors coincide with the top three import groups. This situation can be explained by the fact that Andorran sales abroad are to a large extent re-exports of previously imported products.

Spain and France are the main destinations for Andorran sales overseas, receiving 69.6% and 15.1% respectively of the total. Exports to the remaining countries of the European Union represent 11.7% of the total, while only 3.7% are exported to the rest of the world.

The evolution of recent years has been characterised by intense growth, interrupted only by two downturns in the period 1995-1996 and in 1999. Accordingly, exports registered an average annual increase of 11.8 % between 1993 and 2006, more than double that of imports. By sectors, the most noteworthy change during this period was the significant average increases in the export of arms and ammunition, art objects and antiques, food products, beverages and tobacco, furs, leather and leather by-products, which were in the region of 20% or more in all cases.