Minister of Economy, Innovation and Competitiveness of Andorra (Pyrenees), Gilbert Saboya, tells all-andorra.com about the Andorran economy in 2017, plans for 2018 and targets of the new ministry:
Interview: Irina Rybalchenko
According to rating agencies, banks play too much of an important role in Andorra’s economy and it is dangerous for its development. What do you think?
The good news is that rating agencies have upgraded their ratings. But why are they still not at the top of the rating scale? It is very much related to the fact that Andorra’s banking sector is very large compared with the size of the country and its economy, which is dangerous.
What can we do to optimise the situation?
First, we are negotiating with the International Monetary Fund to become a member of the IMF. If it happens, it will mean that we will receive a better evaluation from rating agencies.
Second, by communicating with the EU we will try to reach a decision regarding Andorran banks liquidity. Andorran banks already have a monetary agreement with the EU in terms of money laundering and regulations.
All Andorran banks’ rules are equivalent to those in the EU. It helps us in the conversation with the EU about Association agreement we also are talking about access to the liquidity of Andorran banks. Both measures could be good leverage for rating agencies in the future for increasing Andorran banks’ rates.
Do you expect an outflow of capital from the banks after the agreement on tax information exchange comes into force in 2018?
No, I don’t expect. This evolution structure is already in the market. We have seen this phenomenon for the last two years. This agreement on tax information exchange will be implemented in September 2018. But all the adjustments have already been made. I would say that Andorran banks are well positioned from the point of view of competitiveness. The ability for Andorran banks to provide services from Andorra to elsewhere with this agreement means a better competitive position for Andorran banks generally.
Next year Andorra joins the association agreement with the EU. What exactly does it mean for Andorra and its economy?
The association agreement with the EU, which will be signed next year, is a strategic question for us. All of these aspects contribute to Andorra being able to compete globally in the future. We will get access to the EU internal market, so the Andorran economy will not only be based on services provided in Andorra (as it has been up to now), but also on exporting our services to the European market. This is a good way to diversify our economy.
What will happen to the country’s sector that works with tobacco production?
The internal market consists of 4 basic freedoms: free circulation of goods, free circulation of people, free circulation of services and free circulation of capital. We have already started negotiations related to the free circulation of goods. We have already had a customs union agreement with the EU, which covers all industrial products, and we have created an exception for all agricultural products. Tobacco is in chapter 24 of this agreement. According to this chapter, we have a long transitional period. It will help our tobacco industry, alongside the general agricultural sector, to find a good way to evolve. We presented our proposals 2 months ago. We are confident that the EU will listen to Andorra and understand the reasons why this is a very prominent area of our economy and how important it is for us from the point of view of our agriculture sector development and tax revenues.
The thing is that now there is a very high disproportion in prices of tobacco in Europe. The difference in the price of tobacco in neighboring Spain and France, for example, differ significantly.
Why did the Government of Andorra make the decision to reform the Ministry and to unite the Ministry of Economy with sectors such as innovation and competitiveness?
For the last 6 years, we have been working hard to create the right frameworks in terms of regulations, transparency, and counteraction to money laundering. We built up a tax system which didn’t previously exist. We have signed double taxation agreements with Spain, France, Portugal, Luxembourg and Malta (negotiations with Belgium will be completed very soon). Step by step we were able to balance our budget and stabilize our GDP, which has been growing for the last 4 years after 7 years of recession. In fact, next year the growth of GDP is expected to be 2%. After that, we started thinking how we could accelerate our innovation projects and provide some friendly competition from Andorra.
So today the ministry of economy covers trade, economic diversification, and transport as well as promoting the concept of Andorra being a competitive market to the global market.
Innovations also play a key role in Andorra’s development. I would like to point out three basic aspects we are working on as a new ministry. First – how to enhance our competitiveness in the tourism sector (which is the most important for Andorra’s economy) via mobility platforms – our initiative aimed at increasing mobility around the country. Second – how to attract talented people to Andorra and simplify the process of setting up business here. Third – how to communicate all that.
Creating a mobility platform is one of the joint projects between Andorra and The Massachusetts institute of technology (MIT). What exactly will this project entail and in what kind of time frame?
Being a big tourist destination we collect data on tourist’s movements and requirements. It helps us to optimise our visitors’ mobility. We are working on a project regarding how to implement “autonomous driving vehicles”. I think that electric cars without drivers can appear in Andorra within 5 years.
On the other side, the energy company FEDA is working on the development of a charging points network. It is obvious: if we have the appropriate infrastructure, we will get more tourists travelling here by electric cars (which are already becoming more and more popular).
Actually, we need a mobility platform which can manage bus lines, electric vehicles and e-bicycles with good parking management. By the end of this year, we will get the results of the two first tenders: on using e-bicycles and the launch of new bus routes in Andorra. Some of the bus stops will be connected to e-bicycles parking.
The acquisition of electric vehicles by Andorran residents is widely supported and subsidized by the Andorran government. What is the budget for these purposes for the next year?
We are going to spend more than 1 million euros (same as this year) to stimulate the acquisition of electric vehicles by Andorrans. Currently, 5% of cars annually sold in Andorra are electric vehicles. With this result, we have been in the TOP 5 European countries in terms of selling electric vehicles for the last 2 years.
But the creation of a technological platform for mobility will require a much larger investment.
Is the free parking policy for electric vehicle owners going to be for a long time?
At the beginning, we must invest in popularising the electric vehicles. This will be our main aim until they became more attractive due to lower prices and energy transition. The evolution is very fast. In the future we will have to shift some of these measures, but not in the upcoming years.
You have mentioned simplifying the process of setting up businesses in Andorra. What will this entail?
The second focus question for our ministry is UN entrepreneurship. We promote Andorra as a good destination in terms of taxes, transparency, and access to the European market. We welcome entrepreneurial initiatives in Andorra. We are going to create a “single physical point”- one place in our ministry building to deal with setting up new businesses. The idea is to provide people with the best service.
And what is the third basic question for the ministry you mentioned?
This is the branding of Andorra. As I have mentioned before, Andorra has changed a lot over the last 6 years. Today, the Association of Entrepreneurs of Andorra (CEA) is working on creating a new brand for Andorra. Our country should be known not only for its ski resorts and shopping centers but also as a modern European country with the latest technology.
Returning to the questions about tourists: now there are about 5 countries in the world where public transport is free. It had a very positive impact on the economy of these cities and, second, on the ecology, because many residents stopped using cars. Would Andorra ever do something like that?
Public transport, including all school buses, is currently 85% subsidized by the government. The promotion of public transport in Andorra is very important. This year we have launched the new national bus station. It connects us with Barcelona and Toulouse‘s airports as well as some other cities of Spain and France. All internal lines are also connected with the national bus station.
But thinking more strategically about tourism, we would like to concentrate on developing a mobility platform, as I mentioned before, and offer our tourists an integrated service package. It could be one ticket for using a bus plus e-bike, for example. Andorra has many places where tourists can’t get without cars. Increasing mobility would help to develop distant places.
The trading sector. How big is the annual turnover of the retail trade sector?
Our trading sector represents about 18% of GDP. Our strategic line is to develop shopping, tourism, and sports trading. But we should always bear in mind that the retail sector is developing very fast. Online retail sites are becoming huge competitors for physical shops so we have to develop this sector in Andorra as well.
What is Andorra’s annual amount of fuel consumption (diesel, gasoline, gas)? How much did total fuel consumption increase over the last five years in Andorra?
Andorra doesn’t have any raw materials except snow. We import 95% of energy from Spain and France. The fuel comes from the same countries. Our fuel balance is the following: 75% – (gas, gasoline etc.) with 15% being energy efficient. Last year for the first time ever we sold fewer fuel vehicles than electric ones. So we had a shift of fuel consumption. Moreover, we now pay more attention when planning buildings and their energy efficiency rates. It helps us to minimise using electricity for heating. But the volume of fuel for individual homes is still very big.
How can developing our innovations market increase Andorran GDP?
Andorra is a very good place to implement innovations. We need innovations in retail, tourism, and mobility as well as services related to the quality of life here. And we are a very comfortable country to work with. For example, IT new technologies can be implemented faster because Andorra is very small. It also applies to other sectors. Communication between the administration, private and public sectors is much easier.
What are the main disadvantages and advantages of Andorra’s pension system and CASS?
This is a huge question. There are two main branches – the health care part and social security. Sustainability is a prominent issue for our country. We have been reforming our processes for a long time and we have to adapt to the current situation that life expectancy in Andorra is long and the population is growing. Consequently, treatment is expensive. In the healthcare part, we were able to manage the cost of expenses, but the fact that the aging population is very high creates higher health care expenses. We have to manage them carefully but keep in mind that it’s going to grow in the future.
Are there any plans to change Andorra´s tax system, introduce new taxes, or make changes to the tax rates?
No, we have no plans to change the kind of taxes we impose, nor the basic rates. We have established a concurrent tax system and balanced our budget. Stability is forcible. With that way, we are able to manage our deficits.
What sectors of the Andorran economy are currently developing more actively?
Our main area of employment is in the services sector. That’s why the Association Agreement is so important for the future of our country.
Is the separation of Catalonia from Spain possible? Do you believe that it can happen?
This is an issue related to the internal affairs of Spain. From the Andorran government’s point of view, this specific matter is very clear – we encourage discussion of the matter, which the situation requires. However, the solution has to be found whilst also respecting the Spanish Constitution.
If the separation happens, how would this affect the Andorran economy? How are the trade relations between Andorra and Catalonia now? What is the turnover?
It is obvious that these events worry us. We import about 70% of our products from Spain. This figure doesn’t mean that all this trade is coming directly from Spain, it also includes the foreign products which come mostly via Spain. The volume of trade between Spain and Andorra is about 1.2 billion euros per year.
