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PESTLE Analysis of Andorra

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    PESTLE analysis a useful tool for understanding the ‘big picture’ of the environment in which an organisation is operating and is the abbreviation for – Political, Economic, Sociological, Technological, Legal, and Environmental. PESTLE analysis is a useful tool for understanding risks associated with market (the need for a product or service) growth or decline, and as such the position, potential and direction for an individual business or organisation. PESTLE Analysis – ANDORRA

    The Principality of Andorra, the highest country in Europe, is located on the Mediterranean slope of the Western Pyrenees, between two countries of the European Union: France and Spain. Andorra is a mountainous country with narrow valleys. It has a surface area of 468 km2 and an average altitude of over 1,996 metres. The capital is Andorra la Vella. The country is divided into seven administrative districts or parishes: Canillo, Ordino, La Massana, Encamp, Andorra la Vella, Sant Julia and Escaldes-Engordany and the country entire population is 85,105 inhabitants. 2,962 are Andorran, the rest are foreigners, mainly Spanish (26,688), Portuguese (13,100), French (50,879) and British (1,117). The official language of Andorra is Catalan; however, Spanish and French are also used on a regular basis due to geographic proximity and cultural, historic and economic exchanges. English is used in commercial and financial activities. Political Scenario: Historically, Andorra has enjoyed a traditional government and political statutes.

    Based on the Agreements signed at the end of the 13th century, the valleys were positioned under the personal, joint and indivisible sovereignty of the Bishop of Urgell and the Count of Foix, presently represented by the President of the French Republic. Apart from being the only Co-Heads of State in the world, the Co-Princes – as they are known – are the world’s only monarchs appointed by foreigners. Andorra has no control over who becomes the French President and only, by Concordat, a limited right of consultation with the Vatican over the appointment of the Bishop.

    In 1993, the Principality of Andorra was given a modern Constitution by popular will that binds all citizens and public powers. Andorra became an independent, democratic, rightful and social State, and its political system is a parliamentary co-principality. Sovereignty resides with the Andorran people according to the Constitution. The same year the Principality of Andorra signed an agreement with the European Community which deals with the tax treatment of the earnings on savings and on cooperation and became a member of the United Nations.

    Andorra is a member of several International Organizations such as Council of Europe, OSCE, International Organization of La Francophonie and others. The Andorran legislature is the General Council (founded in 1419), which has 28 members, elected to 4-year terms. There is universal suffrage in Andorra, with citizens over the age of 18 having the right to vote. The executive power is vested in the Executive Council, headed by a president (in Catalan, the cap de govern, or head of government) who is chosen by the General Council and then formally appointed by the co-princes. The president appoints the other executive members of the council.

    They have local law-making power, they pass budgets, they set and carry out public policy within their territorial areas and they manage and administer all parish property. In the judiciary, civil cases are heard in the first instance by batlles (4-judge courts), with 2 judges each appointed by a co-prince. Appeals are heard by the one-judge Court of Appeals. The highest judicial body is the 5-member Superior Council of Justice. The Tribunal of Courts in Andorra la Vella hear all criminal cases. Andorra has no standing armed forces and only a small domestic professional police brigade.

    There isn’t a great deal of influence exercised and advice given by Andorra’s two big neighbours, but this duality has been tiny Andorra’s protection for seven centuries. The country is firmly non-belligerent and neutral and has been through two World Wars and seven centuries of armed conflict between France and Spain. Despite promising new changes, it is likely that Andorra will, at least for the short term, continue to confront a number of difficult issues arising from the large influx of foreign residents and the need to develop modern social and political institution.

    The political situation in Andorra is conducive for business but questions of Andorran nationality and immigration policy, other priority issues include allowing freedom of association, dealing with housing scarcities and speculation in real estate, developing the tourist industry, and renegotiating the relationship with the European Union may offer slight jitter to the businesses. Another issue for functioning is that the legislative majorities arise through coalitions. Economic Scenario: Andorra has a developed economy, a free market with a per capita income above the European average and above the level of its neighbours, Spain and France.

    The Andorran economy is focussed on services that are centred largely on the sectors of tourism, trade, property and finance. The country until recently had almost no taxes at all, except for an import duty. There are now a few more taxes: VAT at 4,5% – compared with an average for the EU at a little under 20%; corporation tax at 10% compared with an average of 22% in the EU; and Andorra still has no income tax, whereas high earners in most other countries face rates above 40%. Andorra is also 4th in the world for GDP per capita.

    Towards the end of the 20th Century, the Andorran Economy was based on agriculture and livestock but the change in the economic model started to develop during the middle of the last century, the 50s and 60s, due largely to tourism. To provide incentives for growth and diversification, the Andorran Government, since 2006, has taken the country through an economic reform. The General Counsel (Parliament) approved three main regulations to complement the first phase of economic openness: The law of Companies (October 2007), the Law of Business Accounting (December 2007) and the Law of Foreign Investment (April 2008).

    These regulations establish a transparent, modern and internationally comparable regulatory framework. The tourism and trade represents the fundamental column of the economy. Tourism accounts for roughly 80% of GDP. Around 9 millions of people visits Andorra per year. There are more than 1. 400 stores, and the quality of the products and the prices are competitive. The majority of the shops are located in Andorra la Vella, Escaldes-Engordany and in El Pas de la Casa. During the winter the affluence of tourism grows because of the snow. The ski sector generates 340 million euros aprox.

    The banking sector, with its tax haven status, also contributes substantially to the economy. Agricultural production is limited—only 2% of the land is arable—and most food has to be imported. Some tobacco is grown locally. The principal livestock activity is domestic sheep raising. Manufacturing output consists mainly of cigarettes, cigars, and furniture. Andorra’s natural resources include hydroelectric power, mineral water, timber, iron ore, and lead. The Andorran banking system is characterised by a high rate of solvency due to the politics of Andorran banking entities, which is based on a strong capitalisation from the bank’s beginnings.

    All banks are regulated by the Andorran National Institute of Finance in accordance with the Law of 1993 regulating the financial system. Andorra is not a member of the European Union, but enjoys a special relationship with it, such as being treated as an EU member for trade in manufactured goods (no tariffs) and as a non-EU member for agricultural products. In December, 2011, ratings agency Standard & Poor’s affirmed ts long-term sovereign credit rating on Andorra “A/A-1”. The agency noted the ongoing budgetary consolidation and the fact that the country has a relatively prosperous economy.

    Andorra has one of the world’s lowest unemployment rates at 2. 9% reported for 2009. Thus Andorra has very good economic conditions for business and since it is a tax haven many investments could be routed through Andorra. Tourism, Banking and Imports are the businesses with a good scope in Andorra. Sociocultural Scenario: The population of Andorra is estimated to be 85,082 (July 2011). The main part of the population in Andorra is made up of citizens without Andorran nationality, who do not have the right to vote (suffrage) in communal elections.

    Moreover, they are not allowed to be elected as president or to own more than 33% of the capital stock of a privately held company. Like the rest of the European economies, Andorran economic activity is focussed mainly on services. This sector accounts for 89% of the country’s companies and 79% of all employment, which is the highest level among the majority of the countries of Western and Eastern Europe. The number of jobs in 2010 was 47. 979, which corresponds to 40. 032 salaried jobs . The labour market is characterized by a high proportion of working population, 75%, compared to the 3,3% of the unemployed population.

    High rate of female population which above the rates of the European Union, is an interesting demographic factor. The establishments distributed by activities are: trade representing 36% of the total, followed by the activities of business services with 16. 84% and the hotel also stands out with a 13 % above the 11% construction and manufacturing industries to complete only represent 4%. The minimum salary is 92907 Euros (2011), while the average salary is 216324 Euros. The education between 6 to 16 years old is provided free of charge by the government.

    Class differences in Andorra are quite clear and possess marked characteristics, such as residence. Practically all the original Andorran population belongs to the high or medium-high stratum of society as the first group to arrive in the nation. The rest of the Spanish population is basically salaried, although there are executive groups and small entrepreneurs among them. Most Portuguese are found in less-skilled labor positions, especially in hostelry and construction. The French population comprises bureaucrats and small-scale entrepreneurs in hostelry or commerce.

    Apart from evocative differences of residence, other indicators of class difference include fashion. The Andorran elite sport well-known international brands, which contrast with the sobriety of the rest of the society. Automobiles are also a highly visible indicator of consumption. Even though the entire society is motorized, only a minority has access to such luxury cars as Rolls-Royce, Mercedes, Audi, and BMW. Andorra thus provides a educated workforce and brand conscious set of consumers for companies to utilise and serve. Technological Scenario: The road system is made up of 272. km of roads. Andorra has 90. 5 km of main roads and 182 km of secondary roads distributed about the Principality following the course of the main rivers of Andorra. The Andorra Telecom the only operator in the Principality has played a major role to improve the telecommunications infrastructure.

    Andorra only has a digital terrestrial television (DTT) signal. In September 2007, transmission of the analog signal was stopped, making Andorra one of the first countries in the world to adopt the DTT system. By 2010 every home and company in the country had ibre optic cables connection (fibre to the home, ftth) which enabled Internet with symmetrical speeds of up to 100 Mbps, advanced telephone services, high definition television, a la carte television, and new opportunities and services for companies. Comprehensive coverage is met through 3. 5G technology (HSDPA). For such a small country in the middle of a mountain range Andorra impresses by being the 11th in the world for broadband speed – beating the United Kingdom for example, and according to Ookla who carried out the research Andorra has 14. 9Mbps. Andorra has been a very high technology importer. They adopt latest technologies and this opens wide opportunities for technological firms. But the low population is a pullback. Legal Scenario: The Corporations Act 1983 governs corporations formed in Andorra. There are three types of company, the Societat de Responsabilitat Limitada and the Societat per Accions both having shareholders with limited liability, and the Societat Colectiva, whose partners have unlimited liability.

    Companies with commercial or profit-seeking goals must be owned at least two-thirds by Andorran citizens; this means, people born in Andorra, or Privileged Residents – those with more than 20 years’ residence (in the case of Spanish and French nationals, the period of continuous residence is reduced to a minimum of 10 years). In practice, the Andorran majority owner of a business (called a ‘titular’ in Catalan) can be an Andorran individual or professional adviser who is willing to cede operational control of the business to the foreign ‘owner’, and sign a share transfer in blank, in return for a fee (called ‘prestanom’ in Catalan.

    Discussions have taken place on proposed changes to the law under which the limit on foreign participation would be raised to 40%, and non-Andorrans would be able to own 100% of certain types of company, including: audio-visual production and marketing, technological and scientific research, production of medicines, E-commerce, and broadcasting. It has also been proposed that companies with turnover in excess of €5m annually will be subject to compulsory audit. The Foreign Investment Law, which came into effect on November 7, 2008, and allows the opening up of 200 economic sectors to entrepreneurs and usinesses from other countries. As a result of the new legislation, foreigners can now hold 100% – until now the limit was 33% – of the capital of a business in one of the designated sectors. The Foreign Investment Law completes the legislative package which also contains two laws that have already been adopted: The Law of Companies and The Law of Business Accounting. This package is intended to increase the international competitiveness of Andorra, attract foreign investors into high value added sectors and strengthen the legal framework for business. The government anticipates the adoption of two additional laws.

    One is intended to establish a tax rate on the profits of companies of between 5 and 10%. The other will create a value-added tax of around 4% that will replace all of the existing indirect taxes. The legal system in Andorra demand for low taxes and thus encourages business. The only hurdle is the rule which restricts the ownership by foreigners. Environmental Scenario: The Principality of Andorra is located at high altitude in the Eastern Pyrenees, landlocked between France and Spain. Its total area is 467 sq km. The landscape is mountainous with narrow valleys in between.

    Riu Valira at 849m is the lowest point and the highest point is Coma Pedrosa at 2,946 m. The environment of Andorra was once heavily forested. One explanation for the name of the country is that it came from the Moorish word aldarra, meaning place thick with trees. Andorra’s mountainous environment attracts 12 million tourists each year. In recent decades, however, the forested area has been decreasing steadily. Andorra is a very small country situated in the Pyrenees Mountains, so the country’s natural resources are limited to what can be gathered from that terrain.

    They have hydropower and mineral water from the mountain streams and rivers. They have timber from the forest-covered mountains. They can also gather iron ore and lead from the rocky mountain terrain. Overgrazing of mountain meadows by sheep, with consequent soil erosion, is another environmental problem. Its major environmental issues include Deforestation; Overgrazing of mountain meadows contributes to soil erosion; Air pollution; Wastewater treatment and solid waste disposal and Avalanches. Andorra’s environmental and conservation issues also are directly related to the terrain.

    Andorra is concerned about the deforestation remaining 99 sq km of forest. This is a difficult issue because timber is one of the country’s only exportable goods. It is also concerned with the overgrazing of their mountain meadows (meadows and pastures make up 56% of the total land area). This overgrazing leads to soil erosion of the hillsides. Due to the fact that the country has so little arable land agricultural production is limited and the majority of the country’s food has to be imported. Thus the environment doesn’t offer much to business.

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