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Economy of Iceland home > Icelandic Impression > Economy of Iceland


Iceland achieved an impressive economic record for most of the 1990s, with one of the highest consistent growth rates in the world and low inflation and unemployment. Among the factors contributing to economic growth have been successful resource management in the mainstay fisheries sector, price stability, diversification of industry, privatization, liberalization and deregulation, development of the Iceland Stock Exchange, growth in foreign investment and business-friendly tax reforms.

(1) Agriculture

Iceland is primarily a food-producing country. The land itself is, in many respects, untouched by modern civilization, and the level of pollution is relatively low. These are unique conditions for producing wholesome and unpolluted agricultural products. Iceland is self-sufficient in the production of meat, dairy products, eggs and to a large extent also in the production of most vegetables. Icelandic farmers employ the latest agricultural technology and output is subject to constant and strict quality control. Icelandic agriculture is primarily based on livestock farming, often a mixture of cattle and sheep. Specialization has, however, increased significantly in recent years. A number of farmers focus on vegetable or greenhouse production. An increasing number of farmers have adopted organic techniques.

(2) Fish Processing and Fishing Gear in Iceland

With plentiful and secure supplies of high quality Icelandic fish, from the unpolluted waters of the North Atlantic. Iceland is the ideal location for companies producing fish products and fishing gear for the European and American markets. Iceland has a 200-mile exclusive zone of rich fishing grounds and a fishing fleet with total capacity of around 120,000 GRT. Plentiful supplies of fish are also available from foreign vessels and Iceland´s distant-water fleet fishing beyond the exclusive zone.

In recent years, total Icelandic catches have ranged from 1,5 to 2,1 million tonnes. The total catch by the Icelandic fleet was 1,724,000 tonnes in 2004 a decrease from 1,980,000 tonnes in 2003 or 14,85% decrease between the two years. In 2003 Iceland was the 12th largest fishing nation in the world with around 2% of world catches. Total export values of Marine products from Iceland state approximately the same between 2003 and 2004 came in with around ISK 113 billion or 62% of total export of goods and just over 42% for goods and services.

(3) Energy

Iceland is the only country in Western Europe that still has large resources of competitively priced hydroelectric power and geothermal energy remaining to be harnessed. Although electricity consumption per capita in Iceland is second to none in the world, at about 28,200 kWh per person, only a fraction of the country’s energy potential has been tapped. Total economically viable electric power potential is now estimated at 50,000 GWh/year. About 8,490 GWh/year of this power had been harnessed in 2003, i.e. only about 17% of the total electrical energy potential.

 Competitively priced electricity has already attracted foreign investors to Iceland in fields such as production of aluminium and ferro-silicon. Export-orientated power-intensive industries now consume more than half the country’s electricity production. 

a) Hydropower in Iceland 

Economically harness able electricity from hydro resources is estimated at about 30,000 GWh per year. The first hydropower plant was constructed in 1904, generating 9kW. In 2003, the total installed hydropower is 1,155 MW and the hydropower production was around 7,100 GWh. The largest single hydropower plant has a production power capacity of 270 MW.

b) Geothermal energy in Iceland  

Icelanders are world leaders in the use of geothermal energy for domestic and industrial purposes. About 87% of the population enjoy central heating by geothermal energy at a price that is generally less than half of the comparable cost of oil or electric heating, thus contributing to making Iceland one of the cleanest environments in Europe. Geothermal steam has been used directly for a number of industrial processing applications in Iceland for decades now, and has also been developed for electricity generation on a small but growing scale. In 2003 the total installed geothermal electric power was 200 MW and the production around 1,420 GWh. 

c) Icelandic Power without pollution

Both hydro and geothermal power are sustainable and supremely environment-friendly – “green” resources which are free from the atmospheric emissions of fossil fuels and the potential hazards of radioactive power sources. In the case of aluminium production, using electricity generated by hydropower instead of coal will typically cut total emissions of CO2 by about 90% per ton of production. A recent venture backed by Daimler-Chrysler, Norsk Hydro and Shell has located one of the world’s first pilot projects for developing infrastructure of a hydrogen-driven transport system in Iceland, using hydropower to make an emission-free petrol substitute, sometimes called “the energy source of the future”.

(4) IT and Communication Technology in Iceland

The strength of Icelandic ICT sector lies in entrepreneurial labour, small-scale teams, good education and adaptability reinforced with sophisticated telecommunication systems. Icelandic ICT companies have specialist know-how and long practical experience in creating solutions for food processing and fisheries, bank technology, multimedia, Internet applications, electronic commerce, real-time telecommunications systems for aviation and transport, medical software, and general office and database systems. 

a) ICT Sector

International producers, marketing companies or distributors have increasingly been investing in the ICT sector in Iceland. Icelandic high-tech companies and several of Iceland's most progressive ventures have announced plans to list their shares on overseas stock markets. Food processing equipment with high levels of automation and computerization has also been developed for all areas of the fish industry and successfully transferred to food production applications in general. Highly specialized industrial equipment has been designed and manufactured in Iceland to serve worldwide markets, for example robots for aluminium plants, pulp moulding systems and a wide range of monitoring devices.

Iceland has sophisticated telecommunications facilities, through fibre-optic cable connections. That offers reliable direct international links for telephone, fax and data networks. Telecommunications are deregulated and telephone charges in Iceland, both at residential and business rates, are the lowest within the OECD. Extensive cellular mobile phone systems are also operated. International connections are by fibre-optic sea cable and satellite. All urban communities around the country are linked by fibre-optic cable. The policy is to lay fibre-optic cables to all new buildings and older areas are gradually being brought into the network. 

b) ICT Export from Iceland

The value of ICT export from Iceland has grown rapidly over the last decade. Exports amounted to ISK 3,700 million in 2003, accounting for 1.3% of total value of export and services from Iceland. This figure excludes substantial sales by the subsidiaries of Icelandic companies in other countries. The total ICT export in EU was USD 30,600 million in 2002. Iceland contributed to 0,13% of EU total export and 0,09% of OECD countries total export. 95 companies out of 136 listed ICT companies in Iceland exported actively in 2003, of them 12 companies exported for more than ISK 100 million. Those companies accounted for 61% of the total ICT export value. Most companies or a little less then half have export earnings under ISK 20 million. 24 companies represented 85% of total ICT export earnings. In 2003, 84% of total ICT export earnings came from the sales of standardise and custom-made software’s. Consulting and data processing came with 11% and licences were 5%. The biggest market area for Icelandic software is EU or around 64% of total export, followed by North America with around 25% and others areas with around 6%.

(5) Biotechnology, Medical and Health Technology in Iceland

a) Biotechnology

Iceland makes an ideal home for biotechnology research as the population is, genetically speaking, relatively homogeneous. The country has a sophisticated, high-quality healthcare system and extensive genealogical records. A pioneer in its field in Iceland, deCODE Genetics operates one of the most technologically advanced high-throughput genotyping laboratories in the world. Together with pharmaceutical companies and other healthcare institutions, deCODE aims to utilize its research to develop new methods for identifying, treating and preventing disease. The Iceland Genomics Corporation, is a newly founded biotechnology company operating a subsidiary in Iceland named UVS. UVS and the Iceland Genomics Corporation aim to utilize the unique situation in Iceland for human genetics research in order to advance knowledge of disease development, with special emphasis on cancer. Innovation is the driving force behind the Icelandic medical and health technology sector. A highly educated workforce with an international outlook, combined with an entrepreneurial environment and a sophisticated health-care system, makes Iceland an ideal place for developing and testing leading health technology innovations.


b) Medical Products from Iceland 

Turnover in medicinal and medical products has been growing over the years and in 2003, the total value of export of medicinal and medical products was ISK 13,500 million. Icelandic firms are now world leaders in prosthetic devices and important exporters of diagnostic technology and medical software. These firms have pioneered medical software for doctors and pharmacies to manage and dispense prescription drugs. Diagnostic technology to assess and measure sleep disorders, respiratory problems and geriatric symptoms has also been developed in Iceland.

Many of the growth leaders in Iceland today are specialized small or medium-size enterprises with expert staff targeting ultra-specialized technology niches where, in many cases, they rank with world leaders in their fields. In Iceland there are more than 700 highly-qualified and well-educated people working in the field. International producers, marketing companies or distributors have increasingly been investing in Icelandic high-tech companies, and several of Iceland's most progressive ventures have announced plans to list their shares on overseas stock markets.

(6) Tourism

With a steady increase in the number of foreign tourists during the past two decades, Iceland now reaches a millenium milestone when tourists outnumber the local population for the first time. As a result, tourism has leapfrogged industrial products as the country’s second most valuable source of currency income. In recent years Iceland has enjoyed greater exposure from increased attention in the international media than ever before. Events such as a volcanic eruption in Europe's biggest glacier, countless triumphs of pop-artist Bjork, upsets by Iceland on the international soccer scene and the return of Keiko, the killer whale, have all attracted media attention to Iceland. Tourists are motivated to visit Iceland in order to benefit from an unusual holiday within Europe. The Icelandic countryside offers a variety of outdoor activities throughout the year, while the city of Reykavík has become a popular weekend destination.

(7) Finance

The local financial market has been transformed over the past decade. Privatization of government controlled banks as well as the launching of the Icelandic Stock Exchange, ISE, has altered the local financial sector dramatically. Since its initiation in 1985, as a joint venture between several banks and brokerage firms, the ISE has played an increasing role in the modernization of the relatively small market. The ISE launched its first trading system in 1989 thus opening up new investment opportunities for private investors.

Many companies began the listing process in 1992. At the end of 1996 a total of 32 companies had been listed on the ISE. There has been a dramatic growth in listings over the past three years bringing the total of listed companies to 75 at the end of 1999. Local brokerage firms have been given a new lease of life. Thriving in a booming economy their marketing techniques motivated on the average Icelander to invest in various corporate shares, thus injecting vital new private funds while offering promising dividends.

(8) Commerce, Consulting and Services in Iceland 

Freedom in all business activities has increased dramatically in Iceland and in recent years the Icelandic economy has undergone significant transformations, largely caused by market liberalization. As a member of the 28-nation European Economic Area (all EU states and three of the four EFTA states), Iceland implements the same basic liberal business philosophy as the European Union. Except in a few limited areas, all EU commercial legislation and directives take effect in Iceland. Consequently, Iceland makes an ideal springboard for tariff-free access to the major EU market area, as well as a fully competitive location for EU companies to operate.

Visitors to Iceland often marvel at the wide variety of foreign merchandise on offer in a country that perhaps prides itself most on its ancient culture and close contact with an unspoiled environment. Here you can find all the best-known names in fashion, cars, electronic equipment and food and beverages. The fact is that Iceland has become a very consumer-conscious nation with one of the highest standards of living in the world.

The most common and economically important type of business in Iceland is the limited company. Other structures are partnerships, cooperative societies, businesses run by the self-employed and branches of foreign limited companies. Iceland's operating environment is competitive with leading countries in the industrial world. With its low tax structure, high education levels and competitive costs for skilled labour, land and electricity. Icelandic companies are expanding internationally due to investments abroad by prosperous and growing local companies. In recent years, the Icelandic banks have been among the key players, defining themselves as international or Nordic banks. 

Iceland has a number of export companies with very interesting products and the service industries are playing a bigger role in exports with the Icelandic economy becoming more service-oriented. Two-thirds of the working population are employed in the service sector, both public and private and is that level comparable to those in the other OECD countries.

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