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Iceland - Overview

Contents extracted from the comprehensive atlas of international trade by Export Entreprises

Introduction

Capital:: Reykjavik
Area:: 103 km2
Total Population:: 321
Annual growth rate:: 1.00%
Density:: 3.00/km2
Urban population:: 94%
Population of Reykjavík (117), Kopavogur (29), Hafnarfjordur (25), Akureyrí (17), Gardabaer (10)
Official language: Icelandic
Other languages spoken: Most of the Icelanders can speak English and Danish.
Business language: English
Ethnic Origins:: Homogeneous mixture of descendants of Norse and Celts 94%, population of foreign origin 6%
Beliefs: Protestants 96%, Atheists 15%, Catholics 1%, Others 1.5%.
Telephone codes:
To make a call from: 0
To make a call to: +354
Internet suffix:: .is
Type of State::
Republic state based on parliamentary democracy.
Type of economy::
High-income economy, OECD member
A pioneering country in renewable energy sources; exports of fishery products are dominant in the economy.

Economic overview

After a period of continuous growth between the second half of the 1990s and 2007, Iceland was badly hit by the global international crisis since October 2008. The rapid expansion of the Icelandic financial system left Iceland completely vulnerable to affront the international financial shocks, up to the point of practically inducing the country into a situation of "national bankruptcy". On top of this Iceland's economy had previously been stimulated by a real estate boom, which contributed to destabilizing the economic situation even more.

Confronted to the total collapse of its financial system, the former government of Geeir Haarde had to nationalize the country's main banks. However, inflation continues to climb (reaching almost 18.6% today). In November 2008, the IMF granted a loan of USD 2 billion in order to stabilize the Icelandic krona's exchange rate, which has suffered considerably due to the crisis, and to re-establish confidence in the economy. In order to benefit from European aid and from the protection that the Euro currency provides, Iceland requested in July 2009 a candidature for its accession to the European Union. The country has officially declined to go further due to the anti-European sentiment of its population.

in 2013 the growth rate reached 1.9% (following 2.5% in 2012) and should come back to 2.5% in 2014. Main factor in this growth rate, household consumption will remain strong in 2014, pushed by the sharp decrease of unemployment (5.6% in 2013 due to the tourism boom), by the increase in salary and by the stabilization of inflation (3.8% in 2013).

Main industries

The agricultural sector has contributed in 2013 to 5.9% of the Icelandic GDP, the industrial sector to 22.9% and services to more than 71.2%.

The Icelandic economy relies partly in its renewable natural resources and its related industries: deep sea fishing, hydraulic and geothermal power and pastures.

Fishing accounts for almost 6% of GDP (more than 11% with the processing sector and over 18% when counting its indirect contribution).

It has been several years that its economy has also grown thanks to the services sector. As a fact, Iceland has become the rear-base of several companies specialized in computers and software. There are also many calling centers in the Icelandic territory.

Foreign trade overview

Iceland has always been open to international trade. Almost half of the exports are fishing products. Iceland also exports aluminum and ferrosilicon (around 40% of its total exports in 2013), as well as dairy products. Tourism has been on a constant rise since 2011, stimulated by the collapse of the national currency. Certain traditional sectors, such as fishing, are doing well, which stimulates the dynamism of the exports.

In 2013, Iceland's main customers have been the Netherland (over 30% of exports), Germany, the UK, Norway and the United-States.

Its main suppliers were Norway (over 17% of imports), the USA, Germany, China and Brazil.

The potentials of hydroelectricity stimulates aluminum production, the leading resource for export concentrating 70% of the electricity produced on the island in 2013.

FDI

In a context where global foreign investment increased by 10.9% in 2013, in particular in Europe (+25.2%) and in Latin America (+17.5%), FDI flows to developing economies reached a new high of US$759 billion. However macroeconomic fragility and policy uncertainties are driving investors to caution.

Foreign direct investment in Iceland, which had been growing regularly during the pre 2008 years, fell that year essentially due to Iceland's over-exposure in the international markets combined to the general bankruptcy of the country's banking system. The FDI was mainly directed towards retail sales, biotechnology, geothermal science, information and communication technologies and health technologies. Franchising is in full-growth in Iceland, especially in the retail sector.

Iceland's main advantages to a company in terms of investment are: an English-speaking manpower, a positive economic environment and a high purchasing power. The main drawbacks of investing in Iceland are: high cost of living, a weak demography, a bankrupt financial system, and its long distance from the European continent. Due to the deep financial crisis that Iceland has gone through, FDI has strongly decreased. However, since 2011, the country has managed to meet the commitments made to the IMF which has sent a positive message to foreign investors in 2012 and 2013. The total of FDI influx in 2013 has been just over USD 500 million.

Information on the 2013 FDI influx in this region can be accessed in the Global Investment Trade Monitor published in January 2014 by the United Nations Conference on Trade and Development (UNCTAD).

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