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|Economy of Iceland|
|Currency||Icelandic króna (ISK)|
|Fiscal year||calendar year|
|Trade organisations||WTO, EFTA, OECD, EEA|
|GDP||$14.1 billion (2011 est.)|
|GDP per capita||$38,000 (2011 est.) (20th)|
|Inflation (CPI)||2.8% (May 2011) |
below poverty line
|10% (below 60% of the median equivalised disposable income; 2005)|
|Gini coefficient||28 (2006)|
|Labour force||175,700 (2011)|
|agriculture 4.8%, industry 22%, services 73% (2008)|
|Unemployment||4.8% (June 2012)|
|Main industries||fishing; aluminum smelting, ferrosilicon production; geothermal power, tourism|
|Ease of Doing Business Rank||9th|
|Exports||$5.3 billion f.o.b. (2011 est.)|
|Export goods||fish and fish products 40%, aluminum, animal products, ferrosilicon, diatomite|
|Main export partners||Netherlands 33.9%, Germany 14.1%, UK 10.1%, Spain 4.7%, US 4.5%, Norway 4.3% (2010)|
|Imports||$4.5 billion f.o.b. (2011 est.)|
|Import goods||machinery and equipment, petroleum products, foodstuffs, textiles|
|Main import partners||Norway 9%, Brazil 8.7%, Netherlands 8.5%, US 8.1%, Germany 7.5%, Denmark 7%, China 6%, Finland 5.4%, Sweden 5.2%, UK 5.1% (2010)|
|Public debt||$10.941 billion (2007)|
|Revenues||$6.011 billion (2011 est.)|
|Expenses||$6.862 billion (2011 est.)|
|Economic aid||~$20 million (0.24% GDP, 2009 budget)|
|Credit rating||Standard & Poor's:
BBB- (T&C Assessment)
|Foreign reserves||US$6.862 billion (April 2011)|
|Main data source: CIA World Fact Book
All values, unless otherwise stated, are in US dollars
The economy of Iceland is small and subject to high volatility. In 2011, gross domestic product was US$12.3bn, or $38,000 per capita, based on purchasing power parity (PPP) estimates. The financial crisis of 2007–2010 produced a decline in GDP and employment, although the magnitude of this decline remains to be determined.
In the 1990s Iceland undertook extensive free market reforms, which initially produced strong economic growth. As a result, Iceland was rated as having one of the world's highest levels of economic freedom as well as civil freedoms. In 2007, Iceland topped the list of nations ranked by Human Development Index and was one of the most egalitarian, according to the calculation provided by the Gini coefficient.
From 2006 onwards, the economy faced problems of growing inflation and current account deficits. Partly in response, and partly as a result of earlier reforms, the financial system expanded rapidly before collapsing entirely in a sweeping financial crisis. Iceland had to obtain emergency funding from the International Monetary Fund and a range of European countries in November 2008.
Iceland occupies a land area of 103,000 square kilometers. It has a 4,790 kilometer coastline and a 200 nautical mile (370.4 km) exclusive economic zone extending over 758,000 square kilometers of water. Approximately only 0.7% of Iceland's surface area is arable, since the island's terrain is mostly mountainous and volcanic.
Iceland has few proven mineral resources. In the past, deposits of sulphur have been mined, and diatomite (skeletal algae) was extracted from lake Mývatn until recently. However, today most sulphur is obtained in the refining of oil. That plant has now been closed for environmental reasons. The only natural resource conversion in Iceland is the manufacture of cement. Concrete is widely used as building material, including for all types of residential housing.
By harnessing the abundant hydroelectric and geothermal power sources, Iceland's renewable energy industry provides over 70% of all the nation's primary energy - proportionally more than any other country - with 99.9% of Iceland's electricity being generated from renewables. The Icelandic Parliament decided in 1998 to convert vehicle and fishing fleets to hydrogen fuel and consequently Iceland expects to be energy-independent, using 100% renewable energy, by 2050. As part of this program, the country opened the world's first public hydrogen filling station in 2003. As of 2007, it has about 40 hydrogen-powered vehicles on the road, second only to the U.S. state of California.
By far the largest of the many Icelandic hydroelectric power stations is Kárahnjúkavirkjun (690 MW) in the area north of Vatnajökull. Other stations include Búrfell (270 MW), Hrauneyjarfoss (210 MW), Sigalda (150 MW), Blanda (150 MW), and more. Iceland has explored the feasibility of exporting hydroelectric energy via submarine cable to mainland Europe and also actively seeks to expand its power-intensive industries, including aluminium and ferro-silicon smelting plants.
The presence of abundant electrical power due to Iceland's hydroelectric energy sources has led to the growth of the manufacturing sector. Power-intensive industries, which are the largest components of the manufacturing sector, produce mainly for export. Manufactured products constituted 36% of all merchandise exports, an increase from the 1997 figure of 22%. Power-intensive products' share of merchandise exports is 21%, compared to 12% in 1997.
Aluminium smelting is the most important power-intensive industry in Iceland. There are currently three plants in operation.
Rio Tinto Alcan operates Iceland's first aluminium smelter (plant name: ISAL), in Straumsvík, near the town of Hafnarfjörður. The plant has been in operation since 1969. Its initial capacity was 33,000 metric tons per year (mtpy) but has since been expanded several times and now has a capacity of about 189,000 mtpy.
The second plant started operations in 1998 and is operated by Norðurál, a wholly owned subsidiary of U.S.-based Century Aluminium Company. It is located in Grundartangi in Western Iceland near the town of Akranes. Its current capacity is 220,000 mtpy but an expansion to 260,000 mtpy is already underway and is expected to be completed in the last quarter of 2007.
United States-based aluminum manufacturer Alcoa runs a plant near the town of Reyðarfjördur. The plant, known as Fjarðaál (or "aluminum of the fjords") has a capacity of 346,000 mtpy and was put into operation in April 2008. To power the plant, Landsvirkjun built Kárahnjukar, a 630-megawatt hydropower station. This is an astonishing figure, as prior to this development, the entire nation of Iceland's power usage was in the 300-megawatt range.
According to Alcoa, construction of Fjarðaál entailed no human displacement, no impact on endangered species, and no danger to commercial fisheries; there will also be no significant effect on reindeer, bird and seal populations. However, the project drew considerable opposition from environmentalist groups such as the World Wide Fund for Nature, which called on Alcoa to abandon the plan to build Fjarðaál. In addition, Icelandic singer Björk was a notable early opponent to the plan; protesting the proposed construction, the singer's mother, Hildur Rúna Hauksdóttir, went on a hunger strike in 2002.
Alcoa is also conducting a feasibility study on the possibility of building a second plant in Iceland near Húsavík. That plant would have a 250,000 mtpy capacity and was planned to be powered entirely by geothermal power, however estimates show a potential need for other sources of power. If the decision is made to build the plant, construction would not start before 2010.
Norðurál has signed a memorandum of understanding to purchase electricity for its own aluminum reduction project in Helguvík. The agreement was reached between Norðurál and two Icelandic geothermal power producers, Hitaveita Suðurnesja and Orkuveita Reykjavíkur. The power supplied will initially support aluminum production of 150,000 mtpy, which will eventually grow to support 250,000 mtpy.
If all of the currently proposed expansions and new plants are constructed, the total production capacity of the Icelandic aluminum industry will rise to 1,542,000 mtpy, compared to the current capacity of 400,000 mtpy.
Iceland is the second biggest fishery behind Norway in the North East Atlantic, since overtaking the United Kingdom in the early 1990s. In 2009 Iceland yielded a total catch in the Northeast Atlantic of 1,164,197 tonnes; however, Iceland has been affected by the decline in fishing yields in the Northeast Atlantic, with a one way decrease of 18% from 2003 to 2009.
Cod is the largest catch by Icelandic fisheries in the Northeast Atlantic, with a total catch of 178,516 tonnes in 2010. The catch of cod has stagnated in recent years due to quotas, and was supplemented by the catch of blue whiting, which is used mainly for processing. The Icelandic catch of this previously insignificant fish increased from a negligible 369 tonnes in 1995 to a peak of 501,505 tonnes in 2003. Inevitability, blue whiting stocks showed signs of instability and quotas have led to a decline in the catch by 57% to 87,121 tonnes in 2010.
The Icelandic banking system has been completely overhauled in the wake of its collapse in 2008. There are now three major commercial banks, NBI (commonly referred to as Landsbanki), Arion Bank (formerly Kaupthing Bank) and Islandsbanki (formerly Glitinir). There are smaller banks, including Straumur Investment Bank and MP Bank, and some savings banks. There has been extensive consolidation of smaller banks, with Sparisjodur Keflavikur being taken over by Landsbanki and Byr being taken over by Islandsbanki. There is no bank presently listed on Kauphöll Íslands (the Iceland Stock Exchange). Arion Bank and Islandsbanki are mostly owned by foreign creditors while Landsbanki is now majority owned by the State. The ownership stake of the Icelandic State in the banks is managed by Bankasysla rikisins (State Financial Investments), which aims to privatise its shares in the banks in coming years.
Because of the persistent inflation, historical reliance on fish production and the long-standing public ownership of the commercial banks, equity markets were slow to develop. Kauphöll Íslands, the Iceland Stock Exchange (better known as ICEX), was created in 1985. Trading in Icelandic T-Bonds began in 1986 and trading in equities commenced in 1990. All domestic trading in Icelandic equities, bonds and mutual funds takes place on the ICEX.
The ICEX has used electronic trading systems since its creation. Since 2000, SAXESS, the joint trading system of the NOREX alliance, has been used. There are currently two equities markets on the ICEX. The Main Market is the larger and better known of the two. The Alternative Market is a less regulated over-the-counter market. Because of the small size of the market, trading is illiquid in comparison with larger markets. A variety of firms across all sectors of the Icelandic economy are listed on the ICEX.
The most important stock market index is the ICEX 15.
Historically, investors tended to be reluctant to hold Icelandic bonds because of the persistence of high inflation and the volatility of the Króna. What did exist was largely limited to bonds offered by the central government. The bond market on the ICEX has boomed in recent years, however, largely because of the resale of mortgages as housing bonds.
Iceland's economy is highly export-driven. Marine products account for the majority of goods exports. Other important exports include aluminum, ferro-silicon alloys, machinery and electronic equipment for the fishing industry, software, woollen goods. Most of Iceland's exports go to the European Union (EU) and European Free Trade Association (EFTA) countries, the United States, and Japan. The 2005 value of Iceland's exports was $3.215 billion FOB.
The main imports are machinery and equipment, petroleum products, foodstuffs and textiles. Cement is Iceland's most imported product. The total 2005 value of imports was $4.582 billion. Iceland's primary import partner is Germany, with 12.6%, followed by the United States, Norway, and Denmark. Most agricultural products are subject to high tariffs; the import of some products, such as uncooked meat, is greatly restricted for phyto-sanitary reasons.
Iceland's relatively liberal trading policy has been strengthened by accession to the European Economic Area in 1993 and by the Uruguay Round, which also brought significantly improved market access for Iceland's exports, particularly seafood products. However, the agricultural sector remains heavily subsidized and protected; some tariffs range as high as 700%.
The fishing industry is one of the most important industries. It provides 40% of export income and employs 7.0% of the workforce; therefore, the state of the economy remains sensitive to world prices for fish products.
The following table should be considered in light of the dramatic depreciation of the currency in 2008 of approximately 50%, corrected to EUD or USD. Corrected in this manner imports since the 2007 peak have been are negative not positive. See Wikipedia entry on Icelandic króna.
Since 1988, Iceland's economy has only ended the year with a surplus four times, in 1993, 1994, 2009 and 2010.
Iceland became a full European Free Trade Association member in 1970 and entered into a free trade agreement with the European Community in 1973. Under the agreement on a European Economic Area, effective January 1, 1994, there is basically free cross-border movement of capital, labor, goods, and services between Iceland, Norway, and the EU countries. However, many of Iceland's political parties remain opposed to EU membership, primarily because of Icelanders' concern about losing control over their fishing resources. Iceland also has bilateral free trade agreements with several countries outside the EEA. The most extensive of these is the Hoyvík Agreement between Iceland and the Faroe Islands, this agreement goes even further than the EEA agreement by establishing free trade in agricultural products between the nations. Iceland has a free trade agreement with Mexico on November 27, 2000.
The currency of Iceland is the króna (plural: krónur), issued exclusively by the Central Bank of Iceland since the bank's founding in 1961. The exchange rate in 2008 was 78 krónur to the United States dollar, down from 97.43 in 2001. Iceland's Krona went from 60 to the dollar in November 2007 to 147 to the dollar in November 2008.
During the 1970s the oil shocks (1973 and 1979 energy crisis) hit Iceland hard. Inflation rose to 43% in 1974 and 59% in 1980, falling to 15% in 1987 but rising to 30% in 1988. Iceland experienced moderately strong GDP growth (3% on average) from 1995 to 2004. Growth slowed between 2000 and 2002, but the economy expanded by 4.3% in 2003 and grew by 6.2% in 2004. Growth in 2005 exceeded 6%. Inflation averaged merely 1.5% from 1993–94, and only 1.7% from 1994-95. Inflation over 2006 topped at 8.6%, with a rate of 6.9% as of January 2007. Standard & Poor's reduced their rating for Iceland to AA- from A+ (long term) in December 2006, following a loosening of fiscal policy by the Icelandic government ahead of the 2007 elections. Foreign debt has risen to more than five times the value of its GDP, and Iceland's Central Bank has raised short-term interest rates to nearly 15% in 2007. Due to the plunging currency against the euro and dollar, in 2008 inflation is speculated to currently be at 20-25%.
Iceland's economy had been diversifying into manufacturing and service industries in the 1990s, and new developments in software production, biotechnology, and financial services were taking place. The tourism sector was also expanding, with the recent trends in ecotourism and whale watching. However, in 2008, the Icelandic economy entered a deep recession in correspondence to the global financial crisis. Although Iceland's economy grew 3.3% during the last quarter of 2009, the overall contraction in GDP over 2009 was 6.5%, less than the 10% originally forecasted by the IMF.
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