Iceland is a stable democracy with an active consumer economy. The pillars of the Icelandic economy are aluminum smelting, fishing, and tourism. Iceland’s main material exports are aluminum products and fish products, and main service exports are tourism related services. In 2017, tourism accounted for 42% of total exports of goods and services, while marine products were 17% of total exports, aluminium products another 17%, and manufacturing products other than aluminum accounted for 6%. Main material imports to Iceland in 2017 were industrial supplies 27%, capital goods (except for transport) 21%, transport equipment 19%, fuels and lubricants 12%, consumer goods 13%, and food and beverages 8%.
The United States is now Iceland’s largest trading partner by country, both in terms of exports and imports (2016). European Union Member States remain Iceland’s most important trading partners collectively, with exports from Iceland to the EU accounting for 72.3% of total exports, and around two thirds of all imports coming from the EU. The booming tourism industry is a major contributor to the fact that the U.S. is now Iceland’s largest trading partner by country, as the vast majority of tourists now come from the U.S., and tourism is considered export of services.
Iceland is an island nation about the size of the state of Kentucky. It is located in the North Atlantic Ocean between Greenland and Norway. The first settlers arrived from Norway in 874. Iceland achieved full independence from Denmark in 1944, having been ruled by the Norwegians and then the Danes for almost 700 years. Iceland is a member of EFTA (1970) and the EEA (1994). It is also a member of NATO but has no armed forces of its own. The United States, on behalf of NATO, bears primary responsibility for the defense of Iceland under the terms of a 1951 bilateral defense agreement. The United States maintained a Naval Air Station in Iceland until September 2006 when the base was closed. Although Iceland had applied to join the EU in 2009, in May 2015, a new Icelandic government decided to halt the accession negotiations.
With a population of 350,000, the domestic market is small. Icelanders, however, are generally well-educated, with sophisticated tastes, and accepting of American consumer goods. Almost all Icelanders speak English, and there is virtually no language barrier for Americans doing business in Iceland. Iceland is one of the most advanced countries in the world in the use of information and telecommunications technology.
The economic environment of Iceland has been characterized by low inflation and a healthy economic growth rate over the last few years (1.2 percent in 2012; 4.4 percent in 2013; 1.9 percent in 2014; 4.1 percent in 2015; 7.2 percent in 2016; and 3.8% in 2017). Economic growth has slowed down since 2016, with projected growth in 2018 2.9%. GDP amounted to approximately $20.3 billion in 2016, and preliminary numbers indicate that GDP was $24 billion in 2017, using the average exchange rate of 2017. Iceland also has very low unemployment at around 2-3%, and shortage of workers could inhibit further economic growth. As Iceland is a member of the European Economic Area (EEA), residents from other EEA countries, mostly Poland, are immigrating to Iceland, helping to alleviate some of the job market constraints. Around 12-13% of the workforce in Iceland are foreign citizens.
Until recently, U.S. investment in Iceland has mostly been centered in the aluminum sector, with Alcoa and Century Aluminum operating plants in Iceland. However, U.S. portfolio investments in Iceland have been steadily increasing in recent years. Several U.S. brands and franchises have entered the Icelandic market recently, including Costco, Hard Rock Café, KFC/Taco Bell, and Krispy Kreme, and more are testing the waters. Iceland’s convenient location between the United States and Europe, a large number of American tourists demanding U.S. products, Iceland’s high levels of education and English proficiency, and general interest in U.S. products make Iceland a promising market for U.S. companies.
The booming tourism industry has grown by double digits in each of the last seven years. From 2010 to 2017, the number of tourists visiting Iceland increased by more than 470%. However, growth in the industry is expected to slow down in 2018 to 7%, with the projected number of tourists reaching 2.5 million. U.S.-based Carpenter & Company is currently constructing the first 5-star hotel in Reykjavik, which will be operated by the Marriott chain. There are additional investment opportunities in sectors that cater to tourists, as well as in the restaurant sector. A new consumer market is emerging along with the fast growing tourism sector, as the number of tourists in Iceland far exceeds the local population of 350,000. The number of U.S. tourists in Iceland grew by almost 380% between 2014 and 2017, and Americans are now the largest tourist population in Iceland, generating more demand for U.S. products.
Information Technology (IT) has also been one of the fastest growing sectors of the Icelandic economy. Iceland's IT sector spans all areas of the digital economy. Data management systems, workflow systems, communications solutions, wireless data systems, mobile systems, Internet solutions, e-commerce content and solutions, gaming, healthcare solutions and of course fisheries technology systems are all exported to overseas markets. The Icelandic energy grid derives 99% of its power from renewable resources, making it uniquely attractive for energy-dependent industries. For instance, the data center industry in Iceland is rapidly expanding, with many data centers focusing on cryptocurrency mining and related activities.
The Icelandic government has taken the final steps to resolve the estates of the three banks that failed in the 2008 financial crisis and to lift the subsequently imposed capital controls. On March 12, 2017, the cabinet and the Central Bank announced that effective March 14, they would lift capital controls involving “foreign exchange transactions, foreign investment, hedging, and lending activity”. Some permanent prudential protections against foreign exchange instability will remain. This liberalization should help attract further investment to Iceland, and allow Icelandic companies the foreign exchange necessary to invest or expand abroad.
Prepared by our U.S. Embassies abroad. With its network of 108 offices across the United States and in more than 75 countries, the U.S. Commercial Service of the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S. companies sell their products and services worldwide. Locate the U.S. Commercial Service trade specialist in the U.S. nearest you by visiting http://export.gov/usoffices.
