Iceland is an island country located between North America and Europe in the Atlantic Ocean, near the Arctic Circle with an advanced economy that centers around three primary sectors: fisheries, tourism, and aluminum production. Until recently, U.S. investment in Iceland has mostly been concentrated 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. Iceland’s convenient location between the United States and Europe, its high levels of education, connectivity, and English proficiency, and a general appreciation for U.S. products make Iceland a promising market for U.S. companies. Furthermore, Americans made up a third of the tourist population that visited Iceland in 2021.
There is broad recognition within the Icelandic government that foreign direct investment (FDI) is a key contributor to the country’s economic revival after the 2008 financial collapse. As part of its investment promotion strategy, the Icelandic government operates a public-private agency called “Invest in Iceland” that facilitates foreign investment by providing information to potential investors and promoting investment incentives. Iceland has identified the following “key sectors” in Iceland; tourism; algae culture; data centers; and life sciences. Iceland offers incentives to foreign investors in certain industries.
Tourism has been a growing force behind Iceland’s economy in the past decade, with opportunities for investors in high-end tourism, including luxury resorts and hotels. The number of tourists in Iceland grew by more than 400 percent between 2010 and 2018, reaching more than 2.3 million in 2018. However, tourism in Iceland contracted in 2019, and the COVID-19 pandemic has had drastic effects on tourism, and the overall economy. The government implemented measures to bolster the tourism economy, thus avoiding mass bankruptcies in the sector, and has committed to building out tourism-related infrastructure.
The startup and innovation communities in Iceland are flourishing, with the IT and biotech sectors growing fast, particularly pharmaceuticals and wellness, gaming, and aquaculture. Iceland’s IT sector spans all areas of the digital economy. The Icelandic energy grid derives 99 percent of its power from renewable resources, making it uniquely attractive for energy-dependent industries. For instance, the data center industry in Iceland is expanding.
Iceland is working by the 2018 Climate Acton Plan, which was updated in 2020, and is designed to achieve Iceland’s national climate goals of making the country carbon neutral by 2040 and to cut greenhouse gas emissions by 40 percent by 2030 under the Paris Agreement.
|TI Corruption Perceptions Index||2021||13 of 175||http://www.transparency.org/research/cpi/overview|
|Global Innovation Index||2021||17 of 132||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, historical stock positions)||2020||$796||https://apps.bea.gov/international/factsheet/|
|World Bank GNI per capita||2020||$62,420||https://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
6. Financial Sector
Capital controls were lifted in March 2017 after more than eight years of restricting the free movement of capital. New foreign currency inflows fall under the Rules on Special Reserve Requirements for new Currency Inflows, no. 223/2019 which took effect on March 6, 2019, and replaced the older Rules no. 490/2016 on the same subject. The rules contain provisions on the implementation of special reserve requirements for new foreign currency inflows, including the special reserve base, holding period, special reserve ratio, settlement currency, and interest rates on deposit institutions’ capital flow accounts with the Central Bank of Iceland and Central Bank certificates of deposit. For more information see the Central Bank of Iceland’s website ( ).
Foreign portfolio investment has increased significantly over the past few years in Iceland after being dormant in the years following the economic crash. U.S. investment funds have been particularly active on the Icelandic stock exchange. The Icelandic stock exchange operates under the name Nasdaq Iceland. Companies listed on Nasdaq Iceland are reported on its website ( ). The private sector has access to financing through the commercial banks and pensions funds.
The IMF 2019 Article IV Consultation report states that “the de jure exchange rate arrangement is free floating, and the de facto exchange rate arrangement under the IMF classification system is floating. In the period from November 2018 to October 31, 2019, the Central Bank of Iceland (CBI) intervened in the foreign exchange market on 14 of the 248 working days. The CBI publishes daily data on its foreign exchange intervention with a lag. Iceland has accepted the obligations under Article VIII, Sections 2(a), 3, and 4 and maintains no exchange restrictions subject to Fund jurisdiction under Article VIII, Section 2(a). Iceland continues to maintain certain measures that constitute exchange restrictions imposed for security reasons based on UN Security Council Resolutions.” ( ).
The Central Bank of Iceland is an independent institution owned by the State and operates under the auspices of the Prime Minister. Its objective is to promote price stability, financial stability, and sound and secure financial activities. The bank also maintains international reserves and promotes a safe, effective financial system, including domestic and cross-border payment intermediation.
The Icelandic banking sector is generally healthy. The Central Bank of Iceland has since the financial collapse of 2008 introduced stringent measures to ensure that the financial system remains “safe, stable, and effective.” For more information see the Central Bank webpage ( ). There are three commercial banks in Iceland, Landsbankinn, Islandsbanki, and Arion Bank. The Government of Iceland took over operations of the banks during the financial collapse in September and October 2008. Landsbankinn (formerly known as Landsbanki Islands) is still government-owned, while the Government of Iceland is in the process of privatizing Islandsbanki (formerly known as Glitnir). Arion Bank (formerly known as Kaupthing Bank) has been privatized and is listed on the Icelandic stock exchange Nasdaq Iceland. There is one investment bank in Iceland, Kvika, which is listed on Nasdaq Iceland. Icelandic pension funds offer loans and mortgages and are active investors in Icelandic companies. There are no foreign banks operating in Iceland.
All companies have access to regular commercial banking services in Iceland. Establishing a bank account in Iceland requires a local personal identification number known as a “kennitala.” Foreign nationals should contact Registers Iceland for more information on how to register in Iceland ( ).
The Government of Iceland has proposed establishing a sovereign wealth fund, called the National Fund of Iceland. The bill to establish the fund has not passed through Parliament. The stated purpose of the fund is “to serve as a sort of disaster relief reserve for the nation, when the Treasury suffers a financial blow in connection with severe, unforeseen shocks to the national economy, either due to a plunge in revenues or the cost of relief measures that the government has considered unavoidable to undertake.”
7. State-Owned Enterprises
The Icelandic Government owns wholly or majority shares in 40 companies, including systematically important companies such as energy companies, the Icelandic National Broadcasting Service (RUV) and Iceland Post. Other notable SOEs are Landsbankinn (one of three commercial banks in Iceland), Isavia (public company that operates Keflavik International Airport), and ATVR (the only company allowed to sell alcohol to the general public). Here you can find a list of SOEs ( ). Total assets of SOEs in 2020 amounted to 5,735 billion ISK (approx. $44.3 billion) and SOEs employed around 5,100 people that same year. In terms of assets and equity, Landsbankinn (one of three commercial banks in Iceland) is the largest SOE in Iceland, and Isavia employs the most people.
State-owned enterprises (SOEs) generally compete under the same terms and conditions as private enterprises, except in the energy production and distribution sector. Private enterprises have similar access to financing as SOEs through the banking system.
As an OECD member, Iceland adheres to the OECD Guidelines on Corporate Governance. The Iceland Chamber of Commerce in Iceland, NASDAQ OMX Iceland and the Confederation of Icelandic Employers have issued guidelines that mirror the OECD Guidelines on Corporate Governance. Iceland is party to the Government Procurement Agreement (GPA) within the framework of the World Trade Organization (WTO).
For SOEs operating within the private sector in a competitive environment, the general guideline from the Icelandic government is that all decisions of the board of the SOE should ensure a level playing field and spur competition in the market.
In the midst of the banking crisis, the state, through the Financial Supervisory Authority (FME), took over Iceland’s three largest commercial banks, which collapsed in October 2008, and subsequently took over several savings banks to allow for uninterrupted banking services in the country. The government has started the privatization process of Islandsbanki, and currently owns 42.5 percent shares in the bank. The Bank Shares Management Company, established by the state in 2009, manages state-owned shares in financial companies.
The government of Iceland has acquired stakes in many companies through its ownership of shares in the banks; however, it is the policy of the government not to interfere with internal or day-to-day management decisions of these companies. Instead, in 2009, the state established the Bank Shares Management Company to manage the state-owned shares in financial companies. The board of this entity, consisting of individuals appointed by the Minister of Finance, appoints a selection committee, which in turn chooses the State representative to sit on the boards of the various companies.
While most energy producers are either owned by the state or municipalities, there is free competition in the energy market. That said, potential foreign investment in critical sectors like energy is likely to be met by demands for Icelandic ownership, either formally or from the public. For example, a Canadian company, Magma Energy, acquired a 95 percent stake in the energy production company HS Orka in 2010, but later sold a 33.4 percent stake to the Icelandic pension funds in the face of intense public pressure.
Iceland’s universal healthcare system is mainly state-operated. However, few legal restrictions to private medical practice exist; private clinics are required to maintain an agreement regarding payment for services with the Icelandic state, a foreign state, or an insurance company.
Icelandic authorities are currently in the process of privatizing Islandsbanki, one of Iceland’s three commercial banks. Authorities sold 35 percent shares in Islandsbanki in 2021, and 22.5 percent earlier this year. The government currently owns 42.5 percent in the bank. The government of Iceland currently owns 99.8 percent in Landsbankinn and has no immediate plans to privatize it. The government took ownership of the banks when the Icelandic banking system collapsed in 2008. Minister of Finance and Economic Affairs, Bjarni Benediktsson, has publicly declared his intentions to sell all government of Iceland shares in Islandsbanki, but wants the government to remain a large shareholder in Landsbankinn, with around 40 percent of shares.
Isolated cases of corruption have been known to occur but are not an obstacle to foreign investment in Iceland or a recognized issue of concern in the government. In 2021 Iceland ranked 13 out of 180 economies on the Transparency International’s Corruption Perceptions Index. Iceland has signed the UN Convention against Corruption. Iceland is a member of the OECD Convention on Combatting Bribery.
The Council of Europe body Group of States Against Corruption (GRECO) published its fifth evaluation report on Iceland on April 12, 2018. GRECO found that Iceland had no dedicated government-wide policy plan on anti-corruption and that its agency and institution-specific codes of conduct were not sufficiently detailed and were often implemented in an ad hoc manner. For more information, see the GRECO report ( ). The Icelandic Parliament introduced a new law in 2020 on measures against conflict of interests for ministers, assistance to ministers, director generals at ministries, and ambassadors, concerning receiving gifts, additional job positions, and supervision of the aforementioned law.
In the wake of the financial collapse in Iceland in 2008, a Code of Conduct for Staff in the Government Offices of Iceland was established in 2012, “with the purpose of promoting professional methods and of confidence in public administration.” The code of conduct addresses workplace relations and procedures; behavior and conduct; conflicts of interest and shared interests; communication with the media, public and surveillance bodies; and responsibility and monitoring for Government Offices staff. For more information see the Government of Iceland’s website ( ). The code does not extend to family members of officials or political parties.
Contact at the government agency or agencies are responsible for combating corruption:
Contact at a “watchdog” organization:
10. Political and Security Environment
Politically motivated violence in Iceland is rare, and Iceland consistently ranks among the world’s safest countries. The World Bank’s Worldwide Governance Indicator on Political Stability and Absence of Violence placed Iceland in the top 97th percentile rank of all countries worldwide in 2020 ( ). In early 2014, frustration among voters regarding the then-governing Progressive Party-Independence Party coalition government’s withdrawal of Iceland’s accession bid to the European Union led to the largest protests since the financial collapse; these protests did not include violence. Non-violent protests led to a governmental reorganization and early elections following the 2016 “Panama Papers” scandal. A subsequent government, composed of the Independence Party, Bright Future, and the Reform Party, took office in early 2017 and collapsed within a year. The current coalition government, composed of the Independence Party, Progressive Party, and the Left-Green Movement, assumed power in November 2017 and began its second term November 28, 2021.
There have been individual cases of politically motivated vandalism of foreign holdings in recent years, directed primarily at the aluminum industry.