Economy of iceland

Iceland's economy is small — the smallest in the OECD — and highly volatile. Before the 2008 crisis, the country achieved high economic growth, had low unemployment and a good distribution of income, a situation that has almost completely recovered. In 2005, Iceland was, along with Norway, in first place in the world in the human development index, while today it is ranked 17th. It is currently one of the countries with the greatest income equality, with a Gini coefficient of 0.227, as well as the country with the lowest risk of poverty in Europe.

Iceland has a mixed economy, with high levels of free trade and interventionism, although the latter is lower than in other Nordic countries. Geothermal energy is the main source of domestic and industrial energy in the country.

Since 2006, the economy began to experience inflation problems and the financial system grew to such an extent that the three main banks in Iceland reached a size ten times the size of the country's economy. After the bankruptcy of Lehman Brothers, these banks collapsed and had to receive an emergency loan from the International Monetary Fund and other European countries, starting the country's financial crisis.

Sectors

Industrial production

Nesjavellir Geothermal Plant. This center serves the hot water needs of the metropolitan area of Reykjavík.

Iceland is the first country in the world in electrical energy production per capita with 53 MWh, doubling Norway, which is in second place with 26 MWh. In 2014, all annual electrical energy was produced by hydroelectric power (71%) and geothermal energy (29%), making the country completely self-sufficient and renewable. The abundance of electricity has facilitated the growth of the manufacturing sector. Products with a high energy cost of manufacture account for almost 40% of total exports, compared to 12% in 1997.

Aluminum casting

Aluminum smelting—the process of extracting aluminum from its ore, alumina, usually using the Hall-Héroult process—is the largest industry in the energy-intensive sector. There are three factories in the country, with a total capacity of 840,000 tonnes per year and actual production of 810,000, ranking Iceland 11th in the world.

Rio Tinto Alcan operates Iceland's first aluminum smelter (plant name: ISAL), located in Straumsvík, near Hafnarfjördur. The factory came into operation in 1969, and since then it has evolved from an initial production of 33,000 tons per year to about 189,000 today.

The second plant started production in 1998 and is operated by Norðurál. It is situated in Grundartangi, near the municipality of Akranes. Its initial capacity was 220,000 tonnes per year, but this has been expanded to 260,000. In October 2013, Norðurál announced a five-year project to expand production capacity by another 50,000 tonnes.

Alcoa has a third plant near Reyðarfjörður. Known as Fjardaál ("aluminium from the fjords"), it has a capacity of 346,000 tonnes per year and was commissioned in April 2008. To power this factory, Landsvirkjun built the Kárahnjúkar, 690 MW. This huge project increased the country's installed hydroelectric capacity from 1,600 MW to about 2,300 MW.

Fishing industry

Fish dryers in Hjalteyri. Fishing is one of the pillars of the Icelandic economy.

Fisheries and related sectors are the largest part of the Icelandic economy, accounting for about 45% of export volume and about 25% of export earnings. Although this figure has been declining (in 2000 it represented 63% of the volume of exports), its contribution to GDP has remained more or less constant since then, with around 10% of the total. This sector directly employs just over 9,000 people, although it is estimated that between 25,000 and 35,000 people (around 20% of the active population) depend on it for their subsistence.

Iceland is the second largest fish-producing country in the northwest Atlantic after Norway, having surpassed the UK in the early 1990s. Since 2006, Icelandic trawlers have achieved catches of between 1.1 and 1.4 million tons annually, although it is far from the production peak of 2 million tons in 2003.

Foreign trade

Icelandic export table

Iceland's exports accounted for revenues of $5.02 billion in 2014, around 30% of GDP. Raw aluminum is the main export product, accounting for 31% of revenues, although fishing and its multiple derivatives have together an even greater impact, with around 45%. For this reason, the Icelandic economy is very sensitive to decreases in world prices for these products, which together account for almost three quarters of exported goods.

The main export destinations are the members of the European Union and the European Free Trade Association. The countries that import the most products from Iceland are the Netherlands (29.2%), the United Kingdom (11.2%), Spain (7.53%) and Germany (6.03%).

Iceland's imports are worth about $5.37 billion in 2014. Its main supplying countries are Norway (14.6%), the United States (10.1%), Germany (7.6%), Denmark (7.5%) and China (7.4%).

Imports

The merchandise with the greatest weight in Iceland's imports for the period 2010-until July 2015 is presented below. The figures are expressed in US dollars, FOB value.

Imports of Iceland from 2010- until July 2015 expressed in USD value FOB.

Exports

The main trading partners of Iceland for the period 2010-July 2015 are presented below. Most of its importers are in Europe except the United States and Japan. The figures expressed are in US dollars FOB value.

Exports from Iceland for the period 2010-July 2015 expressed in USD value FOB.

Tourism

Tourism has established itself in recent years as the third pillar of the Icelandic economy, going from slightly less than 3% of GDP in 2006 to more than 7% in 2013. It has also played a fundamental role in balance the balance of payments, contributing more than half of the growth of exports in 2013.

The main factors behind this growth were the economic crisis and the consequent depreciation of the currency, which increased Iceland's competitiveness in terms of tourist prices between 2007 and 2010, from 3% to 4.5% of GDP in those years. Likewise, the eruption of Eyjafjallajökull in 2010 created a certain enthusiasm and interest among adventure travelers, which together with the subsequent economic recovery —which allowed for an increase in the budget dedicated to advertising campaigns— and the increase in air routes —mainly to United States and Canada through the company Icelandair - has caused a tourist explosion in the country.

In 2015, Iceland ranked second among developed countries in the Adventure Tourism Development Index, behind Switzerland, mainly due to its geography and landscapes of glaciers and volcanoes.

2008 Icelandic financial crisis

Following strong inflation in the Icelandic krona in 2008, Iceland's three main banks, Glitnir, Landsbanki and Kaupthing were placed under government control. Icesave, a subsidiary of Landsbanki that operated in the UK and the Netherlands, filed for insolvency, putting the savings of thousands of British and Dutch customers at risk. It was also revealed that more than 70 local authorities in the UK they held over £550 million in cash in Icelandic banks, aware that their money could be lost, as their accounts are not guaranteed in the same way as Icelandic consumer accounts.