Presentation at "Icelandic Investment and Trade Seminar" held in London on 30. October 1996.
"Iceland - a fresh location for investment and trade with natural resources and specialized skills for growth."
Mr. Chairman, Ladies and Gentlemen.
"New Opportunities - Period of Growth"
The Icelandic economy is in a period of renewed and strong growth. New opportunities for trade, tourism and investments in various sectors are emerging. I therefore complement Ambassador Benedikt Ásgeirsson and the Icelandic Business Association for organising this meeting at an opportune time.
Allow me to add my words of welcome to all of you present today. I am pleased to present new opportunities in Iceland for British companies and investors. I express my hope that new opportunities for investment and trade will emerge from this meeting.
"Iceland Welcomes Foreign Investment"
The Government of Iceland welcomes foreign investment and views increased international cooperation as essential in ensuring sustained economic growth. As part of its wider economic policy, the current government is further liberalising the legislation on foreign investment.
Freedom to invest has been the basic principle applied in Iceland since the first comprehensive foreign investment act was enacted in 1991. Only a few exceptions were stipulated restricting foreign investment in:
- Fishing and primary fish processing;
- Energy production and distribution;
- Commercial banks above 25%; and
- Airline operations above 49%.
"Liberalisation of the Investment Act"
Further measures now being implemented provide for the liberalisation of all these restrictions, except for fisheries. For fisheries and primary fish processing - the only sector where restrictions will apply - indirect investments will however be permitted.
For foreign investors and corporations domiciled in other countries, Icelandic legislation is aimed at creating a friendly investment environment. It assures:
- A full right to own property related to industrial investments;
- Complete freedom of capital movements; and
- Full right to repatriation of profits;
Concurrently with the implementation of liberalisation of the legal requirement, the Government is actively welcoming foreign investment. Specialized Agencies - the Invest in Iceland Bureau and the Energy Marketing Agency - have been established to provide expert confidential advice on all aspects of investments. The Government is ensuring a streamlined decision making procedure at all levels to facilitate the entry of foreign investors to Iceland.
"Favourable Economic Environment"
Economic stability and diversification of the economy are the key elements of the Governments policy to provide conditions favourable for investments.
Economic stability has been maintained and that is best evidenced by the fact that Iceland is one out of a select few countries in Europe which have met the European Monetary Union convergence criteria for participation in monetary union.
- Public sector balance has been contained within 3% of GDP.
- The total public sector debt was about 55% of GDP at the end of last year.
- Iceland recorded the lowest inflation rate of any OECD country in 1995 or about 1,7% and a 2,5% inflation rate is projected for 1996.
- Interest rates on long term bonds are about 8,0% and indeed lower than the EU average.
Price stability is being maintained in Iceland through a combination of a stable exchange-rate policy and moderate wage settlements.
"Foreign Investment - Recent Trends"
Foreign investment has played an important part in the industrial development in Iceland, in particular in the field of power intensive industries. About 60% of total foreign investment in Iceland is in this sector. The second largest sector for foreign investment is investment in commerce, in particular oil distribution. Increased foreign investment in services, including financial services and the transport sector, are also evident.
With the liberalisation of foreign investments being introduced this year, we expect new areas of growth to be:
- Food production;
- Energy;
- Financial services;
- Investments in the growing software industry in Iceland;
- Tourism and health facilities;
- Specialized production, including film production.
"Foreign Investment in Food Production"
It might be particularely relevant to review, in this forum increased possibilities for foreign investment in food production. The liberalization of the investment act undertaken last spring opened up for foreign direct investments in secondary fish processing and the definition of secondary processing was further widened. All further fish processing of fish having been initially conserved is therefore open for foreign investment. This should provide British companies with new opportunities for food production in Iceland.
At the same time indirect minority foreign investment of up to 33% is welcomed in the fishing industry and primary fish processing. We trust that opportunities will arise from these new initiatives.
"Favourable Tax Rates"
The Icelandic Corporate Tax rate is 33% and with liberal dividend payments the effective tax rate can be about 24-26%. Bilateral taxation arrangements with Great Britain provide for a 5% dividend tax on distributed profits.
Social security contributions and other wage related taxes are low in Iceland or about 40% compared to 70-90% in several European countries.
"European Location for Export Oriented Companies"
The European Economic Area Agreement with the European Union (The EEA) provides for wide-ranging economic cooperation and assures foreign investors of the basic EU freedoms regarding unrestricted movements of goods, persons, services and capital. These principles as well as EU competition rules apply automatically in the entire EEA. Iceland is an active member of the European market, has implemented all important EU trade legislation and is participating in all aspects of European harmonisation of laws and regulation.
Active participation in the common economic area is crucial for Iceland due to the vital importance of foreign trade to the Icelandic economy. Iceland is an island and more dependent on foreign trade than most other OECD countries. The total export from Iceland as a percentage of GDP have been above 30% while the same figure for Sweden was about 25% and for the United States about 10%. Total Imports to Iceland as a percentage of GDP have been in the same range.
"The EEA and Foreign Investors"
Iceland's membership of the EEA represents a guarantee for foreign investors. The Agreement makes adherence to EU provisions and conditions the norm in Iceland, thus providing for direct rights for non-national investors. A company domiciled in any of the other member countries of the EEA has the same right for operations in Iceland as an Icelandic registered company.
Non European investors are afforded equal treatment in Iceland. Equal treatment is assured through Icelands obligations under OECD capital codes. "Fresh Location - Resources for Growth"
While the countries natural resources provide unique opportunities for trade and investment, the human resources are indeed the most valuable resource for foreign investors. Iceland has a highly skilled, dedicated and flexible workforce. Based on such skills Icelandic companies have developed expertise and specialized skills in several sectors. Specialized Icelandic companies are increasingly expanding operations in other countries including The United Kingdom. Among the main sectors are:
- Fishing and fish processing;
- Software development and services;
- Various industrial production such as food production and beverages;
- Building materials and construction activities.
We are actively encouraging Icelandic companies to seek business opportunities in Europe.
"Trade and Investment between Iceland and United Kingdom"
Iceland is one of Britains oldest trading partners. For centuries there have been strong commercial as well as cultural and political links dating back to the earliest fish trade in the 15th Century.
The United Kingdom, has for several years now, been Iceland's main export market accounting for about 20% of our total exports. Our main exports are, not surprisingly, dominated by fish and fish products which account for approximately 80%, aluminium approximately 15%, followed by fishing lines, cables and nets, knitted clothing, diatomite and live horses to name but a few. Iceland imports a wide variety of products from the United Kingdom. The largest import catagories are machinery and transport equipments, chemicals and related products. Direct investments between our two countries have been important, especially for Icelandic export companies. These are still growing especially Icelandic direct investment in United Kingdom.
However, two-way tourism is one of the fastest growing industries. In 1950 the total number of tourists visiting Iceland was 4,400; today it is nearly 200,000 with 18,000 coming form the UK alone.
My hope is that cooperation between Iceland and UK companies will continue to strengthen. Sound and stable economic conditions and liberal investment and trade regulation provide a firm basis for such increased cooperation. Abundant natural resources and specialized human skills should provide the direct sources for such growth.
Thank you