Discusses key economic indicators and trade statistics, which countries are dominant in the market, the U.S. market share, the political situation if relevant, the top reasons why U.S. companies should consider exporting to this country, and other issues that affect trade, e.g., terrorism, currency devaluations, trade agreements.
Last Published: 7/11/2017
Iceland is a stable democracy with an active consumer economy.  The pillars of the Icelandic economy are aluminum smelting, fishing, and tourism. Its main material exports are aluminum and ferrosilicon, fish and fish products, and pharmaceuticals.  Main service exports are tourism related services, which now account for about three quarters of total service exports from Iceland. Renewable natural resources are ample and include rich fishing grounds and clean power sources. The services sector includes computer software, biotechnology companies and tourism.

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 340,110, 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 majority of imports to Iceland come from the European Economic Area (EEA), 62.4% in 2015, mainly from the Scandinavian countries, Germany, the Netherlands and the UK. The U.S. was the 3rd largest exporter by country to Iceland in 2015, after Norway and Germany, accounting for a total of 8% of imports. Total U.S. imports to Iceland in 2015 amounted to approximately 415 million US dollars. Fuels and lubricants accounted for a quarter of total exports to Iceland, followed by food and beverages, then capital goods, and transport equipment.

Most of Iceland’s exports go to the EEA, or 79.4% in 2015. Of those, 26.1% went to the Netherlands; 11.6% to the U.K.; 11.5% to Spain; 7.4% to Germany, 5.7% to France, and 5.7% to the U.S. Total exports from Iceland to the U.S. amounted to almost 317 million dollars in 2015. The vast majority of Icelandic materials exports are fish (fresh/chilled/frozen) and other marine products, 49.2%. Miscellaneous manufactured commodities account for 12.7% of total imports, followed by food manufactures, 5.3%, and computer and electronic products, 5.2%. Main service exports are tourism related services, which now account for about three quarters of total service exports from Iceland.

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; and 7.2 percent in 2016).  GDP amounted to approximately USD 22 billion in 2016, and GDP per capita was USD 59,724, using the current exchange rate as of April 2017. The Icelandic krona has appreciated against the dollar by almost 20% in the past 12 months. The average unemployment rate from April 2016 to April 2017 was 2.8%.

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. company Silicor Materials is in the process of financing a USD 850 million photovoltaic silicon plant.  Several U.S. brands and franchises have entered the Icelandic market recently, including Costco, Hard Rock Café and Krispy Kreme, and more are testing the waters. The convenient location of Iceland, coupled with high level of education and proficiency in English among the Icelandic population and general interest in U.S. products, make Iceland an ideal market for U.S. companies.

The booming tourism industry has grown by double digits in each of the last seven years.  There is a shortage of hotel rooms, with the projected number of tourists to exceed 2.4 million in 2017. A U.S.-based company is currently constructing a 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 340,000.  The number of U.S. tourists in Iceland grew by almost 60% between 2014 and 2015, 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. The Icelandic energy grid derives 99% of its power from geothermal and hydro resources, making it 99% renewable and uniquely attractive for energy-dependent industries. Iceland's IT sector spans all areas of the digital economy.

After Iceland suffered an economic collapse in 2008, the state took over the three largest commercial banks.  Subsequently, the Government of Iceland and the Central Bank of Iceland implemented temporary rules restricting capital outflow and inflow as a measure to support the Icelandic currency, which depreciated 51 percent against the dollar in 2008. Iceland completed an International Monetary Fund program in August 2011 and the economy, driven by a new tourism sector, has recovered. 
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 prudential protections against foreign exchange instability 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.

Iceland Trade Development and Promotion