The Economy of Iceland
The Icelandic economy has traditionally been dominated by fish and seafood; later by banking; and finally now by something hopefully far more balanced.
In centuries past Icelanders had little the world at large wanted to buy – with the exception of excellent lamb, mutton and wool; and the plentiful supply of fish in the sea. It’s therefore no surprise that Iceland remained a poor agrarian society until technology started allowing people to live in towns without starving.
Even after this time fish exports generated nearly all the country’s export earnings, even as the proportion of the population working in other sectors increased.
We all know what happened when the financial sector was let loose: people flocked to the banks because they offered great salaries and good working conditions; and people got rich. The only problems with this financial miracle were that a lot of interests became vested as employees sank large sums into bank shares, and that other economic sectors suffered due to the lack of good people to employ.
All of a sudden the nation’s best and brightest fishermen were working in the banks – and the problem was even more acute for innovative industries like software development, tourism, science and technology. But then, even more suddenly than it had started, the economic miracle came to an end over a few weeks in autumn 2008. People were seriously wondering if there would still be food in the supermarkets by Christmas and whether or not the nation would go bankrupt.
From the ashes, though, hope and new ideas quickly began to emerge. Unemployed professionals (not just bankers, but also architects, estate agents, car salespeople, journalists, shop owners and suchlike) did not sit about feeling sorry for themselves, by and large. The fact that Iceland’s export industries are now doing relatively well is often attributed to the better distribution of brains throughout the economy these days, and also the weaker Icelandic króna (which makes Iceland more affordable for foreign businesses and tourists) – both of which were caused by the financial collapse.
The Icelandic tourism industry was getting steadily busier pre-crash as well. The sector has been doing very nicely indeed for a couple of decades, in fact. But pre-crash thinking was often simply to build more hotels and buy more coaches. Now there are hundreds of small companies doing unique and special things for small groups of tourists – whether it be farm stay holidays in Iceland, knitting holidays, private adventure tours, heli-skiing, walking or cycle tours, youth hostels – the country is alive with opportunities for the visitor like never before.
Tourism is one of the main prongs of the Icelandic economy today. Fishing remains so as well – generating the biggest share of foreign capital into the country, but employing a tiny percentage of the workforce. Then there is heavy industry (mostly aluminum smelting), which generates a lot of cash and employs quite a lot of people. Finally is the innovation and high-tech sector, which continues to innovate above its global weight and is doing well. The all-important renewable energy sector is what Iceland is increasingly known for around the world, and we include that in the high-tech category.