Despite its recent struggles following the economic downturn, Iceland is slowly but surely getting back on its feet. Thordur Hilmarsson, managing director of the Invest in Iceland agency tells Elly Earls why an increasing number of finance directors are choosing to set up operations in the middle of the Atlantic Ocean.
Over the past decade, Iceland's economy has been driven by heavy industries. And while aluminium smelters such as Alcoa, Century Aluminium and Rio Tinto-Alcan continue to thrive despite tough economic climes, Invest in Iceland is now looking to diversify its pool of foreign investors, with a particular focus on the hi-tech, clean-tech and data centre industries.
The nation is already enjoying the benefits of increased interest; indeed, according to Thordur Hilmarsson, managing director of Invest in Iceland, "We have never had as many serious enquiries as we've received during the last six to nine months."
Hilmarsson is keen to emphasise the diverse range of industries already operating in Iceland. "We have Elkem, a Norwegian company producing ferrosilicon, NimbleGen, a stem cell service provider, Framestore International, a film production company, and Verne Global, a data centre operator, which is a joint venture between Icelandic and American investors."
"We have 'most favoured nation' status with the US and we have tariff-free access to Europe."
A one-stop information centre for companies wishing to set up shop in Iceland, the Invest in Iceland agency offers all of its services free of charge. "Whenever a foreign investor wants to look into a location in Iceland, we line up meetings, we create contacts and we reach out to the relevant stakeholders," says Hilmarsson.
New government legislation, set to pass parliament in spring, will make commencing operations in Iceland easier still. "The investor will simply apply for incentives given by the Icelandic state and will receive a response based on the social benefit of the company," Hilmarsson explains, adding that, thanks to special legislation, R&D­ driven operations will be offered additional incentives by the government. "We are very much looking forward to this new promotional tool," he notes.
Iceland affords corporates many further advantages, not least its favourable tax environment. With only 18% tax on corporate income, Iceland boasts one of the lowest tax rates in the world and has signed a number of global taxation treaties with other Organisation for Economic Co-operation and Development (OECD) countries.
Moreover, the Icelandic banking system has been restored and since 1 November 2009, all new investment is free from capital restrictions. "We are therefore more or less back to business as usual," Hilmarsson insists.
"Investors do not need to worry about the Icelandic krona either; although it is the least valuable currency in the world, investments can be made in foreign currency. They are even allowed to pay their workers in euros in many cases."
Iceland's infrastructure is continuously advancing; as well as excellent connectivity and electricity transmission systems, the mid-Atlantic nation has two submarine cables connecting Iceland with mainland Europe and an additional cable linking Iceland to the US via Greenland. "There are a couple of parties currently evaluating the feasibility of a direct connection to America," adds Hilmarsson.
The country's central location has also led to favourable trade conditions. "We have free trade agreements with Canada and Mexico, we have ‘most favoured nation' status with the US and we have tariff-free access to Europe because we are a member of the European Economic Area," Hilmarsson remarks. "Companies looking in both directions – east and west – would benefit from the easy access into both markets."
With fossil fuels predicted to increase in price, Iceland's extensive access to both geothermal and hydroelectric power is key for investors. "Industrial scale greenhouses, for example, would benefit from locating near to a geothermal power plant," says Hilmarsson. "If you are an energy-dependent company, you can also get a contract including a fixed power rate of up to 20 years. Companies, therefore, have the opportunity to lower or even neutralise their carbon footprint and reduce energy costs."
This is particularly significant when it comes to data centre operations, one of the sectors Invest in Iceland is keen on encouraging. "We have almost free cooling for the servers thanks to our convenient climate as well as an abundance of very inexpensive cold water, which means we can run a very cost-effective operation," Hilmarsson notes.
Iceland has also been involved in preparation work for green industrial parks, which are set to house clean-tech companies operating in areas such as polysilicon production and the production of renewable methanol as well as carbon fibre manufacturing. But in order for the diversification of Iceland's economy to succeed, the nation needs to be promoted on a larger scale.
The establishment of an institution called 'Promote Iceland' is under consideration by the government, and Hilmarsson is optimistic that this will begin to improve the situation. "It will make the business promotion of the country more effective, because at the moment it is a bit scattered," he acknowledges. "At the moment we are mainly focused on giving our customers high-quality service and responding to their enquiries."