By Thordur Aegir Oskarsson
Ambassador of Iceland
Four years ago, Iceland became the first victim of the global recession that was starting to crawl over the globe. The situation was magnified due to the recklessness of the domestic banking sector. GDP fell by 10 percent; the krona (Iceland’s currency) was depreciated by 50 percent; unemployment surged from 1 to more than 10 percent and inflation jumped to more than 18 percent.
But happily, after drastic economic measures and an agreement with the IMF, Iceland is well on its way to full recovery and has graduated from the IMF program with solid marks.
Today, the country’s efficiently managed fishery provides 40 percent of export revenues. Renewable energy sources, together with resource-based industries such as aluminum production, earn 35 percent of export revenues. Tourism, Iceland’s most promising industry, thanks to world-famous volcano Eyjafjallajökull, made an unparalleled leap forward, producing 25 percent of export revenues.
Economic indicators also show solid promise. Growth in 2012 is expected to exceed 3 percent, with similar results predicted for 2013. The unemployment rate is down to 4.5 percent and the inflation rate hovers between 4 and 5 percent.
Iceland, with a population of 320,000 and a landmass the size of Newfoundland, must make its economic and trade relations with other countries a priority.
My country is a member of all major multilateral organizations (UN, NATO, OSCE, OECD and WTO) and, along with Liechtenstein, Norway and Switzerland, it is part of the European Single Market through the European Economic Area Agreement (1994). Negotiations for EU membership are under way and Iceland is a member of the European Free Trade Association (again with Liechtenstein, Norway and Switzerland) that concluded a Free Trade Agreement with Canada in 2009, one that will soon be updated to include financial services.
Trade between Iceland and Canada is currently sparse. In 2011, only 0.43 percent of Iceland’s total exports went to Canada ($20.7 million.) For the same year, Canada’s share of the total imports by Iceland was 1.25 percent ($51.2 million.)
About half of 2011’s exports to Canada were fisheries products — lobster, pollock and cod. The other half were manufactured goods, fishing gear, high-tech machinery for food processing and bottled water.
The Canadian items sent to Iceland have mostly been food and fisheries products. Frozen shrimp come to Iceland for further processing while fossil fuels, manufactured goods and machinery make up the largest share of Iceland’s imports from Canada.
Iceland would like to expand trade relations with Canada, particularly in tourism. My country has experienced an explosion in tourism in recent years and that could well become our No. 1 industry. For 2012, the number of tourists was projected to have grown by 17 percent. Canadians wishing to visit can take our main air carrier, Icelandair, which has direct flights to Halifax and Toronto between April and November. An air services agreement with Canada will come fully into play at the end of 2013. Icelandair wants to expand services to other Canadian cities when the agreement is fully implemented. In 2011, almost 18,000 Canadians visited Iceland, a 33-percent increase from 2010. This year’s numbers will be higher still.
Opportunities for expansion also exist in the fisheries industry. Efforts are already under way to stimulate interest in Iceland’s fishery. An Icelandic shipping company, Eimskip, has been active in Newfoundland and Nova Scotia for 40 years, but its expansion is constrained by local regulations.
Iceland also has a strong competitive advantage in energy-intensive industries, thanks to its relatively cheap and renewable clean-energy resources — hydro and geothermal. This sector attracts much-needed foreign investment. Indeed, Rio Tinto Alcan owns an aluminum smelter and is one of the largest industrial companies in Iceland. Canadian investments are also found in the geothermal-energy sector.
Finally, one mustn’t forget the Arctic. Iceland’s economic well-being and livelihood are shaped by the natural riches and climatic conditions of the North. Iceland and Canada share vested interests in the Arctic. The pending exploitation of Iceland’s newly discovered offshore oil resources offers the opportunity to strengthen ties with Canada’s dynamic oil industry. Iceland sees ample scope for developing such bilateral and regional cooperation with Canada on economic and cultural issues involving the North.
In essence, the framework for robust trade is in place with the agreement between Canada and EFTA (2009), a bilateral agricultural agreement between Iceland and Canada (2009), the air-services agreement (2007) and the agreement to avoid double taxation (1997). This is the framework for better trade relations between Iceland and Canada. In spite of massive headwinds, Iceland is still a modern society with a liberal business climate, an open economy and a strong young, educated and innovative workforce.
More strategic cultivation of Icelandic-Canadian economic, trade and business co-operation is my goal. Since the loonie is no longer an option to replace our krona, the abundant diplomatic energy can now be directed to more profound trade issues.
Thordur Aegin Oskarsson is Iceland’s ambassador to Canada. He can be reached at thordur.aegir.oskarsson@utn.stjr.is or (613) 482-1944.
