Hoppa yfir valmynd
15. september 2005 Forsætisráðuneytið

Íslensk - ameríska verslunarráðið

Speech by Prime Minister Halldór Ásgrímsson of Iceland

The Icelandic American Chamber of Commerce,
at Scandinavia House on Park Avenue, New York.

Thursday, September 15, 2005

12:30-2:30 PM Luncheon

Ladies and gentlemen.

It is a pleasure to have the opportunity to talk to this distinguished audience about the relationship between Iceland and the United States, focussing particularly on business and trade between the two countries. I would like to start by giving you an insight into the Icelandic economy today.

First, let me mention some basic facts. Today, Iceland is one of the fastest growing economies in Europe. Unemployment is low, in fact we have to import labour from other countries in order to fulfil demands in certain sectors, in particular the building sector. Iceland also enjoys one of the highest standards of living in the world. The fiscal situation is sound and the level of public debt is among the lowest in the world.

This favourable description of the economic situation in Iceland is not only recognised by the Government and our supporters but also by international organisations such as the OECD and the IMF as well as the major international rating companies, Moody’s, Standard and Poor’s and Fitch International. Furthermore, Iceland tops the league of European nations when it comes to competitiveness. Since I am here to participate in the UN Summit, it was a pleasure to see that Iceland is second only to Norway when it comes to living standards as measured by the annual United Nations Human Development Index.

Of course we have problems but as a nation we cannot complain when we compare our situation with that of many other nations.

In an era of growing globalisation, the American-Icelandic relationship sets an example of how nations which at first glance seem so different may enjoy a strong relationship. Despite the fact that Iceland has a population of 300 thousand and the U.S. 300 million people. The relationship between our two countries serves as a good role model for how mutual respect and friendship bears fruit regardless of size or other differences.

Iceland has gone through a dramatic economic transformation in the twentieth century; from being among the poorest nations in the Western hemisphere to joining the club of the richest countries. This development is, of course, due to many factors but the United States played a very important role in this development. The arrival, first of British and then American troops during the Second World War, jump-started the economy and at the end of the war the doors to the outside world, and new markets, flung open.

Ever since, Iceland and the United States have had a close relationship built on co-operation and respect. Not only has the trade and diplomatic relationship between Iceland and the US been strong but of no lesser importance is the fact that so many Icelanders have studied in the US. In fact, many of those who are now spear-heading the expansion of Icelandic companies abroad have studied in the US. In this light, the present trend of fewer and fewer students choosing US universities is worrying and needs to be looked into.

Today, we are going through yet another economic transformation as we are finishing a comprehensive privatisation programme and liberalising markets.

In the last few years, the government has been selling off state owned assets, most importantly the formerly state owned banks and just recently the Iceland Telecom company. At the same time, we have gone to great lengths in modernising the market structure, allowing competition to be fair and just, i.e. by passing new laws on competition and setting up market watchdogs, both for the commercial marketplace as well as the financial markets.

One of the main characteristics of the current economic upswing is that foreign direct investment of Icelandic firms abroad has increased dramatically. The main explanations for this strong investment activity of Icelandic businessmen abroad are, on the one hand, the impact of wide-ranging structural measures that have been implemented in Iceland in the past decade or so, and, on the other hand, the highly positive effect of increased globalisation, liberalisation and economic integration on the business environment in Iceland.

These changes have had a catalytic effect on the business community and fostered an entrepreneurial spirit that explains these large and diverse investments.

But there are other factors at work. These changes have contributed to a rapid rise of asset prices as witnessed by the fact that the Icelandic Stock Exchange index has more than doubled since mid-year 2003. Another important factor is the strong financial position of the pension funds in Iceland but their total assets amounted to about close to 16 billion dollars at the end of 2004, or 10 per cent more than Iceland’s national income. This means that there is a lot of capital available for investment purposes, both domestically and abroad. All of these factors explain the strong investment activity of Icelanders abroad.

Another reason for the favourable business climate in Iceland is that the Government has undertaken a complete overhaul of the tax system in Iceland. Thus, both corporate and personal tax rates have been cut by a large margin. The corporate income tax has been lowered from 51 per cent to 18 per cent and the capital income tax, levied on all kinds of capital income, including capital gains, is only 10 per cent. The personal income tax is flat and will be 35 per cent in 2007 with taxfree personal income of 16.000 dollars a year.

All these changes have contributed to the transformation of the Icelandic economy in a relatively short time span, from being a primary goods producer, where fish products constituted the bulk of our exports, to a diversified and high-technology production and services economy where new industries and services play an ever bigger role.

I am not simply referring to large scale power-intensive industries utilising our valuable energy resources but also to numerous companies in other sectors such as software development, pharmaceutical production and distribution, medical equipment production, biotechnology research and development, expansion of the telecom industry and other high-tech industries.

Needless to say, this development has also contributed to a sound macroeconomic situation in Iceland as witnessed by the fact that economic growth has been averaging at or above 5 per cent annually since 2003.

In the modernisation of the Icelandic economy, the American model of free markets with fair rules, has served as a role model. I firmly believe that only a strong and dynamic market economy can sustain the high standard of living which we now enjoy. Maybe I should be more specific by using the notion ‘quality of life’ as that is what we politicians should be most concerned with.

Let me now turn to our relations with the United States in some more detail. First, I want to underline that the United States continues to be Iceland’s second most important export market, after the European Union. It is especially an important market for Icelandic seafood products as 70 per cent of our exports to the US is seafood.

A combination of an exceptionally strong Icelandic króna and a weak dollar recently has, however, caused a substantial decrease in the export of fresh seafood from Iceland to the United States. This development as well as the fact that demand for fresh seafood products remains very strong in other markets has inevitably led to some changes. As you may know, two of Iceland’s leading fish processing companies in the US merged earlier this year.

A new and a stronger company has now been created under the brand name Icelandic. This merger is already creating new and promising opportunities for Icelandic seafood in the US.

I have noted that many people have difficulties in understanding why the Icelandic króna has been so strong recently so let me take this opportunity to discuss briefly the main reasons behind this development. One of the reasons that many people mention is the strong build-up within the aluminium sector, the comprehensive energy projects and the sharp inflow of foreign capital this has called for in the past 1-2 years. While this is certainly an important factor behind the strong króna, it is by no means the only explanation.

Another important explanation relates to the structural changes in the Icelandic economy that have taken place in the past decade or so. Liberalisation of the capital market in Iceland has paved the way for, not only strong capital outflows, but also inflows of foreign capital. Privatisation of the banks has further strengthened this trend. Also, the stable economic and political environment in Iceland in recent years has improved Iceland’s credit rating and contributed to an even greater inflow of foreign investment.

All these factors explain the strong Icelandic króna and reflect the stregth of the Icelandic economy. In this connection, let me specifically mention the role of two US companies, Alcoa and Century Aluminium, both of which have invested heavily in the aluminium sector in Iceland. Alcoa in the east and Century Aluminium in the west. These investments amount to more than 3.5 billion US dollars and have played a significant role in the strong economic upswing in Iceland.

But these developments have also facilitated the rapidly growing investment of Icelandic businessmen in other countries, for example in the UK, the Scandinavian countries and the US, the “New Viking invasion” as it has sometimes been called in the foreign press. Let me also mention that a significant part of these investments is financed or co-financed by Icelandic banks. It is also interesting to note that the recent investment by Century Aluminium in order to expand its production capacity in Iceland is financed by Icelandic banks.

As a result of these large-scale investments by US companies in the aluminium sector in Iceland, aluminium may take over from seafood as the most important Icelandic product exported to the US. This is due to the opening of the new Alcoa aluminium smelter in 2007.

Let me now turn to some more specific examples of Icelandic investment in the US. The Government of Iceland has decided to extend the successful “Iceland Naturally” project for four more years as of January 2005. The project has been very valuable for Icelandic companies selling their products on this biggest and most important consumer market in the world. The results are very promising. Iceland Spring Water, bottled in Iceland by Ölgerðin, has for example become a well known fresh water brand in the US, in particular here in the North East. I am also impressed to hear about the success of 66 Degrees North in producing quality clothing.

The same applies to many other Icelandic companies such as Marel, creating machinery for the food processing industry, Actavis in generics and Össur in prosthics, all of which are doing well. Actavis recently purchased the US Generics firm Amide for over five hundred million dollars. This deal brings together two premier generics companies with complementary strengths in Europe and the US, becoming one of the leading global companies within this sector.

New opportunities in promoting Iceland as a venue for international commercials and movie producers has also been very beneficial for the economy. We believe that more than one hundred million dollars have gone into the Icelandic economy in the past five years, reflecting among other things the success of a favourable tax concession scheme by the Government. Clint Eastwood was recently in Iceland producing a new movie, Flags of our Fathers. Many of you may have seen and recognised scenes from Iceland in the movie Batman Begins, and I believe James Bond also paid us a visit. This is of course important for our economy and also for the know-how in this field in Iceland.

Tourism from North America to Iceland has been on a steady rise for many years. It is the second largest tourist market for Iceland, after Great Britain. Close to 60 thousand Americans will visit Iceland this year, an increase of 15 per cent over last year.

This is quite remarkable in the light of more than a 40 per cent devaluation of the dollar to the króna over the last three years. To support American tourism to Iceland, the Icelandic Government has maintained an Iceland Promotion office in New York for 35 years. Let me also mention that Iceland is connected to America with over 1400 non-stop flights each year, linking Iceland directly with 6 North American cities.

All of this reflects in one way or another the impact of globalisation. Without globalisation our relations with the outside world would not be as varied and comprehensive as they are. Globalisation is something my generation had to come to terms with to learn to use in Iceland’s favour. The younger generations know nothing else, for them it is only natural to see the world as one stage and they are not hampered by the mental blocks that we had to overcome.

Reading the papers last weekend, I hesitated when I read the following: “Without Gravity, Singapore Sling, Plat and Worm is Green.” What is that you may ask. These are, the article said, Icelandic bands playing here in New York these days at the CMJ festival. If I had the time and would go to one of the concerts I would not know if these were American, Icelandic or Australian bands. There are no borders in music and art, and this is also increasingly the case with trade and economic relations.

Ladies and gentlemen.

I always like to remind people of the longstanding relationship between our two countries, one that goes back more than thousand years. This was was clear when Christopher Columbus came to America and was greeted by the natives who raised their glasses and said skál.

This being said, we always need to be on the look-out of finding ways to enhance our ties; in particular this is true of our economic and trade ties. I see some very positive signs at present, a few of them I have mentioned here, and looking to the future I am optimistic, relying of course on the power and innovation of the people here today representing the Icelandic American Chamber of Commerce.

Thank you



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