IV.

Economy

Private enterprise forms the basis of the economy of Iceland, but the government exercises a considerable degree of control and supervision over key sectors. Until the close of the 19th century, most people raised livestock and crops, with fishing as a supplementary source of income. By the middle of the 20th century, however, fishing and fish processing had become the major industries.

Hydroelectric and geothermal energy sources are abundant in Iceland. Hydroelectric power has promoted the development of modern industrial enterprises, including the energy-intensive aluminum industry. Geothermal energy provides nearly all of Iceland’s heating and hot water needs. In recent decades, Iceland’s economy has diversified into services, software production, and biotechnology. The Iceland Stock Exchange (ICEX), founded in 1985, has encouraged the growth of financial services by establishing a platform for domestic trading in equities, bonds, and mutual funds. Tourism has grown steadily since the mid-20th century, and whale watching draws tens of thousands of visitors every year.

In 1970 Iceland became a member of the European Free Trade Association (EFTA) trading bloc established a decade earlier by Austria, Denmark, the United Kingdom, Norway, Portugal, Sweden, and Switzerland. Most Icelanders remain opposed to membership in the European Union (EU), largely because of Iceland’s national interest in maintaining strict control over its territorial fishing resources.

A.

Agriculture

Iceland’s landscape is generally inhospitable for agriculture, and less than 1 percent of the island’s total land area is under cultivation. However, about 20 percent of the land is suitable for livestock grazing. Sheep farming has always been the most important form of animal husbandry. In the summer, the sheep graze in pastures and in the mountains. In the fall, they are driven into pens and sorted according to owners’ marks, as they have been for centuries. Iceland produces large quantities of dairy products, wool, mutton and lamb, and chicken eggs. Hay is the most important fodder crop.

Iceland’s principal food crops include turnips and potatoes. A variety of flowers, vegetables, and fruits are grown in greenhouses heated by hot springs.

B.

Fishing

Fishing and fish processing are the most important Icelandic industries. Food products, including fresh and processed fish, account for 62 percent of Iceland’s exports.

Iceland is one of the world’s leading producers of cod. Other major products of Iceland’s fishing industry include capelin, haddock, crustaceans, herring, redfish, and saithe (see Pollock). Large fish processing plants operate in many coastal towns.

Fishery protection is a major concern for Icelanders. In 1975 Iceland extended its territorial fishing zone from 80 km (50 mi) to 320 km (200 mi) from the coastline in an attempt to protect its fisheries from foreign fleets, especially British trawlers. The controversial move led to a so-called Cod War with the United Kingdom, the third and most serious such conflict since the late 1950s. But Britain, along with other European governments, eventually recognized the new limit.

In response to international pressure, Iceland suspended all whaling operations in 1989. However, Iceland strongly condemned the international moratorium on whaling imposed by the International Whaling Commission (IWC) in 1986 (see Whaling). In 1992 Iceland withdrew from the IWC (although it was reinstated as a member in 2002). In 1999 Iceland’s legislature, the Althing, recommended the resumption of whaling. Icelandic lawmakers disputed the designation of some species of whales as endangered and claimed that other species threatened Iceland’s commercial fish population. In August 2003 Iceland resumed limited whaling, claiming the hunt was for scientific purposes. The move provoked widespread international criticism. Iceland came under further criticism in 2006 when the fisheries ministry announced that it was resuming commercial whaling. The ministry said Iceland was dependent on marine resources and would keep its catch within sustainable limits by taking 9 fin whales (an endangered species) and 30 minke whales each year.

C.

Mining

Iceland has few mineral resources, and profitable development has been difficult. Minerals of commercial value include pumice, diatomite, and spar—a transparent mineral sold to optical companies. Icelanders manufacture large quantities of cement for concrete, a material from which most modern buildings in Iceland are constructed due to the lack of forest cover on the island.

D.

Manufacturing

Aside from fish processing, manufacturing is largely for domestic consumption needs. Principal products include clothing, shoes, soaps, and chemicals. Book production is also a large trade in Iceland. Some electrical appliances are made. In addition, plants producing aluminum (from imported bauxite) and ferrosilicon have been established to take advantage of Iceland’s abundant energy resources.

E.

Currency and Banking

The monetary unit of Iceland is the króna, consisting of 100 aurar (63 krónur equal U.S. $1; 2005). Currency is issued by the state-owned Central Bank (1961).

F.

Foreign Trade

The yearly value of Iceland’s imports is often greater than that of its exports, although the country’s foreign trade balances occasionally. In 2004 imports cost $3.6 billion, and exports earned $2.8 billion. Major imports include refined petroleum, machinery, transportation equipment, textiles and clothing, chemicals, basic manufactures, and foodstuffs. Exports of metal and ores, including a significant amount of aluminum, account for 19 percent of total exports. The country’s main trade partners are the United Kingdom, the United States, Germany, Denmark, the Netherlands, Sweden, France, Norway, and Japan.

G.

Transportation and Communications

Iceland has 12,988 km (8,070 mi) of roads. Most roads are located in coastal areas. The island has no railroads or navigable rivers. The country has several seaports, including Arkanes, Keflavík, Reykjavík, and Siglufjörður. Icelandair, the national airline, provides domestic and international air service, and is one of Iceland’s largest employers.

There are three daily newspapers published in Iceland, with a combined circulation of about 100,000. They are Frettabladid, Morgunbladid, and DV. Telephone and telegraph services are owned and administered by the government; the state monopoly on radio and television broadcasting ended in 1986. Public television and radio broadcasting networks are operated by the Icelandic National Broadcasting Service.