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Iceland's 13 Year Recovery: A Struggle to Survive

Updated on June 6, 2021
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John is interested in economic theory. When public banks offer high interest rates and then suffer big losses, bankruptcy may result.

In Terms of Trade Freedom - Number 8 in the World

As of 2018, Iceland's GDP was 24 billion U.S. dollars

GDP growth was 4%

Per capita GDP $70,100

Unemployment - 2.8%


As the currency in Iceland appreciated in value, the cost of travel to Iceland decreased. Europeans were getting a good value for stays in Iceland, their currencies going much farther to pay for transportation, room, and board. An example of prices in 2016 follows:

  • Hostel dorm bed: US$34 to US$58
  • Single private with shared bathroom: US$85 to US$135
  • Double private with shared bathroom: US$118 to US$140
  • Double private with en-suite: US$130 to US$320 (and up)

It should be noted that the other side of the coin was a hardship for Icelanders. The exchange rate for Icelanders was 110 Krona to the U.S. $1 in December of 2016.Their money did not go as far when visiting countries on the continent or North America. After the hardships of 2008, this was generally thought to be a small problem. Since 2017, tourism accounts for twice the income of fishing. Fishing prior to this had been the largest Icelandic industry.

Blue Lagoon The Blue Lagoon geothermal spa is one of the most visited attractions in Iceland.
Blue Lagoon The Blue Lagoon geothermal spa is one of the most visited attractions in Iceland. | Source

Keep the Cash on the Island

With 130 volcanoes and geothermal power forever, Iceland can be thought of as the greenest country in the world, but its finances before 2011 were some of the dirtiest.
While 2011 continued to see decreasing economic output, signs that the financial system was improving were evident. Improvements crept in until it was obvious in 2012 that a turn had been achieved. Rating agencies gave Icelandic bonds a BBB- rating; the lowest rating for investment grade bonds. Prior to this, Iceland's paper had been rated junk. The International Monetary Fund made proclamations about a new recovery and the fund was particularly pleased that not only did Iceland take their austerity advice, but the advice was proving helpful and correct.

By requiring money to stay in the country, there was adequate investment capital to backstop improvements to the economy. Iceland made it unlawful to send money abroad or to invest overseas. Preventing capital flight, in the minds of most economists and theorists, was the lynch pin of a successful and relatively fast recovery. Rather than allowing high unemployment and huge capital losses, capital restrictions kept public institutions from free fall and side-stepped a devastating depression.

Evolution of the annual number of foreign visitors to Iceland, as compared to the growth of the resident population.
Evolution of the annual number of foreign visitors to Iceland, as compared to the growth of the resident population. | Source
Alcoa's aluminium plant in Reyðarfjörður, Iceland.
Alcoa's aluminium plant in Reyðarfjörður, Iceland. | Source
Iceland (2004) which has a cold climate all year and cheap carbon-neutral geothermal electricity, is building its first major server farm hosting site. Fiber optic cables were laid from Iceland to North America and Europe enabling communication.
Iceland (2004) which has a cold climate all year and cheap carbon-neutral geothermal electricity, is building its first major server farm hosting site. Fiber optic cables were laid from Iceland to North America and Europe enabling communication. | Source

Green Energy and Server Farms

Traveling toward the Atlantic coast, one experiences windy roads. A sudden bend, as the lore goes, is due to considerations of local supernatural creatures. Continuing the road in a straight fashion would result in the traveler falling into an elf's home. The reader might find this hard to believe, but many an Icelander has a nagging belief in elves and spirits. Nevertheless, server farms have been anxious to plant their enterprises there.

Server farms use a great deal of power (electricity). The fact that geothermal and hydro-electric energy is so plentiful and the temperatures in Iceland are so cold means companies get a twofer. Cheap plentiful electricity and a cool environment furnish savings for heat generating computer servers.

In Keflavik, Iceland, at a converted NATO military base, several companies began to set up shop for servers around 2013 after a number of years of planning. Datapipe developed cloud hosting which enabled other companies to run proprietary software more cheaply. This enabled businesses to assess risk over longer periods of time and had the potential to save companies a great deal of money. Providing 12-20 year predictable pricing for power is not unusual now. The average price per kilowatt hour was 4.5 cents. Sixty-five percent of the country's power is geothermal. This is roughly 30% of the price in the United States.

Another company by the name of RMS began providing big data analysis targeting insurance companies in need of natural disaster information in real time.
As risks like forest fire season approach, the ongoing analysis provides many insurance companies with up to date info on loss projections. Many insurance companies simultaneously request information resulting in a lot of data generation which RMS can provide quickly.

In addition BMW moved a number of its heavy use applications to Icelandic servers including crash simulations, aerodynamic calculations, and computer aided design and engineering. Further, bitcoin miners may be attracted to Iceland for all of the reasons already stated.

Verne Global, Inc. began leasing its facilities to companies like these in 2010. By 2015 it was estimated that $41 billion would be directed to Iceland for fuel efficient green server farms.

Free photo: Iceland, Iceberg, Glacier
Free photo: Iceland, Iceberg, Glacier | Source

Aluminum Smelting

As of 2014 there were 3 aluminum smelters in Iceland. Alcoa owns a smelter in East Iceland, Nordural Century Aluminum in West Iceland, and Rio Tinto Alcan in Southwest Iceland. The presence of hydroelectric and geothermal power nearby in immense inexpensive supply make Iceland a great location for smelting. In 2010, the smelting activity consumed 73% of Iceland's electricity. In 2011, aluminum production was 15% of Icelandic GDP. With increases in production, Iceland stands in 2017 to produce more aluminum than the United States.

Dam and reservoir building to generate plenty of attractive energy was a major goal of the government. Iceland's power companies are public, and they made a tremendous investment in constructing the apparatus to support increasing power consumption. But in order to attract business with cheap electricity, the companies have paid an average of 5% dividends since the 1990's. Many of Iceland's citizens criticize this; they feel higher dividend rates are beneficial to the citizenry. In addition, there are ecological considerations to increasing the size of power plants.

The coastal areas of Iceland are where most of the population lives. Traveling inland one quickly sees a deserted landscape of lava hills and mountains. Though the coastal areas have bright flowers and greenery, farmland gives way to volcanic badlands. Moss grows there climbing the hard lava like country vines.

It is this ecology that many Icelanders want to preserve. Fears of runaway industry destroying the pristine environment are common. It is feared that fast expansion of these smelters will hurt the air, the water, and the soil. Fluoride contamination is already a concern. Increases in coastal water temperature and other issues abound.

Alumina, Al2O3, a white or nearly colorless crystalline substance is a starter material for the smelting of aluminum metal. Processing of this substance to make aluminum has always been done in other countries to protect the soil from toxic mud, a byproduct.

Fishing - the Cod is Great

In 2007, stakeholders in Iceland's ocean catch agreed to responsible guidelines for fishing. Concerns about harvesting too much of this critical resource brought fisheries to the agreement.

Iceland in 2015 was able to increase its revenue from fish but actually caught fewer fish. Fishing contributed 11% to Iceland's GDP. While it used to be the largest contributor to the economy, other industries since their depression (circa 2007 - 2008) contribute more.

Creative Commons Attribution ShareAlike 3.0 License Atlantic cod
Creative Commons Attribution ShareAlike 3.0 License Atlantic cod | Source

One Big Conclusion - Study It!

Though much can be learned from Iceland's meteoric turn around, perhaps there is one over riding conclusion of greatest import to the world.

Given the fast settling of her financial crisis and economic woes, economists and other observers should study carefully the factors contributing to Iceland's recovery. Depressions adversely affect all countries. With a good scientific understanding of the contributors to Iceland's economic about face, a great deal of human suffering could quite possibly be avoided.


The Telegraph, Harry Wallop, October 3, 2008,

Iceland's Economy, Its Bank and the Financial Crisis, Bankruptcy and Financial Crisis, How a Volcanic Eruption Helped Iceland Recover, Kimberly Amadeo, April 26, 2018, The Balance,

In Iceland, Bitcoin Mining Could Suck Up More Energy Than Homes, Nathaniel Scharping, February 13, 2018, Science for the Curious Discover,

Data Center Knowledge, Rich Miller, September 19, 2013,

Iceland, Data-Center Hub? Jonathan Browning and Omar Valdimarsson, March 29, 2012, Chilly air and volcanic energy may lure tech companies,

Seafood Industry, 2015,

Looking for Lessons in Iceland's Recovery, Guido Mingles, Spiegel Online, January 10, 2014,

This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.

© 2018 John R Wilsdon


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