ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Iceland's 13 Year Recovery: A Struggle to Survive

Updated on August 2, 2024
john000 profile image

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%

Tourism

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.

Live on An Island and Get Independent!

“There’s no one on the island telling them they’re not good enough, so they just go ahead and sing and paint and write.”

-Eric Weiner

Sources

The Telegraph, Harry Wallop, October 3, 2008, https://www.telegraph.co.uk/news/worldnews/europe/iceland/3131154/Icelands-economic-woes-cause-shivers-through-British-economy.html

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, https://www.thebalance.com/iceland-financial-crisis-bankruptcy-and-economy-3306347

In Iceland, Bitcoin Mining Could Suck Up More Energy Than Homes, Nathaniel Scharping, February 13, 2018, Science for the Curious Discover, http://blogs.discovermagazine.com/d-brief/2018/02/13/iceland-bitcoin-mining-energy/#.Ww-DVaQvxLM

Data Center Knowledge, Rich Miller, September 19, 2013, http://www.datacenterknowledge.com/archives/2013/09/19/data-center-customers-warming-to-iceland

Iceland, Data-Center Hub? Jonathan Browning and Omar Valdimarsson, March 29, 2012, Chilly air and volcanic energy may lure tech companies, https://www.bloomberg.com/news/articles/2012-03-29/iceland-data-center-hub

Seafood Industry, 2015, https://www.responsiblefisheries.is/seafood-industry/

Looking for Lessons in Iceland's Recovery, Guido Mingles, Spiegel Online, January 10, 2014, http://www.spiegel.de/international/europe/financial-recovery-of-iceland-a-case-worth-studying-a-942387.html

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

working

This website uses cookies

As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://corp.maven.io/privacy-policy

Show Details
Necessary
HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
LoginThis is necessary to sign in to the HubPages Service.
Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
AkismetThis is used to detect comment spam. (Privacy Policy)
HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
Features
Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
MavenThis supports the Maven widget and search functionality. (Privacy Policy)
Marketing
Google AdSenseThis is an ad network. (Privacy Policy)
Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
Index ExchangeThis is an ad network. (Privacy Policy)
SovrnThis is an ad network. (Privacy Policy)
Facebook AdsThis is an ad network. (Privacy Policy)
Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
AppNexusThis is an ad network. (Privacy Policy)
OpenxThis is an ad network. (Privacy Policy)
Rubicon ProjectThis is an ad network. (Privacy Policy)
TripleLiftThis is an ad network. (Privacy Policy)
Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
Statistics
Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)
ClickscoThis is a data management platform studying reader behavior (Privacy Policy)