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October 16, 2008
September 17, 2008
Take 320,000 people. Put them on a volcanically active island half-way between mainland Europe and North America. Denude the island of trees and dunk it in darkness for several months of the year. Allow its inhabitants to develop a rural and fishing economy. Then put your cap in hand and try to attract foreign direct investment (FDI).
Amazingly, Iceland scores fourth in the world in attracting foreign direct investment, even outpacing Singapore and Ireland, two economies often cited as inward FDI success stories. Singapore and Ireland were able to take advantage of geographical proximity to position themselves as stepping-stones to Asia and the EU respectively. From Iceland, you can step only to Greenland. So how has Iceland managed its success?
First, Iceland’s infrastructure is good. At 15%, Iceland’s corporate tax rate is second only to Ireland’s as the most competitive in the EU. In 2006, Transparency International ranked it as the second-least corrupt country in the world. (Finland won out.) The Heritage Foundation ranks Iceland fourteenth in the world for economic freedom, giving it a stunning 94.5% rating for business freedom. Energy is cheap – the country runs off its renewable geothermal resources – and Iceland boasts well-educated citizens who speak English in addition to their own impenetrable tongue. Finally, and in sharp contrast to Ireland or Singapore, land for greenfield investment is cheap, and readily available.
But setting an inviting scene is only half the story. Iceland’s investment promotion agency, Investment Iceland, has been especially successful in pushing Iceland abroad as a target for foreign direct investment. Three counter-intuitive examples show how successful Investment Iceland has been.
First, Iceland can point to success in bits and bytes. Here, Investment Iceland manages to make a virtue of Iceland’s isolation, pointing to the island’s “remote and secure location” as a plus for data centres, one of its six areas of strategic focus. In the information age, geographical distance may be more psychological than real. It’s a barrier Iceland is striving to overcome: the country is connected to the world by two fibre-optic cables, and a third is planned.
Secondly, Iceland can point to continued success in creative industries – an unusual feat, since these tend to be driven by one-off events and charismatic individuals. While it’s not unusual for isolated countries to lure filmmakers with dramatic landscapes – witness New Zealand’s success with Peter Jackson’s Lord of the Rings series –Iceland has been successful by any standards. Eleven major English-language film productions were made at least partly in Iceland in the five years from 2001, including the blockbuster Lara Croft: Tomb Raider starring Angelina Jolie.
Finally, Iceland has capitalized on its unique genetic heritage – it has a homogenous gene pool, and genealogies can be traced back for centuries – to attract life science investment. Iceland has a population with genetic, disease and genealogical data sets, and companies have used this data to screen for genes linked to disease.
It’s unlikely that any other country can replicate Iceland’s genetic treasures. But certainly Iceland’s example teaches that geography, size and climate are no barrier to wealth creation. If three hundred thousand Icelanders can achieve the tenth-highest per-capita GDP in the world, anyone ought to be able to follow.