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Presentation. Icelandic Economy Benedikt Arnason Vice President – Nordic Lending Nordic Investment Bank. Land size: 103,000 sq.km (40,000 sq.miles) Climate in Reykjavik: January -0.5°C (31°F) July 10.6°C (51°F) Annual precipitation 700 mm Exclusive Economic Zone 200 nautical miles

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  1. Presentation Icelandic Economy Benedikt Arnason Vice President – Nordic Lending Nordic Investment Bank

  2. Land size: 103,000 sq.km (40,000 sq.miles) Climate in Reykjavik: January -0.5°C (31°F) July 10.6°C (51°F) Annual precipitation 700 mm Exclusive Economic Zone 200 nautical miles Part of 500 million EEA market Population (Dec. 2003) 290,000 people 3 inhabitants per sq. km Labour force 165.000 Life expectancy: Women 81 years Men 77 years Government system Republic since 1944 Parliamentary democracy Elections every 4 years Iceland - Basic Facts

  3. Iceland - a Member of the EEA • Market of 500 million people • Tariff-free access to EU • Basic EU freedoms: • Goods • Labour • Services • Capital • Harmonisation of laws and regulations • Foreign trade • vital to the Icelandic economy • EU the biggest trading partner Statistics Iceland

  4. Location of Iceland with travelling distances over the Atlantic Ocean Reykjavík 3 days 2.5 hours 5 hours 7 days Rotterdam London New York

  5. GDP Per Capita 2003USD per capita at purchashing power parity (PPP) Source: IMD World Competitiveness Yearbook 2004

  6. Foreign currency earnings - in 2003 Total earnings : 4,030 MUSD Merchandize Export : 2,560 MUSD

  7. Occupational Distribution

  8. Economic growth– average annual growth-

  9. Inflation 2005Percentage changes from previous year • Inflation in Iceland was contained in the early 90s • There was a surge in inflation 2000/2001 due to overheated economy • Inflationary pressure will prevail in 2005/2006 as the economy is quite stretched • Most analysts expect inflation to stay in the 3-4% range in 2005/2006, but it may surge again late 2006 or 2007

  10. Unemployment 2005Per cent of labour force • In comparison to other countries, unemployment has never been a significant problem in Iceland • Employment rates and labour force participation rates are very high - Icelanders love to work

  11. Current account deficit 2005Per cent of GDP • Substantial current account deficit due to very high investment, in particular in aluminium projects and related power projects • The deficit is expected to decline when the construction period is over and aluminium production commences

  12. Government net financial liabilitiesPer cent of GDP • Solid fiscal position and declining government debt • Net financial liabilities less than half the levels in the US and in the Euro area

  13. Low corporate income taxes 2004 % 18 % Source: KPMG´s Corporate Tax Rate Survey – January 2004

  14. The phases of economic and financial development Final phase of privatization of state owned banks Inflation targeting- Independant Central Bank From budget deficit to surplus Incorporation of state owned banks and privatization The final phase of liberalizing capital flows EEA established Setting the Funda-mentals Containing inflation

  15. International investment • Actavis Group • Balkan Pharma, FAKO, Zdravlje • Bakkavör Group • Wine & Dine, Katsouris, Geest • Burdaras • Carnegie, Skandia • Icelandair • easyJet • Islandsbanki • Kredittbanken, BN Bank • Kaupthing Bank • FIH, JP Nordiska, Aragon, Sofi, Norvestia, Singer & Friedlander • Landsbanki • Heritable Bank, Theather & Greenwood Holdings plc. • Marel • Carnitech, TVM, CP Food Machinery • SH • Cavaghan & Gray Seafood, Seachill Ltd, Barogel S.A. • SÍF • Labeyrie Group, Lyons Seafoods Ltd

  16. Pension Fund Assets 1984-2004

  17. Population over 65 in per cent of working population

  18. ICEX-15 1996 – 2005

  19. Iceland - a Water Country Tourism Great quantities of seawater and freshwater available Power intensive industry Fishing industry Water intensive industry

  20. Aluminium Production in Iceland Tpy Start-up Present • Alcan 178,000 1969 • Norðurál 90,000 1998 Approved • Alcoa Greenfield 322,000 2007 • Norðurál Brownfield 90,000 2006 Planned • Norðurál Brownfield 80,000 2010 • Alcan Brownfield -- -- Projected total 760,000 2010

  21. Expansion of Alcan Iceland

  22. Expansion of Nordual

  23. Iceland ranks #1 in Europe for competitivenessAccording to IMD-World Competiteveness Yearbook 2004 • 1. USA • 2. Singapore • 3. Canada • 4. Australia • 5. Iceland • 6. Hong Kong • 7. Denmark • 8. Finland • 9. Luxembourg • 10.Ireland Iceland’s main strengths are: government efficiency, strong societal framework, strong domestic economy and high business efficiency, due to strong flexibility and people’s adaptability. Finally, Iceland has a developed infrastructure, with the educational and technological being the main strengths, along with low pollution. The World Competitiveness Yearbook 2004 features sixty national and regional economies and examines 323 different criteria, grouped by four competitiveness factors: Economic performance, Government Efficiency, Business Efficiency and Infrastructure. Source: www.imd.ch/wcy

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