Foreign direct investment
Ladies and gentlemen,
I would lie to begin by saying how very pleased I am with the initiative that the Invest in Iceland Agency has taken in holding this conference on the significance of foreign direct investment for the Icelandic economy, including its implications for our living standards and future prospects.
The debate on foreign investment, its nature and how it coincides with Icelandic interests, must be based on knowledge and a sober assessment of the national interest, and not on fear.
The past few decades have seen an immense burgeoning in foreign investment all over the world, with countries competing keenly with each other to attract positive foreign investment.
In Iceland, we have every opportunity to attract positive foreign investment in terms of our country’s natural resources, our clean energy reserves, our administrative infrastructure, the level of education of our workforce and the special expertise we have to offer.
If we look at the countries that are in competition with us, we see that even under the most favourable circumstances on the financial markets over the past few years, they offered various concessions, in the short or the long term, to attract foreign investors.
Concession schemes of this type may be found, for example, in Ireland, Sweden, Finland, Scotland and Canada.
Faced with the present circumstances, and the need we have to put our economy and business sector on a firmer footing, it is high time that we set the concessions we are prepared to offer in a legislative framework, rather than in tailor-made investment contracts.
Making investment contracts for individual projects is both time-consuming and non-transparent; it involves a long negotiating process, special authorisation from the Althingi and approval by the EFTA Surveillance Authority.
The framework legislation that we envisage on concessions for investors would not only make it easier to promote Iceland as an investment option but also simplify all the preparatory work for the individual projects and evaluation by the investors themselves of the opportunities that we are able to offer.
Draft legislation is now being prepared and will be submitted to the current session of parliament.
Framework legislation in this area is an important step, but not a magic solution. It will nevertheless be an important milestone along the way towards putting Iceland in a better competitive position.
The report submitted by the task force on concessions to investors last year set out some important criteria, for example regarding the use of profitability calculations when assessing the implications and social benefits of various types of concession.
It also pointed out that it would be possible to make agreements with investors in exchange for special concessions, for example as regards the establishment of value-added operations.
Furthermore, special care must be taken when applying concessions, because it has been found that countries sometimes offer more extensive concessions than are called for.
But perhaps the most important thing is to preserve the maximum flexibility, so that different types of project can be granted the concession package that best suits them, at the same time guaranteeing an open and transparent process in the granting of concessions.
The first projects that come to mind when foreign direct investment is discussed in Iceland are in the sphere of power-intensive industry, and in particular aluminium smelters.
This is only natural in view of the importance of the industry and all the jobs it has created, directly and indirectly.
But, as Žóršur Hilmarsson, director of the Invest in Iceland Agency, will be talking about in more detail here later on, there are also many other opportunities for foreign investors in Iceland, not least in areas that involve innovation of various types.
The fact is that foreign investment is important as a support for innovation and development, and has a role to play in developing the whole range of economic activity that already exists in Iceland.
If we are to make use of the opportunities that are now opening up in the area of ‘green’ development, we must review our energy utilization policy.
What we have done up to now, for the most part, has been to wait until the occasional large-scale energy consumer shows interest, and then to start looking for power-generation sites and proceed to harness them.
For the power-intensive industrial sector, it is convenient to work in terms of power development over long periods with delivery contracts that span long periods and are based on bulk supply. We know very well how to meet these demands.
For the green industrial sector, on the other hand, this sort of energy utilization policy is not appropriate – I am thinking of internet data farms, photocell production, carbon-filament plants or hi-tech glasshouse cultivation. In these industries, it is important to be able to begin development at shorter notice, negotiate shorter contracts, start with more modest power requirements and have the option of expanding over a longer time.
If we are to seize the opportunities that are now opening up as a result of greater environmental awareness and the demand for sustainable energy, we must adopt a fresh approach.
The first condition for doing this is to stop waiting for others to take the initiative on using the energy we have. We must ask ourselves what industrial developments we would like to see going ahead in Iceland. We must decide the sort of market on which to offer our energy, and then to go ahead with determination.
This means we must be ready with the generation alternatives in advance, and have preparations well advanced. The best arrangement is for the local authorities to have industrial development sites identified and ready in their planning. Then we should look for the highest bidders if we are to put a high price on our power and use the profits for the benefit of our community.
I believe that this may prove a successful approach if we have framework legislation on investment concessions as a basis.
In this connection I must also mention the bills on start-up companies and innovative ventures that are now before the Althingi. One of these provides for concessions for research and development work within enterprises and the other for concession for investment in innovative and start-up companies. All of this legislation will make a valuable contribution towards making Iceland an attractive option for new investment in the green sector, hi-tech industries and innovative and creative ventures. These, in turn will create varied and interesting employment in our country.
There are many opportunities available to us. What is important now is to build on the basis of our strengths. And our strengths are eminently compatible with the priorities that are now being adopted by policy-makers in our neighbouring countries in the European Union and the United States: sustainable energy, improved utilization, innovation and creativity. Our strengths lie in precisely these fields, and we must make use of them to attract foreign investors in these and related fields.
Ladies and gentlemen,
I cannot avoid mentioning the consequences that the collapse of our banking system and the international economic crisis have had on the Icelandic economy.
The fact is that it is vital for us to cut the budget deficit quickly and so put an end to the automatic accumulation of public debt.
This will protect the króna and create conditions for a rapid reduction in interest rates; also, if the Treasury is competing for capital on the market, this will limit private companies’ growth potential.
In view of this, we must take difficult decisions, some of which affect the operating environment of business enterprises. Our priority is to have all measures of a general nature so as to have the least possible impact on any one occupational sector.
For potential foreign investors, the most negative implication of changes in the business environment is simply the fact that it is being changed.
For this reason, in my opinion, it is very important that we work fast and in the closest possible consultation with the enterprises themselves.
We must also make it clear that these are temporary measures that we are obliged to take due to very abnormal circumstances, and that we are striving to make the smallest changes possible.
We have known underlying stability, and we must send out a clear message that this stability is not in danger.
In fact, some aspects of these abnormal conditions such as the low real exchange-rate of the króna can also be to the advantage of foreign investors.
We must also bear in mind that although we all have to bear the brunt of the adverse conditions, which have had an impact throughout society, the aim is nevertheless to create economic conditions that will protect our business enterprises.
Finally, I should like to mention one of the main obstacles to new foreign investment. It is also one of the main causes of the instability of the past few years. I am talking about our currency, the Icelandic króna.
On top of all other risks, we have to persuade foreign investors to take an exchange-rate risk by entering one of the smallest currency areas in the world, with a currency that is very volatile.
It is therefore understandable that our application to join the European Union and to adopt the euro has met with broad support from the business sector, and it is my hope that in this way we are laying the foundations for greater stability and improved competitiveness.
It is only natural that full membership of the European Union should be our next step.
It is important now that everyone should make their contribution to build up the economy and generate wealth. Meeting such as this one are important for this.
Foreign direct investment is the way ahead!
The creation of wealth is not merely the only realistic way out of our economic recession: it is the basis for an improvement in our living standards and our future welfare.
