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Address by the Prime Minister at The Icelandic-American Chamber of Commerce annual meeting

Ladies and Gentlemen,
I am honoured to be here in the Scandinavian House and address the Icelandic-American Chamber of Commerce this morning – and take a bit of a break from somewhat relentless sittings in the United Nations General Assembly.

My intention is to outline for you the political and economic outlook in Iceland and the ground work this government is laying for a secure and balanced future in Iceland. I will also leave you with some thoughts on where I see opportunities in strengthening the relations between the United States and Iceland, which is one of our foreign policy priorities. Let me start with the broad policy outlook.

Political and economic stability is an essential component of prosperity. Last year´s elections resulted in a good parliamentary majority of two parties that share a clear vision on the way forward, including how to bolster investments and encourage business. Stability projects predictability, which investors, industry and businesses rely on. This applies to the macroeconomic environment, legislation, taxation and how we manage our main industries and natural resources. This centre-right coalition, the two governing parties, understand this and have a good record, both past and present,  when it comes to increasing economic growth, lowering public debt and keeping state finances in good order.

Iceland is, indeed, experiencing a robust economic recovery and generally more so than other high-income countries. Economic growth is expected to be over 3% this year and close to 4% next year. Other indicators are also working in our favour. Inflation is systematically measured around or below the 2.5% benchmark. Our state finances are in good order. This year´s budget was the first surplus budget in years and my government just submitted a budget bill for 2015, which also projects a surplus. Public debt is on the decline and unemployment decreasing and now stands at 3.6%. Purchasing power is rising fast as is private consumption, partly due to major actions this government has undertaken to assist indebted households in Iceland.

There are also other factors at work and our progress in rebuilding our economy can also be attributed to a strong institutional framework, a skilled and young workforce, a high degree of economic freedom, sound democracy and low corruption. These qualities are clearly portrayed in various competitive indexes. For example, Iceland ranks at the top in terms of gender equality and peace.

Icelandic business legislation and regulations harmonise with those of Europe and are being further overhauled by my government with simplification in mind. We are also in the process of restructuring and simplifying the tax system and aim to make changes to the corporate tax environment in order to encourage further investments.

Ladies and Gentlemen,
My intention is not to portray a perfect society. Iceland is not perfect. We are still resurfacing from the financial crisis that hit the world in 2008. This is a marathon, not a sprint. We are, however, running at a fast pace and in the right direction.

There are challenges ahead. Lifting the capital controls is a huge task of great importance. As you are aware of, capital controls were imposed in Iceland in 2008 to ring-fence the economy and support the Icelandic króna. Since their imposition the controls have had both desired and adverse effects on the economy. The currency has become increasingly stable, which has assisted the private sector in sorting out its debt problems and supported export as well as the tourism industry. However, the capital controls have also had detrimental effects. They interfere with price mechanisms and skew asset markets. They slow down the growth of globally competitive firms and can make investments difficult, although – and this is important to note – capital controls do not apply to new investments.

My government is determined to lift capital controls and do so in a gradual manner without jeopardising economic stability. Preparatory work started immediately after the new government took office in May last year and we have the best and the brightest – foreign advisors of international repute advising us on the appropriate strategy for lifting the controls. This is a major undertaking and imperative to get it right. And I am confident that we will.

Another challenge is, somewhat paradoxically, the booming tourism sector, which has surpassed the fishing industry as Iceland´s biggest generator of external revenues. The number of tourists travelling to Iceland has increased at an enormously rapid pace or 18% per year since 2010. In 2015, the number of tourists visiting Iceland is expected to exceed 1 million three times the population. This obviously has implications for the  whole economy - mostly positive of course: currency revenues, new jobs and various opportunities that entrepreneurs are successfully exploiting. But we also need to be mindful of the volatility of the tourism industry, which can be subject to fashion trends, and of our capacity to absorb this steep increase in number of guests.

Do not get me wrong you are all welcome to Iceland and we do our best in fine-tuning the most recent volcanic eruption in Holuhraun for tourist purposes. I am simply saying that we need to tread carefully and take a long term and sustainable perspective towards the tourist sector, also vis-à-vis our sensitive nature. We need more foreign direct investment in infrastructure, hotels and entertainment, and to turn some of the negative aspects into positives. My government is very mindful of this and is taking both mitigating measures and a long-term perspective to the tourist industry in Iceland.

Ladies and Gentlemen,
I mentioned at the outset that further fostering the relations with the United States is amongst priorities of our foreign policy. We have a long history together - from Leifur Eiríksson during the Viking age, to Icelandic settlers in North America in the late 19th century, and to this very day. The United States were the first to recognise the Republic of Iceland in 1944. Since 1951, we have a bilateral defence agreement between the two countries and, until 2006, we had a permanent stationing of US forces in Iceland.

We are good Allies in NATO and close partners in the Arctic Council. Trade and investments between Iceland and the United States is on the rise and, already this year, some 115.000 Americans have visited Iceland only marginally beaten by their Anglo Saxon cousins in the United Kingdom. Icelandic youth has benefitted from higher education in American universities, cultural relations are rich, and frequent encounters in most fields of society a fact.

We can, however, do more and we should do more. Let me offer you some thoughts and start with trade and investment, which my government is eager to bolster. The United States is the second largest export market for Iceland after the European Economic Area. We have seen impressive increases in value and volumes in recent years, not least in high quality sea food. We have  good infrastructure in place frequent transportation connections and robust sales networks. We should be able to build on this in the years to come.

The same applies to investment. The United States is already the single largest foreign investor in Iceland but we would welcome more investments. As I mentioned before the capital controls do not apply to new investments and my government has introduced measures that will further facilitate investments in Iceland. Indeed, large foreign investment projects, including from the United States, are likely to be realised in the immediate future, as plans for the construction of four new energy intensive silicon plants are on the table and we are seeing a large interest in the construction of data centres. The American wholesale giant Costco has also shown interest in opening a store in Iceland.

We are also following with interest the on-going negotiations between the United States and the European Union on the Transatlantic Trade and Investment Partnership, T-TIP, and how it may impact the trade relations between Iceland and the United States. A working group, established last year, is evaluating the cost and benefits of the prospective agreement for Icelandic industries and will deliver its assessment in the coming weeks.

Our government representatives, along with the other EFTA countries, have had direct talks with the United State Trade Representative and are well informed about the developments. There is a good degree of understanding from the US side that T-TIP is also important to the EFTA countries. This was evident at the Nordic US Summit that I attended in Stockholm last year.

T-TIP is obviously still being negotiated and its consequences for Iceland are therefore somewhat uncertain for the time being. It is, however, clear that the impacts could be both positive and negative. Increased GDP in the US and the EU, as a consequence of the agreement, would hopefully lead to increased demand for Icelandic products. Another and less favourable scenario could be if the agreement would lead to increased demand for goods and services between the US and the EU at the cost of its trade with third countries like Iceland. We might see a similar scenario for foreign direct investment.

In this regard it will be important to ensure that Icelandic companies enjoy similar or better terms in its trade with US companies after the agreement on T-TIP. I also have confidence in the quality of Icelandic products and services, which will continue to be in high demand in Europe and the United States alike.

In any event, we will continue to monitor closely the negotiations on T-TIP, and there is every reason to believe that the agreement, when in place, can have positive effects on trade and investment between Iceland and the United States.

Iceland´s strategic location between North America and Europe offers yet another possibility for increased co-operation. Iceland is a member of the European Economic Area, which provides access to a market of more than 500 million people. Iceland is also a member of the European Free Trade Association, which has negotiated free trade agreements with more than 60 countries. Iceland has recently concluded a free trade agreement with China and was the first European nation to do so. Therein lie many opportunities and one could, for example, imagine a partnership between Icelandic and US companies in exploiting some of those.

In addition, developments in the Arctic, with the receding of the ice cap, are changing geography and bringing Asia closer, also in the commercial sense. This is why the Icelandic Arctic Chamber of Commerce was established last year, and this is why Iceland was in the forefront internationally of laying the grounds for a similar body, the Arctic Economic Council, amongst the Arctic nations.

Shipping companies, for example, are already preparing for this scenario, like Eimskip, which has offices in Portland, Maine. Furthermore, the opening up of alternative transportation routes put Iceland in a favourable geostrategic position for the provision of trans-shipping and other related services, also vis-à-vis the United States.

I also see continued opportunities in tourism. Icelandair services nine destinations in the United States - from Seattle in the West to Boston in the East, from Anchorage in the North to Orlando in the South some 76 flights a week during high season. The other Icelandic airline, Wow, is also preparing to service the US market and the US airline, Delta, is flying on a regular basis to Iceland during summer time. Travel from the United States to Iceland increased by almost 200% between 2008 and 2013. From 2013 to 2014 we are likely to see over 30% increase. These are large numbers, also in absolute terms. In addition, surveys show that US consumers are genuinely interested in Iceland and not only in our nature, although it features prominently, but also in culture, food, entertainment and shopping.

The steep increase in numbers of US guests is bound to slow down at some point, but our aim should be to sustain these high levels in the long run and, of course, try to surpass our British friends in numbers

Ladies and gentlemen,
I hope you can take from my comments that we have every opportunity in building further on the solid footing that Icelandic US relations provide for. I have focused on trade and investment, and tourism, in my remarks but, obviously, we share interests and commonalities in other fields of society, including culture. Just these past three years, Icelandic artists have exhibited at the Museum of Modern Art, the Met and the New Museum in New York, and Björk, the musician, is being exhibited at the Museum of Modern Art next year.  I can also mention education, sports, security, energy and climate the latter being the main reason for my visit to the United States on this occasion. 

I have a lot of faith in our relations and my government´s policy in strengthening those. You, as businesspeople and entrepreneurs, are no doubt better equipped than I am to identify the all the potential but my main message to you is this:

Iceland is on the right track. The economy and political environment are stable and, as I said at the beginning of my talk: Stability projects predictability which is what business needs. There are numerous good opportunities to work closer together, not least in trade and investment, and my government is taking meaningful steps further to improve our competitiveness and business environment. Our two nations are likeminded and share fundamental values and principles. We have a long and remarkable history together and share a future that looks promising. The opportunities are there for us to seize.

Thank you again for inviting me to the annual meeting of the Icelandic-American Chamber of Commerce. I wish you well.

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