Iceland and her companies in the Baltic Sea region

As a Nordic country, Iceland has close links with the Baltic Sea region, both politically and economically. This fact may be best illustrated today by the active interest that Icelandic companies and investors have shown in the region.

I am delighted to contribute an article that gives me a platform to highlight the deep and growing ties between Icelandic companies and the Baltic Sea region, in particular the three Baltic States.

It is no secret that the Baltic rim is one of the fastest growing and business friendly regions in Europe. This fact was reconfirmed by the World Bank's recently published Doing Business 2008 report, where all three Baltic States ranked in the top 30 economies in terms of their business friendliness. Icelandic companies and investors were quick to realize the advantages of these conditions. In the past 15 years, their presence has grown both in terms of volume and value, expanding into diverse and non-traditional sectors that would have been unimaginable just a decade ago. Icelandic economic participation reflects above all the huge potential of this region.

The dynamism in our economic cooperation is impressive. Since 2001, trade in manufactured goods between Iceland and the Baltic States of Estonia, Latvia, Lithuania and Poland has increased by almost 350%, to 330 million USD in 2006 (Global Trade Atlas). And this does not take into account the tremendous growth in services and foreign direct investment, the establisment of local presence.

Icelandic Companies: Investing in the Region

Icelandic companies and investors entered the region immediately after Baltic independence in 1991. Among the first Icelandic companies to enter the region was Byko, a construction and do-it-yourself store, and Hnit Baltic, an engineering consulting firm. These companies were soon followed by others, attracted by the potential of a region teeming with creativity and innovation. Indeed, the latent energy and spirit of the Baltic Sea region was fully unleashed after independence.

Icelandic business interests are diverse and dispersed throughout the region. Their success has been facilitated and encouraged by factors of globalization and structural changes in the Icelandic economy itself. Both have obviated geographic distance and expanded the potential sectors for cooperation and integration. The following overview is by no means exhaustive but does paint a revealing picture of Icelandic business investments in the area.

In the retail sector, Smaratorg ehf. operates a growing number of furniture outlets under the name Jysk, with plans for more in the pipeline.

The clothing and fashion house 66° North manufactures all of its goods in Saldus and Aizetje, two cities just outside of Riga. In Lithuania, Icelandic investors bought and renovated one of Europe's largest shirt factories in a small city outside of Vilnius. The factory now produces over 900.000 shirts a year under leading brand names.        

In the fishing and seafood sector, Hampidjan Ltd, which is one of the largest suppliers to the fishing industry, moved all its production of rope and netting to a new 20 thousand square meters factory in Lithuania in 2004.

In the shipping and transport sector, companies like Eimskip, Samskip and a company under Byko's ownership are active throughout the region, supplying Baltic goods to Iceland, Europe and beyond.

In the banking sector, Norvik Bank and MP Investment Bank have established a sizeable presence in the region. MP Investment Bank is the only Icelandic company listed on the Tallinn, Riga and Vilnius Stock Exchanges, and on 11 October 2007, it will host a conference to introduce an innovative pension fund in the region. The presence of Icelandic banks and investment partners in the region, which have created many business opportunities in the past 3 years, augurs well for future ventures.

In the technology and services sectors, Hnit Baltic provides general engineering consulting services, ranging from engineering services to software development. Icelandic architectural firms like Arso, which is jointly owned by Arkis and Hnit Baltic, have also established a presence in the region.

In the aviation sector, Icelandair Group recently purchased Latcharter, a Latvian charter airline which operates flights to destinations worldwide from its hub in Riga. The Group sees the Baltic region as a small but important market with a high potential for growth.

Icelandic companies have also made their mark in the pharmaceutical sector. Lyfja established a presence in Lithuania in the mid 1990s and now operates around 45 pharmacies under the well known Farma name. Actavis, a leading player in the generic pharmaceuticals market, has operated in the region since 1999.

Natural Partners

It should come as no surprise that Icelandic companies and investors are active in the region. Indeed, Iceland and the Baltic States are natural partners. We share many of the same economic values and characteristics such as open and vibrant markets, dynamic and well-educated labour forces and the desire to meet proactively the challenges and opportunities of the 21st Century. Increased Icelandic investments in this region did not come about as a result of any coordinated effort or intervention from the official level, but simply from the huge economic potential of this region.

However, commercial and economic success does not emerge in a vacuum. The fact that Icelandic companies and investors are able to benefit from, and contribute to, the economic success of the region is closely related to the broader context, in particular the special relationship Iceland shares with the Baltic States. The decision of the Government of Iceland to recognize the independence of the Baltic States in August 1991, the first foreign government to do so, signalled our long term commitment and solidarity with the region.

The presence of Icelandic companies and investors in the region is also facilitated by the institutional framework of the European Economic Area. Standardized rules and regulations of the single market have created a more transparent and predictable business environment. Indeed, the Baltic process of accession to the European Union contributed to making the regional market complementary, significantly mitigating any problems of economies of scale and attracting foreign investment directed towards the larger European market.

Outlook

The potential for further commercial and economic cooperation has by no means been exhausted. There are still many possible areas that remain underdeveloped, including the travel and tourism sector. There are many opportunities to increase commercial traffic between Iceland and the Baltic region, whether through direct flights or through hubs in the Nordic States. Such traffic from Iceland to the region has already increased significantly and the interest is there. For example, Icelandic companies are increasingly chartering direct flights to destinations in the Baltic States for corporate seminars.

The Baltic rim has managed to blend social responsibility with entrepreneurial innovation, and the results speak for themselves. In the past fifteen years, this region has once again emerged as an economic power house. In fact, with such a diverse membership this region has every possibility of being among the most exciting growth areas in the global economy in the years to come.