Iceland’s industrial sector hit by energy shortage and falling export revenue

Iceland’s industrial sector is facing a contracting export revenue due to decreased exports of aluminum and silicon. The main economist of the Federation of Icelandic Industries, Ingólfur Bender, attributes this contraction to the government’s inaction on energy matters. The reduction in energy supply from Landsvirkjun, the National Power Company of Iceland, has negatively impacted energy-intensive companies and the overall economy.

In the first four months of the year, Iceland’s industrial export revenue contracted by about seven percent. Additionally, there was a ten percent contraction between 2022 and 2023, according to a new analysis by the Federation of Icelandic Industries.

Bender identifies the primary reason for this contraction as a decrease in energy-intensive industries such as aluminum, silicon, and data centers. The export revenue from these industries has shrunk due to two factors. Firstly, the price development of products was not economical for the industry in the previous year. Secondly, the reduction of energy supply by Landsvirkjun has significantly impacted the operation of these companies and subsequently, the entire economy.

The government’s inaction in addressing energy issues is evident in this contraction. Bender argues, “We have not been building our energy production in a manner that would support the continued growth of this sector and thus the export revenue of the country.”

Despite this contraction, the industrial sector remains the country’s largest export industry, accounting for nearly forty percent of export values.

However, the knowledge-based industry, for example, information technology and telecommunications industry, and pharmaceutical production, is growing the most. Bender attributes this to several factors, including tax incentives for research and development, which have significantly influenced this development.