Iceland has consistently ranked among the best-performing countries in the world and in 2018 its per capita gross domestic product was estimated to be the 5th highest in the world. The success of Iceland's economy is due to several factors such as the government's economic policies and the proper utilization of natural resources. Some of Iceland's most essential natural resources include its arable land, fish and renewable energy sources.
Iceland's Natural Resources
Since ancient times, fishing has been one of the most important economic activities to Iceland's population. In 2011, the fishing industry contributed roughly 27% of Iceland's gross domestic product. The Icelandic labor department estimated that roughly 5% of the nation's labor force was employed in the fishing industry. Most of the fish in Iceland are caught in the oceans, particularly in the Atlantic Ocean. Some of the most common fish species in Iceland include cod and brown trout. Cod is considered to be the most important species of fish in Iceland. In 2010, Icelandic fishers obtained more than 178,000 tons of fish. The government of Iceland set limits on the number of cod that fishers could catch to avoid overfishing. As a result of the government policy, Icelandic fishers have been forced to rely on other types of fish such as blue whiting, and Atlantic mackerel to maintain a constant supply of fish. Aquaculture in Iceland is relatively underdeveloped and in 2011, it only produced 5000 tons of fish and employed roughly 250 people. The government of Iceland has urged fishers to invest in aquaculture to avoid overfishing in the oceans. Apart from commercial fishing, Iceland is also famous among sports fishers who are attracted to the country due to the presence of several fish species such as salmon, lake trout and char. Several companies have been set up to cater to the sports fishermen who visit the country.
Arable land has been one of Iceland's most valuable resources since ancient times when humans first settled in the country. Since Iceland's terrain is mainly mountainous, it limits the amount of arable land in the country. The country's climate, however, is considered to be favorable for agriculture. Icelandic farmers rely on chemicals less than other farmers because the country has very few insects that destroy crops. Another factor that makes Iceland conducive to agriculture is that it is relatively less polluted than other countries meaning that its food is less contaminated. In 2015, according to statistics from the World Bank, approximately 1.21% of Iceland's territory was considered arable. Since 2008, the size of arable land in Iceland has been decreasing. The decline in the size of arable land in Iceland can be attributed to the declining significance of the agriculture industry. The Icelandic labor department estimated that during the 19th century, more than 70% of the Icelandic people were employed in the farming sector, while in the 21st century, less than 5% of the Icelandic people worked in the agrarian industry. The Icelandic government expects that in the future, fewer people would be involved in the sector. Icelandic farmers grow a vast array of crops such as cauliflower, potatoes, and turnips. Icelandic farmers have invested in greenhouses to grow other varieties of crops such as flowers, tomatoes, and cucumbers.
Another major natural resource in Iceland is livestock. Icelandic farmers keep a wide variety of animals such as sheep, pigs, and cattle. Traditionally, most Icelandic farmers kept sheep mainly for their wool. One of the most popular sheep breed in Iceland is the Icelandic sheep which is mainly kept for meat. In the past, the sheep were also kept to provide milk; however, due to an increase in the number of cows kept in the country, the sheep were no longer milked. Icelandic farmers began keeping large herds of cattle during the 20th century. One of the most common cattle breeds in the country is the Icelandic cattle which are native to the nation. The breed is primarily kept for dairy, and on average it produces more than 13,000 pounds of milk each year. Poultry is also common in Iceland with the most popular being the Icelandic chicken which is kept for both meat and eggs. Even though the Icelandic chicken is smaller than other types of chicken, its meat is considered to be among the most delicious. Iceland is considered to be self-sufficient in the production of most livestock products such as milk, eggs, and meat.
One of Iceland's most essential natural resources is water mainly because it is used in the production of hydroelectricity. The Icelandic government estimated that more than 70% of the electricity used in the country is produced at hydroelectric power stations. Iceland has been using hydropower since the early 20th century when the first hydropower station was constructed near Reykjavík by a private individual. After realizing the country's potential for hydropower production, the government of Iceland constructed several hydropower stations such as the Kárahnjúkar Hydropower Plant, which is the country's largest hydropower plant, Blanda Power Station and Sigalda Power Plant. Despite the huge power of electricity generated through hydropower in Iceland, the country is yet to exploit its hydropower potential fully. In 2002, the Icelandic government estimated that it only utilized 17% of its hydropower sources.
Iceland has been blessed with vast quantities of geothermal energy due to its unique location. Even though Iceland has large geothermal resources, geothermal energy was first used for heating in 1907. The government of Iceland began utilizing its geothermal resources for large scale heating in 1930 when a pipeline was constructed in Reykjavík. By 2006, geothermal energy was used to heat close to 90% of the homes in the country. The government of Iceland believes that the country has the potential for more geothermal. Several geothermal plants have been constructed throughout the country such as Hellisheiði, Nesjavellir, and Krafla.
The Icelandic Economy
The economy of Iceland is considered a mixed economy with both elements of free trade and influence by the government. Several challenges face the Icelandic economy with the most significant one being the financial crisis that affected the country from 2008 to 2011. After the crisis, the country's financial sector underwent an overhaul to prevent further collapse.