Innovation and Innovation Policy in Iceland
Innovation and Innovation Policy in Iceland 
Overview of Innovation Policy
The Republic of Iceland has a population of about 320,000 citizens and covers a total area of 103,000 km²; its capital and largest city is Reykjavík. After years of above EU-average economic growth, the situation has changed drastically. In October 2008, Iceland experienced a disastrous financial and economic crisis as its entire banking and financial sectors collapsed. The effects resulted in a political crisis at the end of 2008, leading to the resignation of the government in January 2009. In April 2009 new elections were held; the socialist and the green party won these elections and are now in a process of forming a new government. Iceland is considering joining the European Union and adopting the Euro, a major issue in the formation negotiations for a new government.
The short term economic prospects are not good at all. The Ministry of Finance (just as the OECD) predicts for 2009 a GDP contraction of 9.6%, which is a dramatic change in the trend of recent years, together with a decline in private consumption as high as 24% in real terms. The economy is projected to shrink until early 2010 and unemployment to soar over the next two years. A 10% annual cut in the state budget is expected for the coming years, affecting research and development and innovation support (RDI) budgets as well.
Over 2008, Iceland’s innovation performance lied below the EU average, where the indicators of course do not yet reflect the effects of the economic crisis. Concerning R&D performance, Iceland has been flirting with the 3% Barcelona target for several years now. According to the European Scoreboard (2008), Iceland belongs to the group of countries of ‘moderate innovators’ (together with Greece, Italy, Norway, Spain and other countries), a fallback compared to 2007. Relative strengths are situated around ‘entrepreneurship and interconnectedness’ (Iceland, Hong Kong, and the United States show the highest levels of early-stage entrepreneurial activity), whereas weaknesses are situated around ‘throughputs, innovation and economic effects’. Most innovative sectors are machinery and equipment, and electrical and optical engineering. The share of R&D personnel in the European Research Area is the highest in Iceland, Finland, Sweden, Luxembourg, Denmark and Norway. Patenting and publication performance have also strongly increased in the last years. Especially in health related sciences, the country performs well.
Despite the economic crisis, the latest budgets adopted by the old government (early 2009) foresee in an increase of the main competitive funds: Technology Fund (15% increase between 2008 and 2009), Research Fund (9% increase), Targeted programmes (97% increase – mainly due to the funding of 3 new Centres of Excellence), Graduate Education Fund (11% increase). The main emphasis in the R&D support system in Iceland lies on the research side. Direct support schemes to companies are not well developed, and more in general, innovation has not received sufficient policy attention in the last years. This has resulted in a quite narrow base of R&D performing companies (with a quite skewed distribution in R&D spending). The economic crisis has had a stagnating effect on financial investments, and thus also the availability of venture capital. However, as a response to the crisis a new business investment fund was setup by the singer Björk in collaboration with Audur. Exit strategies are however non-existent and there are no tax incentives in places for individuals and organisations to invest in companies, which is essential to help companies to grow.
In the coming months and years, Iceland will be facing enormous challenges. As budgets for RDI will face severe pressure, prioritization and focus will become essential. Iceland needs to ‘find’ new promising sectors and direct its efforts in developing these sectors further (e.g. geothermal energy, life sciences, creative sectors). Furthermore, emphasis has to be put on innovation, thereby stimulating public-private collaboration, technology transfer, support of new/emerging companies and of course secure capital for investment in companies. Tax incentives for innovation should be looked as well, just as direct support schemes like innovation vouchers. Iceland has to make use of the excellent framework conditions for innovation (OECD).
Finally, action is needed as soon as possible. Therefore the existing governance mechanisms have to be improved as well. The Science and Technology Policy Council, has to play a crucial role herein and its position needs to be strengthened. Also the role and capabilities of Rannís, the Icelandic research centre, in the system needs to be strengthened in view of the policy preparation role of this organization. In this context, a system of quality assurance (evaluation and impact assessment) has to be developed and implemented as well.
The Icelandic government has setup a national and an international panel of experts in order to help to government to deal with the challenges faced. Especially, education and research, but also innovation, will be essential for the future recovery of Iceland.
| Annual Country Reports |
 Country report 2009 for Iceland
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| Country report 2008 for Iceland
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| Country report 2007 for Iceland
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| Country Report 2006 for Iceland
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| Country Report 2005 for Iceland
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| Country Report Iceland January 2005
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| Iceland - Trend Chart Country Report, September 2003
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| Iceland - Trend Chart Country Report, March 2003
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| Iceland - Trend Chart Country Report, November 2001
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| Iceland Trend Chart Country report June 2001
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| Iceland Trend Chart Country Report June 2000
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| Latest TrendChart Deliverables |
| Workshop Briefing Iceland 13_2006 |
| Workshop Briefing Iceland 11_2006 |
| Workshop Briefing Iceland 9_2005 |
| Workshop Briefing Iceland 7_2005 |
| Country Briefing Iceland 2/2005 |
| New Support Measures |
 IS 21 AVS R&D Fund of Ministry of Fisheries in Iceland |
| IS 15 IMPRA Innovation Centre |
| IS 40 Research Equipment Fund |
| IS 50 Frumtak Investment Fund |
| IS 4 New Business Venture Fund |
Who Is Who
Senior Official(s) for Iceland
Thorvald Finnbjoernsson
Correspondents for Iceland
Arnold Verbeek
Search Who's Who
Innovation Performance
Performance in Innovation Scoreboard 2008Find Out More
List of relevant websites
