Iceland’s competitiveness slips as business burdens grow

Iceland’s competitiveness is declining as regulation and bureaucracy weigh on businesses, columnist Árni Helgason writes in an opinion piece published by Morgunblaðið.

He describes the economic outlook as gloomy despite the government’s claims that it has a firm hand on the wheel. The country feels more like passengers in a self-driving car, he writes. Inflation remains persistent, interest rates are high and unemployment is much higher than usual, while Iceland’s competitiveness is weakening.

In the Institute for Management Development’s ranking of national competitiveness, Iceland fell from 15th place to 22nd this year, its biggest drop since 2010. The country declined across all four main categories measured: economic performance, business efficiency, infrastructure and government efficiency. Iceland fell 10 places in the category of institutional framework, mainly because of burdensome regulations and bureaucracy.

Other measures point to a similar trend, Helgason writes. Iceland scored 2.7 on an OECD measure of administrative and regulatory burdens, the highest score among the Nordic countries. A lower score means fewer barriers. Denmark scored 1.0, while the EU average was 1.5. Helgason says the results should be taken seriously, arguing that a competitive business sector underpins wealth creation, welfare and investment.

He questions why regulation in Iceland is more burdensome than in larger, more populous countries, and whether it is reasonable for major projects to be sent back to the starting point over administrative details. He also points to businesses facing uncertainty when tax practices are changed years later, with the possibility of bankruptcy hanging over them.

People matter more than systems, Helgason argues. Entrepreneurs invest capital and their own work to create new solutions, products and choices, generating jobs and economic activity that support public services.

He says repeated government measures that burden businesses do not help competitiveness. He questions raising the bank tax, which he says is already the highest on record, and introducing a tourism tax package worth 10 billion to 11 billion at short notice. Tourism businesses cannot pass those costs on through prices for products sold long before, he writes. Helgason says there are many such examples, while measures to ease the burden on businesses are largely absent.