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Iceland has diversified into knowledge services over the last decade to complement its resource-based sectors, particularly fishing and aluminium production. The past years have also seen rapid growth in tourism. The 2008 financial crisis severely affected the economy and the STI sector is still in the recovery process. The new policy for Science and Technology (2014-16), which coincides with the inauguration of the new government, focuses on human resources and recruitment, co-operation and efficiency, growth and value creation, and impact and follow-up. An action plan based on the policy has been issued.

Hot Issues

Hot Issues are major national STI policy priorities, as self-reported by countries in their responses to the OECD STIO 2014 policy questionnaire.

Improving overall human resources, skills and capacity building

By OECD standards, Iceland’s 15-year-olds have relatively poor results in science and graduation rates at doctoral level in science and engineering are relatively low (Panel 1v, w). The new policy for S&T emphasises doctoral education and funding for young researchers, as well as increasing the number of science and engineering graduates. The Icelandic Research Fund for Graduate Students merged with the Icelandic Research Fund in 2013 and their financial capacity to support doctoral education and post-doctoral training was increased. The GERT initiative (Enhancing Education in the Natural Sciences and Technology) started in 2012 as a public-private partnership involving the central government, local authorities and industry federations to interest young people in the field. A White Paper on Reforms in Education will be issued in the summer of 2014 and will recommend restructuring education to shorten the time towards higher education.

Improving returns and impact of science

Technology transfer is supported upstream by strong industry- science linkages through research grants and contracts (Panel 1o), but universities and PRIs do not patent their research results. Iceland gives high policy priority to increasing co-operation between HEIs, PRIs and companies to enhance the efficiency of the system and the quality of its output.

Encouraging innovation in firms and supporting entrepreneurship and SMEs

Although BERD decreased from 1.42% of GDP in 2009 to 1.38% in 2011, Iceland remains at the OECD median in terms of business R&D intensity and technological and non-technological output (Panel 1d, f, g). Most business R&D activities are concentrated in knowledge- intensive services and high-technology manufacturing. Competitive grants and tax incentives are the most important instruments in the policy mix for business R&D and R&D-driven innovation (Panel 2). The tax incentive scheme provides a 20% reimbursement of companies’ R&D costs through a tax rebate. Recently introduced, the total of the tax incentive scheme doubled from USD 4 million (ISK 540 million) to USD 8 million (ISK 1.1 billion) between 2011 and 2014.

Strengthening public R&D capacity and infrastructures

Iceland has a strong science base. The ratio of public R&D expenditure to GDP and academic publications in high-impact journals are at the top of the OECD area (Panel 1a, c). However, universities and PRIs have suffered severe and ongoing budgetary cuts since the onset of the crisis. Research expenditures at universities and PRIs dropped from 1.39% of GDP in 2009 to 1.06% in 2011. The new STI policy aims to increase the share of competitive funding in total STI funding from the current 20% to 27% by 2016 and to increase the use of performance indicators in allocating block funds. In addition to the existing tax incentive scheme, new schemes for investors in SMEs are being developed. University funding as a share of GDP is to reach the Nordic average by 2020. For research infrastructures, the Infrastructure Fund was established in 2013. It builds on and extends the role of the former Equipment Fund. AWorking Group for Research Infrastructures will be established under the Science and Technology Policy Council in 2014 with the aim of updating the roadmap for infrastructures.

Country Charts

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Selected Highlights

STI policy governance

Evaluation and monitoring of performance are key features of the new framework for S&T policy. Iceland seeks to improve the evaluation of science and innovation by developing a comprehensive system for monitoring science and innovation results, and improving industry statistics related to research, exports, value creation and innovation. An international evaluation of the STI system is being performed and results are expected by the autumn of 2014.

STI policy governance

In spite of the sharp economic slowdown, Iceland’s green productivity increased almost twice as fast as in the OECD as a whole over 2007-11. It aims to become a leading international green economy focused on clean natural environments, sustainable use of energy, and education about sustainability. The Green Economy initiative was implemented in 2012. It makes the public sector a role model for the green economy. The concept of sustainable development has been integrated in the statutory missions of public institutions and green procurement practices are encouraged, with an objective of green national tenders of 50% of all public procurement tenders by 2015 and 80% by 2020. Economic incentives are provided through the Green Competitive Fund, the Green Venture Capital Fund, and Incentives for Initial Investment in Iceland by foreign investors.

Innovative entrepreneurship

Iceland offers a regulatory and administrative environment that is less conducive to entrepreneurship than the OECD median (Panel 1j). Red tape and entry barriers in the network and transport sectors impede product market competition. In addition firms’ access to capital and debt funding has been hampered by major reforms of the financial sector to reduce risk of default, by the extensive fiscal consolidation to reduce public debt, and by the capital controls set in place as a result of the severe flight of capital during the crisis. Policy attention has recently been paid to strengthening equity funding and improving the environment for an effective stock market for growing companies. A working group was established in 2013 to consider tax incentives for individuals who purchase stocks in small growing companies. Public support for innovation is generally generic in nature, and there are few targeted instruments, e.g. centres for start-ups.

Clusters and regional policies

The public procurement scheme, Better service for less, was established in 2011 in co-operation with industry for a three-year period with an annual budget of USD 4.5 million (ISK 600 million). The project focuses on health, education, and energy and environmental issues. Clusters have become an important part of Iceland’s policy. A notable example is the maritime cluster. There are on-going discussions to set up an aluminium cluster.


Owing to its small size and remote location, Iceland lacks world-class universities that attract talent and knowledge assets (Panel 1b). However, the University of Iceland is on the Times Higher Education World University Ranking, as one of the world’s top 300 universities, and the number of large corporate R&D investors is high relative to its GDP (Panel 1e). ICT infrastructures are well developed and Iceland is strongly integrated in global academic networks; 69% of its scientific articles are produced with foreign co-authors (Panel 1l, m, q). The business sector is less well integrated as shown by co-patenting data (Panel 1r), but still above the OECD median. In addition, while Iceland previously received significant international S&T investments, foreign R&D funding dropped in the wake of the crisis from 12.1% to 5.4% of BERD between 2009 and 2011, but remained at 8-9% of public R&D expenditure. Iceland has announced better support for applications for external funding, both nationally and internationally, and for enhanced Icelandic participation in foreign programmes. Support will also be provided to firms seeking markets abroad. In the longer term, Iceland’s competitiveness for highly skilled labour as well as increased international collaboration on research infrastructures is considered a likely policy issue.