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Out Into the Open |
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Archives -
2007 Archive
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Written by B. Tyril
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Tuesday, 22 May 2007 |
With a modern transport and communication infrastructure — and a fast growing financial market — the Faroe Islands is emerging from obscurity with main attractions for investors featuring soon-to-be privatized public corporations as well as lesser-known enterprises.
Several factors are converging to highlight the Faroes as an interesting place for investors. Important trade agreements with Iceland and Russia are set to make business life on the islands easier and more profitable — while new fiscal incentives could be in the cards according to the Faroese Government. Faroe is still relatively unknown in the world; in spite of its tiny population of under 50,000 it has a strong economy based on huge exports of seafood and a comprehensive service infrastructure that includes advanced communication networks and excellent transport links.
Arguably much owing to the influence of Icelandic players in the financial services arena and elsewhere in the economy, the last five to ten years have seen remarkable change toward increased openness in matters such as securities trading.
During the same period, political change has brought about the current Government’s plans to privatize most of its companies while at the same time, private venture companies have been established; combined with deregulation in areas such as banking, insurance and pensions, increased competition in the financial services has worked to propel developments.
Many mergers and acquisitions have taken place during the same period — possibly partly linked to generational change in companies — a trend that looks set to continue in the foreseeable future.
Obvious investment opportunities include government owned corporations scheduled for privatizations in the months ahead, including commercial bank Föroya Banki, air carrier Atlantic Airways, and pension fund and life insurance company Lív. Depending on investment strategy, other opportunities may include companies in the aquaculture, fishing, maritime, offshore oil and gas, and financial sectors. It should be noted that several companies are planning to become listed on the Faroese Securities Market, which implies flotation on the OMX Nordic Exchange in Iceland.
‘Striking similarities’: Designed to establish “a common economic zone” with the free movement of people, business, products and services between the two countries, a trade agreement between Faroe and Iceland, known as the Hoyvík Free Trade Agreement, is currently being implemented.
This agreement is likely to accelerate existing processes of economic and cultural integration between the two neighboring island countries.
“This is the most comprehensive trade agreement that Iceland has ever been a party to, and it is therefore very fitting that this agreement is between Iceland and the Faroe Islands,” Iceland’s then Prime Minister, Halldór Ásgrímsson said in 2006.
A Faroese official, Herluf Sigvaldsson, director of the Prime Minister’s Office’s Department of Foreign Affairs, added: “Viewed in the light of the striking cultural and socio-economic similarities between our two countries, this agreement makes obvious sense.
“We have the best conditions imaginable for generating mutual economic growth from the agreement — after all, our languages are very similar and our peoples are familiar with each other on all levels, there are a lot of links, both business and personal, our economies and living conditions are comparable, as is the size of both populations, and home markets.”
Submarine systems: A look at the Faroese communication and transport infrastructure reveals that here is a country that is well developed. Arguably because of the smallness of the Faroe Islands, domestically far-reaching developments are easier achieved here than in larger countries.
With the latest achievements in road and underwater tunnel construction, some 85 percent of the entire Faroese population are now living within an hour’s drive of one another.
The two underwater tunnels between the islands of Streymoy and Vágar and the islands of Borðoy and Eysturoy, respectively, are changing the dynamics of people and goods movements and creating new business opportunities.
An even larger, privately funded development is underway to build a new fixed link between Eysturoy and Streymoy and other large infrastructure developments are being planned further down the road.
As to telecommunications, the Faroese are exceptionally well wired with fixed-line telephony in every household and every business, almost one mobile phone per individual, and internet connection, for the larger half broadband, in virtually every home and business. Two submarine cable systems plus satellite links connect the Faroes to the rest of the world and a new one is being placed between Faroe, Shetland, Orkney and mainland Scotland to dramatically raise transmission capacity for digital communication, information, entertainment and services.
FAS overhaul: While integration with Iceland will no doubt enhance key aspects of the general business environment in the Faroes — not least in terms of financial services and securities trading — other major developments included a Most Favored Nations (MFN) trade agreement with Russia. Essentially, this long-awaited agreement enables Faroese companies to sell goods to Russia without restrictive import tariffs and cumbersome customs processes.
The MFN deal is seen to further open up the Russian market for goods from the Faroes and may hold significant economic promises, considering the size of the market and the already well established business contacts between Russian vessels in Faroe waters and various suppliers on the islands as well as other links established between the countries in the seafood trade.
In the maritime sector, the open ship registry known as the FAS is geared to attract growing numbers of merchant vessels seeking competitive advantage, by offering tax incentives combined with high quality standards and administrative effectiveness.
The FAS is more than a decade old but has lately been overhauled with legislative adjustments and a beefed-up administration to cater for growing demand.
Further tax cuts? Another sign of the changing times is the reduced corporate tax rate in the Faroes, which is now 18 percent of profits. According to Bjarni Djurholm, Minister of Trade and Industry, further reduction of the rate could be in the cards with respect to the Government’s newly formulated policies on trade and industry.
Whereas earlier, business taxation has mostly referred to existing Faroese companies, the new context embraces the goal of attracting foreign companies by creating a competitive environment.
Declining to expand on the subject, Mr Djurholm told business newspaper Vinnuvitan: “Reducing the corporate tax rate is definitely an option when it comes to attracting foreign investors. It is well in line with the Governments policies on trade and industry.”
Given the fact that Mr Djurholm’s colleague, Finance Minister Bárður Nielsen, is known for his efforts to reduce the relatively big public sector in the Faroes — and his openly favorable views on the principle of low tax as an incentive for investment — one shouldn’t be too surprised to see the tax rate come down a bit further. Which is quite impressive, given the fact that it has been halved over the last decade or so.
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