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RIO Country Report Iceland 2015

The RIO Country Report offers an analysis of the R&I system in Iceland, including relevant policies and funding, with particular focus on topics critical for EU policies. The report identifies the main challenges of the Icelandic research and innovation system and assesses the policy response. 



1. Overview of the R&I system

In 2015, the Icelandic economy can be described as stable. Despite moderate growth, it faces challenges that put a strain on the Icelandic RDI landscape.  Following a deep and long recession, including the banking collapse in 2008, an economic turning point was reached in 2011, when the economy began to grow again. In 2014, GDP per capita stood at €39,500, compared to the EU average of €27,300, and a GDP growth rate of 1.9%, compared with the EU average of 1.3%. Post-crisis budget cuts and capital controls, implemented to prevent capital flight following the banking collapse in 2008, remain partially in place. This has created difficulties for growing companies and has had an impact on RDI.

In 2013, Iceland’s innovation performance was below its level in 2007, but 2014 already saw signs of recovery.  Performance relative to the EU stood at 12% above average in 2014.

R&I policy development and implementation is addressed at the national level.The Science and Technology Policy Council (STPC) is the main policy-making body in charge of design and coordination of Iceland’s R&D policy. 

The Ministry for Education, Science and Culture is the key ministry in charge of R&D policy in Iceland supported by other line ministries, in particular the Ministry for Industries and Innovation.

Several other public bodies are responsible for promoting research and innovation in Iceland, including  the Icelandic Centre for Research (Rannis) playing a key role at an operational level in supporting research, innovation and culture in Iceland as well as in disseminating information. 

2. Recent developments in research and innovation policy and systems

In December 2013, the Prime Minister published the new policy of the Icelandic Science and Technology Policy Council for the period 2014-2016. 

In May 2014, the STPC followed up on its 2014-2016 policy with the adoption of a 21-step Action Plan with a clear time-line to support the four main goals. Many of these actions materialized in 2014 and 2015.

This is the first time that the STPC draws up a special action plan, featuring specified responsible parties, a cost analysis and fixed time limits. Both the STPC’s 2014-2016 policy and the May 2014 Action Plan express, albeit indirectly, commitments towards the ERA objectives. Full allocation for the action plan was seen in the State Budget for 2015 as well as 2016. 

3. Public and private funding of R&I and expenditure

Iceland has contributed approximately 2.7 to 3.0% of its GDP to development and research over the past decade. Public R&D expenditure peaked in 2008 and 2009 with an R&D intensity of 3.11 % in 2009.  The longer-term impact of the banking crisis was seen in 2011 with expenditure cut by 10%. Expenditures stood at 2.4 % in 2011 and remained the same through 2012. In 2013, expenditures stood at 1.87% of GDP whereas in 2014 it stood at 1.89% of GDP (Statistics Iceland, September 2015).

Allocations for the budget years 2015 and 2016 were increased by close to 40% in public R&D expenditures, compared with 2014 levels. They are still far from the government’s R&D intensity target of 3% by 2016 and 4%  by 2020. To achieve this objective, funding from the private sector is mostly needed. 

Private R&D performers receive very limited government support. The primary private support system in place in Iceland is a tax reduction scheme introduced in 2010.

4. Quality of science base and priorities of the European Research Area

Under the auspices of the EEA Agreement, Iceland participates in the European Research Area (ERA) governance structures and participates in some of the EU’s main research and innovation programmes, including Horizon 2020, Erasmus+ and Creative Europe. In particular, Iceland has been active in research areas covering agriculture, renewable energy, health and marine-related issues. 

Science and research policy in Iceland takes into account developments within the ERA, and the Iceland 2020 Policy Statement mirrors many of the ERA’s key goals and objectives. 

In terms of the EU’s Innovation Union Scoreboard 2015, Iceland is placed into the second (of four) performance categories, i.e. as Innovation Follower, with an above EU-average performance. 

Iceland scores highly in scientific co-publications, public expenditure, R&D, SME ́s introducing products, process innovation, marketing and organisational innovations. It also scores high in business enterprise research and employment in knowledge-intensive activities. On the other hand it scores low on new doctoral graduates and community trademarks and community design. Iceland also ranks low in contribution of medium and high-tech products exports to the trade balance and sales of new to market and new to firm innovations. This should be seen in the light of Iceland ́s resources based economy and the small size of the country. 

5. Framework conditions for R&I and science-business cooperation

According to The World Bank Doing Business Rating for Iceland in 2015, benchmarked for June 2014 in the group of advanced economies, Iceland ranks 12 on the ease of doing business, above Germany, France and average of OECD, but below the other Nordic countries, Denmark, Sweden, Finland and Norway. 

The effects of the financial and banking crisis have strongly been felt in reduced options and reduced access to finance. In the period 2012-2015, Iceland has experienced many seed ventures and start-ups moving abroad in order to secure venture capital. Policies aimed at attracting R&D intensive FDI have been on hold in Iceland since the 2008 banking crisis and the introduction of currency restrictions.

Knowledge transfer between the academia and applied sciences is actively being promoted by the Research Liaison Office of the University of Iceland, whereas the Innovation Center Iceland operates with the intention of strengthening knowledge and technology transfer to and within Icelandic businesses and industries.

The policy measures announced in 2015, with focus on improving conditions for business R&D include envisaged support for innovation companies through tax deduction, envisaged changes  to the VAT system in 2016, the establishment of a new venture fund, incentives for initial investment and  digitalisation of the a new business register. Various ministerial working groups have been commenced and it is envisaged to publish concrete plans and measures over the course of 2016.

6. Conclusions

There are four main challenges that the key evaluation reports, namely the 2014 ERAC report and the 2009 Taxell report, have highlighted when examining the Icelandic R&I landscape:

  • The discrepancies between the government policy and its implementation through annual budget allocations. 
  • The large number of universities and research institutions in terms of the total population 
  • Small proportion of R&D funding distributed as competitive funding
  • Need for the higher impact of performance-evaluations on the allocation of R&D funds
Geo coverage
Report year
Official publication date
Tuesday, 20 September, 2016
Country Report file
Last update: 24/08/2019 | Top | Legal notice | Contact | Search