The Economic Impact of the Resource Park
Over two decades ago
there was ample employment on the Southern Peninsula, mainly due to the
presence of a US Army base, and large fishing companies which operated in
Keflavík, Grindavík, Njarðvík and Sandgerði. At its peak, around 6,000 people
lived on the US Army base, soldiers and their families. Since 2006, the
Southern Peninsula has experienced two severe downturns with dire economic
consequences and with rate of unemployment around the highest levels since the
end of WW2.
Image 1: Unemployment in the Southern Peninsula However, a turnaround seems to be taking place with the emergence
of new industries, most of which are directly or indirectly linked to
geothermal activity. The Resource Park is a good example of this development.
The Park contains a cluster of companies basing its operations on the
collective use of geothermal energy from HS Orka. The cluster forms an economic
unit which is stronger, more efficient and more flexible than the simple sum of
the relevant companies. The efficiency is i.a. reflected in collective
experience and knowledge in the field of harnessing geothermal energy, for the
benefit of all of the companies.
Image 2: Jobs that stem from the Resource ParkSince 2008, the Resource Park and the companies that operate there have changed considerably. The growth of the companies within the Park has played a leading role in the resurrection of employment on the Southern Peninsula of Iceland and the economic turnaround that is currently taking place there. It is estimated that one out of every four new jobs created on the Southern Peninsula stems from the Resource Park.
Image 3: Wages It is no coincidence that the growth period within the Resource Park has gone hand in hand with the economic crisis in 2008 and the economic recovery that followed it. A decrease in the real exchange rate and positive conditions for export businesses have contributed to the rapid growth of many companies within the Resource Park. In 2013 the combined income of all nine companies was ISK 20.5 billion, which amounted to 1% of Icelandic GDP in the same year. From 2008-2013, the added value of all nine companies within the Park increased by more than 21% in real terms. During the same period the added value of the Icelandic economy as a whole decreased by 1.7% in real terms implying considerable value creation in the Resource Park while the economy was contracting. The volume of growth within the Resource Park is also reflected in the fact that wages paid by the companies in the Park are approximately 30% higher than average wages in Iceland.
Image 4: Total income of the resource parkThere are five main reasons for the volume of growth within the Resource Park. First and foremost, the geothermal resources. Secondly, favorable macro-economic conditions and accumulative experience in harnessing geothermal heat, aluminum production, tourism and other industries. Thirdly, the location of the Resource Park on the Southern Peninsula and its proximity to Iceland´s largest international airport. Many of the companies within the Resource Park operate personnel-intensive operations which benefit from the infrastructure and workforce on the Southern Peninsula. Fourthly, it can be assumed that the Resource Park benefits considerably from economies of scale and scope, as the proximity of the companies to each other has had a positive impact on their operations. Finally, the Park benefits from close proximity to the specialized services and workforce of the Reykjavik capital area.
In 2013, the Resource Park employed around 500 people and it is estimated that 600 further jobs derive from the operations. It can be assumed that without the Resource Park, unemployment on the Southern Peninsula would have been approximately 2% higher on average during the period 2008-2013.
Given the outlook in tourism, energy production and the fishing industry, it is likely that the companies within the Resource Park will continue to grow, as long as the economic development in Iceland will be similar to the development since 2011. It can therefore be estimated that the total income of the Resource Park in 2016 will amount to ISK 23 billion, including added value of ISK 11 billion, i.e. with added value increasing faster than income.
There are many indication that the operations of the Resource Park are changing in nature. The emphasis on research and development is increasing and tourism related services are also growing.
Image 5: The total income of Resource Park companies HS Orka, HS Veitur and the Blue Lagoon still form the backbone of the Resource Park, as approximately 85% of the Park’s income derives from these three companies. However, diversification in income is expected to increase in the coming years when other companies start to generate income as planned. A considerable in investment is planned for the next 2-5 years, amounting to ISK 20-25 billion. For example, the Blue Lagoon expects to invest ISK 6 billion in the next three years.