FDI Opportunities in the Icelandic Hotel Industry: The possibility of continuing sustainable growth

Gudmundur Steinn Steinsson

Student thesis: Master thesis


The present study examined the attractiveness of the Icelandic hotel industry as a destination for foreign direct investments. In order to determine its attractiveness the research analyzed the rapidly growing industry, the major pitfalls it could suffer from and the various country-specific risks involved for foreign direct investors. Various individuals and local media have raised suspicions on the possible limited ability of Iceland to welcome more tourists, a declining share of hotels in the accommodation industry and possible overinvestment. A risk to FDI could furthermore be imposed by the country┬┤s ongoing recovery from the economic crisis of 2008. An examination of these factors is necessary to decrease the confusion on the topic, increase transparency and encourage higher levels of FDI in the Icelandic hotel industry. The paper concludes using a stakeholder analysis that locals, tourists and the government could directly or indirectly lead to general limitations on the tourism industry that could reduce demand for hotel rooms. It further concludes with an analysis of the industry carrying capacity that Iceland is relatively far from reaching its carrying capacity. An examination of trends in the accommodation industry show a trend where hotel accommodation is loosing share in the accommodation market, the trend however proves unlikely to continue in the long term. Data on occupancy rates and industry supply and demand show that overinvestment has not occurred from 2008 to 2015 and is unlikely in 2016. Finally the paper concludes, with a review of various subdivisions of country risk, that the removal of the capital controls now in place could impose a considerable amount of transfer risk to FDI in the country, but overall country risk remains at a low level. These results invalidate many of analyzed concerns regarding the future of the Icelandic hotel industry and encourages investors to consider FDI projects within the industry and carry out project-specific analysis to determine their profitability.

EducationsMSc in International Business, (Graduate Programme) Final Thesis
Publication date2015
Number of pages91