The Faroe Islands is a small open economy where the fishing industry for decades has been the major driver. The Faroese fishing industry is diversified and in constant development. The industry covers a range of various areas, spanning over e.g. pelagic fishery, demersal fishery, in Faroese as well as distant waters, and the fish processing industry. Furthermore, the Faroese fish farming industry has gained cutting-edge know-how in the field of aquaculture and is one of the most sustainable and profitable aquaculture industries in the world. Fishing and its related industries account for around 20 per cent of the gross value added to the Faroese economy in 2011 and represents around 80 % of the total export of goods and services. The fishing industry employs approximately 15 % of the labour force.
The Faroese government has entered into a number of Free Trade Agreements, first and foremost with the European Union, but also with Norway, Iceland and Switzerland. Agreements on fishing rights have also been established with the neighbouring countries. Currently the government is looking into the possibilities of obtaining membership of the World Trade Organisation.
The total GDP for 2011 was 13.2 billions and it is estimated that the nominal GDP will increase by 2.5 % in 2012 and 3.6 % in 2013 (Governmental Bank est.). Since 2010, there has been a surplus on the Faroese balance of payments. The surplus on the balance of trade is primarily due to increased exports of pelagic and farmed fish and a decrease in import of goods during the financial crisis. The global financial crisis caused unemployment to rise from 1.5 % in 2007 to 7.4 % by the end of 2010, which is relatively high in Faroese terms. Unemployment has however reduced steadily during the past two years and is currently at around 5.1 % (Sep. 2012).
After having experienced a much appreciated increase in population during the past decades, the financial crisis caused a boost in emigration of especially young people. Emigration generally is a challenge to the Faroese society – and thereby the economic development in the long run. This is mainly due to the relatively large proportion of young Faroese people who seek an education abroad and do not return. The Faroese Government acknowledges emigration as a serious challenge, and has therefore set up a working group to examine the issue and propose possible solutions.
The Faroe Islands have a well established financial sector constituted by four banks, two insurance companies, two life insurance companies and some public funds. The Faroese banks are under the supervision of The Danish Financial Supervisory Authority and liquidity is on the whole quite good in the Faroese banking sector. In 2004 the Faroese stock exchange, the Faroese Securities Market, was established. The currency of the Faroe Islands is the Faroese króna, issued by the Danish National Bank, and with the same value as the Danish Krone.
Read more here
The Faroe Islands are an industrialized country with a standard of living comparable to other Nordic countries. The economy has, however, a high dependence on the fishing industry which makes it vulnerable to cyclical changes in prices and catches.
It has been a priority for the Faroe Islands in recent decades to work towards a more diversified and competitive business community. This has been very successful when it comes to fish farming as the Faroe Islands are developing into one of the world's largest salmon producing countries.
Fishery products, including farmed salmon, represent more than 90 percent of the total Faroese goods export.
The export of fish products is supported by production of advanced fishing gear and related equipment and services.
In recent years tourism has also become increasingly important to the Faroe Islands.
Fishery in Faroese waters is regulated by a system of “fishing days”. The system focuses on sustainability and takes into account the differences in fishing gear and relative size of the vessels. The number of fishing days per year is set by law on the recommendation of an advisory board.
The main fish stocks in the sea around the Faroe Islands are cod, haddock and coalfish. The majority of catches in Faroese waters are landed in the islands for further processing.
A significant part of the Faroese fish export value comes from fishing in foreign waters. Fishing in foreign waters is to a large extent reimbursed by reciprocal rights in the Faroese exclusive economic zone.
Fish farming in the Faroe Islands has emerged into the second largest export industry.
In recent years there has been a clear trend towards fewer companies controlling a large share of the licences for salmon and trout farming. Most of the farms are vertically integrated controlling the entire process from egg to customer.
The Faroe Islands maintain a relatively high degree of self-sufficiency in local food production.
The sheep production is based on outdoor grazing all year round with a total stock of about 70,000 sheep. This corresponds to around 60 percent of the total demand.
There is enough dairy cattle to satisfy all domestic milk needs, as well as many small potato crops are cultivated by private households for their own use.
Furthermore, the coastal hunting of the abundant and regularly occuring pilot whales for their meat and blubber is an important food supplement, especially in some areas.
During the last 30 years many roads, tunnels and harbours have been built or upgraded all over the country. Also many public buildings and private houses have been built.
Construction is vulnerable to economic changes, and when economy is low many Faroese construction workers are employed in other countries.
Freight companies provide cargo carriage to and from the Faroe Islands. There are scheduled routes every week to many ports in the UK, Germany, the Netherlands, Denmark, Sweden, Norway and Iceland.
Tourist accommodations and the number of travelers by plane and ferry has increased substantially in recent years.
The National Tourist Council has recently invested new and more focused resources into branding and marketing the Faroe Islands as a tourist destination.
Since the beginning of the century the Faroe Islands have been engaged in exploring the potential for oil production in the Faroese maritime area. Some oil has been found but so far it has not been of commercial quantities. Oil reserves have been located in the UK area near the maritime border with the Faroe Islands.
Although the drilling for oil in the Faroese area has not yet resulted in significant findings, the influence of the oil industry is apparent. Oil companies have established offices in the islands, and an offshore base for exploration activities has been established.
The Faroe Islands have trade agreements with the European Union, Norway and Switzerland and with the Russian Federation.
The Faroe Islands have a special economic treaty with Iceland which establishes a single economic area encompassing both countries. The Faroe islands have a modern fishing fleet which supplies international markets with high quality products.