SUBJECT: ECON/COMMERCIAL HIGHLIGHTS FOR FEBRUARY 2006

• Chamber's annual meeting spotlights controversial issues
• Icelandair had best year ever
• Billionaire pins expansion on Central/Eastern Europe
• Icelandic spring water looks to saturate 11 new markets
• Genetics company deCODE discovers gene linked to diabetes
• Some analysts worry about inter-connectedness of banks

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Chamber's Annual Meeting Spotlights Controversial Issues
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1. "Iceland: 2015" was the theme of the Annual Meeting of
the Icelandic Chamber of Commerce, held February 8.
Speakers and panelists had been asked to address what
changes they anticipated, or believed should be made in the
sphere of economics and business over the next ten years.
Prime Minister Halldor Asgrimsson delivered the keynote
address, and took many by surprise when he predicted Iceland
would be a member of the EU by 2015. In the past,
Asgrimsson has stated that Iceland should hold exploratory
talks with the EU about membership. On this occasion he
clearly took pains to say he anticipated membership would
occur by 2015, not that he necessarily advocated such a
development. Asgrimsson went on to say that he was
disappointed by lack of societal debate on the issue,
especially in the business community where one rarely hears
any discussion of the matter. The full text of the speech
is available at
http://eng.forsaetisraduneyti.is/minister/Speeches_HA/nr/224
2.

2. The second major speech was given by Agust Gudmundsson,
CEO of Iceland's large food processing group Bakavor, which
has most of its activities and investments in the UK.
Gudmundsson chided the government for continuing to actively
support significant expansion of the aluminum smelting
sector in Iceland (dominated by U.S. parent companies).
Iceland's future, he said, was in services and knowledge
industries, not in manufacturing. The resources being
devoted to aluminum industry development, he concluded,
would bring far greater benefits to the economy and society
were they devoted to the modern, future-oriented services
sector.

3. Chamber leaders emphasized that even though Iceland
ranks in the top five of the world's most competitive
economies (having risen rapidly in the last five years or
so), it was realistic to seek to make Iceland number one by
2015. Continuing the effort to make Iceland an attractive
place for foreign investment, and improving education at all
levels -- including further strengthening citizens' English
language skills -- would help Iceland achieve this goal.

4. The speeches by the Prime Minister and CEO Gudmundsson
both unleashed a slew of media reports and commentaries on
Iceland's future with respect to the EU, and on the issue of
major new aluminum projects (two of which are being proposed
by Alcoa and Century, the U.S. firms that operate two of
Iceland's three existing smelters).

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Icelandair Continues Acquisition Strategy While Achieving
Record Profits and Passenger Volume
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5. Icelandair's holding company, the FL Group, has
gradually been increasing its stake in the large UK budget
air carrier EasyJet and now holds 16 percent of its shares.
This has led to increasing media speculation that FL may be
setting its sights on an eventual takeover attempt, though
the company has refused to comment. EasyJet's founder and
largest shareholder, Stelios Haji-Ioanno (with 40 percent of
the company) reportedly opposes an FL takeover and has
employed U.S. investment bank Goldman Sachs to advise the
carrier on fending off any possible unwelcome advances.
With its recent acquisition of the Danish budget carrier
Sterling, were it to actually acquire EasyJet, the FL Group
would become one of the largest budget carriers in Europe --
based in a country with just 300,000 people.

6. FL group's increasing ability to carry out major
investments and takeovers is certainly enhanced by the
stellar financial performance of the group's flagship
operation Icelandair. The Icelandic carrier flew a record
1.5 million passengers in 2005, up 15 percent over the previous
year. This total has tripled since 1993. Icelandair's
profits for the first nine months of 2005 reached an all
time high of $100 million, more than doubling from the same
period a year ago.

7. That said, Icelandair may now be on the verge of facing
a stiff challenge in its own back yard. For years,
Icelandair was the only game in town, with no foreign
carriers serving the country. However, in the last few
months, both British Airways and SAS have announced they
will shortly begin service to Keflavik. Icelandair's
monopoly position -- and monopoly pricing power -- in and
out of Iceland will be challenged when these competitors
arrive on the scene. As yet there is still no U.S. carrier
flying between the U.S. and Iceland. Thus, for the present,
Icelandair's monopoly to North America remains unchallenged.

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Iceland's sole Billionaire Sees Expansion in Central/Eastern
European Telecom
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8. Bjorgolfur Thor Bjorgolfsson, Iceland's richest person
and first billionaire continues to expand his empire and
garner international media attention in the process.
Iceland's "Market Magazine", the business supplement of
Iceland's largest daily circulation newspaper Frettabladid,
recently named Bjorgolfsson its Man of the Year. He is
undisputedly Iceland's most successful entrepreneur and the
only Icelander to make Forbes' list of the 500 richest
people in the world (in 2005, he ranked as the 488th
wealthiest individual with $1.4 billion). Bjorgolfsson's
original fortune was made in Russia during the mid 1990's
via establishment of a brewery operation, subsequently sold
to Heineken. He has since parlayed the handsome profit
from this sale into a truly multinational empire, largely by
betting on higher risk opportunities in Eastern Europe.

9. The past year has shown Bjrglfsson is not resting on
past success. Through his holding company, Novator, he has
acquired large stakes in telecoms firms in Finland, Poland,
Bulgaria, the Czech Republic and Greece and has given every
indication he intends to further expand his holdings in
these and similar markets. His largest Iceland-based
company, Activis Pharmaceuticals, bought a large U.S.
generic drug manufacturer, Amide, headquartered in New
Jersey, for $500 million in July 2005. This acquisition has
made Activis the fourth largest generic company in the
world. Other operations Bjorgolfsson controls include one
of Iceland's three largest banks, which has operations in
ten European countries and in North America. His recent
acquisition of a reported 3 percent stake in the UK's Cable
and Wireless has prompted media speculation that he may
actually be contemplating a takeover of this international
telcoms giant.

10. Despite Bjorgolfsson's philosophy of expansion by
looking outside of Iceland, it appears unlikely that he will
be doing much further investing in the U.S. He has stated
that he intends to concentrate on telecoms acquisitions and
that the U.S. telecoms market is far too developed for him
to apply his emerging market formula for success. He
believes that Central/Eastern European markets are where the
best opportunities lie for expansion through takeover.

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"Icelandic Glacial" Water to be Sold in 11 Countries
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11. The Icelandic spring water producer, Icelandic Water
Holdings, has recently arranged deals that will soon see its
water, under the label Icelandic Glacial, sold in 11
countries in Europe and North America. The giant American
retailer Target is already selling the water in 150 of its
stores, and plans to make it available in 1500 stores by the
summer. For years, Icelandic spring water producers have
tried to gain a foothold in the already huge, and still
growing U.S. market for bottled water.

12. While Icelandic waters are available in the U.S., they
have not taken off the way many in Iceland expected,
probably due to the "over saturation" of this market
segment, but also because Icelandic exporters have not
seemed willing to mount the sustained (and expensive)
marketing campaign necessary to get noticed and capture a
loyal customer base. The recent arrangement with Target
represents the best opportunity to date for Icelandic spring
water to finally break through in North America; if it
succeeds, this will truly be a watershed development.

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deCODE Discovers Gene Linked to Increased Risk of Diabetes

13. Scientists at deCODE genetics, a company headquartered
in Reykjavik (but incorporated in Delaware) that does
research into the genetic causes of diseases, recently
announced it has discovered a variant in a gene that leads
to increased risk of developing type 2 diabetes. This
discovery represents the most significant risk factor
identified thus far for contracting this disease. deCODE's
research found that more than one third of individuals in
the study carry the at-risk variant and that they have
approximately a 45 percent greater chance of getting the
disease than the general population. deCODE's findings were
substantially confirmed by studies conducted with U.S. and
Danish control groups.

14. The company believes this finding is a "milestone in
human genetics, one that sheds new light on the biological
causes of disease." deCODE will seek to use this discovery
to develop both diagnostic tests and medications to help
better prevent and treat type 2 diabetes. deCODE's research
is presented in a scientific paper in the February edition
of "Nature Genetics".

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Vulnerability of Icelandic Banks Worries Some Analysts
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15. Iceland's three largest banks booked record profits
during 2005 and have generally been considered strong and
stable. Nonetheless, foreign and local analysts have warned
that the banks may not be strong as they appear, and
therefore vulnerable. In January, the British economic
analysis firms Barclays Capital and CreditSights issued
reports warning that Iceland's largest banks (Islandsbanki,
KB-Banki and Landsbanki) were at risk due to their inter-
related ownership and the fact that they had little foreign
capital. Such conditions, these analysts aruge, could have
the effect that if one of the three banks were to suffer a
significant shock -- say a bankruptcy at one of their major
corporate investments -- the damage could spread and drag
the other two down with it, creating a crisis in the banking
sector and the Icelandic economy as a whole.

16. Similar concerns have been raised before, though
somewhat less starkly, by the Director of Iceland's
Financial Supervisory Authority (SEC equivalent), Pall
Palsson. He opined that: "The interlocking ownership
situation could cause an abnormal and unwarranted rise in
the banks' share prices". He went on to say that that such
close relationships could also lead to a precipitous and
destabilizing fall should a problem develop involving one of
the three banks (the same argument now being offered by the
British analysts cited above).