The politics of the Faroe Islands is unlikely to pique your interest, but how about an 800 percent return on your investment?
While the rest of Europe has seen its trade relations suffer through Russian sanctions, the Faroe Islands - part of the Kingdom of Denmark - has enjoyed a boom thanks to its decision to stay out of the European Union.
The islands’ biggest marine produce company, Bakkafrost, has seen its stock surge about 100 percent over the past year, including re-invested dividends. If you are lucky enough to have held Bakkafrost shares over two years, you’ve earned a 260 percent return. Fish exports, which made up 98 percent of Faroese sales abroad in the second quarter, grew 12 percent in the year through June.
The islands are now holding an election. Voting booths opened Tuesday at 9 am in Tórshavn, the capital, and were due to close 11 hours later. Some polls had indicated the Social Democrat-led opposition may take office, but Danish broadcaster DR said on Tuesday the latest polls suggest the outcome is too close to call.
The 800 percent return on Bakkafrost shares since the last election in October 2011 shows the company’s health is closely linked to the state of the Faroese economy. Bakkafrost’s chief executive officer, Regin Jacobsen, says any new government will probably shape its decisions around the needs of his business.
“Our industry enjoys very wide support in Faroese politics,” Jacobsen said in a phone interview. “We don’t expect any new changes to business conditions coming from Faroese lawmakers for a while.”
The country has a history of ignoring fishing quotas. In 2013, it opted to shoulder EU sanctions rather than cut its mackerel production. Producers still sold 815 million kroner ($123 million) in mackerel, or about 13 percent of total exports, that year. Salmon exports soared 35 percent in 2013.
Putin’s ban
Thanks to its freedom to snub EU sanctions against Russia, the Faroe Islands was never a target of President Vladimir Putin’s food bans. That gave Bakkafrost a “very unique market position in the east,” Jacobsen said.
Russia had already emerged as a growing market for the islands long before the annexation of Crimea, with the proportion of exports to the country rising from 8.4 percent in 2012 to 17 percent last year. That’s about 1 billion kroner worth of fish.
Politicians representing the windswept Atlantic island, which has a population just shy of 50,000 and is nestled between Norway, Scotland and Iceland, acknowledge they can’t design any laws that overlook the interests of their marine industry.
“The Faroese economy is all about fish....everything is about fish,” Sjúrður Skaale, a member of Danish parliament for the Faroe Islands’ Social Democrats, said in an interview.
But he’s also concerned that those who have benefited most from the boom in fish exports aren’t being taxed enough. That means replacing the Faroe Islands’ existing 40 percent flat-tax rate with a progressive tax system that charges lower income earners less, he said.
“The less well-to-do deserve to have a fair share of the wealth,” Skaale said. “The good economic times brought back the issue of wealth distribution and who should benefit from it.”
BLOOMBERG