Eight years after the crash, Iceland is back and booming – with a new president, a football fairytale success and more to its commercial credentials than cod and adventure tourism
The Viking explorers whose settlement in Iceland marks the beginning of the country’s recorded history also reached North America some half a millennium before Columbus. One thousand years later, with a population of just 330,000 – slightly more than Coventry’s – the country has its own national opera and symphony orchestra, a world-class culinary scene, globally renowned recording artists (notably Björk and Sigur Rós) and a football team which excelled at this year’s European Championships despite its largest club, KR Reykjavik, having a stadium capacity of just 2,781.
In short, this is a nation that punches well above its weight. And it may raise eyebrows, given the financial meltdown in 2008 – one which saw Iceland’s three largest banks fail in the space of three days, the currency almost collapse and the stock market fall 95 per cent – but this now applies to the national economy too. A commercial scene once based on cod, tourism and aluminium is broadening its scope (more on which later) and the country is poised to boom again.
GDP is back above pre-crisis levels at ISK6.5m (approximately £39,100) per capita in 2015, up from £30,000 in 2012, and is forecast to rise by around four per cent in 2016 and 2017. Development projects in progress that reflect its current swagger include a £500m high-speed rail link between Reykjavik and Iceland’s main international airport, a high-value energy transmission system and a major power generation project. Major construction projects in the planning include solar silicon factories with a capacity totalling over 60,000 metric tonnes, numerous road tunnel construction projects and a £350m university hospital.
Yet it remains a country familiar with fiscal volatility. Exports decreased by 16.1 per cent to £260m in May 2016 from £310m in May 2015, with manufacturing sales falling 22.5 per cent and marine products by 11.8 per cent – yet exports of agricultural products rose 62.5 per cent (perhaps surprisingly, Iceland is Europe’s biggest producer of bananas). It is no stranger to political turbulence, either. In April, Sigmundur Davíð Gunnlaugsson of the Progressive Party lost his job as prime minister over the Panama Papers and last month Guðni Jóhannesson was elected as president after he rode a wave of anti-establishment sentiment following the scandal.
Despite this, though, it is a notably stable nation. The government indefinitely suspended accession talks with the EU in May 2013 and officially withdrew its application in March 2015. But Iceland is no land of isolationists: it enjoys EU-related benefits that include free trade and movement of capital, labour, goods and services within the continent. It’s an associative member of the Schengen Agreement (which exempts travellers from personal border controls between 22 EU countries) as well as having a free trade agreement with China and Canada and a favoured nation agreement with the US. While entrepreneurs from non-OECD member nations such as China, India and much of South America require an exemption from the minister of the interior before investing in Iceland, UK speculators are free to do so without red tape.
If all this suggests Iceland is an enticing prospect, there are several prejudices to overcome. “We tackle a lot of misconceptions,” says Kristinn Hafliðason, a former midfielder with the national football team and now a project manager at Promote Iceland – an umbrella organisation covering trade, tourism and investment. “For a start – partly because of the name – everyone thinks Iceland is a very, very cold country. In fact, a cold winter’s day here is only about minus 5°C.”
As well as being oblivious to the Gulf Stream effect, people tend to misjudge Iceland’s remoteness, says Hafliðason. “They think it’s very far away, and that’s just not the case,” he says. “It’s two-and-a-half hours from London, three from Paris, four-and-a-half from Boston.” In fact, despite its proximity to North America and Europe, thanks to its lofty perch on the globe’s upper reaches, the British-built Keflavik airport is also only eight hours’ flying time from Delhi and Beijing – or it would be, were there any direct flights.
A major draw for anyone thinking of setting up shop here is the local talent. “Icelanders are hard workers, and willing to work overtime to get things done,” says Pétur Stefánsson, UKTI director, Iceland. “They’re not too focused on their work mandate, but more on ‘doing it for the team’. As well as being well educated, the workforce is very young – half the population is under 35 – which means a results-driven mentality. Everybody speaks English, too.”
One clue to another of Iceland’s major draws is the sulphurous plumes emanating from the ground all over its brutally elegant landscape (“Reykjavik” means “smoky bay”). Almost 100 per cent of the country’s energy is renewable (hydro as well as geothermal). “Foreign businesses that would like to get a green track record for their products could benefit from Iceland’s low-carbon, renewable energy sources, and also from its competitive energy prices – this includes businesses that need green energy sources and inexpensive cooling such as data centres,” says Stefánsson.
Hafliðason agrees. “The unique selling point we have is our power. All of the electricity generated here is green – 70 per cent hydro, 30 per cent geothermal. You cannot get fossil fuel-based power here. Coupled with that, our electricity is stranded – what is produced in Iceland must be consumed in Iceland.” The result, Hafliðason says, is energy companies offering fixed-price contracts to ventures with extremely low prices involved (whether plans to pipe power to the UK via 750 miles of undersea cabling, should they materialise, would push up these energy costs is, for now, unclear).
“If your processes are highly energy dependent and you need high skill levels – those companies tend to look at Iceland. Another thing to consider is that it’s a Scandinavian country, and wages in the top-paying positions are therefore much lower than in other parts of Europe or the US. The lowest wages are fairly high but the highest wages are fairly low. We’re not everything to everybody. If your business is about labour-intensive assembly jobs, it makes no sense to operate with a population of 330,000 highly educated people and a Scandinavian [pay-scale] system.” The average wage in Iceland currently sits at around £2,881 per month.
A vast amount of the foreign industry already present in Iceland involves metal processing. “We have three big aluminium smelters – Alcoa, Rio Tinto Alcan and Century Aluminium Corp – which combined produce about one million tonnes of aluminium a year, or two per cent of the world’s overall production,”says Hafliðason.
Meanwhile Chinese-owned company Elkem – which describes itself as “the world’s leading suppliers of metallurgical silicon and microsilica” – has been in operation in Akranes, north of Reykjavik, since 1979, and one of the world’s most advanced production plants for silicon metal is to due to be built here by 2018. “The logistics are great, because most of the internal sites in Iceland have easy access to a harbour,” says Hafliðason.
“[With such industries] road transportation usually represents about half of transportation costs, even though it represents about two per cent of the distances covered. Export logistics are all about sea freight, which is one of the most inexpensive forms of transportation.” The Helguvik industrial harbour is just one example of the country’s excellent freight infrastructure, while there are plans to site a tax-free industrial zone there to capitalise on its close proximity (about 4km) to Keflavik and its international airport.
Iceland’s excellent IT credentials are another major attraction for foreign companies thinking of setting up in the country. A PwC study of long-term data centres found that the operating expenditure of a 10,000 sq ft site in Iceland would be £90m less over 15 years than running it in the UK, according to Invest in Iceland. Meanwhile, the UK and US investors who ploughed almost £500m into joint venture the Verne Global data centre – a facility currently used by BMW, among others, for data-intensive high-performance computing – surely did their homework first.
The nation’s IT expertise is not limited to the dry business of data processing: Reykjavik–based CCP is partnering in Oculus Rift’s virtual reality gaming offerings, while Reykjavik Visual Effects (RVX) – originally a subsidiary of the Oscar-winning creative studio Framestore – has produced CGI and other special effects for a host of acclaimed movies including Everest, Gravity and Tinker Tailor Soldier Spy.
In short, this extraordinary country’s commercial offerings might be as niche as its physical landscape, but if your business would benefit from vast amounts of energy and intellect, its potential may just be volcanic.
If ever a company was built on inventive engineering, it’s Leeds-based industrial maintenance enterprise Brammer. Founder Harry Brammer, who established it in 1920, was an inventor of problem-zapping gizmos such as a transmission belt system which vastly improved the performance of shoe-making machinery. Nearly a century on, the company considers itself Europe’s leading supplier of industrial maintenance, repair and overhaul solutions, and employs 3,600 people across 23 countries.
Brammer’s Icelandic adventure began in 2006, when it won a contract with Alcoa, the world’s largest producer of aluminium, in Fjardaal, eastern Iceland. “We’d already been working with Alcoa in the UK for some years,” Jóhann Benediktsson (below), managing director of Brammer Iceland, says. “Eight experienced Brammer staff were deployed from the UK to implement and manage the contract. Following successful implementation, the operations were extended – Brammer opened a 900sqm sales branch near Reykjavik in late 2012.”
Benediktsson believes the best asset a company setting up in Iceland can have is a knowledge of eclectic foreign markets. “Brammer was experienced in international working and establishing a presence in new territories,” he says. “We are now fully staffed by Icelandic citizens, so we are an international business able to call on our European backbone, but with a local touch.”
Brammer’s pre-tax profits fell last year – £27.6m, down from £35.1m in 2014, with chief executive Ian Fraser citing “weak market conditions in the UK and Nordic regions”. But the Icelandic operation – which also provides products and site services to Rio Tinto Alcan’s aluminium smelting facility close to Reykjavik – is at the core of Brammer’s plans for a more prosperous future. Iceland offers rich potential for high-skilled energy-intensive business – and Brammer’s history shows it can be profitable for companies servicing such enterprises too.
Iceland: Useful links
For video clips of Iceland’s business credentials visit invest.is/press–media/videos