Iceland's capital is bouncing back thanks to its natural assets and creative citizens, finds Jenny Southan
For the first time in more than a week, the meteorological conditions are right. The sky is clear and there is near pitch-blackness over the pitted surface of Thingvellir national park, a short drive from the light pollution emanating from Reykjavik city centre.
The stars are so bright I can see the Milky Way, a delicate swathe across the sky. Crunching my way through the frozen snow, neck craned, I stare at the curtains of neon green mist that shift and shimmer, then fade and reappear overhead.
At midnight on March 25, as if from the luminous heavens themselves, 10.5 million Auroracoins (AUR) will be “airdropped” into the virtual wallets of each of Iceland’s 330,000 citizens.
Thanks to the ability to peg the payments to national ID numbers, along with 96 per cent internet penetration across the island, residents will receive an AUR 31.8 share of the crypto-currency (the equivalent of about 200 euros), to be saved or spent much as they would their own Icelandic krona.
Auroracoin founder Baldur Odinsson hopes the digital money will help to restore value to the country’s real-world currency, which has lost more than 99.5 per cent of its value since 1960. The 2008 banking collapse didn’t help, with a drop of more than 50 per cent recorded in just one week.
As a result, the government has enforced strict controls over the past five years that have meant a ban on movements of capital to and from the country, and limited foreign exchange – locals have had to hand over foreign currency to the Central Bank of Iceland and there is a shrinking amount of krona available at bureaux de change overseas.
Odinsson wants to give people a new kind of financial freedom. His website, auroracoin.org, reads: “[Icelanders] are not free to invest in businesses abroad. The poor are not in a position to protect themselves. The power must be taken away from the politicians and given back to the people.
“Crypto-currencies are an important milestone in this fight for liberty. They bring the hope of a new era of free currencies, immune to the meddling of politicians and their cronies. Developers are encouraged to create tools for Auroracoin to support [its] adoption. Such software, [for example] for payments, will help Icelanders start using the currency in their daily lives.”
AUR is a descendent of the more widely known Bitcoin and it is hoped that tech-savvy, smartphone-equipped Icelanders will be receptive to this new form of payment as they rarely deal in cash anyway.
“Everyone uses credit and debit cards,” says Bryndis Pjetursdottir, marketing and PR manager for Visit Reykjavik. “We couldn’t understand when we heard about people in the UK storming Northern Rock to take out all their money.”
In the warm café-bar of Hotel Borg, in the centre of the small-scale capital, Pjetursdottir and I are sipping tea. We are joined by Georg Ludviksson, co-founder and chief executive of tech company Meniga, who tells us about the white-label online banking software he launched in 2009.
He says: “We were a child of the Icelandic crash – we help people manage their money and I got a lot of talent from the fallen Icelandic banks that had large IT departments.”
He explains that for the same reasons that it’s hoped Auroracoin will catch on, Iceland has proved a great pilot market for Meniga as it is a “low cash society with high internet usage”, which is perfect as every purchase shows up in your personal finance diagnostics. The firm now has 60 employees and has sold its solution to banks in Scandinavia, Russia, Spain, Germany and the UAE. It has an annual turnover of 4.5 million euros.
By the time we are on to our second cup of tea, Ludviksson has left and Jon Bjornsson, chief executive of Sif Cosmetics, has sat down in his place. Again founded at the time of the crisis, it made its first sale of Bioeffect anti-ageing serum – made from nine ingredients including Icelandic water, volcanic ash and “transgenic” barley – in 2010.
“We are now sold in 450 stores around Europe, Asia and Canada, and our retail value is about e17 million.” What’s crucial, though, Bjornsson explains, is that Sif brings money into the country. “That’s what creates value – 70 per cent of our turnover is export, and not many companies have that.”
As we talk, he looks at his iPhone and says: “Oh, I just realised I forgot to pay my parking.” It’s another example of just how wired the local population is – with a quick tap of the Leggja app, he has bought himself some time.
Other apps that have been adopted by Icelanders include one that helps them to determine how closely related they are (a genuine problem for singletons in a country with so few people). IslendingaApp is connected to genealogical records dating back 1,200 years and was designed as the result of a competition organised by biopharmaceutical company Decode Genetics.
In the evening, I go for dinner at Fish Market restaurant (fiskmarkadurinn.is), which has come highly recommended. “Ten years ago it was lamb, lamb, lamb and, of course, fish. Always fish,” Pjetursdottir says. That has all changed now, with eateries diversifying imaginatively – there’s New Nordic, Icelandic-Mediterranean, rustic Italian, raw vegetarian and South American.
Chic Fish Market serves wildly delicious Icelandic-Asian fusion fare that melds smoked puffin with creamed leek, apples and mushrooms; volcano langoustine with maki sushi; and robata grilled minke whale with horseradish and soya ginger sauce (not one for the ethically minded).
As I tuck into my crispy wasabi salad, I can’t help overhearing the two men at the next table giving the young waiter a bit of a hard time. It’s jovial banter – slightly drunken, slightly confrontational.
The mood softens, though, when the waiter asks what they do for a living. “We live in Denmark but come over here to consult on prosthetic limbs,” the more boisterous one says.
He then proudly pulls up his trouser leg to reveal a terminator-style robot shin, a slender metal bone mounted on a bionic foot in his trainer. He gets up to demonstrate how he can walk on it. The company, it turns out, is Ossur, Reykjavik’s world-leading developer of prosthetic limbs – double amputee Oscar Pistorius ran wearing its blades during the 2012 Olympics and Paralympics.
Biotech and health tourism (the latter frequently taking advantage of the healing properties of the Blue Lagoon, 50km from the city) are a growing sector in Iceland’s economy, while the main export industries are hydroelectric and geothermal power (it is the largest producer per capita on the planet), aluminium smelting, and ocean-related fishing, tech and transport.
Finance used to be big, but after the boom years of 2001 to 2007 it spectacularly crashed – the banks were nationalised and billions of pounds of emergency funding handed over by neighbouring governments and the International Monetary Fund. (Iceland was the first Western country to request aid from the IMF since 1976.)
It was a monumental fall for a country that had only recently achieved great wealth. Before the Second World War, when it was occupied by British and American forces (Iceland remains a neutral country without an army), it was one of the poorest nations in Western Europe.
“Our great grandparents were living in grass huts,” Pjetursdottir says. “But during the war, we developed three times faster than any other country.” Once a sleepy settlement of fishermen and farmers, Reykjavik saw the building of barracks, a new airport and paved streets, which meant jobs for everyone.
By the noughties, Iceland was one of the richest countries in the world in terms of income per person, and was ranked among the very top for quality of life.
Oli Orn Eiriksson, head of economic development at Reykjavik City’s Office of Property Management and Economic Development, says: “In 1994, we became part of the European Economic area, which meant the country was forced to fully open its markets. In the 14 years leading up to 2008, the situation improved incredibly – small companies with just a few employees suddenly became global corporations.”
What went wrong? Eiriksson says: “The banks collapsed under their own weight – the debts they defaulted on were 11 times the GDP so the government had no chance of bailing them out. People were setting off fires outside the parliament because they had negative equity on their houses.
“When you take a loan for your house, it is pegged to the Consumer Price Index, so if the CPI goes up 3 per cent per year, your mortgage goes up 3 per cent. In the long term, normally this is not a problem because your wages will also go up by around 3 per cent, but following the crash, the CPI went up 20 per cent in one year, wages stayed the same or people lost their jobs or got pay cuts, and housing prices stayed still so the loans went up.”
To make matters worse, Eiriksson explains that vicious bankruptcy legislation meant “you could be chased to the end of your days”, with debts potentially passed down from generation to generation. This led to the Pots and Pans revolution, whereby local Icelanders took to the streets banging saucepans with spoons – anything to make noise.
Sometimes, it got violent, and for the first time since 1949, when Iceland joined NATO and became party to the Cold War, the authorities diffused the protestors with tear gas. In the end, they had to give in. “The [new coalition] government changed the law so if you are bankrupt, after two years the bank can’t follow you,” Eiriksson says.
A couple of years after the crash, in spring 2010 – as every traveller will remember – the volcano with the unpronounceable name (Eyjafjallajokull) erupted, filling the skies with ash for several weeks and causing the cancellation of 100,000 flights. This resulted in a loss of US$1.6 billion in airline revenues, and five million passengers stranded around the world. Ironically, in Reykjavik, 120km from the volcano, it wasn’t such a problem – Keflavik International only closed for one day, on April 22.
Robyn Mitchell, sales and marketing manager at the Radisson Blu 1919 hotel, actually witnessed a positive effect: “The eruption was good news as it put Iceland on the map. People knew where we were. And since, we have experienced a huge boost in occupancy and revenue.”
Tourism is an important pillar of the economy, with people coming to experience not only the city’s vibrant nightlife but also the spectacular land and seascapes – be it snowmobiling on a glacier or whale watching in the North Atlantic.
The annual number of holidaymakers has doubled since 2000, with 673,000 visitors in 2012. In January, British tourists were up 65.2 per cent, to 16,576. By 2020, Iceland hopes to welcome two million visitors a year.
Keflavik airport, 40 minutes’ drive from the city, had a record year in 2013, with 2.7 million passengers. Flag carrier Icelandair, Easyjet and Wow all fly from the UK, while Canada and the US are also key markets, with a flight time of just six hours to New York. Icelandair has doubled the number of destinations it serves since 2009, to 38 direct routes.
For business travellers coming for meetings and events, the Harpa concert hall and conference centre on the waterfront is a desirable addition. Opened in 2011, it’s an eye-catching piece of architecture, with a honeycomb façade of pale turquoise, green and yellow glass, and sweeping minimalist interiors looking out on to the sea. It has four state-of-the-art concert halls, numerous meeting rooms and open-plan exhibition space.
Next door, a couple of minutes’ walk from the main street of Laugavegur, is an area of desolate land. For several years there have been plans to build Reykjavik’s first five-star hotel on the lot, but Marriott pulled out during the crisis and a decision hasn’t been made.
There have since been rumours that Starwood could come in, with an opening date of 2016 or 2017 contemplated, but local hoteliers are sceptical.
“I’m not going to hold my breath,” says Mitchell, who cites the cost of filling rooms during the winter a hurdle. “June, July and August are no problem but the staffing is incredibly expensive in Iceland. Many hotels have 24-hour receptions but none have round-the-clock room service, for example. Everyone is unionised here – you have to pay the salaries they demand. If you work after 5pm you get your wage plus 33 per cent, and after midnight to 8am it is plus 45 per cent. ‘Red Days’ like Christmas are 90 per cent.”
At the moment, the Radisson Blu 1919, Hotel Borg and 101 (a Design Hotel) are probably the most superior places to stay, but there are seven more projects, adding 1,100 rooms to the existing 4,000, to come over the next five years. “We need one big hotel with 200-400 rooms every year,” Eiriksson says. The lower end of the market is doing particularly well, with a slew of trendy designer hostels such as Kex (see "Bunking down") adding not only bunks to the city’s inventory but double rooms for the budget-minded entrepreneur.
“Things are gradually improving,” says Eiriksson, who cites 3 per cent GDP growth last year. “Our goal is to diversify the industrial base – we want companies that are doing something different, and preferably linked to our resources.”
Whether Iceland joins the EU remains to be seen – formal talks began in 2010 – but it’s unlikely to happen until agreements about fishing quotas have been made. In September, the government announced it had suspended discussions indefinitely.
The people of Reykjavik are, after all, proud of their country and its roots, and after a serious knock to its confidence, are re-evaluating its identity and ambitions.
Pjetursdottir says: “After the financial crisis a lot of small boutiques opened selling clothes, jewellery and handmade things. A lot of people lost their jobs so maybe realised they could let their dreams come true. We went back to our roots.”
Aside from the national pastime of knitting, which has had a revival, it is technology that is taking the country forward, hand in hand with its natural assets. As the world becomes ever more reliant on computers, millions of servers are required to store the uncountable number of terabytes of data coming into existence. With its perfect combination of untouched landscape, cool climate, abundant icy water and cheap, renewable, geothermal energy, Iceland is the ideal place to build power-hungry server farms.
Not far from Keflavik airport, in a former NATO base, Verne Global is leading the way with zero-carbon online storage, while Reykjavik-based GreenQloud provides consumers with 100 per cent eco-friendly back-up and web hosting.
“Since launching in 2010, it has seen continuous 15 per cent month-on-month growth,” Eiriksson says. “In the pipeline, we can see it accelerating.” If all goes well, Iceland could once again be a Northern Light.
CONTACTS
- Visit Reykjavik visitreykjavik.is
- Meet in Reykjavik meetinreykjavik.is
- Promote Iceland islandsstofa.is
- Harpa en.harpa.is
- Blue Lagoon bluelagoon.com
- Whale Watching specialtours.is
- Northern Lights (Reykjavik Excursions re.is)
- Golden Circle Tour (Mountaineers of Iceland mountaineers.is)
