Reykjavík Grapevine - 14.07.2017, Síða 20

In late June, Icelandair reported that it had
laid off 20% of its pilots. A few weeks later,
it reported an 11% increase in passengers
from the same time last year. What gives?
Ever since the economic collapse of 2008,
people have been steeling themselves for
the next one. “This is just like 2007,” is a
mantra heard often now, ten years later.
Almost nobody saw that one coming. But
is another one upon us?
Boom and bust
The boom years of the early 2000s were
driven by the banks, and everyone wanted
a share in them. Until they all went bust.
Now, everyone wants to build a hotel or
own an airline or, more modestly, start
renting out on Airbnb. Nineteen new
hotels are being planned in Reykjavík
alone—two of which will be bigger than
the largest hotel currently operating in
the city.
It’s no secret that the Icelandic econ-
omy, after the last boom and bust, was
saved by tourism. In 2010, there were
around 500,000 visitors to Iceland—
roughly the same as in previous years.
Last year, there were 1.8 million. The
number has been growing by 15% to 20%
to 30% a year, achieving a 40% increase
over 2015-2016.
This has led to the króna getting ever
stronger. That’s not great news for the
tourism industry, as it makes everything
here more expensive. According to the
latest figures this month, only Bermuda
and a few cities in Switzerland are now
more expensive than Reykjavík. So: does
this mean the tourists will stay away?
Boom and boom?
Not really. At least not yet. Not only are
they still coming, but according to Icelan-
dair, there are 11% more tourists this year.
So, what’s the problem?
It’s probably this. Last autumn, Ís-
landsbanki, one of the major banks (re-
member those guys?), projected a 35%
increase in tourists this year. That got
the hotel builders build-
ing, and Icelandair hir-
ing. So, even if the sec-
tor is still growing, it’s
less of an increase than
Íslandsbanki projected.
For those prone to over-
investing based on faulty
forecasts, this can lead to
economic collapse. So far,
so familiar.
The tourist trade in
Iceland is alive and well.
It is even subsidised by favourable tax
policies. Not only does it bring a lot of
foreign currency into the country—real
money this time, not imaginary banking
figures—it also allows a lot of cultural
things to exist that a small country could
not otherwise support, including this
magazine.
Faulty forecasts
But it is not to be taken for granted—
nor even desirable—that tourism will
continue to increase exponentially. We
can make a decent living out of two mil-
lion tourists a year (yes, including this
magazine). That’s a lot of visitors for a
country of 340,000. But insisting, and
expecting, that it will continue to grow
at breakneck speed will only bring about
the downturn that everyone so fears when
forecasts fail.
It sounds like we’ve been here before. In
early 2006, the banking system came un-
der severe strain, and just barely avoided
total meltdown. The lesson that could have
been learned was about the need to down-
size, or at least to check
growth to a sustainable
rate. Instead, the decision
was made to open Icesave
accounts for foreign de-
positors to take care of
cash flow problems, and
not listen to criticism.
After all, they’d managed
to survive—and business
would continue to boom,
right up until 2008, that
is.
The mini-crisis in the tourism in-
dustry today could be seen as a similar
test—as something to learn from, and
a moment to seriously consider where
we go from here. Maybe this time will be
different. Or maybe not.
Crisis? What
Crisis?
The Icelandic tourism industry teeters
CULTURE
Words:
Valur Gunnarsson
Photo:
Art Bicnick
& Archives
SHOW ME THE MONEY:
The 5,000
ISK Note
Until the mid-to-late 19th centu-
ry, most financial transactions in
Iceland were conducted in vaðmál
(homespun wool). However, since
1922, Iceland has issued its own
currency, the króna. Iceland never
being the best at economic stabil-
ity, the króna has lost significant
value every decade since, and in
1981 we decided to cut a couple of
zeros from it, introducing the cur-
rent króna.
So, let’s meet the…
5,000 króna bill
The 5,000 króna bill was intro-
duced in 1986, the same year as
the Chernobyl disaster and the
first episode of ‘The Oprah Win-
frey Show’. In a bluish-green tint,
the obverse presents the likeness
of Ragnheiður Jónsdóttir—famous
seamstress and notorious godly
groupie extraordinaire—while the
reverse shows her teaching some
girls how to embroider.
To our deep misfortune, there is
no picture of Ragnheiður cajoling
clergy on the bill, though in her
lifetime the Icelandic icon was way
more famous for bedding bishops
than sewing. Iceland is progres-
sive, for sure, but not yet enough so
progressive as to have pornography
on their currency. Perhaps one day.
So, what’s it worth?
At current interest rates, 5,000
króna corresponds to around $49,
€43, and £38. Though there is no
McDonald's in Iceland and there-
fore I can’t really use the Big Mac
index, the Icelandic Big Mac-equiv-
alent would be Metro’s “Heimsbor-
gari,” which you can pick up for a
cool 1,549 ISK.
For reference, a US Big Mac goes
for around $5, and therefore 5,000
ISK would garner you around ten
of these bad boys in America. In
Iceland though, you could only
get three and a third for the same
price. While this sucks for those
trying to get a deal, perhaps this
could be one of the reasons Ice-
landers are so svelte and attractive.
Yup, thanks absurdly low purchas-
ing power. We’re hot. But hungry.
HJC
20 The Reykjavík Grapevine
Issue 12 — 2017
Tourism has blossomed during recent years.
The tourist trade in Iceland is alive and well. It’s even subsidised by favourable tax policies
“It is no
secret that
the economy,
after the last
boom and bust,
was saved by
tourism.