REYKJAVIK: Iceland’s biggest IT company CCP is what the island needs to leave its economic crisis behind. It is global, growing and employs hundreds but its tale is also one of frustration that echoes concerns about the country’s future.
For CEO Hilmar Petursson, Iceland’s lauded recovery model that included a sharp currency fall coupled with capital controls may have pulled a $13 billion economy back from the brink after a 2008 bank crash. But it is now a drag on firms like his.
“The economic remedy has now become part of the problem ... We are not building the company as fast as we could from a global perspective,” said Petursson, seated at his office in a former fishing processing plant littered with vampire books and a huge games console.
Iceland is growing at 2 per cent, faster than much of Europe.
But Petursson’s comments underscore worries about the recovery’s sustainability in a straightjacket of capital controls -coupled with questions over having a currency that one politician compared to the Disneyland dollar.
Growth has been downgraded this year from 3 per cent to 2 per cent. Inflation is stubbornly high and the central bank has been forced to step up intervention in the currency market to prop up a weakening crown.
Many expected Iceland’s recovery to be stronger given the way smaller economies can bounce from deep recessions. The International Monetary Fund had originally forecast annual growth of around 4.5 per cent from 2011-2013. It now is under half that.
“Recovery? We’re on the road to nowhere,” said Vilhjalmur Egilsson, head of the Confederation of Icelandic Employers.
A general election due in April has added to uncertainty with concerns that populism may replace pragmatism as voters tire of austerity. Polls show centre-right parties widely seen as responsible for the crisis may replace a leftist government.
CCP, which makes the popular Eve computer game, made around $65 million in 2011. It employs some 500 people globally from Shanghai to Newcastle, more than half of which are in Iceland.
But capital controls imposed after the crisis, making it difficult to buy foreign currency, means financing is hard, as well as getting skilled workers to come to this volcanic island when repatriating savings is nearly impossible.
Petursson talks about strained conversations with Californian equity investors over getting investment returns.
“Sorting out this mess is not an easy job,” said the CEO. “But (capital controls) push the energy of this company from this island. If a non-Icelander were to run the company they would go somewhere else. I stubbornly stay here.”
The IMF and Nobel laureate Paul Krugman see Iceland as a model of recovery and a lesson for much of Europe. Its decision to act quickly, allowing banks to fail, is held up favourably against the inertia of decision-making in the euro zone.
The impact of its currency fall has been contrasted with the deeper recessions of the Baltics, pegged to the euro. A quick return to growth in the last two years, coupled with relatively low unemployment, has appeared to justify its role model status. But now there is a sense of fragility.
Many Icelanders say they do not feel modest growth. Outside booming fishing and tourism, businesses complain of stagnation.
Some 80 per cent of households are swamped in housing loan debts indexed to inflation. Real salaries are down by around a third since the crisis. Investment is under 15 per cent of GDP, a record low. State workers like nurses are raising worries about inflation amid increasing demands for better salaries.