After suffering what is said to be the largest banking collapse of any country in history, relative to its size, Iceland’s president does not appear perturbed. In an exclusive interview with fDi, the country’s head of state, Olafur Ragnar Grimsson, bubbles with confidence and has some choice words for former UK prime minister Gordon Brown.
Despite his country’s problems, Mr Grimsson says he is not seeking foreign investment into Iceland and implies that it is unnecessary. He claims that there is plenty of demand for Iceland’s products and services, particularly its geothermal energy expertise, and that encouraging too much foreign investment into the country could even overheat the economy. He is convinced that foreign investment was the main reason why Iceland was hurt so severely by the financial crisis and as such he does not see the country opening its doors to foreign investors in the near future. In his opinion, any foreign investment that does come will be more regulated and on a smaller scale than before the crisis.
“Even before the banking crisis, it was absolutely clear that we could never be a major financial partner. Iceland is a small country. Financial partnerships will have to come from international organisations or investors. But the new banks and institutions [set up in Iceland since the crisis] are in pretty solid condition and are building up their international relations," says Mr Grimsson.
“What we have now is a banking and financial system that serves the Icelandic economy pretty well. With the previous banks that collapsed, more than 80% of their business was outside Iceland. We are no longer doing that and many people would say 'thank God', because it was a costly experience. If you are asking me whether Icelandic banks will become major players in the European market, I will say probably not. There is a theoretical possibility that this could happen and they will be allowed to invest abroad again, but the predominant spirit and policy is to make the system work for the Icelandic economy.”
The situation is equally rigid with regards to the country making any outward foreign investments. Iceland’s government prevented its banks and institutions from making any new foreign investments following the financial crisis in 2008, a restriction that is still in place. When the value of the country’s currency plummeted, the government feared that the situation would worsen if its institutions sold domestic assets in favour of foreign securities. Simultaneously, it was also proposed that the institutions sell some of their foreign assets and buy domestic securities to prop up the market, but this was halted as fears grew that the foreign assets could be the only holdings in their portfolios that would be worth anything when the chaos had settled.
The Icelandic government's tough policy on financial FDI was a double-edged sword. Iceland’s investors were lucky not to have sold any of their foreign assets, but they were crushed by their inability to sell their domestic assets in favour of assets denominated in other currencies. Iceland’s stock market lost nearly 90% of its market capitalisation.
Mr Grimsson recently visited the World Investment Forum in Xiamen, China. He was there speaking with many Chinese leaders, encouraging them to use geothermal energy with the help of Iceland’s expertise. He denied that he was seeking foreign investment into Iceland for any other sectors, and was clearly touting Iceland’s successful conversion to a 100% renewable energy system. He saw immense potential and interest for this technology in China, saying that several regional and local Chinese politicians had made serious enquiries about how they could use geothermal energy.
Praise for China
Commenting on the conference itself, Mr Grimsson is quick to offer praise for China’s investment activities and policies. Perhaps this should not come as a surprise, given the possibility of lucrative geothermal energy deals between the two countries. While he makes no mention of any opinion on China’s human rights record or its relationships with North Korea and Myanmar, he is nonetheless convinced that the country’s activities in Africa are beneficial to all parties involved.
He says: “The very strong signal that came out is that China is determined, in a responsible way, to become a constructive investment partner all over the world. [China is doing this] not in an aggressive or empire-building way, but because we all share a common responsibility for the welfare of people around the world. At the same time, [the leaders] are inviting foreign companies to enter China in a massive way. My conclusions from the conversations I have had with the Chinese leadership is that they genuinely want to play a responsible role in making the global market function better.”
When it comes to Africa, Mr Grimsson says matter of factly that the US and Europe have not been willing to truly invest in Africa and observers should not expect China to stay away just because the Western world does. He refutes any suggestion of Chinese neo-colonialism.
“I know some friends of mine in the West will say this is a naïve view, but if you look at Chinese policies and actions, I think it is clear that [China is] playing this role in Africa because the African countries welcome it. The West has more or less stayed away. If people are concerned about this in the West, then let us be prepared to co-operate with Africa. I have listened to discussions from the African leaders here, and it is absolutely clear that they stand their ground. They are here in an independent way. They are not here in some kind of inferior position with respect to the Chinese.”
Lack of international support
Mr Grimsson takes this a step further when comparing Chinese and Western attitudes towards Africa with international attitudes towards his own country. With a hint of bitterness, he says that during the banking crisis, his country was treated with hostility by the UK and Dutch governments and with “complete non-interest” by the US, despite Iceland hosting US military bases for more than 50 years. China, on the other hand, treated Iceland completely differently.
“The Chinese government has, in a very friendly and open way, met our desire to involve it in the reconstruction of the Icelandic economy. Two months ago, a big Chinese delegation came to Iceland and we signed a currency-swap agreement between the Central Bank of Iceland and the People's Bank of China. We signed an agreement on geothermal investments in China. This was done at the instigation of Iceland, not China. So if I look at how the Chinese have behaved towards my own country, the only lesson I can objectively draw from it is that it has been responsible, friendly, co-operative and not aggressive.”
Iceland is recovering fairly well, all things considered. Despite being historically high, its unemployment rate of 7% is lower than many other European nations. The devalued currency has resulted in more exports as the country's products have suddenly become significantly cheaper.
Mr Grimsson adds: “Iceland is regaining its strength, much quicker than the UK, if I may say so. It reminds us that what Gordon Brown said in those crucial weeks was utter nonsense." Mr Brown, then UK prime minister, made scathing comments about Iceland's handling of the banking crisis in October 2008. Mr Grimsson continues: "Although he is out of power, he should apologise, because these stupid, arrogant statements he made about Iceland -- and I can’t call them anything else -- damaged our economic relationships all over the world. Everyone believed him when he said Iceland was a bankrupt country. We are now getting into better shape than the UK is, but the damage he did by these statements to all kinds of Icelandic companies took months to correct."