ÓLAFUR RAGNAR GRIMSSON, the President of Iceland, has a disarming explanation for the extraordinary entrepreneurial flair of his fellow citizens.
“There is a strong work ethic that comes from our heritage as a society of farmers and fishermen,” he says. “When the catch came ashore, the fish had to be processed. When the weather was favourable, the hay had to be gathered. That society may have disappeared, but the culture still exists. Our business people don’t turn off their phones at five o’clock, and that attitude has helped us when doing deals overseas.”
Deals there have been aplenty, most of them targeting the UK. The first indication of this wall of Icelandic money came in the unlikely form of the takeover of Stoke City Football Club six years ago. For the past three years, Baugur, the discount retailer, has been the most visible and vigorous buyer, snapping up Hamleys, Big Food Group, Oasis, Goldsmiths and Whistles. It is now part of a consortium pursuing a £1.1 billion bid for Somerfield.
In food processing, Geest is now owned by Bakkavor, while in the City, two of the oldest stockbroking and merchant banking firms, Singer & Friedlander and Teather & Greenwood, have respectively succumbed to Kaupthing and Landsbanki, Iceland’s largest and third-largest banks. Since the beginning of last year there have been €2.7 billion (£1.8 billion) of acquisitions of UK companies by Icelandic predators — nearly six times the value of deals done in the previous 40 years, according to figures from Thomson Financial. Further, that tally does not include the value of equity stakes taken by Icelandic businesses in UK companies, including easyJet, French Connection, Laurel Pub Company and Low & Bonar.
Inevitably, this tide of cash from a country with a population of under 300,000 — smaller than that of Croydon — has raised questions over its provenance. The most popular theory whispered in City watering holes is that Iceland is a conduit for illicit Russian money, forming the offshore hub of a northern European arc between Moscow and London.
Icelanders are somewhat bemused by this speculation but their ready explanation of its origins is that Iceland’s wealthiest man and the country’s first billionaire, Björgólfur Thor Björgólfsson, 37, initially made his fortune in Russia, having sold his brewing business to Heineken in 2002 for $400 million, and returned home to buy a 45 per cent stake in Landsbanki. There are other explicit links between the two nations: through the Northern Forum, an alliance of Arctic states, Dr Grimsson has built a close relationship with Roman Abramovich, the governor of Chukotka.
The more prosaic explanation, they contend, is a conjunction of economic events that have delivered genuine prosperity to this tiny nation. Since it joined the European Economic Area in 1994, Iceland has abandoned exchange controls, privatised its state-owned banks, cut corporate income tax from 33 per cent to 18 per cent and granted independence to its central bank alongside a policy of inflation targeting. Annual growth has averaged 5 per cent since the late 1990s, and is now at 6.4 per cent, against an OECD average of 3 per cent.
Pension deficits are unknown. The requirement of staff to pay 10 per cent of salary into a pension scheme has created a healthy fund surplus, currently 105 per cent of gross domestic product, and forecast to rise to 150 per cent by 2020.
Then there is the meteoric performance of ICEX, the Icelandic stock market, which rose 60 per cent last year and is up a further 21 per cent this year “We don’t believe we have a bubble,” Edda Rós Karlsdóttir, Landsbanki’s chief economist, says. “Share prices have risen in line with the growth of corporate earnings.”
Icelandic companies are set to enjoy increased visibility among UK investors, if, as planned, Actavis, the generic pharmaceuticals maker that is ICEX’s largest constituent, pursues a London listing this year.
Dr Grimsson can claim a role in fostering Iceland’s success. As Minister of Finance in the early 1990s he controversially took the decision to “privatise” a Boeing 737 that had come into government ownership through default on a loan, selling it to Arngrimur Jóhannsson, an ambitious young pilot. From that start, Mr Jóhannsson created Air Atlanta, now Avion Group, the charter airline that bought the London-listed Excel Airways last year.
Intriguingly, Dr Grimsson singles out the strength of the Icelandic welfare state — there are no private schools or hospitals — as a key factor behind its particular breed of capitalism.
He also cites globalisation, IT and the rise of a new professionally trained business class. “There used to be a strict either/or decision. Either you stay in Iceland or you leave.” But technology, improved communication links and a tight-knit network of like-minded entrepreneurs “have provided all the advantages of staying in Iceland”.
However, many of Iceland’s high-profile entrepreneurs — Baugur’s Jón Ásgeir Jóhannesson, Ágúst and Lydur Gudmundsson, the brothers behind Bakkavor, and Mr Björgólfsson — now have homes in London.
Dr Grimsson is clearly enjoying Iceland’s enlarged economic role. Last month he led a delegation of 200 business people from this Arctic Tiger on a state visit to China, where he held bilateral trade talks with President Hu Jintao. This week he was hosting a state visit by President Kalam of India. “Just six years ago these sort of exchanges would have been inconceivable,” he says.
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