Icelanders are notoriously bad investors. Once someone has a business idea, everyone jumps on the wagon and invests in exactly the same thing. The infamous growth of the banking sector is one example, before the 2008 banking crash the Icelandic banking sector was 12 times the size of the GDP and Iceland was supposed to become an international financial centre. I have no idea how anyone got the idea that an island with three hundred thousand inhabitants could become an international financial centre, but many people in Iceland considered this a perfectly normal ambition.
And then there are the politicians, they have had the same investment idea for more than hundred years. Either it is building an artificial fertiliser factory, or it is building an aluminium smelter. Last year one MP proposed building an artificial fertiliser factory, in order to “lure home” young Icelanders who have moved abroad. A majority of those have moved abroad to educate themselves, but sure, who doesn’t want to use their PhD on the factory floor?
Now there is an Icelandic investor in the North of Iceland, Ingvar Skúlason, who is planning on building an aluminium smelter, at a time when aluminium prices have been dropping due to overproduction. He has already managed to sign a deal with a Chinese company, NFC, which is willing, he says, to pay for the whole construction, yet the smelter would be owned by Icelandic companies. All of this sounds kind of dubious in my ears. And everyone can see that this is not a good idea, even the banks, with a new report released by Arion Bank advising against more investment in the aluminium industry. The bank bases its analysis on the fact that aluminium price is too low at the moment to bring any profit into the country (since the price for the electricity is connected with the price of aluminium, the price the aluminium smelters pay to the National power company (LV) is low when aluminium prices are low).
But that does not stop the politicians from supporting the idea. The prime minister Sigmundur Davíð Gunnlaugsson, was present when Skúlason signed a deal with the Chinese company, praising the initiative. Skúlason also claims to have support from the Minister of Industry, which is not surprising since her only campaign promise was building an aluminium smelter and get the “wheels of the economy rolling”. Recently, Alcoa World Alumina, owned by Alcoa Inc., admitted to having bribed officials in Barein. In Iceland, however, they have never had to pay any bribes. Icelandic officials have been more than willing to do their service for free, “bending all the rules” as Friðrik Sophusson, former head of LV, was caught on tape saying.
There are currently three aluminium smelters in Iceland. Together, they use 80% of the energy produced in the country and their profit account for 60 billion ISK a year (USD 500 million). Yet, a majority of the profit is registered as debt to their parent companies abroad, leaving the Icelandic subsidiaries operated in debt but creating profits to the parent companies. The only profit that is left in the country is the wages they pay to their employees, and that only accounts to less than 1% of the national revenue. The jobs they create (which is usually the main argument for their construction), also account for less than 1% of all jobs in Iceland. The price they pay for the energy is also below the normal market price. Lets think about this for a second: 80% of the electricity produced in the country goes to international corporations that only produce 1% of the national revenue and creates 1% of the jobs, exports the majority of the profits and pays below-market price for the energy. So, 99% of the people do not get any share in the majority of its electricity production. Sounds familiar.
Maybe it is time to occupy the smelters?
You write: ‘Icelandic officials have been more than willing to do their service for free, “bending all the rules” as Friðrik Sophusson, former head of LV, was caught on tape saying.’
This past year has been a time of catching certain politicians and leaders of industry who never acknowledged their corruption before the Panama papers. According to Paul Fontaine at the Grapevine, 170 people were using offshore accounts, including at least three Icelandic government ministers, including the PM, at least three former members of Reykjavík City Council, and other Icelanders: investors, CEOs and company board members, merchants, wholesalers, attorneys and fishing industry leaders.
This only includes those that were identified in the Panama Papers. There is no reason to believe that the Panama Papers identified all of the bad guys. So I wonder if “Icelandic officials have been more than willing to do their service for free.” When you published this article, the Panama Papers had not yet been leaked. I wonder if you’d change your statement, given the existing proof of wide-spread corruption and pandering among the powers-that-be.
You write: “The only profit that is left in the country is the wages they pay to their employees, and that only accounts to less than 1% of the national revenue. The jobs they create (which is usually the main argument for their construction), also account for less than 1% of all jobs in Iceland. The price they pay for the energy is also below the normal market price. Lets think about this for a second: 80% of the electricity produced in the country goes to international corporations that only produce 1% of the national revenue and creates 1% of the jobs, exports the majority of the profits and pays below-market price for the energy. So, 99% of the people do not get any share in the majority of its electricity production.”
What this also means is that getting rid of the smelters altogether would have a negligible financial effect on Iceland. Measure that against the costs of the industry that do not show up on the financial ledgers–the dying sheep and horses, the decreased health of those living near the power plants, the degradation of the environment, and on and on, and I’d say the aluminum companies have negotiated a wonderful deal for themselves and a terrible deal for Iceland.