Iceland has won praise from Nobel laureate Paul Krugman and the International Monetary Fund for its ability to dig itself out of financial ruin. Now, the island is turning to Hollywood for the next chapter in its recovery.
The North Atlantic island has since last year become a backdrop for some of Hollywood’s biggest blockbusters, including Ridley Scott’s “Prometheus” and Darren Aronofsky’s “Noah,” starring Russell Crowe.
Moviemaking is providing a new source of revenue to the $13 billion economy as Iceland seeks to attract international investors and phase out capital controls. The focus on film and arts is also helping the government shift focus from banking, which brought the economy to its knees in 2008, to more traditional industries such as tourism and fishing.
The film industry “is having a considerable positive financial impact on Iceland’s economy,” said Helga Margret Reykdal, general manager of Truenorth ehf, a Reykjavik-based movie production company. “Our projects alone will bring a total revenue stream of close to 3 billion kronur ($24 million), which then has a multiplying effect within the economy.”
The island, home to 320,000 inhabitants, has more than 7,000 companies classified as working in the creative arts, according to a 2011 report from the Industry Ministry. Agust Einarsson, an economics professor at Iceland’s Bifrost University, estimates that about 25 percent of the workforce is involved in the “creative industries,” accounting for about 4 percent of national output.
The krona strengthened against the euro for the first day in 28 days, climbing 0.07 percent to 160.17 per euro.
“I wouldn’t be surprised if creative industries will become the largest contributor to Iceland’s gross domestic product within the next 15 to 20 years,” Einarsson said by phone. “Within that time, we could see that creative industries could account for as much as 30 percent of national output.”
Iceland’s video-game companies are also thriving and have increased their sales six-fold from 2005 to 2009, according to Arion Banki hf. In 2011, the 10 companies inside the Icelandic Gaming Industry Association grossed 50 million euros ($65 million), Arion estimates.
“Small communities like Iceland offer unique opportunities for those working in the creative arts,” said Hilmar Veigar Petursson, chief executive officer of CCP hf, which produces EVE Online, a science fiction internet game started in 2003 that has 400,000 users. “People are more likely to mix and match with others that aren’t necessarily in their social class or may have completely different backgrounds.”
Local movie production company Truenorth is enjoying its best year on record, with productions including Ben Stiller’s “The Secret Life of Walter Mitty,” and Joseph Kosinski’s “Oblivion,” which stars Tom Cruise.
“The interesting thing about our movie projects like the ones that have been assigned to Truenorth is that their economic effect is similar to debt-free individual consumption gone mad,” said Reykdal. “At the same time we’re building props and movie sets, we’re buying services from hotels and other service providers, such as tourism companies.”
The government is also supporting the industry by reimbursing 20 percent of all film and television production costs in the country. Professor Einarsson estimates the government gets back 5 kronur in tax revenue for every 1 krona it pays to subsidize movie making.
The government of Prime Minister Johanna Sigurdardottir predicted this month the budget deficit will almost disappear next year as it raises taxes on hotels and tourism and as economic growth replenishes state coffers. Iceland, whose 2008 banking collapse sent the krona plunging 80 percent against the euro offshore, will grow 2.4 percent this year, the IMF said in April. The 17-member euro zone will contract 0.3 percent, the Washington-based fund estimates.
Iceland’s budget will show a deficit of 0.1 percent of gross domestic product in 2013, the Finance Ministry said on Sept. 11.
The krona’s decline has also played a key role in helping rebuild through the creative arts, according to Magnus Scheving, creator and chief executive officer of LazyTown Entertainment, producer of the Lazytown television show that has been sold to 180 countries worldwide. He warns that government plans to raise tourism taxes and the central bank’s efforts to strengthen the krona may harm the appeal of Iceland as a creative arts location.
“Politicians and political parties are the greatest threat to creative arts in Iceland,” he said. “Also, if the krona is allowed to appreciate much more it will lead to the collapse of this sector.”