Page last updated at 15:54 GMT, Sunday, 13 April 2008 16:54 UK

Iceland's hi-tech future under threat

By Stephen Evans
BBC News, Reykjavik, Iceland

Geyser erupts in Iceland
Iceland says it is under attack by speculators

Some blame the Vikings.

Icelanders, so this theory runs, have always looked out across the sea for riches.

After all, it's what you would do in a sparse, ungenerous land of few people.

Others reckon that the enterprise that has transformed this remote island comes from the way children are brought up.

On this argument, children, in a safe country, are left to fend for themselves so they learn initiative as they roam free in the eternal Icelandic day.

Technological transformation

Whatever the cause, a community of barely 300,000 people has transformed itself from scraping a living off harsh volcanic land and or fishing a hostile sea into a hub of banks and technology companies.

Take CCP, for example.

It's an online video-gaming company that creates an alternative world called Eve from an ultra-modern office on the site of an old refrigeration building on the dockside in Reykjavik.

Icelandic landscape
Iceland's landscape is the black and white of snow and lava

Outside the glass and steel block, trawler men scurry around in the cold.

Inside, software engineers and designers create images of space-ships for what the company says is the world's biggest on-line gaming community.

Nearly 300,000 subscribers pay $15 (7.50) a month to fight or form alliances with each other in a futuristic world in cyber-space.

Around 40% are in North America, and 40% in Europe, generating a revenue of $37m last year and an estimated $50m in 2008.

The headquarters is in Reykjavik, complete with all the amenities which young techies from California to Reykjavik seem to demand at work, like a room with a drum kit or a salad bar.

Generic drugs

The landscape of Iceland is the black and white of snow and lava, but it's dotted with swish offices for software companies and pharmaceutical research firms.

One of the world's biggest makers of generic drugs, Actavis, has a sparkling new office overlooking the Atlantic.

From here, it directs its research labs in Malta, the United States and India.

As patents on pharmaceutical products expire, it is ready, literally at midnight, to fly great cargo planes of its products into the air-space of markets with drugs at a fraction of the cost of the original product.

Reykjavik skyline
Reykjavik is now an important financial centre

Icelandic banks are now global banks, so their executives have offices both in Reykjavik and the City of London.

With such a small domestic market, they looked overseas when they were privatised just over a decade ago.

They have helped finance Icelandic companies that then bought aggressively abroad, not least much of the British High Street in the form of the Baugur Group which owns the department store group House of Fraser.

It's now looking at buying the Saks chain of luxury department stores in the United States.

Credit squeeze

Of late, the credit crunch has caused a problem, or at least in the eyes of some of the ratings agencies that assess risk for global investors.

The popular phrase is that Iceland is a country that's really a hedge fund.

In Iceland, this description is extremely unpopular and derided as inaccurate.

The chief executive of Glitnir bank, Larus Welding, told the BBC that fears were overstated.

The bank, he said, hadn't invested in bad risks.

It had lent to businesses it understood, like fisheries and geo-thermal energy.

Iceland's Prime Minister Geir Haarde
Iceland's prime minister faces a tough economic challenge

This abundant and cheap power source that literally springs as steam from the ground is another reason for Iceland's current prosperity but also have created problems.

Big aluminium companies like Alcoa have built smelters in remote corners of this remote island and the result has been a huge boost in spending.

On top of that, the country has been the target of speculators who've borrowed in low interest rate countries and poured the money into high interest rate Iceland.

The Prime Minister, Geir Haarde, told the BBC this would be sorted out.

The steam would be taken out of the economy, and without a resulting crash.

There's no doubt the Icelandic economy is going to slow down and there's pain on the way for the country as high inflation and high interest rates are tackled, but it is a problem that stems from its amazing, break-neck transformation.

One of the poorest countries in Europe 50 years ago, it is now one of the richest.

An outward-looking, enterprising culture has capitalised on its history.

People cursed with a hostile soil and climate have had to strive and seek far and deep to make a living.

And that's what they're still doing now.

The BBC is not responsible for the content of external internet sites

Has China's housing bubble burst?
How the world's oldest clove tree defied an empire
Why Royal Ballet principal Sergei Polunin quit


Americas Africa Europe Middle East South Asia Asia Pacific