Government Approves Pandemic Grants for Bars and Restaurants

bar beer alcohol

Iceland’s government has approved measures in support of restaurant and bar owners that have experienced a loss of income as a result of COVID-19 restrictions, RÚV reports. Owners will soon be able to apply for a so-called “rebound” grant up to a maximum of ISK 10-12 million [$77,900-93,400, €68,500-82,200], Foreign Affairs Minister Þórdís Kolbrún Reykfjörð Gylfadóttir stated following a cabinet meeting this morning.

“We’re doing this specifically for those parties who have a liquor licence and have experienced a loss of income due to [COVID-19] infection prevention measures,” Þórdís told reporters. Asked whether the grants would be enough to keep bars and restaurants running, the Minister stated that she could not be the judge, but she believed the initiative would make a big difference. The government has also postponed insurance and tax payment deadlines for restaurants in order to ease financial strain on the industry.

The rebound grants are expected to cost the government around ISK 1.5 billion [$116.8 million, €102.7 million]. Þórdís stated that the government was also considering measures in support of freelance and culture workers, other groups that have been hit hard by pandemic restrictions.

Icelandic authorities tightened domestic COVID-19 restrictions last week, closing bars and clubs and extending operational restrictions on restaurants as the country fights its biggest ever wave of COVID-19 infection. Some restaurateurs have criticised the closures and restrictions, pointing to the fact that schools remain open, despite being a source of infection spread. Bragi Skaftason, who operates three restaurants in Reykjavík, has stated that reintroducing partial employment benefits, a pandemic response measure the government has discontinued, would be more helpful to restaurateurs than the government’s current economic response measures.

Icelandic Locals to Receive a Second Travel Voucher This Year

Goðafoss waterfall

Icelanders can expect to receive another domestic travel voucher this year, in a repeat of the 2020 government initiative meant to support tourism companies by encouraging locals to travel within the country. Minister of Tourism Þórdís Kolbrún Reykfjörð Gylfadóttir told RÚV the government is still finalising the details of this year’s voucher, which will be announced in the next few days. Many locals are planning to spend their summer vacation in Iceland.

Last year, all residents of Iceland 18 and older received a voucher worth ISK 5,000 ($36/€33), redeemable at hotels, restaurants, and other tourism-related businesses across the country. Around 200,000 redeemed their voucher, while around 38,000 have not yet done so. Last year’s vouchers are valid until the end of May 2021. The initiative cost Iceland’s government around ISK 1.5 billion ($10.8 million/€9.8 million).

Þórdís says there is political will to revive the initiative, though it has not yet been decided what the amount will be, nor for how long the voucher will be valid. “We are working on it in the context of other issues in this hopefully final phase of this project,” Þórdís stated. “That work is going well and it will become clear in the next few days how it will be implemented.”

Unclear Whether Foreign Tourists Will Multiply

Iceland’s Chief Epidemiologist has discouraged locals from travelling abroad in light of the high rate of COVID-19 infection in many other countries. Locals interviewed by RÚV this week stated they were planning to spend their summer vacation within Iceland’s borders. It’s not clear how many foreign tourists Iceland can expect this summer, though border regulations are expected to change from May 1 allowing travellers from low-risk areas to eschew quarantine upon arrival.

Year in Review 2020: Business & Economy

This year’s business and economy news undoubtedly centred on the COVID-19 pandemic and its impact. Here are Iceland’s biggest business and economy stories of 2020.

Tourism (and Icelandair)

As everywhere else in the world, the COVID-19 pandemic has had a devastating impact on the tourism industry, one of Iceland’s largest industries. Despite some government assistance and a trickle of visitors during the summer, Iceland’s tourism industry has come to a near-complete stop. Locals made up for a portion of the losses by travelling domestically this summer, encouraged by a government gift certificate, but the industry will likely take years to recover.

The country’s only commercial passenger airline, Icelandair, also struggled this year, as airlines did the world over. It let go 2,000 employees in April, setting an Icelandic record for the largest mass layoff. Further layoffs followed throughout the year. Icelandair’s contracts with pilots, mechanics, and cabin crew were also up this year and renegotiating them in the shadow of the pandemic was tumultuous, to say the least. The airline even let go all of its cabin crew after their union rejected one contract offer, later being condemned for “union-busting practices.”

Thanks to a combination of government support, a successful public stock offering, and other financial restructuring measures, the airline has weathered the storm, at least for the time being. Icelandair CEO Bogi Nils Bogason says the company’s position is now strong enough to make through to 2022.

Government Responds to Recession

Starting in March, the Icelandic government presented several economic response packages intended to mitigate the effects of the pandemic on businesses and individuals. The first package included support for businesses in the form of partial employment benefits for staff whose work hours were reduced, as well as investment in public construction projects. The second package provided additional investments in innovation and research, as well as subsidies for businesses forced to close. These early measures were criticised by some for being geared toward businesses rather than individuals, as well as for leaving out vulnerable groups such as self-employed workers.

While some of the measures provided immediate relief, others were mired in red tape and took months to come through. Some funding was geared toward specific struggling industries, such as a new fund to support media companies.

These response measures are expected to result in a treasury deficit in 2021. In December, the government announced its intention of selling state-owned Íslandsbanki to finance further social investment.

Collective Crisis

The year 2020 started out with strikes among labour unions, affecting schools and other services in the capital area. Once collective agreements were signed, it seemed that things had calmed down. Yet conflict on the labour market re-emerged in the fall when businesses argued that the economy had suffered so drastically they could no longer provide employees the working conditions outlined in collective agreements. The government eventually stepped in to resolve the dispute, successfully stabilising the labour market.

Central Bank Lowers Interest Rates

The Central Bank of Iceland did not sit idly by as the recession deepened this year, but implemented measures in support of the economy. The Bank lowered interest rates repeatedly throughout the year to encourage investment, and its key interest rate now sits at a historically low 0.75%. https://www.icelandreview.com/business/icelands-central-bank-lowers-interest-rates-once-more/ The bank’s economic outlook remains highly uncertain, as it stated in November, “economic developments will depend to a considerable degree on the path the pandemic takes.”

Success in Dire Times

Not all industries in Iceland have suffered during to the pandemic: as people around the world started looking for ways to pass the time at home, wool export shot up by 70%.  Thanks to Iceland’s success in containing the pandemic locally, and the instituting of strict regulations, Iceland’s film industry was one of the only to keep productions rolling throughout the year.

With more people spending their free time at home, it may not come as a surprise that the annual Christmas Book Flood was even more successful than usual, with sales reportedly up by 30%. Real estate sales have also remained strong all year, despite the recession. Finally, one Icelandic company is expanding directly due to the pandemic. Controlant is tracking vaccine distribution across the world for COVID-19 vaccine manufacturer Pfizer.

Government Presents Measures to Stabilise Labour Market

In an effort to resolve tension on the labour market, the Icelandic government will implement eight measures intended to support businesses and minimise job losses. Prime Minister Katrín Jakobsdóttir announced the measures in a short press conference shortly before noon today. The Icelandic Confederation of Enterprise (SA) has stated that the terms of its current collective agreement with 30 unions are no longer feasible due to the economic impact of the COVID-19 pandemic.

“I hope that these measures will simultaneously serve the goals of increasing business, protecting jobs, creating jobs, and ensure that we can grow out of this recession, but will also support parties on the labour market in reaching an amicable resolution on the labour market, which is hugely important in these times we are living through,” Katrín stated at the press conference.

The eight measures are expected to cost the government treasury up to ISK 25 billion ($180 million/€154 million). They are:

  1. Extending the ongoing project “Allir vinna,” which provides full reimbursement of VAT, until the end of 2021. This will cost around ISK 8 billion.
  2. Temporarily lowering social security contributions in order to minimise the impact of wage hikes. This will cost around ISK 4 billion.
  3. Financial support for businesses that have experienced a significant drop in revenue, on top of the measures that have already been legislated, such as partial unemployment benefits and loans with state guarantees. Consideration will be given to providing direct subsidies to companies that have suffered a collapse in income due to the COVID-19 pandemic. Such grants could amount to ISK 6 billion.
  4. Implementing tax incentives for investment in green initiatives, as well as encouraging public investment through the purchase of shares.
  5. Increasing emphasis on and investment in innovation and food production.
  6. Implementing improvements in urban planning and construction.
  7. Reforming the pension system and labour market via policy changes to be addressed in the fall term and presented in spring 2021.
  8. Introducing a series of bills in the fall term in support of the “standard of living contract,” including bills on the Wage Act and Rent Act, amendments to bankruptcy proceedings, and changes to interest and indexation.

SA members will vote today and tomorrow on whether to pull out of the three-year collective agreement they signed with 30 unions in April 2019. The agreement affects some 100,000 workers in Iceland, nearly half of the labour force. It remains to be seen whether the newly-announced government measures will influence SA members’ voting.

Moment of (Radio) Silence for Self-Employed Musicians

The country’s biggest radio stations took a collective moment of silence during the morning commute on Friday to raise awareness about the contributions that self-employed musicians make to Icelandic society, Vísir reports.

Self-employed musicians have been hit hard by the COVID-19 epidemic. Gathering ban restrictions have necessitated the cancellation of numerous events and concerts, meaning that self-employed artists can’t depend on live shows for income. Unemployment for these artists has, predictably, been high and there are few, if any, state resources they can turn to for relief.

Radio stations Bylgjan, FM957, X977, Rás 1, Rás 2, K100, and Suðurland FM paused their regularly scheduled programming at 8:45am on Friday in a demonstration coordinated by the Association of Self-Employed Musicians (FSST). FSST was founded in August primarily to address the challenges currently faced by self-employed musicians; its inaugural board includes chairman Helgi Björnsson, Selma Björnsdóttir, Guðrún Ýr Eyfjörð (DRN), Guðmundur Óskar Guðmundsson, and Bubbi Morthens. Páll Óskar Hjálmtýsson and Sigríður Thorlacius serve as alternate board members.

The association welcomed the broad participation in the moment of silence, issuing a statement that said self-employed Icelandic musicians “will continue to stand with their nation, lighten its mood, and do their part.”

“Musicians who make their living from live performances have suffered terrible financial losses and the future is uncertain where events and other gatherings are concerned,” continued the FSST statement. “Self-employed musicians in the Icelandic music industry work in variable and seasonal markets, pay taxes and other fees, but by the very nature of their work, fall outside of the mutual insurance safety net when crises like this occur. As such, self-employed musicians have not been able to take advantage of the government’s temporary resources or any of the economic relief measures that have been introduced.”

The association is calling for relief measures to mitigate the economic losses suffered by its members. “FSST members do not work in a vacuum,” it noted, pointing out that these artists have symbiotic relationships with “music venues and cultural houses, both public and private, equipment rentals, stagehands, lighting and sound technicians, hairdressers and makeup artists, photographers, designers, advertisers, and countless others. Self-employed musicians are an important link in the value chain in many areas of society. The profession is in a grievous situation, our members are fighting the banks and can’t wait any longer.”

Without immediate aid, says the FSST, the Icelandic music industry could be facing “serious and maybe irreversible consequences,” running the risk that a significant number of its musicians will leave the profession and that it will be harder to convince new artists to enter the industry in the future.

Icelandic Businesses Still Waiting for Loans Promised by Government

No Icelandic companies have received loans via the Icelandic government’s COVID-19 response package, RÚV reports. Three months after the government announced state-backed loans for struggling businesses, banks have yet to make them available. The government also announced it would help businesses pay severance packages two months ago, but an application for the initiative is still not available, though the deadline to apply passed last week.

Since late March, the Icelandic government has presented three economic response packages intended to mitigate the effects of the COVID-19 pandemic in Iceland. The packages represent a collective investment of more than ISK 350 billion ($2.5 billion/€2.2 billion), but some of the largest measures have yet to take effect. These include so-called bridging loans for larger businesses, to be administered through banks, as well as loans available for smaller businesses through island.is, the government-run public services website – neither has been implemented.

Tourism Companies Struggling to Pay Salaries

Companies in tourism are particularly hard-hit by the drop in international travel that the COVID-19 pandemic has caused. “It of course has a very negative effect,” stated Jóhannes Þór Skúlason, Managing Director of the Icelandic Travel Industry Association (SAF). “There are companies that have been dealing with no income for just about three months and they desperately need financial help.”

Most Icelandic workers are guaranteed a three-month severance period thanks to their collective agreements. In April, the government announced that businesses could apply for assistance with severance pay costs from May 1 – but the application portal has yet to be opened, although the deadline for applications passed on June 20. “And then you’re coming pretty close to the goal being jeopardised,” stated Jóhannes Þór. “Because the goal was to help businesses manage salary payments through the termination period since they didn’t have money. So it’s very difficult for the vast majority of companies to finance payrolls at the turn of this month. That is a major concern in my opinion.” The Tax Office told RÚV that efforts are underway to open the application portal as soon as possible, and the application deadline will be extended.

Minister of Finance Bjarni Benediktsson stated that there was nothing more the government could do to speed up the availability of bridging loans, as “the ball is in the banks’ court.” As for the smaller loans available through island.is, Bjarni stated that preparations were nearly complete and it should be possible to process applications within a few days.

All Icelanders to Receive Gift Certificate for Domestic Tourism

Icelandair Marina Hotel

Icelandic residents 18 and older will each receive a voucher worth ISK 5,000 ($36/€33), redeemable at hotels and tourism companies around the country between June and December of this year. Minister of Tourism Þórdís Kolbrún Reykfjörð Gylfadóttir said the measure was “first and foremost symbolic,” but that it would make a difference to smaller companies. The measure was first announced as part of the government’s first economic response package to the COVID-19 pandemic.

The Icelandic Travel Industry Association and the Icelandic Tourist Board held an information meeting presenting the measure this morning. The voucher will likely be distributed via a smartphone app to all adult residents, who number around 250,000. The total cost of the measure will therefore be around ISK 1.5 billion ($10.8 million/€9.8 million).

The credit will be redeemable for accomodation, transporation, dining, and activities within the tourism industry. It will also be transferable, though no individual will be allowed to redeem more than 15 vouchers. Tourism companies will also have a cap on how many vouchers they may accept, though the cap is relatively high at 20,000 vouchers, or ISK 100 million ($723,000/€656,000).

Tourism Minister Þórdís Kolbrún stated that the government recognised the measure was not in and of itself enough to save struggling companies. “We realise that 5,000 krónur to all Icelanders 18 years and older does not change whether companies live or die. This is first and foremost a symbolic measure. But it will matter, especially for companies with smaller capacity.”

Companies Return COVID-19 Aid Funds to Icelandic Government

origo

Six Icelandic companies have announced they will either return or stop taking advantage of the government’s partial unemployment funds intended to help companies avoid layoffs due to the economic impact of COVID-19. Mbl.is reports that none of the companies are facing operational difficulties and as a result have decided to pull out of the initiative, whereby the government pays up to 75% of employee salaries.

Computer support and services company Origo put 50 employees on the partial benefits scheme on the same day it announced an ISK 425 million ($2.9 million/2.7 million) first-quarter profit. Origo then backtracked on the decision to seek government support last Monday. Company Esja Gæðafæði ehf. decided to repay the ISK 17 million ($117,000/€107,000) it had received from the government through the initiative. Seafood company Brim, fuel company Skeljungur, and retailer Hagar have also decided to repay the government funds they received. Retail company Festi also decided to stop its participation in the scheme.

Iceland’s Directorate of Labour was criticised for failing to monitor whether companies who were taking advantage of the government funds had in fact lost profits and therefore required the funds to pay salaries. The organisation’s director has stated that the Directorate’s efforts were focused on minimising layoffs, but a review of companies who have participated in the scheme will begin in the fall at the latest.

Icelandic Government Presents Third COVID-19 Response Package

Katrín Jakobsdóttir Bjarni Benediktsson Sigurður Ingi Ráðherra

Iceland will extend its partial employment benefits scheme, streamline the financial restructuring process for businesses, and help companies pay severance packages to mitigate the economic impact of COVID-19. The measures are part of the government’s third COVID-19 response package, which was presented by Prime Minister Katrín Jakobsdóttir at a press conference in Reykjavík’s Culture House this morning.

Partial employment benefits extended throughout summer

Katrín stated that 35,000 workers are already receiving partial employment benefits through a government scheme instituted last month in order to help businesses avoid layoffs. The scheme was originally scheduled to last until May 31, but will be extended until the end of August. While currently, the government has taken on up to 75% of salaries for struggling businesses, that ratio will be lowered to 50% from July 1.

While the partial employment benefits cannot be applied to employees that have received a notice of termination, the third response package introduces financial help for companies that must resort to layoffs. Companies that have seen a drop in income of 75% or more can now apply for government funds toward severance pay, which in Iceland corresponds to three months’ salary for most employees. This measure is intended to help failing companies avoid bankruptcy.

The government will also temporarily streamline rules on financial restructuring for businesses. The changes are aimed at providing companies with support while assessing their status and until more certainty is reached about future prospects.

Measures should help tourism industry, say ministers

When questioned on whether the government was considering specific measures to help Icelandair stay afloat, Katrín Jakobsdóttir responded that the third response package measures are useful to the airline as well as other businesses in tourism. Other ministers present confirmed that while the government has been following Icelandair’s situation closely, it is the company’s management and shareholders who are responsible for the privately-owned airline’s operations.

Government Presents Second Phase of Economic Response Package

At a press conference yesterday, the government presented the second phase of its economic response package to the COVID-19 crisis. The package is worth an estimated ISK 60 billion ($412,000,000 / €380,000,000) and focuses on support and protections for small enterprises, innovation, and vulnerable groups.

Protect jobs, look to the future

Yesterday, at the Culture House in downtown Reykjavík, Prime Minister Katrín Jakobsdóttir, Finance Minister Bjarni Benediktsson, and Minister of Transport and Local Government Sigurður Ingi Jóhannson introduced the second phase of the government’s economic response package to the COVID-19 crisis. The first phase of the package was introduced on May 21.

“In recent weeks and months, Icelanders have shown solidarity, resilience, and flexibility in the face of this unprecedented pandemic. Today’s announcement reflects our priorities to protect jobs, embrace our people, and look to the future,” Katrín Jakobsdóttir stated.

The package includes, among other things, wage enhancements for healthcare workers; additional contributions to innovation and higher reimbursement for research and development; subsidies to businesses that have been forced to close; support to vulnerable groups, job seekers, and students; and special protections to media companies and travel agencies.

Wage enhancements for healthcare workers

The package will award front-line healthcare workers, who have been “under additional strain and are at elevated risk of contagion,” a one-off bonus in acknowledgement of their service. The bonus is worth an estimated ISK 1 billion ($6,867,690 / €6,325,199). The implementation and allocation of the bonus will be in the hands of healthcare institutions.

Innovation prioritised

The package calls for the prioritisation of innovation, involving additional contributions to companies investing in growth, and the increase of reimbursement ratios and caps on research and development (contributions to the Kría Venture Capital Fund will likewise be increased). The government also aims to expedite reimbursements for research and development expenses in 2019. The measures equal just under ISK 4.4 billion ($30,234,446 / €27,848,948).

Iceland’s food production sector will also receive greater support and funding for the arts will be increased to allow an additional 600 projects to be supported in 2020.

Subsidies to businesses forced to close

The plan will also grant so-called “closure subsidies” of up to ISK 2.4 million ($16,489 / €15,190) to companies forced to halt their operations for health reasons during the pandemic. Non-indexed support loans of up to ISK 6 million ($41,226 / €37,966), offered at the Central Bank of Iceland’s seven-day term deposit rate (1.75%), will also be available to these companies.

The total expenditures for the two measures are estimated at roughly ISK 30 billion ($206,143,950 / €189,890,529). Companies will also be authorised to carry forward up to ISK 20 million ($137,438 / €126,584) in foreseeable year-2020 losses to offset income tax on 2019 profits.

Support for vulnerable groups

The response package includes measures to support vulnerable groups, job seekers, and students. A total of ISK 2.2 billion ($15,115,081 / €13,925,053) will be used to create “3,000 temporary summer jobs for students aged 18 and over.” A total of ISK 300 million ($2,061,147 / €1,898,871) will be used to support “innovation among young entrepreneurs” through the Icelandic Student Innovation Fund. A further ISK 8.5 billion will be allocated to social measures to support “vulnerable groups, work against violence, (to) counteract social isolation among the elderly and disabled, (to) support job-seekers, and (to) ensure that children from low-income families have the opportunity to participate in recreational activities.”

Priority will be given to increased access to mental health services and telemedicine for these groups.

Special protection to media companies and travel agencies

The response package also includes support for media companies, which have seen significant cutbacks in ad budgets, and travel agencies, faced with a wave of cancellations:

“In order to support pluralism and diversity in Iceland’s media, privately-owned media operations will be guaranteed special operational support during the current year, reflecting their sustained significant losses at a time when demand for their services has increased … travel agencies’ losses will be addressed with statutory amendments authorising them to reimburse certain trips by issuing credit vouchers.”

Mixed reviews

The government’s plan of action was met with mixed reviews. Ásdís Kristjánsdóttir, Head of Economics at the Confederation of Icelandic Enterprise, stated that the response package would mainly benefit small companies and microenterprises.

“The support loans, which are perhaps the most significant economic measure in the package, will have a positive impact on these companies. But in terms of revenue, the operations of these companies only account for 15% of the business in the economy. This leaves out the other 85% who cannot apply for these loans.”

The Icelandic Confederation of Labour (ASÍ) also expressed its disappointment with the second phase of the government’s response package. In a statement published yesterday on ASÍ’s website, the confederation criticised the government’s focus on companies:

“Once again, the government directs its support not to people but to companies, who according to some vague rules can dig into the public’s pockets for funding, regardless of whether these companies maintain jobs, adhere to wage agreements, or contribute their fair share to society.”

Helga Vala Helgadóttir, MP for the Social Democratic Alliance, worried that the response package was not comprehensive enough.

‘We worry that the response is still too focused on companies, even though it’s important to maintain employment levels. But we certainly fear that enough isn’t being done, in our opinion, to respond to the decline in household income.”