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SME bankruptcies


According to the Icelandic Minister of Economic Affairs, around 1,500 SMEs are heading directly toward bankruptcy. A total of 6,000 SMEs have debt ranging from ISK 10 million to 1 billion; 2,000 are not experiencing any greater difficulties which leaves 4,000 in various state of emergency. There is a lot of talk and less action. After speaking with several SMEs that are struggling to make ends meet, the response is always the same: The government doesn’t lift a finger to assist. Naturally some businesses are not worth saving due to management incompetence and excessive risk taking, but there is really no way to determine what to do unless a solid game plan is devised.

Government bureaucracy is constantly being inflated while project expenses are cut down. Most SMEs need projects in order to survive and the resistance at the government level is only escalating the crisis situation. SME bankruptcies will strike directly at the banks’ balance sheets and affect the income statements with resulting drop in overall profitability levels. After years of criticizing the ways Icelandic banks have been managed since 2001, it seems that there is absolutely no improvement despite the collapse – it does seem as if the banks are completely determined to self destruct. They are still looking inward instead of outward and there appears to be a repeat of college graduates at the helm of their so-called analysis divisions with absolutely little if any actual hands-on work experience. Compare these divisions with real divisions such as that operated by DanskeBank and the difference in quality becomes readily apparent.

There is a lot of talk where simple issues are made to seem very complicated. With a small market like Iceland, gunning this economy forward and out of its hole is not all that difficult if the government could set a fixed long-term strategy instead of rambling aimlessly through the jungle of possibilities. There are ways to solve the SME situation, but it calls for an open mind and approaching the matter from a completely different standpoint. The game plan mentioned above has to do with what Icelandic stands for and what the long-term objectives are. So far, there is no clear strategy in place. Is the country going to focus on tourism, ICT, health and wellness (H&W), fisheries or energy? Once that is decided upon, it becomes so much easier to weed out to good from the bad as far as SMEs are concerned and will also help them position themselves in the market.

A strategy is a massive jigsaw puzzle that boils down into one sentence that describes exactly what the position is. If the focus will be on tourism, ICT and H&W and other sectors will slant themselves toward that objective; if H&W, fisheries or energy, they will modify their overall structural position accordingly. Right now, Iceland is like a company without leadership or direction. No one has any idea what to aim for and the only sensible course of action is to move company headquarters elsewhere. The banks own or control a good portion of private enterprises which is creating competitive disadvantages for business operating independently. Naturally the banks reason that they are defending themselves against losses, but businesses that go bankrupt are often slower to recover than businesses that start afresh. Just look at the banks; they are bleak shadows of themselves and have completely isolated themselves from the market. We are seeing image campaigns where the banks push savings accounts which highlights the massive tunnel vision present. No one in his or her right mind should trust the Icelandic banks given the way they operated before the collapse and how they are being restructured. MP Bank stands out in this regard, at least for the time being. There are certain issues there that raise concern, but the bank has stated it intends to target SMEs and if so, beautiful!

The problem is that SMEs cannot exist unless the government decides on a conclusive strategy that gains cross-political consensus. We can’t have a change in strategy following elections as usually turns out to be the case. Will Iceland focus on tourism, ICT, H&W, fisheries, energy or something else? Once the game plan is implemented, the entire enterprise and government flora will snap into place. The root of such a plan is market analysis and, unfortunately, this is one of Iceland’s greatest weaknesses (many venture capital funds are making investments that give evidence that they do not use marketing professionals to assess investment opportunities but rather do it from a financial or economic angle which is borderline suicide).

There is a reason why we have been helping Icelandic SMEs escape this country and we will continue to do so until Iceland begins to make economic sense. Increased taxation on companies and individuals is incredibly naive and self-destructive as it results in private sector negative growth. The tax authority workforce has been doubled to make sure no one cheats on taxes and although fair in one sense, this only serves to make Iceland a very unattractive location in which to establish a business. It it becoming more and more like 1960 Ukraine and if allowed to continue down this path, private enterprise may not recover for decades.

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