What happens to an economy when a country has a sudden

and unexpected influx of tourists? Iceland offers intriguing

lessons about the impact on cities, the environment and even
food supply.

By Chris Baraniuk
22nd February 2017 BBC Future, Untold World

A girl scoops up a huge dollop of sticky white mud and ladles it into the hands of her
friend, who smiles and gasps as it spills back into the water. Dozens of people are here,
neck deep in a heated pool of soothing seawater. The late November air temperature is
around 0C but the lagoon is like a hot bath. An electronic display at the exit to the
changing rooms reads 38C. People apply mud masks and video themselves on
smartphones encased in little plastic pouches.

The Blue Lagoon is well known to Iceland’s visitors. The artificial pool, warmed by a
nearby geothermal power plant, is particularly arresting at night. Huge clouds of steam
billow into the starry black sky above the crowds of British, French, American, Russian
and Chinese holidaymakers who have all come here to soak.

The Blue Lagoon has long been one if Iceland's most popular attractions. The artificial pool is
warmed by a nearby geothermal power plant (Credit: Getty Images)
Iceland’s hot pools have long been popular. But the number of people visiting the
country has increased dramatically in the last few years. Iceland has a population of just
over 330,000. Last year, around 1.7 million tourists came to visit. And the numbers are
expected to continue rising. Iceland is experiencing a tourism boom that has taken it by
surprise – and the influx is changing the once isolated country in interesting ways.

After the 2008 financial crisis, the value of the Icelandic krona fell heavily. As part of
its economic recovery, Iceland made deliberate efforts to attract foreign visitors. But
even those responsible for marketing Iceland abroad have been struck by the numbers.
“I don’t think anyone could have expected this,” says Inga Hlin Palsdottir at Promote
Iceland, a PR organisation for the country.

What’s going on? In many ways, Iceland provides a snapshot of several shifts going on
in the world: a move everywhere towards service industries like tourism, which
now supports one in 11 jobs on the planet; fluctuations in national economies that
have knock-on effects at home and abroad; and the impact of cheaper and more
available air travel.

The uptick in visitors may also partly be down to people’s growing awareness of the
country. Iceland has been in the news quite frequently in recent years. There was the
financial crisis that broke its banks and sent the country into political turmoil. There
were the eruptions of its Eyjafjallajökull volcano in 2010, which grounded flights across
Europe. And last year Iceland’s football team won fans around the world when it
reached the quarter-finals in its first ever appearance at the European Championships.

Iceland has a population of just over 330,000 – last year, around 1.7 million people came to visit
(Credit: Chris Baraniuk)
But one of the biggest factors has surely been the growing availability of low cost
airline tickets from Europe and the United States. Passenger numbers at Keflavik
International airport have grown steadily over the last 10 years. In 2016 alone the
number of people passing through the airport leapt by 40%, from nearly five
million to nearly seven million.
In particular, Icelandair’s offer of a free stop-off in the country for passengers
travelling across the Atlantic has had a big effect, says David Goodger at
analysts Oxford Economics. “People are breaking their trip to spend a few nights in
Iceland itself,” he says. “They’ve done a very good job at selling into that market.”
Other stop-off destinations for flights between Europe and the Far East have pulled the
same trick. “It’s what the likes of Dubai and Singapore did very successfully a few
years ago.”

The effect of tourist spending is clear, especially in Reykjavik. “Look at this area here,”
says Palsdottir, gesturing out of the window of a trendy hotel in Reykjavik’s marina.
“During the financial crisis, this was a dead area.”

Minke whale meat is popular with some tourists – but tourism is not a driving factor in Iceland's
whale-hunting quota, as this sign suggests (Credit: Chris Baraniuk)

Elsewhere in the city, work to accommodate the visitors continues. A huge building site
just 10 minutes’ walk away will soon be home to a brand new, five-star Marriott hotel
opening in 2018. At Keflavik airport, a billboard boasts to travellers that it is getting a
7,000 sq m extension. Even the Blue Lagoon is being made bigger.

The range of attractions tempting visitors like these is growing, too. In 2014, a new tour
was launched where tourists can pay to be driven to a remote glacier and then walk
through an ice-tunnel drilled into its glassy bulk – the longest artificial ice-tunnel in the
world. In their second year, the tunnel had 22,000 visitors – 50% more than expected.

But all these visitors need feeding. One of the local food industry’s biggest current
challenges is meeting the demands of tourists who expect to be able to order everything
from sauteed asparagus to Waldorf salads on a whim.
In Iceland, which must import much of its food, that’s not easy. The sharp fall in the
value of the krona in 2008 made importing fresh food prohibitively difficult. One
impact of this was the closure of all three McDonald’s restaurants in the country.
The person running the franchise said the cost of importing necessary ingredients had
simply become too high.

Yet even the demise of a fast-food franchise has become a tourist attraction. The “last
McDonald’s in Iceland” – a burger and fries bought on 30 October 2009, the day before
the restaurants closed – is on display in a local hostel. Visitors are invited to take a
selfie with the surprisingly well preserved meal. For anyone who can’t make it to
Iceland, there is a live webcam feed.

With imports reduced, people turned to locally-produced fruit and vegetables grown in
geothermally heated greenhouses. One local farm decided to try and cash in on the
tourist boom a few years ago with a horse show, but visitors were more interested in the
tomatoes, says Gudridur Helgadottir at the Agricultural University of Iceland. “They
always thought this would be about the horses but interest in the greenhouses grew and
grew,” she says. “So they decided to open up a restaurant.”

Some locals worry that Reykjavik will soon look like any other large city in Europe, with lots of new
hotels (Credit: Chris Baraniuk)
Many businesses have benefited from tourism. A chef at a tiny ramen bar in Reykjavik
– which sits next to the construction site for a new guesthouse – is cheerful about the
changes. “If they get cold watching the seals, they can come and have my soup.”

But not everyone is happy. Later, one local says she worries that Reykjavik will soon
start to look just like any other large city in Europe, with the proliferation of steel and
glass hotels.

Increasing demand for accommodation could also cause problems for locals. The
government recently took steps to limit the availability of Airbnb rooms, for instance.
The fear was that residents faced being pushed out of hotspots like downtown
Reykjavik due to rising house prices.

Another concern is the impact of so many foreign visitors on the largely pristine
environment. Salome Hallfredsdottir works for the Icelandic Environment
Association. Last August, she drove to Landmannalaugar, a stretch of terrain at the
edge of a lava field in the country’s highlands. But as she arrived, she was greeted by
the sight of hundreds of parked cars and far more tourists than she’d ever seen at the
spot. “I was pretty shocked,” she says.

Hallfredsdottir is particularly concerned about the impact on the highlands, which she
calls “the only untouched wilderness left in Europe”. There is a heated debate about
whether all of the highlands should be designated as a protected area.
One problem is off-road driving, says Hallfredsdottir. It only takes one driver to leave
tracks in the dirt for others to think the route is an official one, she says. The damage
caused to young plant life and rocky formations can be considerable. “We don’t want
every part of the highlands to be accessible,” says Hallfredsdottir.

It only takes one driver to leave tracks in the snow for others to think the route is an official one
(Credit: Chris Baraniuk)
She also wants to see a rise in the number of rangers, who can keep tourists to the
appropriate trackways and paths, and also intervene when necessary to prevent littering
and other negligent behaviour.

No-one has yet worked out how to pay for an expansion of facilities and staff at natural
attractions, however. One proposal, a “nature pass” that would have cost 1,500 ISK
($14) per person for access to previously free sites, was rejected by Iceland’s
parliament in 2015. However, at one of the most popular national parks, Thingvellir,
visitors at least now have to pay to use the car park.

Advocates of Iceland’s flourishing new industry are convinced the influx is positive
overall, however. “We will all benefit in the end,” says Palsdottir. “We will get better
roads, we will get better paths.”

But could Iceland’s tourist boom just be a bubble? The sector has grown to rival fishing
as one of Iceland’s major industries, generating around 5-6% of GDP – roughly double
what it is in most other European countries. Iceland’s yo-yoing currency is a risk,
however. A recent fall in the relative values of pound sterling and the US dollar has
meant that the two biggest groups of visitors – the Americans and British – have
suddenly found their trips cost them more.

“Our modelling shows that there is a clear relationship between currency movements
and tourism performance,” says David Goodger at Oxford Economics in the UK. The
current expectation is that Iceland’s tourism industry will continue to grow, even if it
does so at a slower rate. But that is not a given.
 The current expectation is that Iceland’s tourism industry will continue to grow, but that is not a
given (Credit: Chris Baraniuk)
“Large shifts in currencies could completely undermine that,” he says. “If they become
a much more expensive destination then, we could definitely see that reversing.” In
other words, Iceland’s tourism bonanza – which surely helped strengthen the krona –
could end up undoing itself if prices continue to rise relative to other countries.

But the crowds aren’t going anywhere just yet. Back at the Blue Lagoon, one visitor
pipes up to her friends: “It would have been even more awesome if there had been fewer
people.”