Infrastructure or Investment - Which One Comes First?
Plutarch’s chicken or the egg conundrum, that formulated in the first century of our era, is commonly discussed around which came first: the chicken or the egg? The dilemma stems from the observation that all chickens hatch from eggs and all chicken eggs are laid by chickens and it can be hard to see which one comes first. When it comes to business development in the circumpolar Arctic, it is somewhat the same, as Nauja Bianco explains.
Recent years have seen numerous meetings on the issue of Business in the Arctic. In May 2018 one such, headlined Business opportunities in the Arctic took place in Stockholm. Participants in the meeting were e.g. the Arctic Economic Council, business and regional stakeholders as well as the Swedish Ministry of Foreign Affairs’ Trade.
Three immediate take-aways from that meeting were: a need for more infrastructure as well as more cross-border collaboration (without barriers) and more job mobility.
Arctic infrastructure needs are estimated at $1 billion
Defining those three core needs for arctic business to develop is one thing, but to make them happen is another. A private equity firm, Guggenheim, has estimated the infrastructure needs in the Arctic at US$1 trillion over the next 15 years. And the infrastructure needed is basically of all types: from traditional infrastructure, such as roads, ports and airstrips to newer types of infrastructure such as those required for telecommunications and the provision of broadband.
However, the needs also differ depending on the eye of the beholder. Some see the Nordic Arctic countries as well equipped in infrastructure and privileged to have a Nordic welfare system backing up the region’s economic development. Others argue that the welfare system is hindering private initiative. The North American Arctic, they say, has potentially much more drive and available equity investment from private sources already in place. If you ask businesses, they would say that investment is lacking. And if you ask the investment suppliers, they would say that bankable projects are missing.
At a seminar organized by the Danish Confederation of Industries’ Arctic Cluster of Raw Materials (ACRW) in April 2018 in Copenhagen, it was observed that the Arctic is a region struggling to answer whether it is investments that lead to infrastructure development, or infrastructure development that makes investment attractive. So, which comes first?
What this debate shows is that a balance between the two approaches must be struck; the Arctic needs some sort of public-private partnership approach, unique to the Arctic’s four million inhabitants of whom roughly 400,000 are indigenous.
Telecommunications: more than just one technology
At the ministerial meeting of the Arctic Council in Fairbanks, Alaska, in May 2017, a report by the Task Force on Telecommunications in the Arctic outlined that no single technology alone will meet all telecommunications needs in the Arctic. The best technology, or combination of best technologies, for any specific case, it noted, depends on geography, users’ needs, and many other factors.
This, among other things, shows that rule number one when planning for the Arctic is that the region cannot be viewed as a single entity but several. Each one with individual and specific characteristics. In Greenland, for example, a sea cable has been established for large parts of the country for broadband access and an extension is underway, while Nunavut – the newest, largest and northernmost territory of Canada – does not have broadband at all and is dependent on satellites for Internet access.
Developing telecommunications infrastructure in the Arctic will require work by, and cooperation among, a constellation of different actors in the public and private sectors. And the efforts should continue to include research institutions and private industry. Creating an added value for all stakeholders in and for the region is the only way to remedy the lack of critical mass in the Arctic.
However, there is no doubt that providing a more up-to-date, adequate, and affordable Internet access would improve the potential for doing business in the Arctic. Private investors as well as telecommunications companies, should view this as an emerging market and good business, while showing patience and a collaborative spirit towards the inhabitants of the Arctic.
Investment and banking outlook for the Arctic
The two major lenders in a Nordic and European context, the European Investment Bank (EIB) and the Nordic Investment Bank (NIB), are already active in the region. They say they have the capacity to do more, particularly in infrastructure and telecommunication, where private investors have a harder time turning an immediate profit. But Arctic investments are not high risk, says Stephen Hart, head of EIB’s Copenhagen office. The reason why private funding is scarce is that projects are often not commercial.
NIB set aside €500 million to invest in the region in 2015 through its Arctic Lending Facility. It is heavily focused on areas such as energy and transport, as well as on small and medium-sized enterprises that might otherwise have trouble obtaining funding. So far it has loaned only €25m. Yet among private investors, as Stefan Friðriksson of the NIB puts it, rather than reaping first-mover benefits, they want to avoid first-mover risk.
Entrepreneurship and education still essential
So, is the Arctic suffering from a shortage of good and innovative ideas, entrepreneurship and entrepreneurial drive? Are we lacking first movers, start-ups, micro-scale companies and SMEs along with people ready to do the hard work? Or, is it that investing in the Arctic may not be that risky, but just not attractive enough if one aims to gain large profits quickly?
In January 2018 the Nordic Council of Ministers’ Arctic Cooperation Program launched an “Arctic Business Analysis” with an emphasis on four areas. One was “entrepreneurship and innovation” (the three others being “bio-economy”, “PPPs and business cooperation” and “culture and creative industries”). The sub-report on entrepreneurship and innovation showed that there is room to nurse entrepreneurial awareness and ability in the Arctic countries and that this can be facilitated through an increased focus on integrating entrepreneurship education into national strategies and that implementation of such education should go through local initiatives and local operators.
So maybe, investment in entrepreneurship, innovation and talent development should take place in and for the Arctic simultaneously with the more traditional investment in, for example, infrastructure and telecommunications.
Regardless of which line is taken and whether investments are carried out in alignment or not, there is no doubt that collaboration between the actors and regions of the Arctic should be strengthened to make up for traditional critical mass, identify and exploit comparative advantages and implement an organized approach – even in cases with differing interests, common interests should be pursued. ▢
“So, is the Arctic suffering from a shortage of good and innovative ideas, entrepreneurship and entrepreneurial drive? Are we lacking first movers, start-ups, micro-scale companies and SMEs along with people ready to do the hard work? Or, is it that investing in the Arctic may not be that risky, but just not attractive enough if one aims to gain large profits quickly?”
“Rule number one when planning for the Arctic is that the region cannot be viewed as a single entity but several. Each one with individual and specific characteristics.“
“The Arctic needs some sort of public-private partnership approach unique to the Arctic’s four million inhabitants of whom roughly 400,000 are indigenous.“
Nauja Bianco is a contributing member of the JONAA advisory board. A former diplomat from Greenland with extensive experience in Arctic diplomacy and international relations, e.g. as a Senior advisor at the Nordic Council of Ministers. She is now based in Toronto, Canada, as a freelance journalist and owner of Isuma Consulting (www.isuma.biz).