ArCticles - Arctic Centre Papers

Other futures for Arctic economies? Searching for alternatives to resource extraction

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Adam Stępień
2.9.2016

The debate on Arctic economies has been dominated by large-scale resource extraction and trans-Arctic shipping. High resource prices and climate change impacts were expected to trigger Arctic economic boom. Hopes for regional development and concerns over environmental impacts were raised. By the mid-2010s, these notions are replaced by a more modest outlook, as the pace of developments – largely due to low resource prices – is slower than projected and various technical, economic and social constraints for extraction and shipping are better understood.

However, Arctic regions continue to face major developmental, social and demographic challenges. In order to address pertaining problems, many regional policy-makers and economic actors are increasingly turning to a broader range of economic activities. They search for alternative pathways to economic resilience and growth. The aim is to facilitate job creation within the northern regions and to emphasize the role of the local small and medium enterprises. Moreover, many of these new pathways are thought to be more environmentally and socially sustainable than resource-focused economies.

Information and communication technologies, circular economy transition, bioeconomy, and utilizing Arctic natural conditions have become a part of the current discourse on Arctic development. This is visible for instance in regional development strategies of Nordic northernmost regions, including Lapland, Norrbotten and Troms. The more comprehensive way of thinking about the development of the Arctic is also visible in Finland’s 2013 Arctic strategy.

The full-length paper discusses chosen activities representative for this broader set of development ideas. That includes: data centres, cold climate testing, high value agricultural production, bioenergy, small-scale local circular solutions and Arctic creative industries.

Facilitating in peripheral, sparsely-populated regions economic developments normally associated with large urban centres is particularly challenging. That refers primarily to the ICT and circular economy-related activities. Due to large distances and low population density, material and waste flows may be too costly within Arctic regions to trigger growth based on circulation of products and materials. Finding innovative solutions tailored to the conditions prevalent in peripheral Arctic locations is therefore a priority.

Furthermore, if global economic systems indeed move towards circularity, what would be the place of Arctic regions – peripheral, sparsely-populated, dependent on extractive sectors – within the transformed global economic and material flows? In the long-term perspective, Arctic regions could be at a disadvantage if the demand for new resources drops. Growth engines expected to replace those based on the current extract-make-use-dispose economic model may be located outside the Arctic. However, even within such a scenario, there are niches within global circular economic flows that Arctic regions could attempt utilize. That includes rarer raw materials, renewable energy production, as well as cleaner, more responsible extraction. Focus on these areas is already visible in regional development strategies.

The realization of CE transition depends also on the availability of pure and environmentally sustainable bio-resources (which as bio-waste can be safely returned to environment). In the Arctic context, fish, timber, reindeer or forest products could constitute region’s contribution to global circulation of biological materials.
The characteristic feature of most activities discussed above is their dependence on the presence of human capital, professionals equipped in specific skills, and on local entrepreneurship. Many ICT or CE developments may require sufficient socio-economic critical mass, which means local clusters of producers and entrepreneurs as well as local markets. That is a challenge is sparsely populated areas.

However, human capital and investment potential face a number of constraints. That includes: distance to the markets, relatively high operating costs for northern SMEs, lack of affordable telecommunication infrastructure, out-migration of young professionals, as well as large size of public sector in Arctic regions. The latter is often associated with greater risk aversion, which constrains the pursuit of innovation.

In sum, several developments appear to be particularly prospective and deserve analysts’ and policy-makers’ attention in the near future:

  • Local, cost-effective and commercially viable circular solutions need to be developed. They have to be tailored to the characteristics of peripheral, sparsely-populated regions. 
  • The role of e-services in the Arctic is likely to rise, with growing importance for economic activities, safety, health, and wellbeing. 
  • Arctic marine and terrestrial bioeconomy could become one of the central pillars of environmentally and socially sustainable regional development.  
  • Tourism will remain one of the key Arctic industries, but may need to interface to a greater extent with bioeconomy and with creative industries. Greater focus on enriching tourism offer with content is to be expected.
  • Utilizing Arctic climate conditions and renewable energy production within developments such as data centres and cold-climate testing may become increasingly important part of Arctic economic landscape.

Future will tell whether a broader set of economic activities becomes a part of different Arctic regions’ economic landscape. While there are numerous challenges and constraints, especially Nordic northernmost regions are in a good position to economically, socially and environmentally benefit from a more diverse development pathways.


Full-length article

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This ArCticle is the first, extended version of a section of the forthcoming background report on political, legal and economic developments in the Arctic (in Finnish). The report is a part of advisory work for the Finland’s Prime Minister’s Office within the project “Suomen puheenjohtajuus arktisessa neuvostossa kasvaneen epävarmuuden aikakaudella” (Finland’s Arctic Council chairmanship in the times of increasing uncertainty). The project is carried out by the Arctic Centre of the University of Lapland, the Finnish Institute of International Affairs and the Marine Research Centre of the Finnish Environment Institute. The author will be grateful for critical comments and ideas, which could enhance the quality of the information ultimately included in the report produced for the Finland’s Prime Minister’s Office.

Adam Stępień is a political scientist based at the Arctic Centre of the University of Lapland. His research interests include Arctic governance and law, EU policy-making, the role of consultations in decision-making, indigenous governance, social development in peripheral regions, as well as international development cooperation partnerships.
astepien@ulapland.fi