Take a glance at the globe. Spin it. You may discover that one distinct area remains visible at all times: the Arctic Circle.
This remote 360-degree region represents one of the most sensitive and fragile areas of the world. Its inhabitants find themselves predominantly isolated from commercial markets, often with strong family ties and a proud affiliation with the intimidating, yet overwhelmingly beautiful nature.
Soon though, major global players are expected to make their way into the rural areas of the north to seize the business potential within transport, oil, mining and energy. Although poor in human capital, the Arctic is rich in unexploited natural resources. In times of increasing consumption and rapidly growing populations elsewhere, resource scarcity constitutes a massive global challenge that has turned attention towards the accessible minerals in the Arctic.
The problem is that local communities and economies are not equipped nor prepared for this potential transformation. And it remains utterly important that the locals become a part of this development to protect their rights and leave the vulnerable nature unscathed.
The Greenlandic challenge
Living in a harsh natural environment, the people of Greenland will soon be forced to welcome the outside world with arms wide open. The world’s largest island, more than 20 times the size of Great Britain, cannot mature as a self-sustaining economy if the 57,000 citizens do not reach out to get involved. They have to earn their fair share of the industrial and commercial development.
"Greenland is an enormous country with a tiny population. The economy has been based on a weak foundation, primarily relying on a shrinking fishing industry and a block grant from Denmark that has been locked at the same level since the introduction of the home rule in 2009. Thus, the spending power remains constant and will matter less in the years to come", explains Torben M. Andersen, Professor of Economics and Chairman of The Economic Council in Greenland.
Consequently, Greenland needs to overcome a list of obstacles that remain barriers for becoming a part of the development within oil and natural resources. Professor Torben M. Andersen highlights the following:
- Geographical isolation: Greenland is located far from commercial outlets, and domestic transport relies on air traffic and shipping, resulting in time-consuming and expensive transport and low job mobility.
- Limited labour force with inadequate capability: A large-scale project in natural resources demands a highly developed set of skills, capital and manpower often equal to 10 % of the total work force – criteria that Greenland currently cannot meet due to a significant competence gap and worker shortage (only 4,600 people work in sectors relevant to the raw material industry).
- Low education level and disproportionate living standard: Only 55 % of every youth generation gets an education, and the reliance on the block grant means that the Greenlandic living standards and wages are higher than their economic results. Therefore, global enterprises will tend to look for foreign, cheaper and more qualified labour, resulting in increasing unemployment among Greenlandic youth and growing inequality.
A Ramboll report from 2013 states that the development of the raw material sector and the water power industry hold the greatest potential for local businesses. The current license holders within natural resources are expected to dedicate 2 billion Euros annually in the search for oil and minerals. The realisation of one or more large-scale projects in Greenland is expected to contribute to the economy in terms of higher employment, higher educational level and higher tax revenues while developing the local business sectors and attracting international attention.
The competency gap
What the local industry currently offers is obviously not enough. In the fall of 2012, Ramboll visited nine cities along the Greenlandic coast. The purpose was to analyse the existing gap between the demands from foreign enterprises looking to enter the Greenlandic market and the competency level in small and medium-sized local companies seeking to become subcontractors.
The gap analysis leaves no doubt: The industrial sector does not possess the necessary knowledge within areas such as business development, security and quality assurance, and project management.
Consequently, the Ministry of Industry and Minerals has initiated a range of activities that will help boost industry competencies. The gap analysis provided the necessary overview. Now a multidisciplinary team of Ramboll experts are helping the government close the gap. Through a range of courses addressing specific areas of improvement, e.g. consortium formation, tender monitoring, contract law and various types of cooperation, local companies are developing skills and preparing to become successful subcontractors.
"The corporate identity in Greenland is deeply rooted in the local community. It derives from a proud hunting culture where whalers and sealers are used to working as ‘every man for himself’. Thus, there’s no strong tradition for the local partnerships that are so vital if small and medium-sized companies intend to become serious partners for foreign companies", says Henrik Rosenberg Seiding, Senior Director in Ramboll Management Consulting and spearheading Ramboll’s global effort to develop sustainable societies.
Locals concerned by crossroad
From the city of Aasiaat, located on the west coast, Jens Jensen and his brother Karl have run one of Greenland’s largest contracting companies for more than two decades. KJ Greenland engages in construction and development activities in most of the country, and Jens Jensen is well aware that the industry needs to step up.
"We’re standing at a crossroad. We want to take the next step and I hope they find oil, so we’re trying to prepare ourselves. I’ve travelled to Stavanger in Norway, to Aalborg and Esbjerg in Denmark and learned from their experience with oil in the North Sea. But it’s difficult when we don’t know the jurisdictional boundaries and personally, I feel reluctant when it comes to strategic partnerships with international corporations. I’ve had some clashes before and I’m afraid that local companies like us aren’t ready to sign the big contracts", Jens Jensen explains.
He is concerned about the lack of support from a legal system that has the responsibility to prevent Greenlandic companies from getting in to legal dogfights and costly contract issues with the bigger players. Particularly legal concerns have been addressed on the competency course offered by the government and Ramboll this spring.
"The competency building is an eye-opener for many smaller firms who have now realised what it takes, in terms of contracts and security standards. Hopefully, these courses will activate our collaborative mindset and inspire dialogue about new partnerships. In larger tenders, we need to see each other as business partners – not competitors, and form strong alliances between engineers, contractors and tradesmen", Jens Jensen says.
The contractor’s main concern, however, is to attract enough competent capacity in time for the unfolding of the large-scale oil and mining projects.
No guarantee for a happy ending
Capacity is a key word in the development of industrial sectors. In Greenland, Ramboll is working closely with the government to increase the limited capacity in youth education programmes and hereby produce qualified labour to meet the demands from contractors like Jens Jensen. Cost-benefit analyses map the potential of an expansion of Nuuk Port and Harbour to meet demands from the outside world. And a socio-economic analysis points out the potential outcome of future investments.
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Whether the efforts made by the governments and businesses will result in a happy ending for Arctic societies like Greenland remains another story. According to Professor Torben M. Andersen, it is not an unreasonable gamble to bet on minerals, because the jobs are out there. But a fairytale ending cannot be taken for granted:
"The mineral adventure is surrounded by a great deal of uncertainty. It can be difficult to know how much you should prepare yourself when you can’t predict when and how fast the development will accelerate. If everything starts at the same time, there’s a risk that the economy will overheat, because the infrastructure can’t keep up, and the small service sector will come under immense pressure. And if global enterprises cool their interest, you will have educated people faced with unemployment", he warns.
The Professor applauds initiatives that stimulate industrial development and regards them as key to unlocking the enormous potential that still rests beneath the tip of the Arctic icebergs. But a curse has previously haunted societies rich in natural resources. The profits end up in the wrong pockets or become subjects for political strategies, hampering the process and creating social and economic problems.
"It’s a serious reminder that there’s no guarantee that everything will be all right."