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Published: August 27, 2013
 / Autumn 2013 / Issue 72

 
 

Is the Arctic the Next Emerging Market?

The earth’s northernmost regions are rich in resources. The challenge will be accessing them sustainably. See also “Business Opportunities in the Arctic—In Pictures.”

As the ice recedes in the Arctic, talk of industry entering the region to take advantage of its economic opportunities is on the rise. The territories contain significant natural resources, including conventional hydrocarbons (natural gas, condensate, and oil), metals, fish, high-value minerals such as diamonds and rare earths, and fresh water. If the region’s waters become more navigable, viable new trans-Arctic shipping routes between the North Atlantic and Bering Strait could emerge. Even if such routes are available only in the warmer months, they could bring substantial logistics savings over routes through the Suez and Panama Canals, offering cost benefits for industries and consumers, and global environmental benefits from reduced fuel consumption and associated greenhouse gas emissions. It’s no wonder the world’s interest in the Arctic is so keen.

But many of those who wish to develop the region overlook the primary truth about it: It is an emerging market. To be sure, as one of the last of the true wildernesses remaining in our world, the Arctic is a uniquely challenging environment. But it is not empty. It is home to some 4 million people comprising a broad range of cultures—and an economy worth about US$230 billion annually. The land is inhabited by more than 40 ethnic groups, such as the Sámi of northern Scandinavia, the Evenki of Russia, and the Inuit of Canada. In Canada, Greenland, and the United States, in particular, local control by aboriginal communities and regional business corporations can be substantial. Most of the Arctic region is governed under existing national structures and international frameworks similar to those in other areas of the world. It’s not the northernmost equivalent of the next frontier, waiting to be conquered by big business or governments desperate for resources.

Adding to the complexity, the interested parties don’t yet possess the technology or know-how to access the Arctic’s resources in a sustainable way. The increased commercialization of a pristine region raises everyone’s worst fears. For example, the impact on the local environment of an oil spill or of the northward shift of the world’s fishing fleets remains unknown. And current levels of investment won’t begin to resolve these and other uncertainties. Thus, developing the Arctic, though ripe with opportunity, is also fraught with complexity. The desire for resource wealth must be tempered by respect for local populations and customs, and for the land itself. 

Governments and businesses should start by addressing the following five key challenges. Although this is not a complete list, it brings together current, convergent dialogues and debates about the region.

1. Protection of the environment and its people. The effects of climate change in the Arctic have globally relevant repercussions: witness rising sea levels resulting from ice loss on the Greenland ice sheet and altered weather patterns caused by the perturbation of jet streams. Such consequences also put local populations at great risk. Their livelihood and well-being are directly linked to the land, but their control over its preservation is uneven, ranging from substantial (in North America and Greenland) to limited (in Fennoscandia and Russia). Long-term changes in the Arctic are driven primarily by external factors, such as world commodity prices and rising greenhouse gas emissions. Therefore, future environmental, economic, and social developments in the region depend critically on policy and business decisions made elsewhere at the national and international levels, such as progress in climate change negotiations. At present, strong disparities exist among national policies on economic development, aboriginal rights, climate change, and environmental protection. Because the region is small and ecologically fragile, such inequalities heighten the risk to all stakeholders. For example, strong protections to prevent oil spills could be implemented in some but not all Arctic regions, leading to impact outside the protected areas. Agreeing on common policies and legislation across the Arctic countries is thus crucial, as is the adoption of sustainable operating standards by industry participants.

 
 
 
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