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GREENLAND BENCHMARKING REPORT 2016 GREENLAND BENCHMARKING REPORT 2016 Published by the Arctic Cluster of Raw Materials (ACRM) in collaboration with Confederation of Danish Industry (DI) February 2016 www.di.dk/english www.acrm.dk Edited by Oleg Izgorodin, Consultant at DI International Business Development Tel.: +45 3377 3708 Email: [email protected] Johan Rasmussen, Business Analyst at DI International Business Development Tel.: +45 3377 3762 Email: [email protected] Funded by the Bank of Greenland ISBN: 978-87-7144-073-7 100.2.2016 Web version FOREWORD Greenland has a lot to offer potential investors. Its mineral-rich underground offers ample opportunities for companies involved in the extractive industry, and the Government of Greenland has ambitious plans for the sector’s development. Fishing and tourism are also essential sectors of the economy. Fish and shellfish exports amount to more than 90 per cent of the total export value, while Greenland’s natural beauty and adventure tourism opportunities attract a large number of travellers. Despite the fact that Greenland has been a self-governing country within the Kingdom of Denmark since 1979 and was granted more authority in most administrative areas by the Act on Greenland Self-Government in 2009, data about its macroeconomic and business environment in well-respected international databases is rarely included. This publication aims to fill that gap and shed light on the business conditions in Greenland by benchmarking its performance in a number of indicators against selected countries across the globe. We used data from internationally recognised sources, mostly the World Bank and International Monetary Fund. The data is internationally comparable and it is based on the latest available information (2013 or 2014 for most of the countries; when these values are not available, the last known value is used). All the data sources and the full list of indicators are provided in the end of this report. This is the first edition and thus a novelty to have on Greenland. I hope that you enjoy the report and can use it as a reliable source of information about Greenland! Niels Tanderup Kristensen Managing Director of ACRM and Deputy Director, Confederation of Danish Industry GREENLAND BENCHMARKING REPORT 2016 TABLE OF CONTENTS 2 GREENLAND AT A GLANCE 3 INTRODUCTION 4 MACROECONOMIC ANALYSIS 5 Macroeconomic analysis: Introduction 6 Country performance 27 BUSINESS ENVIRONMENT ANALYSIS 28 Business environment analysis: Introduction 29 Country performance 39 Overall results 40 SPECIAL THEMES 42 Special themes: Introduction 45 Mining 53 Fishing 59 Tourism 61 APPENDICES 62 Description of terms 63 Methodology 65 List of macroeconomic indicators 70 List of business environment indicators 72 Description of sources 1 GREENLAND BENCHMARKING BENCHMARKING REPORT REPORT 2016 2016 GREENLAND GREENLAND AT A GLANCE Official name Kalaallit Nunaat (Greenland) Capital Nuuk Institutional system Parliamentary democracy (self-governing country within the Kingdom of Denmark) Area 2,166,086 km2 Currency Danish Krone (DKK) Official languages Kalaallisut (Greenlandic), Danish Religion Evangelical Lutheran Ethnic groups Born in Greenland – 89.3%, born outside – 10.7% (2015) Population 55,984 (Jan. 2015) Urban population 48,216 (Jan. 2015) Source: Statistics Greenland 2 GREENLAND BENCHMARKING REPORT 2016 3 INTRODUCTION The Greenland Benchmarking Report 2016 is created with the aim of providing a detailed overview of Greenland’s economic conditions, business environment and key economic sectors. Greenland’s performance is also benchmarked against countries in the Arctic region, selected emerging economies, several island countries as well as G8 economies, which allows drawing conclusions about Greenland’s relative performance with a broad range of economies. The report is published by the Arctic Cluster of Raw Materials (ACRM). ACRM is established by Confederation of Danish Industry (DI), The Danish Industry Foundation (IF), Greenland Business Association (GBA), and the Technical University of Denmark (DTU). ACRM is a platform for companies with interests, experience, and competences within the extractive industries. ACRM’s main purpose is to strengthen the competitiveness of the industry in Greenland and Denmark and to contribute to sustainable growth and employment in both countries. The cluster offers a one door entrance to the Greenlandic extractive industries and key industry suppliers and decision makers. This report is inspired by several similar reports, including the annual World Bank Doing Business Report, the Economist Intelligence Unit’s (EIU) Risk Briefing, the Global Benchmark Report published since 2006 by DI, and the MENA Benchmarking Report 2014, written and published by DI in 2015. Indicators used in the macroeconomic analysis are the same across the reports – only the countries analysed differ. The Greenland Benchmarking Report 2016 opens with an analysis of Greenland’s macroeconomic conditions, followed by an assessment of the business environment in the country. The report also includes special theme chapters about the mining, fishing and tourism sectors in Greenland. These theme chapters are small appetisers on the DNA of Greenland from a private sector perspective. Description of terms, methodology, a list of all indicators as well as a list of sources used in the report are provided in the Appendices. The report clearly identifies some of the structural challenges that Greenland is facing as a large island with a small scattered population. It shows where the country is not performing, but it also reveals that Greenland performs very well – and is in the top five among the countries analysed – in most of the indicators when it comes to its business environment. GREENLAND BENCHMARKING BENCHMARKING REPORT REPORT 2016 2016 GREENLAND 1 MACROECONOMIC ANALYSIS 4 GREENLAND BENCHMARKING REPORT 2016 5 INTRODUCTION Macroeconomic analysis Aggregate macroeconomic indicators are a useful source of information about the levels of economic development of different countries, their economic policies, business conditions and performance in the global market. Countries and regions across the world have historically experienced different levels of economic growth, driven by local conditions and government decisions as well as by global phenomena. For example, the recent financial crisis has had a profound effect on almost every world economy. Therefore, while analysing Greenland’s economic performance in isolation might be useful, it is extremely important to compare its performance to other countries as well. The following pages provide data on the economic performance of Greenland and 21 other countries in 21 different macroeconomic indicators. We have been able to find official data on most indicators, however, for some of them data was not available. The indicators are grouped into nine categories: GDP and GDP growth Diversification of economy Investment International trade Government finance Capital markets Price level Demographics Employment Greenland’s performance in all indicators is compared to eight countries from the G8 (Canada, France, Germany, Italy, Japan, Russian Federation, United Kingdom, and United States) and five Arctic countries (Denmark, Finland, Iceland, Norway, Sweden). The report also compares Greenland to three island countries (Dominica and St. Kitts and Nevis, selected because their population is similar to that of Greenland, as well as Indonesia, selected because its total area is similar to Greenland’s area), and five emerging economies from different regions of the world (Egypt, Mexico, Republic of Korea, Philippines and Turkey). The Description of Terms provides a detailed explanation of the groups of countries. Overall, Greenland’s macroeconomic performance is characterised by a declining GDP (2012-2014 average). The country has an average GDP per capita level compared to the selected countries, the highest ratio of imports to GDP, the lowest general government gross debt, the highest population decline, the second largest proportion of working age population, and one of the highest unemployment rates, but also one of the better labour force participation rates of both genders. GREENLAND BENCHMARKING REPORT 2016 6 MACROECONOMIC ANALYSIS GDP and GDP growth 1.a. Real GDP growth (average annual % growth in 2012-2014) Philippines 6.6 Indonesia 5.5 St. Kitts and Nevis 3.8 Turkey 3.1 Korea, Rep. 2.8 Mexico 2.6 United States 2.3 Iceland 2.3 Egypt 2.2 Canada 2.1 United Kingdom 2.1 Norway 1.9 Russian Federation 1.8 Sweden 1.1 Japan 1.1 Dominica 1.1 Germany 0.8 France 0.3 Denmark Finland Greenland Italy 0.0 -1.0 -1.1 -1.7 Explanation and justification Gross Domestic Product (GDP) is one of the main economic indicators. It measures the total value of goods and services produced in a country over a certain period of time. Real GDP growth is an indicator of economic growth calculated at constant prices (eliminating the effect of price changes in the country). In order to better reflect the recent economic trends, average annual percentage growth of Real GDP in the last three years is used instead of analysing one year only. Notes Data for all countries and years was acquired from the World Bank World Development Indicators database, except for Greenland (data from Statistics Greenland). Comments Greenland had the second lowest GDP growth (-1.1%) in 2012-2014 among the countries analysed - only Italy performed worse (-1.7%). The fall in GDP was mostly a result of declining investment in exploration activities, a drop in fishing activity and a decline in the construction sector. GREENLAND BENCHMARKING REPORT 2016 7 MACROECONOMIC ANALYSIS GDP and GDP growth 1.b. GDP per capita, PPP (current international $, thousands) Norway 65 United States 55 Germany 46 Sweden 45 Denmark 45 Canada 44 Iceland 43 Finland 40 United Kingdom 40 France 39 Japan 36 Italy 35 Korea, Rep. 34 Greenland 32 Russian Federation 26 St. Kitts and Nevis 23 Turkey 19 Mexico 17 Dominica 11 Egypt 11 Indonesia 11 Philippines 7 Explanation and justification GDP per capita based on purchasing power parity (PPP) is defined by the World Bank as "gross domestic product converted to international dollars using purchasing power parity rates. An international dollar has the same purchasing power over GDP as the U.S. dollar has in the United States". When converted using PPP, GDP per capita is the total value of goods and services produced in a country divided by the country's population, measured in international dollars so that differences in the purchasing power of currencies are eliminated. This allows for an easy comparison of the level of economic development of countries. Notes Data for all countries is for year 2014 and was acquired from the World Bank World Development Indicators database, except for Greenland (data from Statistics Greenland in Danish Krone was converted to international dollars using the World Bank's PPP conversion factor for Denmark). Comments In terms of GDP per capita, Greenland has a medium performance among the analysed countries. It outperforms such countries as Russia, Turkey, Mexico and Egypt, but falls behind more advanced countries (GDP per capita in Norway, for example, is double that of Greenland). GREENLAND BENCHMARKING REPORT 2016 8 MACROECONOMIC ANALYSIS Diversification of economy 1.c. Composition of GDP by sector (% of GDP) Canada 2 Denmark 1 28 22 Dominica 16 Egypt 14 Finland 3 France 2 Germany 1 15 69 46 27 71 19 79 69 14 7 75 24 Indonesia 69 14 47 Italy 2 23 Japan 1 26 Korea, Rep. 2 Mexico 3 74 73 59 34 62 38 11 Russian Federation 39 38 2 Philippines 60 31 4 57 36 60 St. Kitts and Nevis 1 25 73 Sweden 1 26 73 Turkey Services 40 11 Iceland Norway Industry 76 30 Greenland Agriculture 71 8 27 65 United Kingdom 1 21 78 United States 1 21 78 Explanation and justification Composition of GDP by sector shows the proportion of value added in agriculture, industry and service sectors of the economy. It provides an overview of the structure of the economy and the level of its diversification. Notes Data for all countries is for year 2014 and was acquired from the World Bank World Development Indicators database, except for: Canada (2010 data), Greenland (DI calculations based on Statistics Greenland data), Iceland (2013 data), Indonesia (2013 data), Japan (2013 data), United States (2013 data). Comments Developed economies usually have a low share of agriculture and a high share of services in their GDP. For example, in the UK and the US, agriculture accounts for about 1%, industry - for 21%, and services - for 78%. In Greenland, agriculture accounts for a relatively larger share (11%), industry - for a slightly smaller share (14%), while the share of services is comparable, mostly due to the public sector (public administration, education, social institutions). Other large service sectors in Greenland are real estate and wholesale trade. GREENLAND BENCHMARKING REPORT 2016 9 MACROECONOMIC ANALYSIS Diversification of economy 1.d. Total natural resources rents (% of GDP) Russian Federation 18.8 Egypt 10.9 Norway 10.7 Mexico 7.7 Indonesia 7.6 Canada 5.2 Philippines 3.2 Denmark 1.7 United States 1.3 Finland 1.3 Sweden 1.1 United Kingdom 1.0 Turkey 0.6 Italy 0.2 Germany 0.2 France 0.1 Dominica 0.1 Korea, Rep. 0.0 Japan 0.0 Iceland 0.0 Greenland N/A St. Kitts and Nevis N/A Explanation and justification Total natural resources rents include oil, natural gas, coal, mineral, and forest rents. Rents are the difference between price and average cost of producing (extracting) a commodity. Rents as % of GDP are an indicator of the reliance of economic development on natural resource production. Notes Data for all countries is for year 2013 and acquired from the World Bank World Development Indicators database. Data for Greenland and St. Kitts and Nevis is not available. Comments Among analysed countries, Russia has the highest level of rents from natural resources. Norway is the leader among Nordic countries. Even though data for Greenland is not available, this and other indicators are included to be consistent with the reports that this publication is based on (i.e., Global Benchmark Report, MENA Benchmarking Report). GREENLAND BENCHMARKING REPORT 2016 10 MACROECONOMIC ANALYSIS Investment 1.e. Gross fixed capital formation (% of GDP) Indonesia 33 St. Kitts and Nevis 30 Korea, Rep. 29 Norway 24 Canada 24 Sweden 24 Japan 22 France 22 Mexico 21 Philippines 21 Russian Federation 21 Finland 20 Turkey 20 Germany 20 United States 19 Denmark 19 Greenland 18 United Kingdom 17 Iceland 17 Italy 17 Dominica Egypt 15 13 Explanation and justification Comments Gross fixed capital formation is one of the components of GDP calculation using the expenditure approach. It measures the value of investments made in the economy (acquisition of plants, equipment, construction of infrastructure, etc.). This is an indicator of the contribution of investments to total GDP. The share of investment in GDP in Greenland was relatively low in 2014, but is projected to increase in the near future due to increased activity in the natural resources sector. Nevertheless, it was above that of United Kingdom, Iceland and Italy as well as Dominica and Egypt. Notes Data for all countries is for year 2014 and was acquired from the World Bank World Development Indicators database, except for: Greenland (DI calculations based on Statistics Greenland data), Japan (2013 data), United States (2013 data). GREENLAND BENCHMARKING REPORT 2016 11 MACROECONOMIC ANALYSIS Investment 1.f. Foreign direct investment, net inflows (BoP, current US$, millions) United States 131,829 Canada 57,168 United Kingdom 45,457 Indonesia 26,349 Mexico 24,154 Russian Federation 22,891 Finland 14,812 Italy 13,727 Turkey 12,765 Norway 10,586 Korea, Rep. 9,899 Japan 9,070 Germany 8,390 France 7,957 Philippines 6,202 Egypt, Arab Rep. 4,783 Iceland 746 St. Kitts and Nevis 120 Dominica 41 Denmark -677 Sweden -2,535 Greenland N/A Explanation and justification Notes Foreign direct investment (FDI) data provided by the World Bank are "the net inflows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor". Net inflows are new investments less disinvestment, expressed in current U.S. dollars. This indicator shows how attractive the country is to foreign investors due to its openness, quality of workforce, economic and business conditions, etc. Data for all countries is for year 2014 and was acquired from the World Bank World Development Indicators database. Data for Greenland is not available. Comments United States had the largest net FDI inflows among the analysed countries, while Denmark and Sweden - the lowest (due to reverse investment or disinvestment). Among Nordic countries, Finland and Norway had the largest inflows of FDI. GREENLAND BENCHMARKING REPORT 2016 12 MACROECONOMIC ANALYSIS International trade 1.g. Exports of goods and services (% of GDP) Denmark 54 Iceland 54 Korea, Rep. 51 Germany 46 Sweden 45 St. Kitts and Nevis 38 Norway 38 Finland 38 Dominica 34 Greenland 33 Mexico 32 Canada 32 Russian Federation 30 Italy 30 France 29 Philippines 29 United Kingdom 28 Turkey 28 Indonesia 24 Japan 16 Egypt United States 15 13 Explanation and justification Exports of goods and services measure the value of goods and services provided to other countries. Exports are one of the components of GDP calculation using the expenditure approach. When measured as per cent of GDP, it indicates the contribution of exports to total value of goods and services produced and sold in a country. Share of exports in GDP is also an indicator of the competitiveness of locally produced products and services abroad. Notes Data for all countries is for year 2014 and was acquired from the World Bank World Development Indicators database, except for: Greenland (DI calculations based on Statistics Greenland data), Japan (2013 data), and United States (2013 data). Comments Exports of goods and services amounted to 33% of GDP in Greenland in 2014, which is a medium performance among the analysed countries. Exports of fish amount to about 90% of Greenland's total exports; shrimp exports alone account for more than 50% of total exports. Falling shrimp quotas had a large negative impact on the country's export. GREENLAND BENCHMARKING REPORT 2016 13 MACROECONOMIC ANALYSIS International trade 1.h. Imports of goods and services (% of GDP) Greenland 52 Denmark 48 Dominica 48 Iceland 47 St. Kitts and Nevis 47 Korea, Rep. 45 Sweden 41 Germany 39 Finland 39 Mexico 33 Canada 33 Philippines 32 Turkey 32 France 31 United Kingdom 30 Norway 30 Italy 27 Indonesia 24 Egypt 24 Russian Federation 23 Japan United States Explanation and justification Imports of goods and services measure the value of goods and services received from other countries. Imports are subtracted from GDP when calculating it using the expenditure approach. Imports as per cent of GDP is an indicator of the reliance of the economy on foreign-produced goods and services. Notes Data for all countries is for year 2014 and was acquired from the World Bank World Development 19 17 Indicators database, except for: Greenland (DI calculations based on Statistics Greenland data), Japan (2013 data), and United States (2013 data). Comments Greenland is the leader among analysed countries in terms of imports as per cent of GDP as it has to acquire large amounts of goods and services from other countries. The major import categories in Greenland are mineral fuels, machinery and transport equipment as well as food and livestock. GREENLAND BENCHMARKING REPORT 2016 14 MACROECONOMIC ANALYSIS Government finance 1.i. General government gross debt (% of GDP) Greenland Russian Federation 5 18 Indonesia 25 Norway 28 Turkey 34 Korea, Rep. 36 Philippines 36 Sweden 44 Denmark 45 Mexico Finland 50 59 Germany 75 Dominica 76 St. Kitts and Nevis 80 Iceland 83 Canada 88 United Kingdom 89 Egypt 90 France United States Italy 96 105 132 Japan 246 Explanation and justification Comments General government gross debt includes all liabilities of the government that require payment. Government debt as per cent of GDP is an indicator of government's indebtedness, financial stability and solvency. Greenland's government has the lowest amount of debt as per cent of GDP among the analysed countries. In 2014, it amounted to about 5 per cent of GDP. United States, Italy and Japan are the most indebted countries (with government debts of 105%, 132% and 246% of GDP, respectively). Notes Data for all countries is for year 2014 and was acquired from IMF World Economic Outlook database, except for Greenland (Danish National Bank data). GREENLAND BENCHMARKING REPORT 2016 15 MACROECONOMIC ANALYSIS Government finance 1.j. General government net lending (+)/borrowing (-), % of GDP St. Kitts and Nevis 9.5 Norway 8.8 Greenland 2.9 Denmark 1.8 Philippines 0.9 Korea, Rep. 0.8 Germany 0.3 Iceland -0.2 Turkey -1.0 Russian Federation -1.2 Canada -1.6 Sweden -1.9 Indonesia -2.1 Italy -3.0 Finland -3.2 Dominica -3.4 France -4.0 United States -4.1 Mexico -4.6 United Kingdom -5.7 Japan Egypt -7.3 -13.6 Explanation and justification Comments Net lending/borrowing is a measure of government's fiscal balance, calculated as total government revenue minus total expenditure. Deficits have to be financed either by using existing reserves or by undertaking additional borrowing. This is thus an indicator of government's financial stability. In 2014, Greenland was among the few analysed countries that had a general government surplus. The major revenue sources for the country's government are income taxes and transfers from Denmark. Compensation of employees and government consumption are the main expenditure categories of Greenland's government. Notes Data for all countries is for year 2014 and was acquired from IMF World Economic Outlook database, except for Greenland (DI calculations based on Statistics Greenland data). GREENLAND BENCHMARKING REPORT 2016 16 MACROECONOMIC ANALYSIS Government finance 1.k. Long term sovereign debt rating by Moody's Canada Aaa Denmark Aaa Finland Aaa Germany Aaa Norway Aaa Sweden Aaa United States Aaa United Kingdom Aa1 France Aa2 Korea, Rep. Aa2 Japan A1 Mexico A3 Iceland Baa2 Italy Baa2 Philippines Baa2 Indonesia Baa3 Turkey Baa3 Russian Federation Ba1 Egypt B3 Dominica N/A Greenland N/A St. Kitts and Nevis N/A Explanation and justification Notes Sovereign debt is used as a mechanism of funding by governments. Moody's assessment of sovereign debt risk is based on four factors: economic strength, institutional strength, fiscal strength, and susceptibility to event risk. Sovereign debt ratings are relative rankings of credit risk, which act as indicators of a country's default probability and expected losses in the case of default. The provided ratings are the latest available ratings published by Moody's. The agency does not rate Dominica, Greenland and St. Kitts and Nevis. Moody's database was accessed on February 2, 2016. Comments In general, advanced, developed economies have lower sovereign debt risk and better credit ratings. Seven of the analysed countries achieve the highest possible rating (Aaa), while Egypt has the lowest credit rating (B3). GREENLAND BENCHMARKING REPORT 2016 17 MACROECONOMIC ANALYSIS Capital markets 1.l. Domestic credit to private sector (% of GDP) Denmark 200 United States 192 Japan 188 United Kingdom 155 Sweden 135 Korea, Rep. 135 Canada 125 Italy 117 France 111 Finland 98 Germany 93 Iceland 92 Turkey 70 St. Kitts and Nevis 63 Dominica 56 Russian Federation 53 Indonesia 38 Philippines 36 Mexico 31 Egypt 28 Greenland N/A Norway N/A Explanation and justification Notes Domestic credit to private sector as measured by the World Bank is the amount of credit resources provided to the private sector by financial corporations. On one hand, it shows the availability of credit in the economy which is needed for the expansion of business services or other projects. On the other hand, it is an indicator of the level of indebtedness of the private sector. Data for all countries is for year 2013 and acquired from the World Bank World Development Indicators database, except for Canada (2008 data). Data for Greenland and Norway is not available. Comments The private sector in developing countries is the least indebted while advanced economies have the highest domestic credit to GDP ratios, which often exceed 100%. In Denmark, for example, domestic credit to private sector amounts to 200% of GDP - this can pose a certain threat to the economy. GREENLAND BENCHMARKING REPORT 2016 18 MACROECONOMIC ANALYSIS Capital markets 1.m. Market capitalization of listed companies (% of GDP) United States 115 United Kingdom 115 Canada 111 Philippines 106 Sweden 103 Korea, Rep. 97 St. Kitts and Nevis 82 Denmark 70 France 68 Finland 62 Japan 62 Norway 51 Indonesia 45 Mexico 44 Russian Federation 43 Germany 42 Turkey 39 Italy 23 Egypt 22 Iceland 20 Dominica N/A Greenland N/A Explanation and justification Notes Market capitalization is the market value of companies (share price times the number of shares outstanding). Listed companies are the companies listed on the country's stock exchanges. This indicator shows the level of development of the country's financial markets, which also relates to the overall economic development because access to equity finance is an important growth factor for companies. Data for all countries is for year 2012 and was acquired from the World Bank World Development Indicators database, except for St. Kitts and Nevis (2011 data). Data for Dominica and Greenland is not available. Comments The UK and US financial markets are the most developed: market capitalization of companies listed on these exchanges exceeds the GDP of respective countries. Italy, Egypt and Iceland have the lowest market capitalizations among the analysed countries. GREENLAND BENCHMARKING REPORT 2016 19 MACROECONOMIC ANALYSIS Price level 1.n. Inflation, consumer prices (annual %) Sweden Italy -0.2 0.2 France 0.5 Denmark 0.6 St. Kitts and Nevis 0.8 Dominica 0.8 Germany 0.9 Finland 1.0 Korea, Rep. 1.3 Greenland 1.4 United Kingdom 1.5 United States 1.6 Canada 1.9 Norway 2.0 Iceland 2.0 Japan 2.7 Mexico 4.0 Philippines 4.1 Indonesia 6.4 Russian Federation 7.8 Turkey 8.9 Egypt 10.1 Explanation and justification Comments Consumer price inflation measures the change in the cost of acquiring a specified basket of goods and services. This is an indicator of price stability. Low positive values of inflation are generally preferred. Annual inflation in Greenland was 1.4% in July 2015, which is within the band of optimal, preferred inflation rates. Sweden experienced deflation in 2014, while inflation in Egypt exceeded 10 per cent. Notes Data for all countries is for year 2014 and was acquired from the World Bank World Development Indicators database, except for Greenland (data from Statistics Greenland showing the change in consumer prices in July 2015 compared to July 2014). GREENLAND BENCHMARKING REPORT 2016 20 MACROECONOMIC ANALYSIS Demographics 1.o. Population growth (average annual % growth in 2012-2014) Egypt 2.2 Philippines 1.6 Mexico 1.4 Indonesia 1.3 Turkey 1.2 Norway 1.2 St. Kitts and Nevis 1.2 Canada 1.1 Italy 1.1 Iceland 0.9 Sweden 0.8 United States 0.8 United Kingdom 0.7 Finland 0.5 France 0.4 Dominica 0.4 Korea, Rep. 0.4 Denmark 0.4 Russian Federation 0.2 Japan Greenland -0.2 -0.4 Explanation and justification Comments Population growth is one of the main demographic indicators. It shows how fast the country's population is expanding/declining. In order to better reflect recent trends, average annual percentage growth of population in the last three years is used instead of analysing one year only. While most of the analysed countries experienced population growth in 2012-2014, Greenland and Japan saw their populations decrease. In Greenland, birth rates exceed death rates, but emigration leads to the decline in population. Notes Data for all countries and years was acquired from the World Bank World Development Indicators database. GREENLAND BENCHMARKING REPORT 2016 21 MACROECONOMIC ANALYSIS Demographics 1.p. Population ages 15-64 (% of total) Korea, Rep. 73 Greenland 71 Russian Federation 70 Canada 68 Indonesia 67 Turkey 67 United States 67 Iceland 66 Germany 66 Norway 66 Mexico 66 United Kingdom 65 Denmark 64 Italy 64 Finland 64 Sweden 63 Philippines 63 France 63 Egypt 62 Japan 61 Dominica N/A St. Kitts and Nevis N/A Explanation and justification Population ages 15-64 as percentage of total population is an indicator of the percentage share of working age population, which can potentially contribute to the economic development of the country. The larger the working age population is, the lower is the share of population below age 15 and above age 64, which has to rely on the support of others for their survival. Notes Data for all countries is for year 2014 and was acquired from the World Bank World Development Indicators database, except for Greenland (DI calculations based on Statistics Greenland data). Comments Greenland has one of the largest working age populations among the analysed countries: 71% of its population is between the ages 15-64. Japan had the lowest share of people aged 15-64 in 2014 (61%). GREENLAND BENCHMARKING REPORT 2016 22 MACROECONOMIC ANALYSIS Employment 1.q. Unemployment, total (% of total labour force) (modeled ILO estimate) St. Kitts and Nevis N/A Dominica N/A Norway 3.4 Korea, Rep. 3.5 Japan 3.7 Mexico 4.9 Iceland 5.0 Germany 5.0 Russian Federation 5.1 United States 6.2 Indonesia 6.2 United Kingdom 6.3 Denmark Canada Philippines Sweden 6.6 6.9 7.1 8.0 Finland 8.6 Turkey 9.2 France 9.9 Greenland 10.1 Italy 12.5 Egypt 13.2 Explanation and justification Comments Total unemployment, as defined by the International Labour Organization (ILO), is the share of the labour force which is without work but seeking employment. This is an indicator of economic activity in the country. High unemployment shows that there is a misbalance between demand for and supply of labour. Unemployment in Greenland exceeded 10 per cent in 2013 and was one of the highest among analysed countries, with only Italy and Egypt performing worse. The problem in Greenland is that even though unemployment among the local population is high, there is a large number of skilled workers from abroad hired in the country. This shows that local employees often lack the skills required for high-skilled positions. Notes Data for all countries is for year 2014 and was acquired from the World Bank World Development Indicators database, except for Greenland (Statistics Greenland data for 2013). GREENLAND BENCHMARKING REPORT 2016 23 MACROECONOMIC ANALYSIS Employment 1.r. Unemployment, youth total (% of total labour force ages 15-24) (modeled ILO estimate) St. Kitts and Nevis N/A Dominica Japan Germany Norway Mexico N/A 6.5 7.6 8.4 9.9 Korea, Rep. 10.4 Iceland 10.9 Denmark 12.4 Russian Federation 12.9 Canada 13.4 United States 14.0 Greenland 16.0 Philippines 16.4 United Kingdom 16.7 Turkey Finland Indonesia Sweden 17.7 19.2 21.8 22.8 France 23.9 Egypt 42.0 Italy 44.1 Explanation and justification Notes Youth unemployment, as defined by the International Labour Organization (ILO), is the share of the labour force ages 15-24 which is without work but seeking employment. High youth unemployment is an indicator of the inability of the labour market to accommodate less experienced workers. Unemployed youth cannot contribute to economic growth. High youth unemployment can also result in less innovation and may lead to a loss of competitive advantages of a country. Data for all countries is for year 2014 and was acquired from the World Bank World Development Indicators database, except for Greenland (Statistics Greenland data for 2013 for the age group 20-24). Comments While youth unemployment in Greenland is higher than the total unemployment level, it is not as high as in many other analysed countries. In Egypt and Italy, for example, youth unemployment exceeded 40%, while in Greenland it stood at 16% in 2013. GREENLAND BENCHMARKING REPORT 2016 24 MACROECONOMIC ANALYSIS Employment 1.s. Labour force participation rate, total (% of total population ages 15+) (modeled ILO estimate) Greenland 74 Iceland 74 Indonesia 68 Canada 66 Philippines 65 Norway 65 Sweden 64 Russian Federation 64 Denmark 62 United States 62 United Kingdom 62 Mexico 62 Korea, Rep. 61 Germany 60 Finland 59 Japan 59 France 56 Turkey 49 Egypt 49 Italy 49 Dominica N/A St. Kitts and Nevis N/A Explanation and justification Comments Labour force participation rate is defined by ILO as the share of the population ages 15 and older that is economically active, that is all people who supply labour for the production of goods and services. Similarly to unemployment, this is an indicator of economic activity. Total labour force participation rate in Greenland and Iceland, at 74%, was the highest among analysed countries, indicating a healthy rate of economic activity. Turkey, Egypt and Italy had the lowest labour participation rates. Notes Data for all countries is for year 2014 and was acquired from the World Bank World Development Indicators database, except for Greenland (DI calculations based on Statistics Greenland data for 2013 for the age group 18-64). GREENLAND BENCHMARKING REPORT 2016 25 MACROECONOMIC ANALYSIS Employment 1.t. Labour force participation rate, female (% of female population ages 15+) (modeled ILO estimate) Greenland Iceland 72 70 Canada 61 Norway 61 Sweden 60 Denmark 59 Russian Federation 57 United States 56 United Kingdom 56 Finland 55 Germany 54 Indonesia 51 Philippines 51 France 51 Korea, Rep. 50 Japan 49 Mexico 45 Italy 40 Turkey 29 Egypt 24 Dominica N/A St. Kitts and Nevis N/A Explanation and justification Total labour force participation rate usually does not reflect the major differences in participation rates of female and male population. Female participation is usually lower than male participation due to cultural, social and demographic trends. It is therefore important to analyse gender differences in employment. Notes Data for all countries is for year 2014 and was acquired from the World Bank World Development Indicators database, except for Greenland (DI calculations based on Statistics Greenland data for 2013 for the age group 18-64). Comments As with total labour force participation, female participation in Greenland (72%) is above that of other analysed countries. Egypt (24%) and Turkey (29%) had very low participation rates of females in the labour force. GREENLAND BENCHMARKING REPORT 2016 26 MACROECONOMIC ANALYSIS Employment 1.u. Labour force participation rate, male (% of male population ages 15+) (modeled ILO estimate) Indonesia 84 Mexico 80 Philippines 80 Iceland 77 Greenland 76 Egypt 75 Korea, Rep. 72 Russian Federation 72 Canada 71 Turkey 71 Japan 70 United States 69 United Kingdom 69 Norway 69 Sweden 68 Germany 66 Denmark 66 Finland 64 France 61 Italy 60 Dominica N/A St. Kitts and Nevis N/A Explanation and justification Total labour force participation rate usually does not reflect the major differences in participation rates of female and male population. Female participation is usually lower than male participation due to cultural, social and demographic trends. It is therefore important to analyse gender differences in employment. Notes Data for all countries is for year 2014 and was acquired from the World Bank World Development Indicators database, except for Greenland (DI calculations based on Statistics Greenland data for 2013 for the age group 18-64). Comments Male labour force participation in Greenland (76%) only slightly exceeds the female participation rate (72%), indicating a high level of gender equality. Male participation rates were the highest in developing countries (Indonesia, Mexico and Philippines), while Italy and France had the lowest rates. GREENLAND BENCHMARKING REPORT 2016 2 BUSINESS ENVIRONMENT ANALYSIS 27 GREENLAND BENCHMARKING REPORT 2016 28 INTRODUCTION Business environment analysis A favourable business environment is the key driver of a country’s economic development. Good conditions for starting new businesses or expanding current operations are critical for the successful functioning of the economy. Even though it is impossible to perfectly measure something as intangible as business conditions in a country, we believe that the indicators presented in this chapter provide a good overview of these conditions. The business environment indicators used in this analysis come from the Economist Intelligence Unit’s (EIU) Risk Briefing. No other major sources of business environment data (e.g., Global Entrepreneurship Monitor, Index of Economic Freedom, Global Competitiveness Report, etc.) provide information about Greenland. Hence, the risk assessment done by the EIU is the best tool for comparing business conditions in Greenland and other countries. EIU’s risk ratings evaluate the risk to business profitability from 10 separate risk criteria based on current conditions and expectations for the next two years. Graphs presented in this chapter display scores in each of the 10 individual indicators for Greenland and 19 other countries (the same countries as in the Macroeconomic Analysis chapter, except for Dominica and St. Kitts and Nevis as they are not rated by the EIU). EIU assigns each country a score from 0 (very little risk) to 100 (very high risk). The overall risk assessment is a simple average of the countries’ scores in each of the indicators. In general, Greenland performs very well and is in the Top 5 among the countries analysed in most of the indicators. Greenland has particularly strong performance in terms of security risk, legal and regulatory risk, macroeconomic risk, foreign trade and payments risk as well as tax policy. Its relative weaknesses are government effectiveness, labour market and infrastructure. Overall, Greenland is the sixth best country among the analysed ones in terms of total risk. GREENLAND BENCHMARKING REPORT 2016 29 BUSINESS ENVIRONMENT ANALYSIS Security 2.a. Security risk (lower=better) Iceland 0 Finland 4 Greenland 4 Norway 4 Sweden Denmark 7 11 Canada 14 Japan 14 Germany 18 United States 18 France 25 Italy 25 United Kingdom 25 Korea, Rep. Indonesia 29 50 Egypt 54 Turkey 54 Russian Federation Mexico Philippines Explanation and justification Security risk evaluates the safety of the physical environment. It takes into account such issues as the presence of armed conflicts, violent demonstrations, civil unrest, hostility to foreigners or private ownership, organised crime, etc. Notes Data for all countries is the latest available (2015/2016) operational risk assessment acquired from the Economist Intelligence Unit. 57 64 79 Comments Security risk in Greenland is one of the lowest among the analysed countries. The crime rate is low and there are no armed conflicts or civil unrest taking place. The risk is much higher in Mexico and Philippines, for example, while Iceland has practically no security issues. GREENLAND BENCHMARKING REPORT 2016 30 BUSINESS ENVIRONMENT ANALYSIS Political stability 2.b. Political stability risk (lower=better) Norway Canada United States 0 5 10 Greenland 15 Japan 15 Sweden 15 United Kingdom 15 Denmark 20 Germany 20 Iceland 20 Finland 30 France 35 Italy 35 Indonesia 40 Korea, Rep. 40 Mexico 40 Egypt Philippines Russian Federation Turkey Explanation and justification Political stability risk measures the ability of political institutions to continually support the needs of businesses. It reflects the risk of social unrest, the mechanisms of transfer of power from one government to another, the probability that opposition will gain power and bring about a worsening of business conditions, the level of concentration of excessive power as well as the probability that international tensions will have a negative effect on the economy or policy. 45 55 65 70 Notes Data for all countries is the latest available (2015/2016) operational risk assessment acquired from the Economist Intelligence Unit. Comments Greenland ranks high when it comes to political stability and no major political risks are foreseen. The Self Rule Act of 2009 between Denmark and Greenland specifies that Greenland can take control of its judicial system, financial regulation, border control, etc. Among the analysed countries, Turkey and Russia have the highest risk of political instability, Norway – the lowest. GREENLAND BENCHMARKING REPORT 2016 31 BUSINESS ENVIRONMENT ANALYSIS Government effectiveness 2.c. Government effectiveness risk (lower=better) Norway 7 Finland 11 Sweden 11 Canada Iceland 14 18 Denmark 21 Germany 21 United Kingdom 21 France 25 Japan 25 United States Greenland 29 32 Italy 50 Korea, Rep. 50 Mexico Philippines Indonesia 57 61 64 Egypt 68 Turkey 68 Russian Federation Explanation and justification Government effectiveness risk takes into account the likelihood that the government will implement policies that support businesses; the level of bureaucracy; competences, morale and compensation of officials; the degree of vested interests; the level of corruption; accountability of officials and the probability that the country can be accused of human rights violations. Notes Data for all countries is the latest available (2015/2016) operational risk assessment acquired from the Economist Intelligence Unit. 86 Comments Greenland performs worse in terms of government effectiveness than in most other business environment indicators. A 2012 report by Nordic Consulting Group commissioned by Transparency International Greenland found that there is high staff turnover in the public sector, a sometimes confusing system of legislation and a lack of accountability that can lead to corruption. Overall, Russia has the lowest government effectiveness while Norway – the highest. GREENLAND BENCHMARKING REPORT 2016 32 BUSINESS ENVIRONMENT ANALYSIS Legal and regulatory environment 2.d. Legal & regulatory risk (lower=better) Sweden 5 Finland 10 Greenland 10 United Kingdom 10 United States 10 Canada 12 Denmark 12 Norway 12 France 18 Germany 18 Iceland Japan Korea, Rep. Italy Mexico Egypt Turkey Philippines Indonesia Russian Federation Explanation and justification Legal & regulatory risk evaluates the degree to which the legal process can serve certain interests, the risk that contracts are not enforced, the efficiency of the judicial process, favouritism of domestic over foreign companies, and the risk of foreign assets expropriation. It also takes into account the government's stance on promoting competition, the level of intellectual property and private property protection, the risk of unreliable financial statements as well as the probability that price controls will be introduced. 20 25 35 38 40 45 48 55 62 70 Notes Data for all countries is the latest available (2015/2016) operational risk assessment acquired from the Economist Intelligence Unit. Comments Legal and regulatory risk in Greenland is low with only Sweden and Finland performing better. There is no significant risk of assets expropriation, non-enforcement of contracts, etc. As with many other indicators, the highest risk is observed in Russia. GREENLAND BENCHMARKING REPORT 2016 33 BUSINESS ENVIRONMENT ANALYSIS Macroeconomic environment 2.e. Macroeconomic risk (lower=better) Korea, Rep. 25 United States 25 Greenland 30 Iceland 30 Philippines 30 Indonesia 35 Canada 40 Denmark 40 Norway 40 Sweden 40 Finland 45 France 45 Germany 45 Japan 45 Mexico 45 United Kingdom 45 Turkey Italy 50 60 Egypt 65 Russian Federation 65 Explanation and justification Macroeconomic risk takes into account exchange rate volatility, the risk of recession and price instability in the next two years, the ratio of domestic public debt to M2 (a measure of money supply) as well as the risk of interest rate volatility. Notes Data for all countries is the latest available (2015/2016) operational risk assessment acquired from the Economist Intelligence Unit. Comments The risk of macroeconomic instability in Greenland is low. Among analysed countries, only South Korea and United States perform better. Italy, Egypt and Russia have the highest risk of macroeconomic volatility. GREENLAND BENCHMARKING REPORT 2016 34 BUSINESS ENVIRONMENT ANALYSIS Foreign trade and payments issues 2.f. Foreign trade & payments risk (lower=better) Finland Greenland 4 7 Canada 11 Denmark 11 Germany 11 Italy 11 Sweden 11 France 18 Japan 18 United Kingdom 18 Korea, Rep. 21 Norway 21 United States 21 Mexico 25 Iceland 32 Philippines 32 Turkey 32 Indonesia Egypt Russian Federation Explanation and justification Foreign trade & payments risk measures the probability that the country will be subject to a trade embargo, the risk that access to foreign exchange will be restricted, the possibility of the introduction of discriminatory tariffs and other tariff and non-tariff measures, the ease of moving money out of the country as well as the risk of capital controls. Notes Data for all countries is the latest available (2015/2016) operational risk assessment acquired from the Economist Intelligence Unit. 43 54 61 Comments Greenland takes the second place among analysed countries when it comes to foreign trade and payments risk. As the country uses Danish currency (Krone), there is minimal risk of foreign exchange restrictions. Egypt and Russia are the countries with the highest foreign trade risk. GREENLAND BENCHMARKING REPORT 2016 35 BUSINESS ENVIRONMENT ANALYSIS Financial markets 2.g. Financial risk (lower=better) Sweden 4 Canada 8 Finland 8 France 8 Greenland 8 Japan 12 Norway 12 United Kingdom 12 United States 12 Denmark 21 Germany 21 Italy 25 Korea, Rep. 25 Mexico 42 Egypt 46 Iceland 46 Indonesia 46 Philippines 50 Russian Federation 50 Turkey 50 Explanation and justification Financial risk takes into account the risk of a major currency devaluation, the availability of financing in the local financial market, the existence of a liquid local bond market in freely traded debt, the risk of a systemic financial crisis as well as the liquidity of the local stock market. Notes Data for all countries is the latest available (2015/2016) operational risk assessment acquired from the Economist Intelligence Unit. Comments Financial risk in Greenland is relatively low and is on par with the risk in Canada, Finland and France, and only slightly worse than that in Sweden. As such, the possibility of a currency devaluation, a systemic crisis, etc. is very low. Philippines, Russia and Turkey are the worst performers in this indicator. GREENLAND BENCHMARKING REPORT 2016 36 BUSINESS ENVIRONMENT ANALYSIS Tax policy 2.h. Tax policy risk (lower=better) Canada 6 Greenland 6 United Kingdom 6 Denmark 12 Finland 12 Norway 12 Germany 19 Iceland 25 Korea, Rep. 25 Mexico 25 Japan 31 Sweden 31 Italy 38 Philippines 38 Turkey 38 United States 38 France 44 Indonesia 44 Russian Federation Egypt Explanation and justification Tax policy risk measures the clarity and predictability of the tax regime, the risk of discriminatory taxes, the level of corporate tax rates and the risk of retroactive taxation. Notes Data for all countries is the latest available (2015/2016) operational risk assessment acquired from the Economist Intelligence Unit. 50 56 Comments Stability and transparency of the tax regime in Greenland (together with Canada and United Kingdom) is the best among the analysed countries. According to PwC, the corporate tax rate in Greenland is 30% plus a surcharge of 6% (oil and mineral license holders are exempt from the surcharge) which makes the effective tax rate 31.8%. There is also no VAT in Greenland. Overall, Russia and Egypt have the highest tax policy risk. GREENLAND BENCHMARKING REPORT 2016 37 BUSINESS ENVIRONMENT ANALYSIS Labour market 2.i. Labour market risk (lower=better) United States 18 Canada 25 Denmark 25 Finland 25 Japan 25 Sweden 25 Germany 29 Philippines 29 United Kingdom 29 Norway 32 France 36 Italy 36 Greenland 43 Korea, Rep. 46 Russian Federation 46 Iceland 54 Egypt 57 Mexico 57 Turkey 57 Indonesia Explanation and justification Labour market risk evaluates the power of trade unions, the frequency of labour strikes, the restrictions placed by labour laws, the ease of finding skilled and specialised labour, the extent to which increases in wages are related to productivity improvements as well as the risk that collective bargaining and freedom of association rights will not be respected. Notes Data for all countries is the latest available (2015/2016) operational risk assessment acquired from the Economist Intelligence Unit. 61 Comments Labour market is Greenland's relative weakness as its performance in the labour market risk indicator is only average. There is a lack of highly-skilled individuals and companies often hire foreign specialists. Nevertheless, Greenland still performs better than such countries as South Korea, Iceland or Turkey. Overall, United States is the best performer in the indicator while Indonesia – the worst. GREENLAND BENCHMARKING REPORT 2016 38 BUSINESS ENVIRONMENT ANALYSIS Infrastructure 2.j. Infrastructure risk (lower=better) France Sweden Germany 0 3 6 Denmark 9 Iceland 9 Norway 9 Canada 12 United States 12 Finland 16 Japan 16 Korea, Rep. 19 United Kingdom 19 Greenland 38 Italy 38 Russian Federation 41 Turkey 41 Mexico Egypt 44 47 Indonesia 59 Philippines 59 Explanation and justification Infrastructure risk measures the probability that major infrastructure facilities (ports, air transport, ground transport, distribution networks, and communication infrastructure) will be inadequate for business use, the risk of power shortages and the risk of poor IT infrastructure. Notes Data for all countries is the latest available (2015/2016) operational risk assessment acquired from the Economist Intelligence Unit. Comments Infrastructure is another relative weakness of Greenland. Due to the country's environmental conditions, the road and railway networks between towns are practically non-existent. Air and water are the main means of transport, and ports are well developed. Among the analysed countries, France is the best performer while Indonesia and Philippines have the highest infrastructure risk. GREENLAND BENCHMARKING REPORT 2016 39 BUSINESS ENVIRONMENT ANALYSIS Overall results Overall risk (lower=better) Canada 15 Norway 15 Sweden 15 Finland 16 Denmark 18 Greenland 19 United States 19 United Kingdom Germany Japan 20 21 23 France 25 Iceland 25 Korea, Rep. Italy Mexico Philippines Indonesia Turkey Egypt Russian Federation Explanation and justification The overall risk assessment is a simple average of all ten risk indicators. Notes Data for all countries is the latest available (2015/2016) operational risk assessment acquired from the Economist Intelligence Unit. 31 35 44 49 50 51 54 59 Comments When all ten risk factors are taken into account, Arctic countries are the top performers. Canada, Norway and Sweden have the lowest overall risk, followed by Finland and Denmark. Greenland has the sixth lowest overall risk among the analysed countries. The most risky countries are Egypt and Russia. GREENLAND BENCHMARKING REPORT 2016 3 SPECIAL THEMES 40 FISHING MINING 41 TOURISM GREENLAND BENCHMARKING REPORT 2016 GREENLAND BENCHMARKING REPORT 2016 42 INTRODUCTION Special themes This chapter describes the three industries of significant importance to the Greenlandic economy: mining, fishing and tourism. Together, these three industries are Greenland’s key sources of income today and are likely to be at least as important in the future. The mining industry has significant potential as a future growth driver. According to multiple external observers and leading Greenlandic political voices, the mining sector will take on a principal position in Greenland’s future economy. Thus, assessing the drivers, challenges and potential outcomes of such a scenario will help to determine whether the mining industry can realise these expectations. Fishing is another key industry. Historically, it has played a vital role in the country’s economy, and today it amounts to no less than 90 per cent of Greenland’s exports. Fishing, especially of shrimp, is a major source of income for Greenland’s government through the taxes levied on fisheries. No other industry has a similar impact on the stability and welfare of the Greenlandic society. Finally, the tourism and experience economy has a great potential in Greenland. The country offers extraordinary nature, wildlife, and a rich indigenous history. As opposed to the mining industry, developing the tourism sector does not to the same extent require large capital investments. In recent years, Greenland has grown popular as a cruise ship destination, and the country is well connected by air services to Copenhagen and Keflavik, which offers one-stop flights to most of the world’s major airports. As the demand for more exotic holiday destinations increases, Greenland could very well become a key tourism destination of tomorrow. GREENLAND BENCHMARKING REPORT 2016 MINING SPECIAL THEME 43 GREENLAND BENCHMARKING REPORT 2016 44 GREENLAND BENCHMARKING REPORT 2016 45 MINING Greenland’s extractive industry Greenland’s mineral-rich underground offers a wide range of potential business opportunities. The extractive industry has been a part of the island’s economy since the 1850s, with mining of cryolite, lead, olivine, and gold1. Because of the increased global demand for rare earth metals and minerals, Greenland has received a significant attention from international exploration companies and investors. Consequently, Greenland’s extractive industry has the potential to be a great mining jurisdiction and greatly push forward societal development in Greenland, provide economic benefits, and increase wealth. Moreover, the effects of global climate change are a dual sword in Greenland. They challenge the traditional hunting and fisheries as the ice is diminishing and at the same time the diminishing ice allows for more exploration as inaccessible areas of Greenland are opening up for development. Figure 1. Locations of hydrocarbon and mineral exploration and exploitation licenses in Greenland Land Ice Hydrocarbon exploration and exploitation licenses Mineral exploration licenses Mineral exploitation licenses Applications for licenses Applications for renewal Source: nunagis.gl 1 Aarhus University, Institute for Bioscience, Online, 2016 GREENLAND BENCHMARKING REPORT 2016 46 Despite the heightened awareness in the recent decade among the international business community, environmental organisations and policymakers, the extractive industry is responsible for only a modest part of Greenland’s economy today. In 2013, the latest available figures, the industry employed 128 full time workers, or 0.5% of the entire Greenlandic workforce, and total exports amounted only to 3.6 million DKK.2 This figure reflects the global downturn in financial capital in the industry and thus lack of investment in frontier markets such as Greenland. It also does not cover the recent developments in the country with the opening of a ruby and sapphire mine south of Nuuk by True North Gems. As the figure below shows, there is significant potential for mining in Greenland as mines follow cross-border geological formations in the Arctic and there is a lot of activity in neighbouring countries. Figure 2. Mining and oil activities in the Arctic Oil and gas production Largest mining areas Primary mining areas Potential oil and gas reserves 2 Statistics Greenland Source: Nordregio GREENLAND BENCHMARKING REPORT 2016 47 Table 1. Key mineral exploration statistics in Greenland 2013 2014 2015 2016 No. of exploration licences (Granted) 76 67 70 61 Exploration Expenses in DKK Millions 305.7 235.8 N/A N/A 22 17 17 16 5 6 6 6 No. of prospecting licences (Active) No. of exploitation licences (Granted) Source: Government of Greenland3 Greenland’s underground holds abundant amounts of iron ore, copper, zinc, gold, uranium, light and heavy rare earth elements. The government has in its latest strategy identified five new largescale mineral resource projects as its target by 2018. Based on global demand and market value, the government has also decided to focus on the development of iron ore, copper and zinc, gemstones, uranium, gold and rare earth element potential. However, little infrastructure exists and the harsh environment makes for challenging and costly operations. As a result, prospectors will encounter the need for large infrastructure investments. Additionally, environmental organisations and research institutions have voiced concerns that Greenland’s fragile environment and wildlife could suffer from increased mining activity. The Greenlandic policymakers seem very aware of the many interests and concerns in the mining industry and have to a certain degree found a careful balance that safeguards and protects the environment, while simultaneously maintaining an attractive investment climate. Figure 3. Distribution of future rare earth sources outside China as of 2012, % of total Canada 50% Greenland Australia United States Other 20% 8% 8% 14% Source: Statista Considering how price levels for metals and rare earth minerals developed a decade ago, it is easily understandable that the government saw great potential in the extractive industry. Today, some minerals are still performing well. The figure below also shows price developments of aluminium, copper and zinc that are commercially interesting. Also, while the price of aluminium in 3 Mineral Licence and Safety Authority: List of mineral and petroleum licenses in Greenland GREENLAND BENCHMARKING REPORT 2016 48 real terms (corrected for inflation) has remained rather stable since 2000, the price of zinc saw a large increase in value and the price of almost tripled. However, the development of zinc or copper do not provide a complete picture of today’s mineral prices. The price of iron ore, for example, has dropped from about 154 $/dmt (real 2010$) in 2011 to 91 $/dmt in 2014.4 Rare earth mineral prices have also slumped recently: for example, the price for cerium oxide fell from about 40-45 $/kg in 2011 to around 2 $/kg in 2015, the price for terbium oxide – from 2800 $/kg to about 490 $/kg.5 Figure 4. Price development of selected metals, $/kg (in real 2010$) 9 8 7 6 5 4 3 2 1 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Aluminium Copper Zinc Source: World Bank Infrastructure and policy issues The long-term prospects for Greenland’s extractive industry are promising. Policy-wise, Greenland has come a far way by implementing legislation that is both investor-friendly and environmentally responsible. Although much has been done in order to establish a good business climate, when compared to more matured mining countries, the limited infrastructure and natural environment conditions mean that potential investors will encounter large costs before any breaking of rock can commence. According to a report published by Brookings, the extractive industry requires large capital expenditures in order to flourish, and the mining companies will likely need to bear these investments as many of the current prospects in Greenland are far from existing infrastructure.6 The US-based Investment Company Guggenheim Partners have estimated that overall more than 1,000 billion USD is needed in infrastructure investments in the Arctic in the next 15 years. In the case of Greenland, which has several ports, airports and several hydro-power plants, the 4 World Bank data U.S. Geological Survey, Mineral Commodity Summaries, January 2016 6 Boersma, T., & Foley, K. (2014): “The Greenland Gold Rush: Promise and Pitfalls of Greenland’s Energy and Mineral Resources” 5 GREENLAND BENCHMARKING REPORT 2016 49 Brookings report concludes that a lack of power is the main challenge since it is only available in close proximity to the major cities. Lack of port infrastructure, roads, and storage space for machinery are subsequently mentioned as challenges. The Greenlandic government is proactive towards the extractive industry and the sector is key in diversifying the economy, securing new revenue streams and driving forward other sectors of the economy. The mining sector has stirred up much political debate in Greenland, but a clear majority of the population is still in favour of the industry. It is the government who is the sole authority in Greenland when granting licenses and negotiating Impact Benefit Agreements. Even though local politicians have made ambitious plans for the future of Greenland’s resources, many have voiced concerns over the relatively small government’s ability to keep the multinational mining companies in check. A major concern is the fact that most foreign investors will likely import labour, both in order to mediate any lack of competencies among the Greenlandic workforce, but also to keep costs down. Environmental concerns Mining activities have an impact on the surrounding environment. According to the University of Aarhus, the breaking and processing of minerals necessarily entails the disturbance of Greenland’s wildlife habitat.7 Transport, deposing of waste rock, sewage discharge, and noise are causes for concern. Especially the deposing of waste rock that may contain active minerals and chemical waste, which can contaminate the environment, requires careful handling. In recent years, Greenland’s Parliament has implemented modern legislation, which requires mining companies to operate in accordance with proper and secure consideration to the environment. In recognising the harmful effects of mining operations in the past on a global scale, potential projects in Greenland are scrutinised and their potential environmental effects are examined in environmental impact assessment and other requirements stipulated in the Greenlandic Mineral Resources Act. As mines become depleted and operations halt, the mining company is also required to clean up and reconstruct the area of operation, reviving the previous state of environment. Prospectors are also required to use hydropower where possible. However, due to the permafrost this is only possible in southern and western Greenland. Recently, the government has lifted its zero tolerance on mining uranium and an agreement with the Danish state on how to regulate exports of uranium has been agreed upon. Legislation and taxation of the industry The Mineral Resources Act contains a number of important provisions for potential investors in the industry. It describes the regulations on granting prospecting, exploration and exploitation licenses, environmental protection provisions, export and import regulations, rules on the acqui- 7 Aarhus University, Institute for Bioscience, Online, 2016 GREENLAND BENCHMARKING REPORT 2016 50 sition of property, etc. One of the provisions of the act allows a company owned by the government to join activities covered by an existing license. The Large Scale Project Act, which came into force in 2014, allows companies to use foreign labour on international terms for new mining projects with more than 5 billion DKK in capital expenditure, and it also contains other labour-related provisions.8 The standard royalty rate on the sale of minerals is 2.5% of the sale value. The rate for uranium and rare earth elements is 5%; it is 5.5% for gemstones with an additional royalty of 15% if gross profit exceeds 40%.9 In addition to royalty rates, the government has a corporate tax rate of 30% plus a surcharge of 6% (oil and mineral license holders are exempt from the surcharge) which makes the effective tax rate 31.8%. In general, the government take in Greenland is quite competitive. 8 Hojem, P. (Nordic Council of Ministers) (2015): “Mining in the Nordic Countries: A comparative review of legislation and taxation” 9 Ibid. GREENLAND BENCHMARKING BENCHMARKING REPORT REPORT 2016 2016 GREENLAND FISHING SPECIAL THEME 51 GREENLAND REPORT 2016 52 PHOTO BY AIRBENCHMARKING ZAFARI - MADS PIHL - VISIT GREENLAND GREENLAND BENCHMARKING REPORT 2016 53 FISHING Recent developments in the fishing industry Fishing is one of the key industries in Greenland. In 2014, fishing, hunting & agriculture was the second largest sector of employment after public administration, and it accounted for about 15% of total employment.10 The two largest companies in the fishing industry are Polar Seafood and Royal Greenland. Polar Seafood is the largest privately-owned fishing company and owns two factories in Greenland, while Royal Greenland is 100% government-owned and operates about 20 factories and warehouses in the country. The overall fishing fleet in Greenland is estimated at about 850 vessels and 5,000 smaller boats.11 Figure 5. Main fishing locations in Greenland Arctic char Arctic char (net fishing) Greenland Hallibut - adult Greenland Hallibut - redd Greenland Hallibut - juvenile Great scallop Source: nunagis.gl 10 11 Statistics Greenland Government of Greenland: “Economy and Industry in Greenland”, Online, 2016 GREENLAND BENCHMARKING REPORT 2016 54 Fish and shellfish exports also account for the majority of Greenland’s total exports: in 2013, fish and shellfish made up more than 90 per cent of the total value of exports.12 Fishing exports were also positively affected by the growing prices of major fish products, as the figure below shows. Shrimps, which account for more than a half of total exports, saw the largest price increase. Figure 6. Index of average quarterly prices/kg of selected fish products (2010 = 100) 250 200 150 100 50 0 Q1 Q2 Q3 2011 Q4 Q1 Q2 Q3 Q4 2012 Q1 Q2 Q3 Q4 Q1 2013 Cod Halibut Q2 Q3 2014 Q4 Q1 Q2 Q3 2015 Shrimp Source: Statistics Greenland Despite the growing shrimp prices, the volumes of shrimps caught have been declining steadily in the recent years due to smaller fishing quotas: Canada, Greenland and the EU are each allocated a share of the total shrimp quota in western Greenland. The total quota in 2014 was 85 thousand tonnes while in 2015 it amounted to 73 thousand.13 Falling shrimp export volumes also present a challenge to public finances, which receive large amounts of income from the shrimp levy. The catches of Atlantic cod, on the other hand, have grown substantially in the last five years and reached the levels of prawns in 2015. Coupled with growing prices, this has led to a rise in the value of cod exports. Volumes of halibut catches have also experienced a small increase, as the graph below demonstrates. The Ministry of Finance also projects that mackerel fishing will expand in the future and lead to growth in the sector. More than 50 thousand tonnes of mackerel were caught in 2013 and more than 78 thousand – in 2014.14 Taxes on mackerel will also contribute positively to government income. 12 Danish National Bank (2014): “Monetary Review, 2nd Quarter, 2014” Greenland Ministry of Finance (2015): “Political and Economic Report 2015” 14 Ibid. 13 GREENLAND BENCHMARKING REPORT 2016 55 Figure 7. Total landings (catch that is brought to land) of fish and shellfish in Greenland, tonnes 60,000 50,000 40,000 30,000 20,000 10,000 2010 2011 Atlantic cod 2012 Greenland halibut 2013 2014 2015 Northern prawn Source: Statistics Greenland As the potential for significant growth in the fishing sector is low due to falling shrimp quotas and rising global fish supply from aquaculture, the Economic Council of Greenland views the extraction of raw materials and tourism as the key focus areas for potential future growth.15 Government policy Fishing is currently the main industry in Greenland and it receives a large degree of attention from the government. The sector is well-regulated: fishing quotas and licenses are assigned based on biological considerations so that natural resources are not depleted. For example, based on advice from the Greenland Institute of Natural Resources, the Northwest Atlantic Fisheries Organization, the North East Atlantic Fisheries Commission and ICES, Total Allowable Catch (TAC) is set for Greenlandic waters by the government.16 International agreements dictate that shrimp quotas are shared among Greenland, Canada and the EU. Sharing of quotas with Canada was a requirement of MSC certification for Greenland’s shrimp fishery in 2013, while quota allocation to the EU is a result of the Fishery Partnership Agreement.17 Greenland’s government aims to create a framework for the industry that would guarantee employment and provide a steady source of income for both fish exporters and the government itself. One of the government’s initiatives is to survey the areas where fish is not currently caught with a particular focus on mackerel fishing. The allocation of new quotas must take into account both existing industry players and potential entrants. The government also wants to introduce 15 Greenland Economic Council (2014): “The Economy of Greenland 2014” Government of Greenland: “Economy and Industry in Greenland”, Online, 2016 17 Greenland Ministry of Finance (2015): “Political and Economic Report 2015” 16 GREENLAND BENCHMARKING REPORT 2016 56 legislation that would demand fishing license holders to undertake activities that benefit local communities, similarly to the Impact Benefit Agreements (IBAs) in the mineral resources sector. This would focus on securing local jobs, building local expertise and undertaking experimental fishery.18 In addition to the above policies, the government also plans to update the current fisheries tax system. Until 2016, only the production of halibut, mackerel and shrimps for direct export was taxed. From 2016, pelagic fishery is also going to be taxed and the plan is to have a tax on all fish species in 2017. 18 Greenland Ministry of Finance (2015): “Political and Economic Report 2015” GREENLAND BENCHMARKING REPORT 2016 TOURISM SPECIAL THEME 57 BY MADS PIHL - VISIT GREENLAND GREENLAND PHOTO BENCHMARKING REPORT 2016 58 GREENLAND BENCHMARKING REPORT 2016 59 TOURISM Great potential for the experience economy Voted in as a top-ten travel destination for 2016 by Lonely Planet19, Greenland holds plenty of potential as a holiday destination. According to the popular travel guide, Greenland offers an alternative to the typical hectic and crowded holiday destinations. With its magnificent glaciers, icebergs, and wide-open tundra, Greenland is unlike anything else. Greenland is only a four-hour flight from Copenhagen, which together with recently added seasonal flights to Iceland makes for one-stop connections to the world’s major airports. However, as operators are still limited and travellers few in numbers, flights are relatively expensive.20 To some extent, Greenland is still regarded as an exclusive holiday destination that caters to travellers seeking an extraordinary experience. The country has much to offer in terms of adventure. Visitors can enjoy hiking, sailing trips, sightseeing, heli-skiing, and riding dog sledges. In addition, cities like Ilulissat have surprisingly much to offer in terms of fine dining and nightlife. However, tourists uninterested in the wilderness’ adventures will also find that Greenland has something for them. Leisure guests visit to experience the spectacular fjords and icy landscape. In light of the increased focus on climate change, Greenland has experienced more cruise ship visitors, wishing to see icebergs, northern lights and whales from the seaside. Tourists looking to relax will also take a liking to Greenland’s hot springs in the southern part of the country. Greenland also offers a rich history and strong cultural heritage. With more than 4,500 years of history to showcase, visitors can experience traditional Norse and Greenlandic life from its past to present-day society. Many of Greenland’s larger cities are home to museums documenting the many aspects of the rich civilisation. Recent developments in the tourism industry After experiencing stable growth in 2000-2008, the tourism industry in Greenland has gone through a period of falling activity in recent years, but the data for 2015 shows that activity is starting to pick up again. In 2010, the number of cruise passengers reached its highest point of more than 30,000 people, but has since fallen back to 20,000. Tourism activity started to pick up in 2015 and the number of cruise passengers grew to 22,000. A similar trend can be observed in the number of international airline passengers. After reaching a maximum of 76,000 in 2008, the number fell to 69,000 in 2013, but it almost recovered back to its maximum value in 2015. The only indicator that experienced a fall in 2015 was the number of overnight stays in hotels, which fell to approximately its level in 2010 (see the figure below). 19 20 Lonely Planet, Online, 2016 Information, Online, 2013 GREENLAND BENCHMARKING REPORT 2016 60 Figure 8. Number of overnight stays in hotels, international airline passengers and cruise passengers in Greenland 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Overnight stays International air passengers Cruise passengers Source: Statistics Greenland Government policy One of the problems with tourism in Greenland is that it is associated with high expenses. As part of an effort to reduce the costs for tourists, the cruise passenger tax (which is payable by cruise operators) was discontinued in June 2015. The government was also preparing a new tourism strategy in 2015 to promote growth in the sector. Among the planned initiatives is the development of runways that will allow larger aircrafts to land in various regions of the country, investments into quayside facilities to improve conditions for cruise passengers as well as establishing regional visitor centres.21 21 Greenland Ministry of Finance (2015): “Political and Economic Report 2015” GREENLAND BENCHMARKING REPORT 2016 APPENDICES 61 GREENLAND BENCHMARKING REPORT 2016 62 DESCRIPTION OF TERMS Arctic countries are the nations that have territories in the Arctic region. The countries are: Canada, Denmark (Greenland and The Faroe Islands), Finland, Iceland, Norway, Sweden, Russia, and United States. DI is an acronym for The Confederation of Danish Industry. It is a trade organisation and an employers' association, which acts to ensure that the Danish business community has the optimum basis for competing, developing and manufacturing in Denmark and internationally. G8 is the group of the world’s eight major economies: Canada, France, Germany, Italy, Japan, Russia, United Kingdom and United States, as well as the European Union. GREENLAND BENCHMARKING REPORT 2016 63 METHODOLOGY Macroeconomic Analysis Choice of data and sources Macroeconomic data presented in the report was selected to provide a detailed overall picture of the countries’ economic and demographic conditions. The data comes from internationally recognized sources, mostly the World Bank and International Monetary Fund; it is internationally comparable; and it is based on the latest available data (2013 or 2014 for most of the countries; when these values are not available, the last known value is used). All the data sources and the full list of indicators are provided in the end of this report. Structure of the analysis Individual macroeconomic indicators are grouped together into 9 categories based on what they measure. The categories are shown in the scheme below. GDP AND GDP GROWTH DIVERSIFICATION OF ECONOMY EMPLOYMENT DEMOGRAPHICS MACROECONOMIC INDICATORS INVESTMENT INTERNATIONAL TRADE PRICE LEVEL CAPITAL MARKETS GOVERNMENT FINANCE GREENLAND BENCHMARKING REPORT 2016 64 No aggregate scores are computed for the categories: each macroeconomic indicator is presented separately. Values presented for the indicators are original values from the initial data sources. Calculation of averages For two of the macroeconomic indicators (GDP growth and Population growth), average annual % growth in the last 3 years is used instead of the data for one year only in order to better reflect recent trends. A simple average is calculated using the arithmetic mean formula: 3 1 Average value = ∑ 𝑉𝑖 3 𝑖=1 where: i = the year of the data value (1 to 3), Vi = data value for year i. Business Environment Analysis Choice of data and sources Similarly to macroeconomic data, the data for the Business Environment Analysis comes from an internationally recognized source – The Economist Intelligence Unit (EIU). The data used is the latest available information from the EIU Risk Briefing. The full list of indicators is provided in the end of this report. Structure of the analysis EIU’s risk ratings evaluate the risk to business profitability from 10 separate risk criteria based on current conditions and expectations for the next two years. EIU assigns each country a score from 0 (very little risk) to 100 (very high risk). Values presented for the indicators in this report are original EIU values. The overall risk assessment is a simple average of the countries’ scores in each of the indicators. GREENLAND BENCHMARKING REPORT 2016 65 LIST OF MACROECONOMIC INDICATORS GDP and GDP Growth 1.a. Real GDP growth (average annual % growth in 2012-2014) Gross Domestic Product (GDP) is one of the main economic indicators. It measures the total value of goods and services produced in a country over a certain period of time. Real GDP growth is an indicator of economic growth calculated at constant prices (eliminating the effect of price changes in the country). In order to better reflect the recent economic trends, average annual percentage growth of Real GDP in the last three years is used instead of analysing one year only. Page 6 Data sources: World Bank, Statistics Greenland 1.b. GDP per capita, PPP (current international $, thousands) GDP per capita based on purchasing power parity (PPP) is defined by the World Bank as "gross domestic product converted to international dollars using purchasing power parity rates. An international dollar has the same purchasing power over GDP as the U.S. dollar has in the United States". When converted using PPP, GDP per capita is the total value of goods and services produced in a country divided by the country's population, measured in international dollars so that differences in the purchasing power of currencies are eliminated. This allows for an easy comparison of the level of economic development of countries. Page 7 Data sources: World Bank, Statistics Greenland Diversification of Economy 1.c. Composition of GDP by sector (% of GDP) Composition of GDP by sector shows the proportion of value added in agriculture, industry and service sectors of the economy. It provides an overview of the structure of the economy and the level of its diversification. Page 8 Data sources: World Bank, Statistics Greenland 1.d. Total natural resources rents (% of GDP) Total natural resources rents include oil, natural gas, coal, mineral, and forest rents. Rents are the difference between price and average cost of producing (extracting) a commodity. Rents as % of GDP are an indicator of the reliance of economic development on natural resource production. Page 9 Data sources: World Bank GREENLAND BENCHMARKING REPORT 2016 Investment 1.e. Gross fixed capital formation (% of GDP) 66 Gross fixed capital formation is one of the components of GDP calculation using the expenditure approach. It measures the value of investments made in the economy (acquisition of plants, equipment, construction of infrastructure, etc.). This is an indicator of the contribution of investments to total GDP. Page 10 Data sources: World Bank, Statistics Greenland 1.f. Foreign direct investment, net inflows (BoP, current US$, millions) Foreign direct investment (FDI) data provided by the World Bank are "the net inflows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor". Net inflows are new investments less disinvestment, expressed in current U.S. dollars. This indicator shows how attractive the country is to foreign investors due to its openness, quality of workforce, economic and business conditions, etc. Page 11 Data sources: World Bank International Trade 1.g. Exports of goods and services (% of GDP) Exports of goods and services measure the value of goods and services provided to other countries. Exports are one of the components of GDP calculation using the expenditure approach. When measured as % of GDP, it indicates the contribution of exports to total value of goods and services produced and sold in a country. Share of exports in GDP is also an indicator of the competitiveness of locally produced products and services abroad. Page 12 Data sources: World Bank, Statistics Greenland 1.h. Imports of goods and services (% of GDP) Imports of goods and services measure the value of goods and services received from other countries. Imports are subtracted from GDP when calculating it using the expenditure approach. Imports as % of GDP is an indicator of the reliance of the economy on foreign-produced goods and services. Page 13 Data sources: World Bank, Statistics Greenland Government Finance 1.i. General government gross debt (% of GDP) Page 14 General government gross debt includes all liabilities of the government that require payment. Government debt as % of GDP is an indicator of government's indebtedness, financial stability and solvency. Data sources: IMF, Danish National Bank GREENLAND BENCHMARKING REPORT 2016 67 1.j. General government net lending (+)/borrowing (-), % of GDP Net lending/borrowing is a measure of government's fiscal balance, calculated as total government revenue minus total expenditure. Deficits have to be financed either by using existing reserves or by undertaking additional borrowing. This is thus an indicator of government's financial stability. Page 15 Data sources: IMF, Statistics Greenland 1.k. Long term sovereign debt rating Sovereign debt is used as a mechanism of funding by governments. Moody's assessment of sovereign debt risk is based on four factors: economic strength, institutional strength, fiscal strength, and susceptibility to event risk. Sovereign debt ratings are relative rankings of credit risk which act as indicators of a country's default probability and expected losses in the case of default. Page 16 Data sources: Moody’s Capital Markets 1.l. Domestic credit to private sector (% of GDP) Domestic credit to private sector as measured by the World Bank is the amount of credit resources provided to the private sector by financial corporations. On one hand, it shows the availability of credit in the economy which is needed for the expansion of business services or other projects. On the other hand, it is an indicator of the level of indebtedness of the private sector. Page 17 Data sources: World Bank 1.m. Market capitalization of listed companies (% of GDP) Market capitalization is the market value of companies (share price times the number of shares outstanding). Listed companies are the companies listed on the country's stock exchanges. This indicator shows the level of development of the country's financial markets which is also related to the overall economic development because access to equity finance is an important growth factor for companies. Page 18 Data sources: World Bank Price Level 1.n. Inflation, consumer prices (annual %) Page 19 Consumer price inflation measures the change in the cost of acquiring a specified basket of goods and services. This is an indicator of price stability. Low positive values of inflation are generally preferred. Data sources: World Bank, Statistics Greenland GREENLAND BENCHMARKING REPORT 2016 Demographics 1.o. Population growth (average annual % growth in 2012-2014) 68 Population growth is one of the main demographic indicators. It shows how fast the country's population is expanding/declining. In order to better reflect recent trends, average annual percentage growth of population in the last three years is used instead of analysing one year only. Page 20 Data sources: World Bank 1.p. Population ages 15-64 (% of total) Population ages 15-64 as % of total population is an indicator of the percentage share of working age population which can potentially contribute to the economic development of the country. The larger the working age population is, the lower is the share of population below age 15 and above age 64 that has to rely on the support of others for their survival. Page 21 Data sources: World Bank, Statistics Greenland Employment 1.q. Unemployment, total (% of total labour force) (modeled ILO estimate) Total unemployment, as defined by the International Labour Organization (ILO), is the share of the labour force which is without work but seeking employment. This is an indicator of economic activity in the country. High unemployment shows that there is a misbalance between demand for and supply of labour. Page 22 Data sources: World Bank, Statistics Greenland 1.r. Unemployment, youth total (% of total labour force ages 15-24) (modeled ILO estimate) Youth unemployment, as defined by the International Labour Organization (ILO), is the share of the labour force ages 15-24 which is without work but seeking employment. High youth unemployment is an indicator of the inability of the labour market to accommodate less experienced workers. Unemployed youth cannot contribute to economic growth. High youth unemployment can also result in less innovation and may lead to a loss of competitive advantages of a country. Page 23 Data sources: World Bank, Statistics Greenland 1.s. Labour force participation rate, total (% of total population ages 15+) (modeled ILO estimate) Labour force participation rate is defined by ILO as the share of the population ages 15 and older that is economically active, that is all people who supply labour for the production of goods and services. Similarly to unemployment, this is an indicator of economic activity. Page 24 Data sources: World Bank, Statistics Greenland GREENLAND BENCHMARKING REPORT 2016 69 1.t. Labour force participation rate, female (% of female population ages 15+) (modeled ILO estimate) Total labour force participation rate usually does not reflect the major differences in participation rates of female and male population. Female participation is usually lower than male participation due to cultural, social and demographic trends. It is therefore important to analyse gender differences in employment. Page 25 Data sources: World Bank, Statistics Greenland 1.u. Labour force participation rate, male (% of male population ages 15+) (modeled ILO estimate) Total labour force participation rate usually does not reflect the major differences in participation rates of female and male population. Female participation is usually lower than male participation due to cultural, social and demographic trends. It is therefore important to analyse gender differences in employment. Page 26 Data sources: World Bank, Statistics Greenland GREENLAND BENCHMARKING REPORT 2016 70 LIST OF BUSINESS ENVIRONMENT INDICATORS Business Environment Indicators 2.a. Security risk Security risk evaluates the safety of the physical environment. It takes into account such issues as the presence of armed conflicts, violent demonstrations, civil unrest, hostility to foreigners or private ownership, organised crime, etc. Page 29 Data sources: Economist Intelligence Unit 2.b. Political stability risk Political stability risk measures the ability of political institutions to continually support the needs of businesses. It reflects the risk of social unrest, the mechanisms of transfer of power from one government to another, the probability that opposition will gain power and bring about a worsening of business conditions, the level of concentration of excessive power as well as the probability that international tensions will have a negative effect on the economy or policy. Page 30 Data sources: Economist Intelligence Unit 2.c. Government effectiveness risk Government effectiveness risk takes into account the likelihood that the government will implement policies that support businesses; the level of bureaucracy; competences, morale and compensation of officials; the degree of vested interests; the level of corruption; accountability of officials and the probability that the country can be accused of human rights violations. Page 31 Data sources: Economist Intelligence Unit 2.d. Legal & regulatory risk Legal & regulatory risk evaluates the degree to which the legal process can serve certain interests, the risk that contracts are not enforced, the efficiency of the judicial process, favouritism of domestic over foreign companies, the risk of foreign assets expropriation, the government's stance on promoting competition, the level of intellectual property and private property protection, the risk of unreliable financial statements as well as the probability that price controls will be introduced. Page 32 Data sources: Economist Intelligence Unit 2.e. Macroeconomic risk Macroeconomic risk takes into account exchange rate volatility, the risk of recession and price instability in the next two years, the ratio of domestic public debt to M2 (a measure of money supply) as well as the risk of interest rate volatility. Page 33 Data sources: Economist Intelligence Unit GREENLAND BENCHMARKING REPORT 2016 71 2.f. Foreign trade & payments risk Foreign trade & payments risk measures the probability that the country will be subject to a trade embargo, the risk that access to foreign exchange will be restricted, the possibility of the introduction of discriminatory tariffs and other tariff and nontariff measures, the ease of moving money out of the country as well as the risk of capital controls. Page 34 Data sources: Economist Intelligence Unit 2.g. Financial risk Financial risk takes into account the risk of a major currency devaluation, the availability of financing in the local financial market, the existence of a liquid local bond market in freely-traded debt, the risk of a systemic financial crisis as well as the liquidity of the local stock market. Page 35 Data sources: Economist Intelligence Unit 2.h. Tax policy risk Tax policy risk measures the clarity and predictability of the tax regime, the risk of discriminatory taxes, the level of corporate tax rates and the risk of retroactive taxation. Page 36 Data sources: Economist Intelligence Unit 2.i. Labour market risk Labour market risk evaluates the power of trade unions, the frequency of labour strikes, the restrictions placed by labour laws, the ease of finding skilled and specialised labour, the extent to which increases in wages are related to productivity improvements as well as the risk that collective bargaining and freedom of association rights will not be respected. Page 37 Data sources: Economist Intelligence Unit 2.j. Infrastructure risk Infrastructure risk measures the probability that major infrastructure facilities (ports, air transport, ground transport, distribution networks, communication infrastructure) will be inadequate for business use, the risk of power shortages and the risk of poor IT infrastructure. Page 38 Data sources: Economist Intelligence Unit Overall risk The overall risk assessment is a simple average of all ten risk indicators. Page 39 Data sources: Economist Intelligence Unit GREENLAND BENCHMARKING REPORT 2016 72 DESCRIPTION OF SOURCES Aarhus University’s Institute for Bioscience provides an overview of Greenland’s mineral sector. http://bios.au.dk/videnudveksling/til-myndigheder-ogsaerligt-interesserede/greenland/minedrift-og-miljoe/ Boersma, T., & Foley, K. (2014): “The Greenland Gold Rush: Promise and Pitfalls of Greenland’s Energy and Mineral Resources” provides details about the development of Greenland’s mining sector. http://www.brookings.edu/~/media/research/files/reports/2014/09/24-greenland-energy-mineral-resources-boersmafoley/24-greenland-energy-mineral-resources-boersma-foley-pdf2.pdf Danish National Bank’s “Monetary Review, 2nd Quarter, 2014” contains an analysis of current trends in the Greenlandic economy. www.nationalbanken.dk/en/publications/Documents/2014/06/Current%20Trends%20in%20the%20Gr eenlandic%20Economy.pdf Economist Intelligence Unit’s Risk Briefing evaluates the risk to business profitability in 180 countries from 10 separate risk criteria based on current conditions and expectations for the next two years. http://viewswire.eiu.com/index.asp?layout=RKAllCountryVW3 Government of Greenland’s webpage “Economy and Industry in Greenland” provides an overview of economic activities in Greenland. http://naalakkersuisut.gl/en/Aboutgovernment-of-greenland/AboutGreenland/Economy-and-Industryin-Greenland Government of Greenland’s Mineral Licence and Safety Authority provides a list of mineral and petroleum licences in Greenland. https://www.govmin.gl/images/list_of_licences__20160216.pdf Greenland Economic Council’s report “The Economy of Greenland 2014” provides an overview of the country’s economic climate and current economic policy. http://naalakkersuisut.gl/~/media/Nanoq/Files/Attached%20Files/ Finans/DK/Oekonomisk%20raad/ %C3%98konomisk%20R%C3% A5d%202014_ENG.pdf Greenland Ministry’s of Finance “Political and Economic Report 2015” analyses the development of the country’s economy and details the government’s policies and reforms. http://naalakkersuisut.gl/~/media/Nanoq/Files/Attached%20Files/ Finans/ENG/POB_materie_2015_ ENG_FINAL.pdf Hojem, P. (Nordic Council of Ministers) (2015): “Mining in the Nordic Countries: A comparative review of legislation and taxation” reviews legislation and taxation of the mining industry in Nordic countries. http://norden.diva-portal.org/smash/get/diva2:842595/FU LLTEXT01.pdf Information’s ”Den grønlandske turisme har plads til forbedring” is an article that investigates the challenges and opportunities faced by the Greenlandic tourism industry. http://www.information.dk/468139 International Monetary Fund’s (IMF) World Economic Outlook (WEO) database contains macroeconomic data, IMF staff's analysis and forecasts for the majority of the world’s countries. www.imf.org/external/ns/cs.aspx?id =28 GREENLAND BENCHMARKING REPORT 2016 73 Lonely Planet’s “Best in Travel 2016” is a top 10 list of holiday destinations to visit for 2016 and why. http://www.lonelyplanet.com/bestin-travel/countries/9 Moody’s is a corporation which provides credit ratings and research covering debt instruments and securities, as well as tools for credit and economic analysis and financial risk management. www.moodys.com Nordic Centre for Spatial Development (NORDREGIO) is a leading Nordic research institute focusing on regional development and urban planning. http://www.nordregio.se/ Nordic Consulting Group’s “Integrity Study of The Public Sector in Greenland, 2012” provides an analysis of transparency, accountability and integrity in Greenland’s society. The study was commissioned by Transparency International Greenland. http://transparency.gl/wp-content/uploads/Integrity-public-sectorGreenland.doc NunaGIS provides digital maps of Greenland. http://nunagis.gl/en/ PwC’s report “Worldwide Tax Summaries: Corporate Taxes 2015/16” contains information about corporate tax systems in 155 countries. www.pwc.com/gx/en/tax/corporate-tax/worldwide-tax-summaries/assets/pwc-worldwide-tax-summaries-corporate-2015-16.pdf Statista is one of the world’s largest statistics databases. www.statista.com Statistics Greenland is the national statistical office of Greenland. www.stat.gl/default.asp?lang=en U.S. Geological Survey, Mineral Commodity Summaries, January 2016 provides an overview of the rare earth metal markets. http://minerals.usgs.gov/minerals/pubs/commodity/rare_earths/mcs-2016-raree.pdf US State Department’s “Investment Climate Statement 2014” provides information about the economy of Greenland, its business and investment laws, taxes, labour market, and other business information. http://greenland.usvpp.gov/visas3.html World Bank’s World Development Indicators (WDI) is a collection of internationally-comparable global development data compiled by the World Bank – an international bank focused on fighting poverty and promoting economic growth by providing financial and technical assistance to countries. http://data.worldbank.org/products/wdi GREENLAND BENCHMARKING REPORT 2016 ACRM MEMBER COMPANIES 74 @ACRM_DK GREENLAND BENCHMARKING REPORT 2016 75 GREENLAND BENCHMARKING REPORT 2016 75 Visit us at ACRM.DK GREENLAND BENCHMARKING REPORT 2016 76