Emerging Markets and the Arctic: Equity In Key Industries

by Georgi Ivanov

In the 21st century, increasing interest in the Arctic will make the region one of the most dynamic geopolitical spaces, and with it, open up new business opportunities for investment and trade. The impetus will be on resource industries, shipping and the required infrastructure development that will support these investments. However, the political and legal framework needed to make any of these initiatives work rests with having the proper governance capacity in the Arctic.

 

State-level support for Arctic governance happens through the Arctic Council (AC), an intergovernmental body with limited scope in authority in relation to search and rescue activities in the region, alongside having larger consultative and deliberation privileges with respect to the environmental protection and sustainable development of the Arctic. Critical questions, such as territorial demarcations between countries, military security and shipping negotiations, are left to direct state-state negotiations, either bilaterally or through the United Nations (UN).

 

There are eight littoral countries surrounding the Arctic: Canada, the United States, Russia, Denmark, Sweden, Iceland, Finland and Norway. They form the permanent membership of the AC, whereas the list of permanent observers consists of extra-regional countries with interest in becoming involved in Arctic politics. As of 2013, that list was expanded with six new key members: China, Japan, South Korea, Singapore, India and Italy. Additionally, the European Union’s application for similar status is still pending.

 

What emerges is that a large number of influential parties will cross multifaceted interests in the Arctic: political, economic and social. The business opportunities stemming from the increased attention are also united by the fact that the Arctic is not subject to the same political and security problems that plague other key resource parts of the world: South Sudan, the Middle East, or Latin America, to name a few.

 

States and MNCs both support resource development in the Arctic, with the latest developments being that Canada has significantly reduced the regulatory requirements for investing and operating in its northern territories, with the idea to create privately driven economic growth. These changes concern specifically the management of freshwater resources, as well as maritime assets, but do so at the price of radically reducing the capacity of Fisheries and Oceans Canada, as well as largely eliminating its archival system. However, lower transactional costs from regulations open up room for private investment into oil, gas and mineral development, as well as participation in the logistical development of the Canadian Arctic.

 

Russia’s tradition in Arctic development, dating back to tsarist times, also means that the county is a good destination for capital as a lot of critical infrastructure is complete (e.g. the port of Murmansk), and access to the Northeastern Passage, kept open by Russia’s extensive icebreaker fleet, lowers the costs of East-West trade. One of the latest examples is that Japan successfully received its first shipment of liquefied natural gas from Russia via the Arctic route in 2013.

 

Climate change will increase the viability of northern shipping, as potentially ice-free summers and a thinner ice cover during the rest of the year will make access considerably easier. In a word, the Arctic may not monopolize trade away from traditional trade routes through the Suez, Panama and around the Horn of Africa, but the region’s much greater geopolitical stability, shorter distance and lower operating costs will certainly make it a viable trade route alternative between the Americas, Asia and Europe, as the century continues to unfold.

 

While politics in the Arctic may not move exceptionally quickly, the gradual increase in the attention it receives is a sure sign of its future, global importance. Resource development, shipping and the building of key supporting infrastructure offer medium and long-term opportunities, which may have high entry costs, but if managed appropriately, will create stable profitability.

 

Georgi Ivanov is a political scientist with a focus in political economy and the governance of emerging geopolitical environments. His expertise is on polar governance, and he currently works as a contributing researcher for Wikistrat and Squawkonomics. For more information, respectively: www.wikistrat.com and www.squawkonomics.com

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