Will Greenland get the mining adventure off the ground?

Tourism and mining are central elements to the economic adventure which successive Greenland governments have been working towards. Yet both sectors are currently in trouble. Tourism has been severely damaged by the Corona pandemic and there are few active mining projects. 

Mining industry investors are waiting to see what Greenland’s government will do about their most important promise made during the 2021 election campaign: no to uranium mining in Greenland and no to the sale of uranium which is already being mined in Greenland.  

The highly radioactive element is found naturally in Greenland’s subterranean ore in combination with other elements like gold and copper, which mining companies from around the world would very much like to extract. Uranium will therefore be an unavoidable by-product in many mining projects, and it can be difficult for mine owners to know in advance exactly how much uranium will be extracted as part of mining for other elements. 

Nevertheless, one of the most important pieces of legislation the current government has proposed after its election victory is that uranium must not make up more than 0.01% of the ore extracted (: 100 parts per million uranium) when mining companies prospect for or extract raw materials in Greenland.

The government also retains the right to change terms and conditions for mining operations in the future – for instance by banning the extraction of other radioactive substances besides uranium.

Create stability around raw materials

The political decision for a low threshold for uranium as a by-product and the possible further tightening of regulations has caused many investors to hesitate. In a recent report, the Economic Council of Greenland called on Greenland’s government and parliament to secure more long-term stability around the mining industry. 

Mille Schiøtt Kongstad, Greenlandic geologist, holding a rough gem stone from the Aappaluttoq mine. (Photo: Greenland Ruby)

If they do not, the mining adventure might not get off the ground at all. And with no mining, an important building block of Greenland’s future economy will be missing, says the Council, which provides independent analysis of Greenland’s economy for Greenland’s government.

“Mining activities are essential to creating a broader economic base. To boost the sector, it is important to have long-term political stability and reliable conditions. This concerns both the types of minerals that may be extracted and the modalities for doing so.

"Uncertainty about the regulatory framework and conditions for doing business generally has a negative impact on investment, and particularly on activities that require large initial capital outlays and operate over long periods of time.

"For Greenland as a “greenfield” area, it is particularly important to provide clear conditions and have an efficient and transparent administration in order to attract companies and investors and thus achieve the ambitions for the mining sector,” writes the Economic Council of Greenland in its report from September 2021.

Greenland had a zero-tolerance for uranium exploration until 2013, when the ban was removed so that income from raw materials might become a central element to Greenland’s economy along with three other main income streams: fish export, tourism and considerable economic support from Denmark in particular, but also the EU.

Sustainability plan in the works

The government’s 2022 budget does not contain any major changes, but the government has announced that reforms are coming. These will be presented in an upcoming Sustainability and Growth Plan which will contain proposed tax reforms for housing and the public sector as well as education and labour market measures.

This is a signal that the Economic Council of Greenland welcomes, but it also warns the government not to wait too long: 

“Thorough groundwork is essential to developing an understanding of the need for reform and the concrete actions to be taken. But it is also important to act swiftly and initiate a reform process. Many problems are already well documented and have been discussed for some time now. In a number of areas, postponing reforms would merely compound the difficulties of adapting to new demands.”

Reforms, the Council says, are necessary to move towards a more self-sustaining economy. To do that, Greenland needs to diversify business activities, prepare for demographic changes brought on by an ageing population, solve the country’s large social challenges, educate more young people and secure a more sustainable management of fishing and shellfish – especially prawns which is Greenland’s primary export.

Coordinating reforms

The Economic Council of Greenland believes the coming reform process can only succeed if Greenland solves the labour market’s largest problem – the lack of qualified labour in many areas, including the health sector, construction and mining. There is also a lack of unskilled workers, although many are not in employment. 

A student at the Greenland School of Minerals & Petroleum in Sisimut practices how to do CPR on a doll. 

“Without a solution to the labour problem, the outcome of new initiatives and projects to support a more self-sustaining economy will be less effective or may even have the opposite overall effect,” the Council writes. 

Many measures will be needed to solve the labour problem, and some of them will only have an effect in the long term. All measures must be coordinated with other reforms, the Council advises. It highlights two areas where reforms could free up labour and at the same time support a more sustainable Greenlandic economy:

More effective and sustainable fisheries would make labour available for other industries. Increases efficiency and productivity in the public sector would allow the same tasks to be performed more cheaply and with less need for labour, releasing resources to secure services and welfare to deal with the ageing population.

A focus on education

Reforms in these areas will be dependent on supporting measures for the labour market and the education system, the Council believes. It wants to see a general improvement in Greenland’s education level – especially through quality improvement in primary and secondary schools, where many pupils do not acquire basic academic skills need to progress through the education system.

“Boosting the level of educational attainment is crucial for a more self-sustaining economy. The next 20 – 30 years will usher in a series of social trends that will require adaptations and new decisions to ensure prosperity and welfare. These include changes in the size, age composition and educational level of the population that will have an impact on the workforce, employment, productivity, living standards and the number of people receiving social benefits.”

Danmarks Nationalbank takes a similar view in an analysis of Greenland’s economy from November 2021:

“In the longer term, increased education levels are key to expanding the labour supply and employment,” the national bank writes.

Unemployment among people with no further education stood at 8.4% in 2019 compared to 2.5% for people with vocational training and 0.5% for people with further education.

Growing debt

Danmarks Nationalbank calls for the introduction of public reforms in Greenland where the public debt is expected to grow from today’s nine billion kroner (€1.2bn) to the equivalent of 45% of GDP by 2024 driven by the construction of new airports in Nuuk and Ilulissat.

The total debt of the Greenland Government Authorities and the municipalities will grow considerably, warns the Danisn National Bank. Source: Draft budget 2022.

This will considerably increase the autonomous government’s risk exposure in just a few years, the national bank expects, and it predicts that this will necessitate a reform process in the coming years in order to create a sustainable economic policy.

Greenland, and in particular the capital Nuuk, has enjoyed an economic upswing since 2016 with high construction activity in Nuuk thanks to high revenue levels from fisheries and massive investments in new airports in Nuuk and Ilulissat. Greenland has also decided to build an airport in Kujalleq Municipality in the south, although an airport there cannot be financed by rent income and will therefore be dependent on public money.  

The Danish national bank’s advice is for Greenland’s government to save money right now, as long as it needs to import labour in order to sustain the economic upturn.