Commentary: The Arctic's Economic Future is Digital

Broadband deployment and adaption across the globe have not been uniform, and the Arctic region is in danger of being left behind, a new report from the Arctic Economic Council (AEC) concludes. (Photo: Sean MacEntee, Flickr)
"Believe it or not, the Arctic’s economic future will be driven by global digitalisation. In this context, cold temperatures are one of the Arctic’s most valuable natural resources," HNN-correspondent Andreas Raspotnik and Fellow Stefan Steinicke write in this commentary.

Believe it or not, the Arctic’s economic future will be driven by global digitalisation. In this context, cold temperatures are one of the Arctic’s most valuable natural resources.

Its location at the top of the world gives the region an additional competitive advantage in this new era of digital connectivity. From this, a key question arises: could the Circumpolar North eventually become a key digital pillar of the global economy?

The technological advancements of the last two decades have irrevocably changed our understanding of space, time, and distance and; consequently, has re-defined globalization. Due to the rise of global supply chains of goods, services, ideas, people, and data, the world economy is more connected now than ever before. Between the years 2005 and 2012, global online traffic across borders grew 18-fold—a figure that continues to surge at an exponential rate. Today, 12% of the global goods trade is conducted via international e-commerce. Considering our daily exposure to digital marketplaces such as Amazon, eBay, or Alibaba, this number is expected to grow even faster.

Connect the dots

A key factor for the expanding global economic connectivity is its underlying digital infrastructure. The mobile internet, the Internet of Things and cloud applications are among some of the most disruptive digital technologies—technologies that will only further transform our daily life, social interactions, and business activities. Today, more than 1.1 billion people use mobile internet devices. Yet, in the coming decade we will see an additional 2 to 3 billion users entering the connected mobile world. Additionally, the Internet of Things will exponentially contribute to global data flows. With 9 billion devices currently connected to the internet, estimates on the number of devices connected by 2025 range from 50 billion to 1 trillion. Numbers like that are almost inconceivable. Presumably, cloud-delivered or -enabled applications will be the digital facilitator for an extraordinary rise of globally connected devices.

The need for upgraded regional infrastructure: why the Arctic?

In order to fulfill its potential, the digital economy depends on physical infrastructure that makes digital flows possible in the first place. Most importantly, digital flows rely on server farms and fibre optic cables. And the demand for both of them is going to rise dramatically. Between 2016 and 2020, the global fibre optics market is expected to grow by 9.5%. The global data center construction market should increase from 14.6 billion USD to 22.7 billion USD—an annual growth rate of 9.3%. This expanding market will, in turn, need more energy. Today data centres are responsible for 2% of global power demand. Expect this number to rise.

And this is where the Arctic comes into play as the Circumpolar North holds both a climatological as well as a geographical competitive advantage.

Even though the Arctic region is warming twice as fast as the rest of the globe, it is still one of the coldest spots on earth. And the colder it is, the less energy is needed to cooldown data centres with the remaining energy demand to be potentially generated with renewable energy sources (e.g. hydro power, wind farms). Energy is one of the key variables when discussing the future of data centres. The amount of energy consumed by the world’s data centres is about to treble in the coming decade with, for example, Japan consuming its entire electricity supply by 2030 only for its data centres if related growth continues at today’s rate.

Some of the biggest IT companies have already discovered the Arctic and its sub-Arctic neighbourhood. In 2013, Facebook opened its “clean and green Arctic data centre” in Lulea, Sweden, with Google already having started to rebuild an old paper mill in Hamina, Finland, back in 2009. Recently, Iceland and North Norway have also commenced to lure data centre companies with cold outside temperatures and cheap, clean and renewable energy.

According to the Data Center Risk Index 2016, the Arctic region has the lowest risk environment for data centres. Assessing criteria such as energy costs, corporation tax, internet bandwidth, natural disaster, energy security or political stability, the index ranked Iceland (1.), Norway (2.), Finland (4.) and Sweden (5.) under its Top-Five, followed by Canada (6.) and the United States (10.).

Yet, data centres will not remain the only form of innovation to enter the Arctic arena. Fibre optic cable projects are currently underway to better connect North America, Europe and Asia, aiming to use the Arctic Ocean as a profitable shortcut. These new digital highways allow for faster and shorter connections between stock exchange traders in London and Tokyo, with the potential to save 24 milliseconds in internet transmission speed. A shorter delay could give stock traders a competitive advantage as speed matters in financial markets. Moreover, upgraded digital highways are a basic prerequisite for better competitiveness in today’s digital economy. Consequently, Arctic countries invest in their digital links to their European neighbours. A new northern digital highway between Finland and Germany should act as a stimulus for Finland’s vision of itself as an “icy-ideal” location for data centres.

Regional beneficiaries

Intra-regionally, an extended fibre optic cable system—or an extended broadband infrastructure as such—could also enable better digital connectivity for Arctic communities, offering affordable high-speed Internet connections to remote communities in the various different regions of the Arctic. Related benefits could range from upgraded healthcare support or social services (e.g. telehealth services) to online education and tutoring (e.g. massive open online courses) to an overall easier access to the global economy. The latter could, for instance, further accelerate digital entrepreneurship in the Circumpolar North. The matter of government participation and related community involvement could also potentially be strengthened and give a fresh impetus to North-South relationships.

Yet, the various Arctic regions need to digitally catch up, as recently suggested in the Arctic Broadband Report, published by the Arctic Economic Council. The report noted that the various Arctic region could (again) be left behind if not promoting intra- and extra-regional connectivity.

The way ahead

Technology, technological advancements, and inventions have for centuries been a driving factor in the reshaping of societies and economies around the world. Over the last decades information technology has manifested itself as the powerhorse in the process of globalization. The global village has become an undeniable reality and terms such as ‘big data’ or ‘the cloud’ part of common parlance in discussions on future global economic considerations and developments. The effects of globalization have also reached the Arctic region and will increasingly continue to integrate our most Northern Hemisphere into the global economic system over the years to come.

However, the Arctic and its residents should not only be a recipient of globalization but essentially manifest itself as a new ‘suburb’ of the global village, forming an important part of the world’s technology- and internet-based (‘critical’) infrastructure. Digital connectivity has the potential to overcome some of the geographical obstacles and the ability to fully integrate the Arctic and its citizens into the global economic opportunities of the 21st century. It could offer the possibility for Arctic entrepreneurship and related start-ups to displace incumbent companies and have an impact beyond the regional sphere.

Yet, this ‘golden digital’ future comes with far-reaching challenges. Security-related questions concerning cybercrime or private data protection are not going to spare the Arctic. Nevertheless, could future ‘Arctic exceptionalism’ eventually be defined in digital terms? Could the Circumpolar North become a safe digital harbour that is simultaneously beneficial to the region and its communities as such, to businesses and local/regional development, to the environment and effectively tackle urgent questions of data security and the protection of our digital privacy?

Over the last decade the Arctic’s future has been envisioned from many angles. Some have been proven true, some have been caught up by reality. Will digitalisation eventually symbolise/denote the region’s new economic reality?

Read also:
Broadband Report: The Arctic in Danger of Being Left Behind

Stefan Steinicke (top) is an analyst on Arctic affairs. Andreas Raspotnik is a Senior Fellow at the Arctic Institute (TAI) and TAI's analyst on EU Arctic Policy, and also a correspondent for High North News.
Stefan Steinicke (top) is an analyst on Arctic affairs. Andreas Raspotnik is a Senior Fellow at the Arctic Institute (TAI) and TAI's analyst on EU Arctic Policy, and also a correspondent for High North News.