Challenges and Opportunities for Rural Businesses in North Karelia, Finland W-POWER project 2021 2 Challenges and Opportunities for Rural Businesses in North Karelia, Finland Author: Keijo Koskinen, Karelia University of Applied Sciences, Finland W-POWER Project 2021 3 CONTENTS FOREWORD ..............................................................................................4 1 BUSINESS ENVIRONMENT OF RURAL BUSINESSESS .....................................5 1.1 DEMOGRAPHIC TRENDS AND POPULATION STRUCTURE ...........................5 1.2 INDUSTRY AND EMPLOYMENT ..............................................................6 1.3 ENTREPRENEURSHIP ........................................................................ 11 1.4 TOURISM AND HOLIDAY HOUSING ...................................................... 14 2 SUMMARY AND CONCLUSION.................................................................. 19 REFERENCES .......................................................................................... 24 APPENDIX 1. Rural North Karelia as a residence and business environment – potentials and challenges .......................................................................... 27 4 FOREWORD This report seeks to describe North Karelia as an operating environment for rural businesses. Moreover, the report provides an overview of companies operating in the North Karelian countryside and describes types of entrepreneurship in the province. North Karelia offers many business opportunities, especially in the field of forestry and bioeconomy. In contrast, for many service sector companies that depend on local demand, the operating environment in North Karelia is challenging. The decreasing and aging population has meant a decline in local demand for services in the periphery of the province. The challenges posed by negative demographic developments are particularly acute for private services such as the grocery stores. On the other hand, the need for various care-related services has been growing strongly in recent years, which has generated new business activities in rural care services. In some industries, the province offers business opportunities for creating global success stories. On the other hand, the maintenance of basic commercial services is often based on external demand, such as demand flows created by leisure residents. The report does not aim to be an overall assessment of the state of vitality in North Karelia and the related development prospects. Some of the key factors describing the characteristics of the area have been raised for consideration. First, we look at the population development and demographic structure of the province. The following is a general description of the area's livelihoods and employment, as well as the characteristics of entrepreneurship. Particular attention has been paid to tourism and holiday housing, both of which play a special role in maintaining the rural service network. Finally, an attempt has been made to assess the future prospects of North Karelia in relation to the megatrends presented in the national debate. It is noteworthy that this report was compiled and written before “the Black Swan” event took place in the form of the COVID19-pandemic. At the publication stage of the text, it is not yet possible to assess the immediate and far-reaching effects that the current global crisis will have on business activities in North Karelia and, more broadly, on the future prospects of the province. 5 1 BUSINESS ENVIRONMENT OF RURAL BUSINESSESS 1.1 DEMOGRAPHIC TRENDS AND POPULATION STRUCTURE North Karelia is characterized by low population density and extensive forest and lake areas. The urban center is represented by the Joensuu Provincial Center with its suburban population centres and the local rural centers Kitee, Lieksa, Nurmes and Outokumpu. Most of the province belongs to a sparsely populated rural area. The population of the region has declined for a longer time. As in previous years, the decisive background factor is not the extent of emigration, but the increase in mortality and low birth rates due to aging, i.e. the natural population development of the province is negative. (Table 1.). 1975 1985 1995 2005 2015 2019 177,089 177,567 177,271 168,322 164,755 161,211 Table 1. Population of North Karelia 1975-2019 (Population according to age (1- year) and sex by area, 1972-2019. Statistics Finland 2020) Not only the decline in the total population, but also the divergent development between different types of regions are problematic for the development of the North Karelia region. The population in the inner urban area and the city of Joensuu has steadily increased but in the countryside as well as in its local centers, the population has decreased (North Karelia Regional Council 2017). During the years 2009-2017, the population in the municipalities of the city of Joensuu and the surrounding area increased by 4.6% while the population of the municipalities located in rural areas decreased by 11.1% (Table 2). 6 TYPE OF THE Population Population Change Change Ages Ages Ages REGION 2009 2017 (person) (%) Under 15- Over Cities 15 64 64 (%) (%) (%) Joensuu 72,704 76,067 +3,363 + 4.6 14.0 65.0 21.0 (capital) Lieksa 12,788 11,297 -1,491 - 11.7 10.5 54.6 34.9 Kitee 11,861 10,486 -1,375 - 11.6 11.8 55.6 32.6 Nurmes 8,573 7,765 - 808 - 9.4 12.2 54.9 32.9 Outokumpu 7,492 7,003 - 489 - 6.5 14.4 56.6 29.0 Suburb municipalities 25,810 26,980 +1,170 + 4.5 20.5 61.6 17.9 (Kontiolahti, Liperi) Rural municipalities (Ilomantsi, Juuka, 26,734 23,388 -3,346 - 12.5 11.4 55.0 33.6 Polvijärvi, Rääkkylä, Tohmajärvi, Valtimo) Table 2. Demographic trends by different types of regions in North Karelia 2009 – 2017 (Statistics Finland: Statfin -database. 11ra -- Key figures on population by region, 1990-2018) The decline in the working-age population in rural areas and the bias of population structure toward aging population is reflected in the local economy in weakening purchasing power and the demand for various private services. The situation is problematic for municipalities in peripheral regions. The need for public health and care services for the aging population increases as the municipal tax base becomes narrower. 1.2 INDUSTRY AND EMPLOYMENT North Karelia’s business structure is diversified (Table 3). Trade, construction and industrial sectors form the basis of the province's business, from the point of view of business size and employment. In 2016, 44% of the province's total exports came from the technology industry (Regional Council of North Karelia, 2017, 35). 7 Businesses with a lower volume of trade, but significant due to the employability, are primary production (7.4%), transport and storage (7.4%) and social and health services (7.3%). The employability of different administrative services, accommodation and catering is also significant in relation to the business (Table 3). Sector (Standard Industrial Premis Personnel % Sales % Classification TOL 2008) es (person- volume (pcs) year) (€1,000) A Agriculture, forestry and fishing 3,721 2,452 7.4 217,689 3.0 B Mining and quarrying 37 325 1.0 72,121 1.0 C Manufacturing 702 8,684 26.0 2,696,604 37.5 D Electricity, gas, steam and air 51 206 0.6 260,112 3.6 conditioning supply E Water supply; sewerage, waste 85 246 0.7 61,646 0.9 management and remediation activities F Construction 1,045 3,890 11.7 750,130 10.4 G Wholesale and retail trade; 1,389 5,001 15.0 1,699,972 23.6 repair of motor vehicles and motorcycles H Transportation and storage 648 2,455 7.4 311,746 4.3 I Accommodation and food service 408 1,596 4.8 158,334 2.2 activities J Information and communication 154 1,028 3.1 211,038 2.9 K Financial and insurance activities 133 519 1.6 .. .. L Real estate activities 629 447 1.3 166,570 2.3 M Professional, scientific and 667 1,305 3.9 143,868 2.0 technical activities N Administrative and support 387 2,046 6.1 132,813 1.8 service activities P Education 76 83 0.2 8,955 0.1 Q Human health and social work 598 2,432 7.3 204,155 2.8 activities R Arts, entertainment and 125 199 0.6 69,402 1.0 recreation S Other service activities 502 422 1.3 32,588 0.5 Industry unknown 1 1 0.0 19 0.0 IN TOTAL 11,358 33,338 100.0 7,197,763 100.0 Table 3. Business locations by industry, personnel and sales volumes in North Karelia 2017 (Statistics Finland: Statfin -database. 11db -- Establishments of enterprises by industry and region, 2013-2018) 8 Employment in North Karelia 31 December 2016 (Standard Industrial Classification TOL 2008) Municipality / Primary % Processing % Services % Unknown % Total sub-region production ( A ) ( B-F ) ( G-U ) ( X ) Joensuu 618 2.1 5,729 19.9 22,159 76.9 312 1.1 28,818 Outokumpu 98 4.5 744 34.0 1,320 60.4 25 1.1 2,187 Ilomantsi 185 11.5 303 18.8 1,096 68.1 26 1.6 1,610 Juuka 189 12.5 397 26.2 894 59.1 33 2.2 1,513 Kontiolahti 163 2.6 1,626 25.6 4,490 70.8 66 1.0 6,345 Liperi 381 7.8 1,191 24.4 3,251 66.5 68 1.4 4,891 Polvijärvi 243 16.5 398 27.0 806 54.6 28 1.9 1,475 Joensuu region 1,877 4.0 10,388 22.2 340,16 72.6 558 1.2 46,839 Lieksa 334 9.4 909 25.6 2,260 63.7 43 1.2 3,546 Nurmes 299 11.5 552 21.2 1,716 65.9 36 1.4 2,603 Valtimo 166 22.5 120 16.3 439 59.5 13 1.8 738 Pielinen Karelia 799 11.6 1,581 23.0 4,415 64.1 92 1.3 6,887 region Kitee 441 12.5 823 23.4 2,208 62.8 44 1.3 3,516 Rääkkylä 148 21.7 116 17.0 401 58.7 18 2.6 683 Tohmajärvi 257 16.7 262 17.0 999 64.9 22 1.4 1,540 Central Karelia 846 14.7 1,201 20.9 3,608 62.9 84 1.5 5,739 North Karelia 3,522 5.9 13,170 22.1 42,039 70.7 734 1.2 59,465 (total) Table 4.