The Economic Council Aningaasaqarnermut Siunnersuisoqatigiit The Economy of Green- land 2014 Economic outlook Current economic policy Housing The Economic Council was set up by Naalakkersuisut (the Government of Greenland) in 2009, and this is the Council's fifth report. The Economic Council is headed by a chairmanship of six people. The chairmanship is composed of a chairman, a vice chairman and four council members, all of whom are appointed by Naalakkersuisut. Since the last report, no changes in the composition of the chairmanship has taken place. In addition to the chairmanship, the Economic Council comprises members from interest organisations, the Naalakkersuisut administration, and research institutions. Members representing organisations and research institutions are appointed by the organisations concerned. The other members are appointed by Naalakkersuisut. The members of the Council can submit comments on the content of this report, but the chairmanship has the sole responsibility for the final content. The secretariat function of the Council is carried out jointly by the Ministry of Finance and Danmarks Nationalbank (the Danish central bank). The duties of the Economic Council are to carry out regular assessments of economic trends and of the sustainability of Greenland’s fiscal policy. The chairmanship comprises: Chairman: Torben M. Andersen Professor in economics at Aarhus University and former chairman of the Taxes and Welfare Commission. From 2001 to 2003 he was chief economic adviser of the Danish Economic Council, and he is still active in the Council as a specialist expert. Vice chairman: Ulla Lynge Ulla Lynge has an MSc in Public Administration from the University of Greenland, and she is a director on the Sermersooq Business Council. She has extensive knowledge about Greenlandic society, and she has previously worked for the Greenland Home Rule and for the Municipality of Nuuk. Other members of the chairmanship: Other members of the chairmanship: Anders Møller Christensen is the former vice governor of Danmarks Nationalbank and has an MSc in economics. He was a member of the Consultative Committee for Greenland's Economy from 1988 to 2009. Anders Blaabjerg is Head of Statistics at Statistics Greenland and has an MSc in economics. He has previously been employed at the Ministry of Finance. Søren Bjerregaard is Head of Division at the Ministry of Economic Affairs and the Interior and has an MSc in economics. He has previously been a member of the consultative committee for Greenland's economy. Tønnes 'Kaka' Berthelsen, vice director at KNAPK, has an MSc from CBS and an MBA. He sat on the Knutzon Committee, he has been an executive director at Arctic Green Food and chairman of the board of directors of KNI. Members of the Economic Council: Brian Buus Pedersen, Director at the Confederation of Greenland (Grønlands Arbejdsgiverforening) H.P. Barlach Christensen, managing Director of KANUKOKA Jess G. Berthelsen, Chairman of SIK Sivso Dorph, Chairman of IMAK and appointed by IMAK, AK and PIP Martin Kviesgaard, Director at Grønlandsbanken and appointed by the banks Tine Pars, Rector of the University of Greenland Lars Geraae, Statistics Greenland Jørgen Isak Olesen, acting Permanent Secretary at the Ministry of Fisheries, Hunting and Agriculture Jørn Skov Nielsen, Permanent Secretary at the Ministry of Industry and Labour Market Peter Hansen, acting Permanent Secretary at the Ministry of Finance and Domestic Affairs. Monitoring group: Josef Kajangmat Karl Davidsen Klaus Møller Najaaraq Christiansen Samo J. Nielsen Maria Paninguak Kjærulff Mikkel Krogh Søndergård Inunnguaq Petrussen Ellen Rebekka Rosa Jacobsen Hanne Rasmussen Inoqut Kristensen © Published by the Economic Council Layout: Info Design ApS, September 2014 Contents Summary ............................................................................................................................................. 4 Chapter 1 Economic climate .............................................................................................................. 7 1.1 Fisheries ........................................................................................................................................ 8 1.2 Resources exploration and tourism ............................................................................................... 9 1.3 Other investments ....................................................................................................................... 11 1.4 Consumption ............................................................................................................................... 12 1.5 Labour market ............................................................................................................................. 12 Chapter 2 Current economic policy .................................................................................................. 14 2.1 Employment policy ...................................................................................................................... 15 2.2 Public finances ............................................................................................................................ 17 2.3 Settlements ................................................................................................................................. 19 2.4 Self-sustainable economy ........................................................................................................... 20 Chapter 3 Housing ........................................................................................................................... 24 3.1 Demography and housing requirements ..................................................................................... 25 3.2 Public financing of housing ......................................................................................................... 27 3.3 Housing policy ............................................................................................................................. 31 Summary The 2014 report of the Economic Council contains the following themes: • Economic outlook • Current economic policy • Housing In the report, analyses are described in more detail in a number of technical background memos, which are all available at: www.naalakkersuisut.gl/da/OR Economic outlook There was a drop in economic activity in Greenland in both 2012 and 2013, and the decline seems to have continued strongly in 2014. The decline is due to a combination of declining fishery, falling resources activities and a drop in tourism in addition to less building and construction activity. Seen in isolation, the experimental fishery for mackerel contributes to increased economic activity, but is not sufficient to prevent a drop in the entire economy in 2014. The outlook for 2015 shows that some large construction projects may contribute to a temporary increase in the activity level. However, much uncertainty surrounds the development, and there are no signs of a permanent recovery of the economy. The total economic activity is largely at the same level as at the end of the 2000s. This is mirrored in the employment problems, the increasing unemployment and net emigration of young people. Development over the past years shows that the economic growth potential is weak. The income gaps in relation to other countries is not being narrowed, and there are big differences within the boundaries of the country, and without new private business activities the outlook is very bleak. Development during the past years also stresses the very large vulnerability. The economy is very dependent on the possibilities and price development within the fishing industry. The past years have seen positive development both in terms of prices and catch, but the economic policy cannot be based on unexpected economic gains. Previous experience shows that falling prices and the loss of fishing possibilities occur periodically and lead to a worsening of both earnings potentials of fisheries and the public finances. Current economic policy The employment and unemployment situation constitutes a major economic policy problem. The problem is not only due to the modest growth potential in the economy, but equally due to structural challenges. In addition to the fact that a share of the highly educated and specialised labour comes from outside, a large share of foreign unskilled persons get jobs that do not require special qualifications. The structural challenges thus relate not only to improving the general qualification level of labour, but also to furthering conditions in relation to mobility and incentives. Reforms which increase the gains from working are required, and which tighten up the availability requirements to collect the unemployment benefits. It is positive that over the past years there has been progress in the educational sector where more young people are now completing an education. However, there are still great challenges in the area, and consequently continuous efforts are required. Public investments brought forward only provide a temporary employment effect and are therefore not the solution to structural employment problems in e.g. small towns and settlements. Attempts to solve structural problems through capital expenditures are unsuitable as they do not solve the underlying problems and merely strain the public finances. Public finances The public finances are tight for both the Government of Greenland and the municipalities. Declining