New Government More Cautious On Foreign Investment


BMI View: Greenland's new government is likely to take a more cautious stance towards foreign investment, and this could entail greater regulatory oversight and higher taxes. However, it appears more amenable to rare earths extraction, and we believe that Greenland will continue to develop its vast natural resources.

Greenland's general election, held on March 12, was won by the opposition social democratic Siumut (Forward) party, whose leader, Aleqa Hammond, is set to become the new prime minister. Siumut won 42.8% of the vote, up from 26.5% in 2009, and 14 out of the 31 seats in the parliament in Nuuk. Prime Minister Kuupik Kleist's socialist Inuit Ataqatigiit (Community of Nations) party won 34.4% support, down from 43.7% in the last election, and 11 seats in the new legislature. Three other parties won two seats each. Turnout was 74%. Because Siumut failed to win a majority, it will have to form a coalition with minor parties.

Election All About Resource Extraction

Greenland's general election campaign was heavily dominated by the issue of resource extraction. In recent years, the Danish territory has attracted growing interest from foreign mining companies, due to its vast mineral wealth ( see February 5, 2013, ' Economic And Geopolitical Importance Rising; March Elections In Focus '). However, the local population, which numbers only 57,000, has been somewhat ambivalent about the desirability of foreign investment and resource extraction, fearing that this would lead to pollution, a massive influx of foreign workers that would transform local demographics, and excessively rapid changes to the traditional way of life.

In particular, Greenland voters have been concerned that a proposed US$2.3bn iron ore mining project by London Mining Plc near Nuuk could result in the arrival of 2,000 Chinese workers, which would be the equivalent of a 3.5% increase in the island's population. In addition, because foreign labour would be hired at lower wages than local workers, Greenlanders are mindful that new foreign projects would not necessarily lead to significant job creation for themselves. Against this backdrop, Aleqa Hammond had previously threatened to revoke legislation passed in December 2012 designed to attract more mining investment (which includes provisions to bring in more foreign workers), if she came to power. It is unclear if she will follow through with this, or whether this was campaign rhetoric. Hammond also advocates the Greenland authorities taking royalties from foreign companies as soon as they begin operations, whereas outgoing premier Kleist favours waiting until these firms' activities become profitable.

Possible Shift In Rare Earths Extraction

Although the election result has been viewed as portending a more cautious government attitude towards resource extraction, it does not mean that Greenland will necessarily be more hostile towards mining. In fact, Hammond has said that she favours lifting a ban on the mining of rare earth metals, whereas Kleist had rejected any changes to these restrictions. Rare earth mining is controversial because these minerals are typically massed with uranium, and the island has a prohibition on extracting radioactive materials that was established by Denmark. Hammond has said that she will accept uranium mining if the ore contains a maximum 0.1% uranium oxide. The final decision lies with Copenhagen, because it falls under the remit of national security policy. Nonetheless, on January 29, reports emerged that a majority of Danish legislators would now be willing to lift the ban, if Greenland requests this.

Independence Issue Looms Over The Long Term

Beyond the election, attention will turn to whether Greenland will eventually become independent. This would allow Greenland greater leeway in its foreign relations, although presumably EU and NATO membership would be preserved. During the election campaign, Hammond spoke about cutting ties with Denmark. There is no formal timetable for independence, but given that 76% of voters backed the referendum for greater autonomy held in November 2008, it would appear that Greenlanders are keen to assume greater control of their destiny - and their resource wealth.

This article is tagged to:
Sector: Country Risk, Oil & Gas, Mining
Geography: Denmark