Assessment and recommendations

Assessment

Outokumpu has scope to mobilise existing assets to boost economic growth and become a mining hotspot in the country and the EU

North Karelia and Outokumpu have a history of economic transition and have recovered relatively strongly from external shocks

Finland has been hit hard by a convergence of factors over the past decade: the 2009 crisis, technological change in electronics, structural decline in demand for paper pulp, and disruption of trade with Russia. These changes have affected North Karelia negatively as an industrial region that is relatively trade-exposed with a high proportion of the local workforce employed in the public sector. Yet, the regions have recovered. After the 2009 crisis, the gap between the regional and national levels narrowed from 30% (2009) to 24% in (2015). Currently, gross domestic product (GDP) per capita for North Karelia is 76.2% of the national average (2015).

Outokumpu is a small rural municipality in North Karelia that has experienced a long-term transition associated with the closure of a major copper mine in 1989. For most of the 20th century, Outokumpu was the key mining municipality in Finland. The transition from mining to a manufacturing-based economy has been a positive experience, making the municipality one of the most industrialised in the region. Yet, currently, North Karelia and Outokumpu face development challenges, particularly in terms of generating a more dynamic business environment and labour market.

Outokumpu’s location, industrial fabric with mining know-how and enabling environment for mining activities are competitive advantages for the municipality

Outokumpu benefits from a good geographic location, with close proximity to the 2 largest urban centres in East Finland (Joensuu and Kuopio) and to the Russian border (less than 120 kilometres). The municipality of Outokumpu is located within the local labour market (LLM) of Joensuu, which concentrates most of the growth in North Karelia because of its size and diversity to attract skills. The municipality is also located in the so-called Outokumpu geological area containing copper, zinc and nickel deposits with ongoing exploration projects.

Outokumpu, as North Karelia, is highly specialised in the industrial sector (e.g. mining and manufacturing) and is one of the most industrialised municipality in North Karelia. The manufacturing sector employs 33% of the working-age population in Outokumpu, far above the share of LLM (16%) and the country average (13%). Over the past two decades, the value of mining activity in the region has increased and the mining value chain (extraction and processing) has become more important to the regional economy. This includes the industrial park of Outokumpu, which hosts knowledge-intensive and globally connected companies in the metal technology sector, and the Geological Survey of Finland’s (GTK) mineral processing laboratory.

Furthermore, the social and political environment in Outokumpu is favourable to mining activities. Rooted into the municipality’s development history, the community has a positive perception of mining activity, which provided a number of services (schools, health and security) to the municipality during the half part of the 20^th century. Furthermore, the municipality has placed the elaboration of a local mining cluster, the Outokumpu Mining Camp, high in its development agenda, aiming to co-ordinate private sector, universities, research centres (GTK) and government to support mining projects in Finland.

Outokumpu can diversify its economy to boost employment and attain sustained and inclusive growth

An ageing and decreasing population has led to a shrinking workforce in the municipality

The closure of the mine in 1989 resulted in a long-term demographic decline as demand for labour at the mine was reduced. The population of the municipality peaked at around 13 000 inhabitants in 1960. After the mine closure, the population declined rapidly, falling below 8 000 inhabitants in 2002. During the last decade, the declining demographic trend in Outokumpu has continued (decreasing by 12.7% between 2001 and 2017), against a relatively stable population trend in the LLM.

Alongside the demographic decline, the share of the elderly population in Outokumpu is higher than in the broader local labour market. The elderly dependency ratio (65 and over to the working-age population of 15-64 years of age) in Outokumpu stood at 51% in 2017, around 6 percentage points higher than in the local labour market and 19 percentage points higher than nationally. Since 2009, this gap has been widening, with the share of elderly people increasing from 35% in 2009 to 51% in 2017. The demographic trend has led to a workforce decline of 4% between 2009 and 2017.

Outokumpu has a lower share of high-skilled labour force than in the broader local labour market

The transition from mining to manufacturing activities during the 1980s left a share of workers with skills that do not match contemporary economic needs. The share of the workforce with higher education (28%) is far below the share in the LLM (36%). Alongside this, most of the people who out-migrated from Outokumpu in the past years have a medium or high educational level, while the average of people who moved into the municipality have a secondary educational level.

While Outokumpu municipality has set the improvement of the secondary education quality high on its development agenda, more efforts need to be undertaken to adapt higher education to market needs. Outokumpu has a vocational college that teaches a variety of degrees with a good scientific component. Yet, its best-known vocational degree is dance, which attracts annually a relatively large number of students from other municipalities but does not fit the demand for labour in the area. Furthermore, at the regional and local levels, there is a lack of granular data on the characteristics of the workers, the unemployed population and the needs of the labour demand side.

The business demography in Outokumpu is characterised by a low level of entrepreneurship and a low number of companies per inhabitant

In 2016, entrepreneurs represented approximately 11% of the employed labour force in Outokumpu, which was 2.9 percentage points lower than the LLM average. In terms of absolute numbers, the number of entrepreneurs decreased from 330 to 246 between 2005 and 2016. A similar trend was identified for the LLM where the number of entrepreneurs decreased annually by 1.2 percentage points, which was 1.2 percentage points lower than the rate for Outokumpu.

While the number of enterprises has increased in Outokumpu since 2005, this growth is below the trend in the LLM. Between 2005 and 2016, the annual growth of enterprises operating in Outokumpu was 17%, below the growth in the LLM (22%).

Expanding the existing industrial fabric beyond manufacturing can bring new sources of income and strengthen economic resilience

Although the manufacturing industry has brought economic dynamism to the economy and income to the municipality, there is a persistent higher unemployment rate in comparison to the region. The unemployment rate in Outokumpu was at 19.8% in 2016, 1.4 percentage points above the LLM average (18.4%) and 1.8 percentage points higher than the regional average. Since the crisis period, the unemployment in Outokumpu has decreased but has not been able to reach the pre-crisis level of 15.6%. The employment of the youth population was the most affected, falling from 39% (2007) to 31% (2009) and remaining at that level until 2016, contrary to the older population (aged 55-64), whose employment rate rose 3 percentage points during 2009-16 (48% in 2016). This underlines the low level of Outokumpu’s workforce matching the labour demand of the industry-manufacturing sector.

While the tourism sector in North Karelia is small when compared with the national average, this sector has the potential to represent an important source of income for the region and Outokumpu. North Karelia is among the 6 regions with the lowest number of overnight stays spent by tourists (456 323 in 2017), which represent 2% of the national total. North Karelia’s tourism policy focuses on supporting nature-based tourism and sustainable and responsible tourism. Yet, the current regional tourism strategy lacks integration of municipal characteristics into a single brand. North Karelia needs to conduct a whole-of-government approach for tourism that involves all the municipalities and different economic sectors (e.g. environment and transport).

In Outokumpu, the municipal council has conducted activities to promote tourism based on its mining heritage. Since 2008, the municipality has implemented a strategy to attract tourists to the old mine, converted into a tourism destination. Outokumpu can improve its tourism strategy by diversifying its offer and linking mining tourism activities with other sectors (e.g. agriculture or forestry). The municipality also has scope to upgrade the experience of mining tourism by conducting international partnerships with other stakeholders and museums and diversifying the activities around the mine site.

Greater governance co-ordination can make Outokumpu a key player in the development of Finnish mining sector

Finland’s mining policy and regulatory framework lacks a territorial approach and this results in missed opportunities

The EU has set the aim to improve the future reliability of supply for raw materials high on the agenda. As one of the richest countries in mineral deposits in Europe, Finland can play a key role in the raw materials agenda of the EU. Finland is the third-largest European country supplying raw materials to the EU (3% of all the raw materials supplied), after France and Norway. Finland is the largest European supplier of cobalt to the EU (66% of total supply) and provides most of the EU mining production of platinum-group elements and other minor metals, including chromite. The country stands out in the world thanks to its attractive regulatory and business environment for mining, with the best judicial environment for mining activity according to the Fraser Institute’s Mining Survey (2017).

Finland’s mining policy and regulatory framework, however, lack a territorial approach and this results in missed opportunities. The policy does not take into account the special characteristics of the region and there are no incentives for municipal or regional co-operation to steer investments or conduct joint mining projects. Subnational governments are key to strengthen the social licence to operate (SLO), land use governance and develop local value chains, among other factors, in view of sustainable development of the mining sector.

There is an opportunity to develop a more cohesive long-term vision for regional development that translates into a portfolio of projects

Despite a comprehensive regional strategic programme, there are some gaps in the execution of the development vision in North Karelia. There is a lack of clarity as to what extent the mining sector can contribute to the regional economy, while the bioeconomy and forestry sectors receive much attention within strategic programmes. The strategic fora (working groups) in the regional council appear to be more focused on accessing EU funds rather than on planning long-term strategies. Furthermore, the region of North Karelia lacks formal incentives for co-ordination among municipalities in the implementation of the regional development plan.

North Karelia council has scope to enhance the use of European Structural and Investment Funds (ESIF) to support the development of the mining sector. The ESIF provide a significant amount of additional resources to North Karelia to invest in productivity-enhancing initiatives and fund pilot projects. These funds can help to mobilise public and private investment in the region, thus promoting co-ordination with other actors. The co-ordinating nature of these funds can be used by North Karelia to enhance the operational environment for mining clusters, especially in areas where it fosters private sector investments and cross-regional/municipal benefits.

Outokumpu municipality is administrated with a strong corporate vision but there is some disconnection with the region and neighbouring municipalities

A pressing issue is its “silo approach” to regional policy. Thanks in part to its history of economic self-sufficiency based on the mining activity, the municipal administration has a vision of relying on its own assets to achieve higher stages of development. This is not unique to Outokumpu Municipality but is a common feature across municipalities in North Karelia, which call for a greater co-ordinating role in the region. The municipal government has developed a comprehensive and detailed Municipal Development Plan with short- and long-term objectives and monitoring indicators. However, given its small size, the ability of Outokumpu municipal government to design and implement development strategies depends ultimately on its capacity to co-ordinate with other levels of governments and stakeholders.

North Karelia Council can improve the interaction among local and private stakeholders to strengthen the implementation of the policies. Some policies are being conducted with a lack of co-ordination with local actors. For example, while University of Eastern Finland has an important role in skills upgrading and research in the region, the university does not fully participate within the working group of extractive industries. Thus, a platform for dialogue meeting regularly under a formalised setting can ensure alignment of the regional development plan and municipal strategies.

Recommendations

I. Mobilise local assets to make Outokumpu a key player in the mining value chain in Finland and the EU

1. 1. Better integrate mining in local economic development planning and link Outokumpu with Joensuu Local Labour Market. Actions for this are:

• Revise the municipality’s economic development plan to better define economic objectives based on the existing assets in the territory; particularly, integration within the Joensuu LLM, maximised mineral and metal extraction, and the mining value chain (Outokumpu Municipality).

• Create a unified vision and priorities amongst municipalities within the Joensuu LLM (Outokumpu Municipality, Business Joensuu, North Karelia Council and national agencies). Actions for this are:

  • Develop the local workforce to meet future industry needs (e.g. skills profile, demand for skills from business, and barriers to mobility).

  • Attract and retaining workers that address critical skills shortages/gaps (current and forecast).

  • Improve infrastructure connectivity and transport services to reduce commuting times.

1. 2. Strengthen the local mining cluster of Outokumpu and improve the operational environment for mining-related activities:

• Strengthen the vision of mining development in the region (North Karelia Council and Business Joensuu). Actions for this are:

  • Identify priorities to maximise the potential of the mining value chain in the region (land use, skills, innovation and internationalisation) and ensure they are reflected in North Karelia’s regional planning and smart specialisation strategy.

  • Develop a portfolio of projects linked to these priorities and link them to funding opportunities for national funding and the European Structural and Investment Funds (ESIF).

• Develop a clear mining brand for the region and a strategy to promote it internationally. The marketing activities should aim to make the Outokumpu mining camp an internationally renowned source of knowledge-based services in mining and ensure this strategy is included within national marketing activities (North Karelia Council and Business Joensuu).

• Enhance inter-regional (Finland and EU) co-operation on smart specialisation and green mining technologies by promoting joint projects on research and innovation with other regions, and supporting the internationalisation of local businesses (Business Joensuu).

• Conduct a flagship project for mining activities (e.g. testing of tailings for mines in cold temperatures) to align and spur commercial partnerships among established industries. This should involve an active role of the Geological Survey of Finland (GTK), local firms and the University of Applied Sciences in Joensuu (Outokumpu Municipality and Business Joensuu).

• Lead Outokumpu’s mining camp and GTK to take an active role in supporting the regional mining strategy by building a network of experts to support innovation and higher-value-added activities in the sector (Outokumpu Municipality and Business Joensuu).

II. Diversify sources of economic growth to boost employment and reduce labour market mismatches

1. 3. Provide targeted support to increase the share of the service sector in the economy by promoting new businesses focused on services embedded in the industrial process of established companies and enhancing linkages with universities and other markets (Business Joensuu).

2. 4. Strengthen programmes to boost SMEs and entrepreneurial culture (Business Joensuu). Actions for this are:

• Improve the link of entrepreneurs and SMEs in small rural municipalities to regional business development programmes. It involves enhancing local and international networks for SMEs to transition toward related higher-value economic activities connected with the green economy (Business Joensuu).

• Develop a strategy to strengthen an entrepreneurial culture by enhancing education programmes, improving information and mentoring and reducing the negative social consequences of business failure (Business Joensuu).

1. 5. Strengthen tourism strategy through a co-ordinated approach and development of partnerships (North Karelia Council and Outokumpu Municipality). Actions for this are:

• Strengthen the regional strategy on tourism to embrace a model where tourism is developed around a collection of experiences that leverages on the special characteristics of each municipality (North Karelia Council).

• Enhance partnerships with stakeholders involved in mining tourism and expand the offer of thematic events leveraging on the mining museum (Outokumpu Municipality with Business Joensuu.

1. 6. Improve programmes and regional co-ordination to enhance vocational, language and IT training to increase workforce suitability with the current and future needs of the private sector (Business Joensuu, Outokumpu Municipality and North Karelia Council).

2. 7. Embrace a comprehensive strategy to attract and integrate high-skilled migrants in order to fill gaps in the labour force demand and boost local business in Outokumpu (North Karelia Council and Outokumpu Municipality).

3. 8. Develop a strategy to engage the older working-age population in the economic development of the municipality that is aligned with the priorities of the Regional Council of North Karelia (Outokumpu Municipality).

III. Improve governance co-ordination to make Outokumpu a key player in the development of Finnish mining sector

1. 9. Strengthen the functioning of regional policymaking and integration within the mining national framework. Actions for this are:

• Better link national mining policy instruments with regional characteristics (Ministry of Economy and Employment Affairs). Specific actions for this are:

  • Enhance participation of regional councils and municipalities in any future revision of the National Minerals Strategy (2010) and articulate the role of the subnational level in the development of mining in Finland.

  • Work with regions to map local mining clusters to identify their strengths and complementarities in the context of the national policy.

  • Support the development of a network of Finnish mining regions and municipalities to co-operate on joint projects, co-ordinate investment attraction, and share knowledge and good practices.

  • Partner with regions and municipalities in the international promotion of Finland as a destination for mining investment.

• Adjust the scope of working groups to undertake long-term planning and capacity building. Two priority areas are entrepreneurship, and skills and workforce development (North Karelia Council).

• Develop a strategy that is inclusive of different areas and size of companies within the local labour market. For this, Business Joensuu should better adapt the strategic programmes to reach businesses outside of Joensuu (e.g. supporting small businesses to access EU financial instruments) and act as a broker to co-ordinate and integrate municipal assets and companies with regional programmes (e.g. the mining camp in Outokumpu) (Business Joensuu).

1. 10. Enhance the benefits of EU funds to support the future development of the mining value chain:

• Work with the local mining industry and GTK to develop a portfolio of projects that are designed to increase mining investment, promote innovation in mining technology services and address bottlenecks to growth, including land use, skills and specific opportunities associated with photonics and information and communication technology (ICT) (Business Joensuu).

• Develop a cohesive approach to using ESIF funds to implement these projects (North Karelia Council and Business Joensuu).

1. 11. Improve co-ordination and alignment in regional development policies between the regional council, municipalities, universities, industry and other actors:

• Promote a unified vision of development for the region and ensures co-operation among municipalities (North Karelia Council). Actions for this are:

  • Create a strategic platform for dialogue between the regional council and municipalities. This platform can serve various purposes, such as developing a common long-term development vision, improving co-ordination, pooling resources and efforts, and resolving conflicts.

  • Formalise the dialogue in order not to depend on occasional meetings or personal relationships. It should be institutionalised to ensure continuity over time.

  • Include different stakeholders with equal participation and ownership in the platform.

• Develop a monitoring framework to track and co-ordinate the accomplishment of the objectives in the municipal development plans. The framework should cover all municipalities in the region to help the council benchmark, align and compare the performance of strategic plans (North Karelia Council).

1. 12. Improve co-ordination among municipalities with incentives for co-ordination that promote the joint implementation of projects among municipalities (North Karelia Council).

Assessment and recommendations