Turning waste water into profit
A wastewater sludge burning plant in Lapland Finland planned by Napapiiri Energy and Water (Neve) is planned to replace the...
Markku Härkönen, Director of Business Services at Pohjolan Osuuspankki, estimates that tourism in Lapland has only begun to grow. Lapland has become an attractive alternative to solvent customers, supply creates demand and international investors have also recognised the possibilities offered by Lapland.
“As a banker, I think that every investor coming from outside the region or abroad is welcome. A banker can’t be jealous about this development. However, large growth won’t happen suddenly. Quite often talk is bigger than actual investment decisions,” Markku Härkönen says.
Before, venture capitalists were involved in negotiations when a tourism company was in financial trouble or changed ownership. Now the situation is different.
“For example, in cases where a strong family-run company doesn’t have continuation in the next generation of the family, the new owner of the company can be Chinese, Turkish or Russian. This type of development is becoming more common in all parts of Lapland, and the share of foreign capital is on the rise.”
In Rovaniemi, the Polar Circle area is especially interesting for Chinese investors. According to Härkönen, all kinds of delegations have visited Pohjolan Osuuspankki to introduce their projects.
“On several occasions entrepreneurs from Lapland have told us that the Chinese, for example, have shown interest as investors.”
The drastic reduction in the number of Russian tourists and investors also had an effect on the Northern markets, but Markku Härkönen already visualises the return of the Russians.
“The Russians are starting to come back. For people living nearby, we are their first western country. That certainly adds to the attraction.”
The rise in the number of foreign investors has also led to a rise in the examination of the customers’ backgrounds in Osuuspankki. The possibility for money laundering always exists, and that is the reason why the investors are examined thoroughly to reduce risks.
“We need to know where the money is coming from, and from whom. Each bank official is held personally accountable for checking the backgrounds well enough.”
Pohjolan Osuuspankki has wanted to give good service to the entrepreneurs in the region. When corporate banking services are close to the customers and the number of specialists is sufficient, the entrepreneurs will appreciate the bank.
Currently, Pohjolan Osuuspankki’s portfolio in its operating area is worth approximately 1 billion euros. Out of this sum, the share of companies and tourism in Lapland consists of around 400 million euros.
“Our significant market share means that we have a great responsibility in monetary services, funding and financial management of companies located in Lapland. In the future, banking services will be increasingly based on robotics, but most of the corporate banking services will remain as person-to-person customer services. Private customers and basic banking operations will face a decline in the personalised services.”
Markku Härkönen says that the number of specialists in corporate banking services has been increased significantly.
“It indicates that the number of corporate banking customers is on the rise. However, the expectations and demands of these customers differ significantly from what they were ten years ago, for example. We need to have expertise. Being capable of producing services close to the customer in this region is a success factor for us.”
And according to financial figures, Pohjolan Osuuspankki has been doing very well. The operational result is close to the all-time high, and in Rovaniemi the bank was the number one corporate taxpayer in 2015. The result is also a good indication of the operational environment.
“The fact that our customers are doing great has an effect on the bank’s financial figures.”
Markku Härkönen recognizes that tourism companies especially are going strong. The balance sheet is in balance.
“Our corporate customers’ assets are bigger than our funding for them. Therefore we have had to expand our services specifically in relation to asset management. The users of these services are quite often entrepreneurs or ex-entrepreneurs.”
Corporate reorganisations keep the bankers busy. Entrepreneurs in Lapland are ageing and it is particularly difficult to find successors for family-run companies.
“This is most pronounced in the tourism sector. As the tourism sector is only now starting to grow, we should find successors that have the motivation to develop the operations. A 30-year-old entrepreneur usually has a more enthusiastic outlook on everything than a 60-year-old. Of course, we also have older entrepreneurs with an exemplary attitude.”
The banker also thoroughly considers the risk in financing investments made by an ageing entrepreneur.
“The personnel risk for an ageing entrepreneur differs drastically compared to financing projects implemented by young entrepreneurs.”
Markku Härkönen also points out that quite often entrepreneurs with a long career are satisfied with themselves, and that is the way it should be.
“How does he hand over the lead role to another person, what does he think and does he even want that somebody else takes over and starts to develop the operation of the business?”
Too often, an entrepreneur fails to find a successor to the business from his own family, according to Markku Härkönen.
“It has already been noted that in corporate finances the ownership is transferred to foreigners.”
From the financer’s point of view, tourism is a stable sector. Before, when there was a disturbance in the economy, it was estimated that tourism would be the first sector to be affected. Markku Härkönen says that this is not entirely true.
“When the economic downturn starts, the first symptom is that companies are reluctant to make investments as the operating environment has become unstable. During the last ten years there have been different kinds of economic outlooks, but tourism companies have steadily developed their operations.”
All around the world, people are ageing, becoming wealthier and travelling more and more.
“The 50-60 age group is larger than ever. They are starting to discover Finland and Lapland, and the question is whether we know how to utilise that possibility. The possibilities for growth are enormous, there are no limits.”
Markku Härkönen estimates that the growing flow of tourists and a wealthier population will guarantee the steady economic growth of tourism at all times. In the industrial sector, for example, the world market prices and declines in the prices have a much bigger effect on the companies’ operating result.
“In the tourism sector, economic trends do not follow the same type of rollercoaster as the gold mining sector, for example.”
Tourism companies have strong faith in the future. At this very moment, several operators are negotiating for funding with Osuuspankki. For some the need for financing is one million, for others it is several tens of millions. The bank evaluates each project carefully.
“Old companies are beginning to be solvent, and some are even debt-free. An active company that has been rated well, i.e. its risk profile has been defined and the risk remains small from the point of view of the creditor, doesn’t need as much securities as a start-up company. A start-up company must be able to make exact calculations to prove its cash flow and creditability.”
Markku Härkönen has already given up on categorising companies as tourism companies and other businesses. In Lapland, tourism has such vast effects that even the financier is unable to define what exactly tourism is, and what is some other business activity.
“Let’s take a look at Levi and Kolari, for example. Their strength and vitality is almost entirely based on tourism. If a retail store, petrol station or any other business is opened in Levi, the purchasing power lies in tourism. The multiplier effects of tourism are at least as high as the value of the tourism investments. In Levi, nurseries are not classified as tourism investments, but there wouldn’t have even been the need for a nursery in the first place without the jobs and families attracted to the area thanks to tourism.”
Markku Härkönen trusts that Lapland’s nature, clean air and security are factors that will be valued by tourists also in the future. However, he remains a bit worried about the news that 50,000 Chinese tourists will be travelling to the north on a tight schedule.
“There simply aren’t enough beds for such a large number of tourists. It is an unthinkable idea. Such large tourist numbers require a larger number of hotels, and in Rovaniemi, for example, the hotel accommodation capacity is such that there are plenty of customers for new hotels. The indicators followed by the financier reach the targets easily in Rovaniemi. A spa and a five-star hotel would be gladly welcomed in the centre of the region.”
From the point of view of a banker, the biggest challenge for tourism lies in the need for infrastructure, i.e. accommodation, programme and transport services, for example. Demand can only be born after the realisation of large investment projects.
“Demand can never be created in an empty place. Supply must be in balance.”
Markku Härkönen thanks those tourism companies that have hired local people. According to Härkönen, local workers are an asset and make a unique contribution to customer service.
“The tourist’s experience isn’t as real if the workers are foreigners. Of course they can also be excellent customer service personnel, but the strength and power of Lapland lies in the originality of the location and the stories of the area.”
It is difficult to predict the future. Markku Härkönen believes that tourism will continue to grow.
“In ten years, tourism in Lapland will have doubled in comparison to present figures. This will create wellbeing for the whole region, and tourism’s significance as a source of livelihood will become stronger. Hopefully Pohjolan Osuuspankki will have the opportunity to support this development.”