Tourism in Lapland on a steady growth path, funding available for good projects

Tourism in Lapland is growing strongly, which is reflected in companies’ investments in new operations as well as in the development of existing ones, Markku Härkönen, Senior Vice President at Pohjolan Osuuspankki bank assesses.

International investors have also recognized the opportunities offered by Lapland. – This type of development is becoming more common in all parts of the region, and the proportion of foreign capital is on the rise. For example, Chinese investors have become involved in Lapland’s tourism industry, although the rush of Chinese capital to Lapland has been slightly more modest than estimated a few years ago.  As a banker, I think that every investor in the tourism sector coming from outside the region or abroad is welcome.

Corporate reorganizations keep the bankers busy in the tourism sector, too. Lapland’s entrepreneurs are aging, and it is not always easy to find a successor.  -We should find people with strong motivation and a certain drive for development. Younger people tend to be  more enthusiastic than those approaching pension age.

If a new entrepreneur cannot be found within the family, a new owner from abroad may be an option. Acquiring a functioning company is indeed the easiest way for a new player to get involved in Lapland’s tourism business.

Currently, Pohjolan Osuuspankki’s portfolio in its operating area is worth far more than 1 billion euros. The tourism industry’s proportion of the portfolio has increased strongly in recent years. Currently, bank financing is being sought for the development of new facilities. – Accommodation capacity is getting outdated in certain areas of Lapland. The quality of existing capacity must also be maintained.

Tourism a stable sector in Lapland

From the financer’s point of view, tourism is a relatively stable sector. Before, when there was a disturbance in the economy, it was predicted that tourism would be the first sector to be affected. Markku Härkönen says that this is not entirely true.

– History shows that tourism maintains its position even in times of economic fluctuations. Over the last fifteen years, there have been different kinds of economic outlooks, but tourism companies have steadily developed their operations. 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 results. In the tourism sector, economic trends do not follow the same type of rollercoaster as the gold mining sector, for example.

Härkönen says that tourism companies are generally in a good economic condition, with strong balance sheets. – The first few years for start-up companies may, of course, be challenging, but this is the case with other sectors as well. That’s quite normal.

The bank keeps an eye on the development of the tourism sector both through statistics and companies’ performance indicators, and each project is assessed thoroughly. – Existing companies are analyzed. This is referred to as a rating.  If a company’s result and balance sheet are strong, investing is easy and money comes at a favorable price. A start-up company must be able to make exact calculations to prove its cash flow.

Markku Härkönen has already given up on categorizing 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 us think of, for example, fell resorts. Their strength and vitality are almost entirely based on tourism. If a retail store, petrol station or any other business is opened on a fell, the purchasing power lies in tourism. The multiplier effects of tourism are at least as high as the value of tourism investments. In Levi, for example, 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.

Investments and content development required for tourism to grow

With the enormous growth of winter tourism, capacity limits are about to be reached. In Rovaniemi, for example, limited hotel capacity has facilitated the huge growth of Airbnb. – Rovaniemi is indeed in a great need for new hotel capacity — the occupancy rate is high, and it shouldn’t be difficult to find financing for the projects. The indicators followed by the financier reach the targets easily in Rovaniemi.

It is difficult to predict the future, but Markku Härkönen believes that tourism will continue to grow. – Annual growth may well be close to ten percent, even in the long term. The big megatrends are on our side. Urbanization and growing prosperity increase the demand for tourism, and Lapland’s nature, natural phenomena, and well-productized services are the strengths of Lapland’s tourism.

From the point of view of a banker, the biggest challenge for tourism lies in the need for infrastructure, i.e. accommodation, program, and transport services, for example. Once the facilities are in place, demand can emerge. Supply must be arranged first.

Markku Härkönen notes that although the development of tourism is important for municipalities, excessive attempts at steering business operations through political decisions should be avoided. – Public support and development investment must be directed at projects in which the flame of development is already alight. These will, in turn, drive the growth of other projects. The banker believes in projects with existing demand and potential.

Härkönen considers the development of tourism in the snowless period of the year to be currently of key importance for tourism growth in Lapland. – With the increasing occupancy rate throughout the year, new investments become possible. In addition to real estate, content must also be developed, and big annual events, for example, have a great impact on Lapland’s tourism.  Lapland’s current stage of development allows us to host even big international events.

Although the biggest investments are now expressly directed at the development of summer tourism, Härkönen notes that the constant renewal of winter tourism must not be neglected. – A good competitive position can be maintained through continuous development work.