9HSTCQE*cgibjh+ Northern Sparsely Populated. Northern Sparsely Populated Areas. OECD Territorial Reviews. OECD Territorial Reviews

Northern Sparsely Populated Areas This series offers analysis and policy guidance to national and subnational governments seeking to strengthen territorial development policies and governance. These reviews are part of a larger body of OECD work on regional development that addresses the territorial dimension of a range of policy challenges, including governance, innovation, urban development and rural policy. This work includes both thematic reports and reports on specific countries or regions. The northern sparsely populated areas (NSPA) of Finland, Norway and Sweden are becoming increasingly important to the geopolitical and economic interests of these countries and the European Union. These regions have unique geographical characteristics low population density and a harsh climate and face specific challenges due to an ageing population, long distances from markets, and high-cost land transport. However, high productivity growth is possible in low-density regions. This report sets out policy recommendations at cross-border, national and regional scales to enhance prosperity and well-being across the NSPA. This includes closer co-operation with national governments to address shared challenges and opportunities such as improving east-west transport connections and reducing occupational and skills barriers to labour mobility, and addressing barriers to business growth such as access to finance. This work is published on the OECD ilibrary, which gathers all OECD books, periodicals and statistical databases. Visit www.oecd-ilibrary.org for more information. isbn 978-92-64-26819-7 04 2016 18 1 P 9HSTCQE*cgibjh+ OECD Territorial Reviews Northern Sparsely Populated Areas Västerbotten, Sweden Northern Sparsely Populated Areas Consult this publication on line at http://dx.doi.org/10.1787/9789264268234-en. OECD Territorial Reviews OECD Territorial Reviews

II. REGIONS IN NORTHERN SPARSELY POPULATED AREAS: 14 CASE STUDIES 285 Västerbotten, Sweden (northern sparsely populated area) The purpose of this case study is to provide recommendations for Västerbotten County to enhance productivity, growth and service delivery outcomes within the context of the NSPA collaboration. The case study begins by outlining the assessment and recommendations. An overview of the region is then provided, followed by an analysis of regional economic performance. The case study concludes with an assessment of key assets/opportunities and bottlenecks/risks facing the region. 2

286 II. REGIONS IN NORTHERN SPARSELY POPULATED AREAS: 14 CASE STUDIES Assessment and recommendations Västerbotten County is located in northern Sweden and shares a border with Norrbotten, Västernorrland, Jämtland Härjedalen, and Norway (Nordland). GDP per capita in 2012 for Västerbotten was USD 36 975 which was 85.7% of the national average and slightly higher than the OECD average of USD 35 812 and lower than the NSPA average of USD 37 205. Over the period 1995-2012, there was a slight increase in the gap in GDP per capita between Västerbotten and the national average from -10.7% to -12.1%. Economic growth was relatively strong. Between 1999 and 2012, GDP growth averaged 2.1%, which was the same for Sweden as a whole. In this period, growth in labour productivity, and to a lesser extent the employment rate, were key drivers of economic performance. Västerbotten s rate of productivity growth 1999-2012 was 1.3% on average, which was 0.22% higher than the national rate for this period. However, it was below both Västernorrland (1.6%) and Norrbotten (1.7%). In terms of employment growth, Västerbotten s performance was above the national average (+0.19%). Over this period, there was only marginal growth in the population and the activity rate. The absolute advantages of the region lie in its mineral endowments and forestry resources; a history and tradition of manufacturing, and services linked to these natural resource-based industries; its attractive landscapes; proximity to Norrbotten and Lapland; and the research and innovation infrastructure based around Umeå University. The region experienced strong growth prior to the crisis which was driven by increasing productivity linked to the mining and manufacturing sectors. The recovery post-crisis has also been relatively strong, particularly in terms of the labour market. The region is fairly well positioned for future growth because it has a favourable demographic profile, a skilled workforce and a relatively diverse economy. However, this growth is still dependent upon public investment. A future growth strategy for the region will need to focus on the tradeable sector and on how the region s innovation assets and services sector can be utilised to drive further productivity and diversification related to its traditional strengths in mining, forestry and related processing. In this sense, the key for Västerbotten is focusing on how to strengthen rural-based industries and enhance urban-rural linkages rather than just focusing on the urban area of Umeå as the key economic engine of the region. The specific policy recommendations to help address these challenges and realise future opportunities are outlined below. 1. Ensuring the region s smart specialisation strategy links effectively to existing businesses within the region. Currently, there is a focus on leveraging the research base of the university and attracting new high technology investment to the region. These strategies are important but need to be balanced with the existing economic structure of the region, in particular rural based industries. The region can deliver a stronger smart specialisation strategy by: a. prioritising business development, value adding and innovation efforts for rural based industries, which are linked to core competitive strengths connected with forestry, mining, and tourism (e.g. digitalisation for small tourism firms) b. improving connections for small and medium-sized enterprises (SMEs) in the supplier industry for mining and forestry to innovation and business networks at a national and international scale to identify new market and R&D opportunit ies c. better co-ordinating the region s tourism strategy with the marketing and development efforts of other counties in northern Sweden. 3

II. REGIONS IN NORTHERN SPARSELY POPULATED AREAS: 14 CASE STUDIES 287 Assessment and recommendations (continued) 2. Proactively work with rural communities affected by low skills and workforce disengagement, and address skills gaps. In the context of an ageing population, the region needs to maximise the value of its potential workforce and better link young people and those living in rural areas to job opportunities. There is also a potential for the region to become a world leader in the provision of e-government in a rural context. The region can do this by: a. extending the e-government initiative into other areas of public service delivery and administration (beyond health and social care), and strengthening pathways for businesses to develop new markets around health, education and service applications b. increasing the flexibility of delivery models for vocational education, and build stronger linkages between education and skills providers and businesses to address skills mismatches within the region c. working proactively with the national government to address skills gaps in the provision of public services (e.g. emergency accommodation, health and social care), which are experiencing increased demand and are affected by an ageing workforce d. developing targeted place-based initiatives to lift skills and employment outcomes for young people, and provide support for young entrepreneurs. 3. Improve transport infrastructure for the tradeable sector (forestry, mining, processing, and tourism-related services), and enhance urban-rural linkages. Policy makers in the region need to clarify the region s economic development strategy and better link it with priorities for investment in transport and the spatial planning framework. Future challenges related to access can be addressed by: a. better integrating the objectives and priorities of the region s smart specialisation strategy with the region s transport plan and spatial planning framework, particularly for rural based industries b. ensuring there is an agreed strategy at a regional level for accommodating future population and employment growth for the city of Umeå, including options to facilitate the clustering of higher value business and professional services, and better connecting and accommodating growth in surrounding rural areas c. prioritising public transport initiatives which enhance commuting options between rural areas and the urban centres of Umeå and Skellefteå. 4

288 II. REGIONS IN NORTHERN SPARSELY POPULATED AREAS: 14 CASE STUDIES Snapshot Västerbotten: Location within the NSPA Note: Territorial level 3 (TL3) consists of micro regions within each OECD country. TL2 consists of macroregions within each OECD country. Each member country has identified the statistical or administrative geography that provides the best fit for its territorial classification. Source: Authors own elaboration. The region of Västerbotten was home to 263 378 people in 2015, which was 2.7% of the Swedish population. It has a land area of 54 672 square kilometres, which is close to the size of Croatia. Västerbotten has a population density of 4.8 inhabitants per square kilometre compared to the national figure of 24.2. In the 10 years to 2015, the population grew at an average annual rate of 0.22% compared to the national average of 0.85%. In the post-war period, the rate of population growth was comparatively high within the NSPA. It is the only region in the north that has experienced a long-term trend of positive population growth (+28 931 since 1968). There continues to be outmigration from rural areas within the region and most of the growth is concentrated in the city of Umeå. Umeå is the administrative centre of the region and is the largest urban centre with a population of 120 777, which is 46% of the region s population. Umeå has been growing faster than the balance of the region. In the 10 years to 2015, the population of Umeå grew at a rate of 5

II. REGIONS IN NORTHERN SPARSELY POPULATED AREAS: 14 CASE STUDIES 289 0.87% (slightly above the national average of 0.85%) compared to -0.30% for the balance of the region. Historically, the backbone of the regional economy has been mining, forestry and energy. Umeå was first settled in the 14th century before becoming the seat of County Västerbotten in 1638. The city emerged as a port to trade timber from the interior and also goods from Lapland. A number of rivers in the region have been extensively used for hydroelectricity since the early 20th century, which has also been important for the growth and development of manufacturing and the minerals processing industry. The main exports from the region today are timber, wood products and pulp and paper products, machinery and other manufactured goods, and minerals. The region has a large mining industry which includes the extraction and processing of gold, copper and zinc. The region is located in the north of Sweden on the Gulf of Bothnia and borders the counties of Norrbotten to the north, and Västernorrland to the south. It shares a land border with the County of Nordland in Norway, and is close to Finland (about 70 km across the Gulf of Bothnia). Historically, there have been close relationships with Österbotten region in Finland (which has a Swedish speaking minority and is situated immediately across the Gulf of Bothnia). The region has a hilly terrain characterised by river valleys and mainly covered by forests, with higher mountains close to the Norwegian border. As with other regions in northern Sweden, the land is also shaped by rivers and lakes, with the most fertile soil located in the river valleys. Västerbotten is relatively well connected within Sweden. The major road links are the north-south E4 which links the region to Stockholm, and north to Luleå and the Finnish border, the north-south E45 through the interior of the region, and the E12 which connects through to Mo I Rana in Norway. There is also passenger railway linking Umeå to Sundsvall and Stockholm on the Bothnia Line, north toward Luleå and Narvik, and west toward Lycksele. However, the railway does not provide the fast speeds or reliability of the system in the south of the country. Umeå and Skellefteå airports both offer one hour flights to Stockholm and there are a number of small airports with connections to Stockholm in the interior. There is a ferry which connects Umeå and the Finnish city of Vaasa that provides an important east-west transport link. The population size of municipalities is relatively small in Västerbotten compared to other NSPA regions, particularly in the rural areas in the interior. There are 15 municipalities within Västerbotten which range in population size from 120 777 people in Umeå to 2 453 people in Bjurholm (the smallest municipality in Sweden). Twelve of the 15 municipalities in the region have a population less than 10 000 people. The Regional Development Strategy (RDS) for Västerbotten County is framed around the Europe 2020 goals and aims to create the conditions for sustainable population and economic growth for the region (Region Västerbotten 2014). It is organised around the following six integrated themes: communities that include and develop their residents (focus on including communities in strategies to develop leisure, culture and amenities) structures for innovation (building an innovation system for the region involving businesses, universities, and venture capital) environmentally-driven development (renewable energy and energy efficiency) investments in education and skills (secondary school and tertiary attainment, and workforce participation) 6

290 II. REGIONS IN NORTHERN SPARSELY POPULATED AREAS: 14 CASE STUDIES location-based business development (increasing value added from the region s natural resources, and internationalising SMEs) an accessible and outward-looking region (transport and digital connectivity). Economic analysis and benchmarking GDP per capita for Västerbotten in 2012 was USD 36 975, which was 85.7% of the national average, slightly higher than the OECD average of USD 35 812, and lower than the NSPA average of USD 37 205. It is the second lowest GDP per capita compared with the four northern counties of Jämtland Härjedalen (USD 35 160), Västernorrland (USD 38 888), and Norrbotten (USD 44 826). Over the period 1995-2012, there was a widening of the gap in GDP per capita between Västerbotten and the national average. In 1995, Västerbotten had a GDP per capita 10.7% below the national average, and in 2012 it was 12.1% below the national average. Growth in GDP per capita began to decline prior to the crisis and has stagnated since that time. GDP per capita trend, 1995-2012 Västerbotten Sweden OECD NSPA 45 000 43 000 41 000 39 000 37 000 35 000 33 000 31 000 29 000 27 000 25 000 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Note: GDP per capita is expressed in constant PPP, USD 2010 (System of National Accounts 2008). NSPA average not available before 1997. Source: OECD (2016a), Regional economy, OECD Regional Statistics (database), http://dx.doi.org/10.1787/6b288ab8-en (accessed 14 December 2016). Between 1999 and 2012, GDP growth averaged 2.1%, which is the same as for Sweden as a whole. In this period, growth in labour productivity, and to a lesser extent the employment rate, were key drivers of economic performance. Västerbotten s rate of productivity growth 1999-2012 was 1.3% on average which was 0.22% higher than the national rate for this period. However, it was below both Västernorrland (1.6%) and Norrbotten (1.7%). In terms of employment growth, Västerbotten s performance was above the national average in the period 1999-2012 (+0.19%). Over this period, there was only marginal growth in the population and the activity rate. 7

II. REGIONS IN NORTHERN SPARSELY POPULATED AREAS: 14 CASE STUDIES 291 GDP growth decomposition, 1999-2012 GDP growth Productivity growth ER growth AR growth Population growth 3% 2% 1% 0% -1% 1999-2012 1999-2008 2008-2012 Note: Growth rates refer to average yearly growth rates over the periods indicated. Productivity is measured as GDP in constant PPP divided by employment at place of residence (15 years and older); Employment rate (ER) is measured as employment at place of residence (15 years and older) divided by population aged 15-64; Activity rate (AR) is measured as population aged 15-64 divided by total population. Source: Calculations based on OECD (2016b), OECD Regional Statistics (database), http://dx.doi.org/10.1787/region-data-en (accessed 14 December 2016). As outlined above, the key driver of growth for the region has been productivity, which is apparent in comparison to the national average. The most significant difference (relative to the national average) in the post-crisis period has been the decline of the population and the activity rate, and the increase in the employment rate. This indicates there has been a recovery in the jobs market post-crisis whilst the total size of the labour force relative to the population continues to decline. GDP growth decomposition with respect to national averages 1999-2012 (%) 1999-2008 (%) 2007-2018 (%) GDP growth -0.04-0.07 0.04 Productivity growth 0.22-0.01 0.73 Employment rate growth 0.19 0.31-0.08 Activity rate growth 0.06 0.08 0.00 Population growth -0.50-0.45-0.60 Note: Growth rates refer to the difference between regional growth rates and national growth rates. For further details, see Annex. Source: Calculations based on OECD (2016b), OECD Regional Statistics (database), http://dx.doi.org/10.1787/region-data-en (accessed 14 December 2016). In the section below, we summarise the key factors of growth contributing to these growth trends compared to national and OECD averages. The region has been a relatively strong productivity performer and the gap between the region and the country level has only increased slightly. In 2012, the labour productivity of the region was USD 77 511 which is 10.4% below the average of TL3 regions in Sweden of USD 86 522 and 6.6% below the NSPA average of USD 82 978. The difference with the national level is reflected in both the market and non-market sectors. Levels of labour productivity are slightly higher than 8

292 II. REGIONS IN NORTHERN SPARSELY POPULATED AREAS: 14 CASE STUDIES Jämtland Härjedalen (USD 76 534), and lower than the mining and heavy industry regions of Västernorrland (USD 82 968), and Norrbotten (USD 93 642). The national productivity gap between Västerbotten and the national average has decreased slightly from 11.1% in 2000. Labour productivity trend, 2000-12 95 000 Västerbotten Sweden NSPA 85 000 75 000 65 000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Note: Labour productivity is measured as GDP in constant PPP, USD 2010, divided by employment at place of work (System of National Accounts 2008). Source: Calculations based on OECD (2016b), OECD Regional Statistics (database), http://dx.doi.org/10.1787/region-data-en (accessed 14 December 2016). Labour productivity, market vs non-market sector, 2000-12 95 000 Västerbotten (non-market) Finland (non-market) Västerbotten (market) Finland (market) 85 000 75 000 65 000 55 000 45 000 35 000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Note: Labour productivity is measured as gross value added (GVA) in constant PPP, USD 2010, divided by employment at place of work (System of National Accounts 2008). The non-market sector includes public administration and defence, compulsory social security, health and education. The market sector includes all other economic activities. Source: Calculations based on OECD (2016b), OECD Regional Statistics (database), http://dx.doi.org/10.1787/region-data-en (accessed 14 December 2016). Västerbotten is specialised in mining, energy production and forestry. Relative to other NSPA regions, Västerbotten has also developed strengths in relation to business 9

II. REGIONS IN NORTHERN SPARSELY POPULATED AREAS: 14 CASE STUDIES 293 services (professional, scientific and IT), and manufacturing. Although Västerbotten has a strong natural resource base to its economy, it also has a number of large public institutions. This includes three universities (Umeå University and campuses for the Swedish University of Agricultural Sciences and Luleå Technical University), one university hospital in Umeå and two hospitals in Skellefteå and Lycksele. Public sector activity is also important to the region with close to 40% of the labour force employed in the public sector. Specialisation index, by economic activity Sweden NSPA GVA Employment GVA Employment Mining and quarrying, electricity and water supply (B,D,E) 2.5 1.7 1.3 1.3 Agriculture, forestry and fishing (A) 2.4 1.7 0.6 0.7 Public administration and defence, compulsory social security, education and human health (O,P,Q) 1.2 1.2 0.9 1.1 Construction (F) 1.2 1.0 0.8 0.9 Other services (R,S,T,U) 1.1 0.8 1.2 0.9 Manufacturing ( C ) 0.9 1.0 1.2 1.1 Whole sale and retail trade, transportation, accommodation and food services (G, H, I) 0.8 0.8 1.1 0.9 Real estate (L) 0.7 1.0 0.7 1.5 Professional, scientific, technical and administrative activities (M, N) 0.7 0.7 1.2 1.0 Information and communication (J) 0.7 0.7 1.2 1.1 Financial and insurance activities (K) 0.5 0.4 1.0 0.7 Note: The specialisation index for each sector is the ratio between the sector weight in the regional gross value added (GVA)/employment, and the weight of the same sector in the national (NSPA) GVA/employment. A value above 1 implies that the region is more specialised in that sector than the rest of the economy. Calculations based on GVA for the year 2012, expressed in constant PPP, USD 2010 (System of National Accounts 2008), and employment at place of work for the year 2012. GVA specialisation indexes with respect to the NSPA are based on GVA for the year 2011, expressed in constant PPP, USD 2005 (System of National Accounts 1993), due to lack of more updated data for Norwegian regions. Source: Calculations based on OECD (2016b), OECD Regional Statistics (database), http://dx.doi.org/10.1787/region-data-en (accessed 14 December 2016). Share of employment in the public sector, 2000-12 Share of population in public employment, 2000-12 Västerbotten Sweden Västerbotten Sweden 45% 25% 40% 20% 35% 15% 30% 10% 25% 5% 20% 0% Note: The public sector includes public administration and defence, compulsory social security, health and education (sectors O,P,Q). Source: OECD (2016b), OECD Regional Statistics (database), http://dx.doi.org/10.1787/region-data-en (accessed 14 December 2016). 10

294 II. REGIONS IN NORTHERN SPARSELY POPULATED AREAS: 14 CASE STUDIES The big shifts in the structure of the regional economy have been the growth of the mining and manufacturing sectors, and the increasing importance of services to employment growth. The traditional mainstays of the regional economy mining, forestry and manufacturing, experienced strong growth in the period 2000-12. During the same period, productivity in manufacturing increased with a significant rise in GVA coupled with a slight decline in employment. A key feature of the region relative to other rural regions, is the growth of higher value services (particularly professional and scientific, and IT) connected with the university and hospital. As with other regions in northern Sweden, the public sector has a key role in the economy. The economic structure of Västerbotten is similar to Västernorrland with the manufacturing and business services sectors playing an important role. GVA by sector 2012 2000 Employment by sector 2012 2000 Public sector (O,P,Q) Wholesale and retail trade, transport, accommodation and food services (G, H, I) Manufacturing ( C ) Mining and quarrying, electricity and water supply (B,D,E) Professional, scientific, technical and administrative activities (M, N) Real estate (L) Construction (F) Information and communication (J) Agriculture, forestry and fishing (A) Other services (R,S,T,U) Financial and insurance activities (K) 0 500 1 000 1 500 2 000 2 500 0 20 000 40 000 60 000 Note: Gross value added (GVA) is expressed in constant PPP, USD 2010 (million) (System of National Accounts 2008). Employment at place of work is expressed as number of persons (System of National Accounts 2008). It is important to note the limitations in relation to this sectoral analysis in small regional economies where changes may reflect the decisions of single firms. We have sought to overcome this by using a longer time period encompassing the period before and after the 2009 financial crisis. Source: Calculations based on OECD (2016a), Regional economy, OECD Regional Statistics (database), http://dx.doi.org/10.1787/6b288ab8-en (accessed 14 December 2016). 11

II. REGIONS IN NORTHERN SPARSELY POPULATED AREAS: 14 CASE STUDIES 295 Tourism-related activity is growing but is not as important to the economy as for other regions in Sweden. Västerbotten s tourism attractions centre on its nature-based activities related to its attractive lakes and river valleys: fishing, hunting, camping, hiking and skiing. The region also has tourism activities related to the Sami culture. Over the last decade, the region has put a greater priority on improving its tourism offers, including improving linkages with Norrbotten. Benchmarking Västerbotten's tourism performance Västerbotten Sweden 150 125 100 75 50 Guest nights/population Foreign visitors Guest night growth Employment in hotels and restaurants Employment growth in hotels and restaurants Hotel rooms occupancy rate Note: National values are set to 100. Regional values have been rescaled with respect to national values. Foreign visitors is based on the share of nights spent by foreigners in the region in 2015. Guest night growth refers to the period 2008-15. Employment in hotels and restaurants refers to the year 2014. Employment growth refers to the period 2008-14. The occupancy rate of hotel rooms refers to the year 2015. Source: Statistics Sweden (2016), Statistical database, www.scb.se (accessed 15 December 2016). A key feature of Västerbotten has been its capacity to maintain population growth and retain younger people and families in the region. Compared to the national level, there has been a slower rate of population growth (0.22% for Västerbotten compared with the national figure of 0.85% between 2005 and 2015). This rate of growth is higher than the other northern regions of Norrbotten (-0.08%), Västernorrland (0.01%), and Jämtland Härjedalen (0.03%) over the same period. This growth has concentrated in Umeå, which during this period had a growth rate of 0.97%, which is slightly higher than the national average. The population of Västerbotten is more balanced in its age structure than the other northern counties. The elderly dependency ratio is 32.39 compared to the national average of 31.09. The sex ratio (males to females) is in Västerbotten is 101.76, which is higher than the national (99.94), and NSPA (98.05) averages. It is similar to the other northern counties of Region Jämtland Härjedalen (100.98), Norrbotten (103.6), and Västerbotten (100.38). Overall, the role of Umeå as a key service centre in northern Sweden has enabled the region to maintain its population growth and young people, which is a key difference compared with its other northern neighbours. 12

296 II. REGIONS IN NORTHERN SPARSELY POPULATED AREAS: 14 CASE STUDIES Population trend, 1990-2015 Elderly and youth dependency ratios, 1991-2015 Västerbotten Sweden NSPA Västerbotten EDR Västerbotten YDR Sweden EDR Sweden YDR 125 35 115 30 105 95 25 85 20 Note: 1990 value = 100. Population at 31 December. Source: Statistics Sweden (2016), Statistical database, www.scb.se (accessed 15 December 2016). Note: EDR = elderly dependency ration; YDR = youth dependency ratio. Source: OECD (2016c), Regional demography, OECD Regional Statistics (database), http://dx.doi.org/10.1787/a8f15243-en (accessed 14 December 2016). Sex ratio (males/females), 1992-2014 Västerbotten NSPA average Sweden OECD 102 100 98 96 94 Source: OECD (2016c), Regional demography, OECD Regional Statistics (database), http://dx.doi.org/10.1787/a8f15243-en (accessed 14 December 2016). 13

II. REGIONS IN NORTHERN SPARSELY POPULATED AREAS: 14 CASE STUDIES 297 Population growth is supported by international migration and natural replacement. The region continues to experience outmigration to other regions in Sweden. There was a sharp increase in domestic migration in the period 2001-05, which has since returned to its previous levels with some recent improvements. In terms of population, the key change has been the increase in international migration since 2006, which is similar to the trend experienced in the other northern counties. The number of migrants from outside of the European Union (EU) increased from 10 268 in 2006 to 16 631 in 2015 and it is likely that most of this increase is asylum seekers. The rapid rise in numbers of refugees and asylum seekers since 2015 has been placing pressure on local services and appropriate accommodation. Unlike the other northern counties, Västerbotten has a positive replacement rate, which reflects its capacity to retain and attract young people and families. Decomposition of population trend, 2000-15 Migration as share of total population, 2000-15 Net migration, internal Net births Net migration, external Population change Net migration, domestic Net migration, Sweden Net migration, external 2 500 1.5% 1 500 1.0% 500 0.5% - 500 0.0% - 1 500-0.5% - 2 500-1.0% Source: Statistics Sweden (2016), Statistical database, www.scb.se (accessed 15 December 2016). The labour market performance of the region has been strong and has recovered well from the crisis. The employment rate in Västerbotten is 65.9% compared with 66.2% for Sweden, and 67.3% for the OECD. The employment rate is higher in Västerbotten than Norrbotten (62.4%) and Region Jämtland Härjedalen (64.1%), and Västernorrland (64.8%). Before the crisis, the employment rate had increased to a level which was the same as the national level and close to the OECD average. During the crisis, there was a significant drop in the employment rate, which was similar to the neighbouring county of Västernorrland. Since 2010, there has been a recovery in the employment rate to a level which is close to the 2007 rate. The unemployment rate in Västerbotten is 7.1%, which is lower than the national figure (8%), and slightly higher than the OECD level of 7.3%. There has also been a sharp rise in the rate of youth unemployment to a level which is following the national trend. 14

298 II. REGIONS IN NORTHERN SPARSELY POPULATED AREAS: 14 CASE STUDIES Employment rate, 2004-14 Unemployment rate, 2004-14 Västerbotten Sweden OECD Västerbotten Sweden OECD 80% 78% 76% 74% 72% 70% 68% 66% 64% 62% 60% 58% 10% 9% 8% 7% 6% 5% 4% Source: OECD (2016d), Regional labour markets, OECD Regional Statistics (database), http://dx.doi.org/10.1787/f7445d96-en (accessed 14 December 2016). Youth unemployment rate, 2005-15 Västerbotten Sweden 28% 26% 24% 22% 20% 18% 16% 14% 12% 10% Source: Tillväxtverket, (Swedish Agency for Economic and Regional Growth) (2016), Regional utveckling, https://tillvaxtverket.se/english.html (accessed 10 December 2016). A key feature for Västerbotten is the share of people with higher education. A significant share of the population aged 15-64 in Västerbotten has a higher education, which is also higher than the national average. The corresponding figures are higher for young adults aged 20-24. This is a key difference between Västerbotten and its northern neighbours, and 15

II. REGIONS IN NORTHERN SPARSELY POPULATED AREAS: 14 CASE STUDIES 299 many other NSPA regions. The high level of education is due to the large universities and hospital that are located in Umeå. However, there are large differences within the region in terms of higher education attainment, with smaller rural municipalities having very low rates. The share of young people with low skills has historically been at a very low level with an increase, particularly for young men, since 2009/10, which is a concern when coupled with the youth unemployment figures. This trend is similar to other regions in northern Sweden. Share of population 15-64 with lower education, 2000-15 Share of population 15-64 with higher education, 2000-15 Västerbotten - M Sweden - M Västerbotten - F Sweden - F Västerbotten - M Sweden - M Västerbotten - F Sweden - F 35% 45% 30% 40% 25% 35% 20% 30% 15% 25% 10% 20% 5% 15% Share of population 20-24 with lower education, 2000-15 Share of population 20-24 with higher education, 2000-15 Västerbotten - M Sweden - M Västerbotten - F Sweden - F Västerbotten - M Sweden - M Västerbotten - F Sweden - F 30% 45% 25% 40% 20% 35% 15% 30% 10% 25% 5% 20% 0% 15% Note: Lower education refers to the categories primary and secondary education less than 9 years (ISCED97 1) and primary and secondary education 9-10 years (ISCED97 2). Higher education refers to the categories post-secondary education, less than 3 years (ISCED97 4+5B), post-secondary education 3 years or more (ISCED97 5A) and postgraduate education (ISCED97 6). Source: Statistics Sweden (2016), Statistical database, www.scb.se (accessed 15 December 2016). 16

300 II. REGIONS IN NORTHERN SPARSELY POPULATED AREAS: 14 CASE STUDIES Västerbotten is a remote and low density region with urban centres that are wellconnected and high quality broadband coverage in rural areas. Västerbotten has three main transport corridors. The first is the E4 along the Bothnian corridor. This links to the two major urban areas in the region, Umeå and Skellefteå, and this journey takes around 90 minutes via car and 2 hours via bus. This is an advantage because this proximity enables some level of labour market interaction, and also facilitates access to services. Further north, it takes about 3 hours to reach Luleå, which is a reasonable distance for business and tourism-related interactions. There is currently one train per day which links Umeå to Luleå (bypassing Skellefteå) which takes 4.5 hours. Västerbotten is a geographically vast region; it takes approximately 6 hours via car from the coast to cross the border to Mo I Rana in Norway via the E12 which is the main east-west connection. The third transport corridor is the north-south E45 which connects through to Östersund. The fourth transport corridor is the ferry connecting the E12 from Umeå to Vaasa in Finland (taking approximately 4 hours). Umeå Airport also has regular 1-hour flights to Stockholm and a flight service to Helsinki. During the summer, there are charter flights to a number of European destinations. There are a number of other airports in the interior of the region with direct flights to other destinations in Sweden including Gothenburg and Östersund, and also Helsinki. When benchmarking against key infrastructure indicators, a key feature of Västerbotten compared with the national average, is the quality of its communications technology, particularly in rural areas of the region. Benchmarking key infrastructure indicators Västerbotten Sweden 200 321 150 100 50 0 Road density to population Road density to area National roads Municipal roads Private roads 100 Mbps urban 100 Mbps rural Note: Regional values have been rescaled with respect to national values. National values are set to 100. Road density to population and to area refer are calculated as road in square kilometres divided by total regional population (2010). The shares of national, municipal and private roads are based on road length in kilometres (2010). 100 Mbps refers to the share of household with access to at least 100Mbps internet in 2015. Source: Statistics Sweden (2016), Statistical database, www.scb.se (accessed 15 December 2016). Levels of innovation and entrepreneurship are relatively high compared to other northern counties and the NSPA. Levels of innovation (in terms of patents at 155.23 per million inhabitants) are relatively high compared to the NSPA (142.02). It is higher than Jämtland Härjedalen (31.57) but lower than Västernorrland (169.31), and Norrbotten (199.63). The level of performance in relation to new enterprises is impressive, exceeds the national level, and is also out-performing the other northern counties. Although the region has a larger proportion of people with a higher education than the national level, employment in high-skilled occupations is lower. This indicates the relative lack of a critical mass of high skilled and higher wage jobs in the private sector within the region. 17

II. REGIONS IN NORTHERN SPARSELY POPULATED AREAS: 14 CASE STUDIES 301 Share of employment in high-skilled occupations, 2001-13 47% Västerbotten Sweden Patent applications per million inhabitants, 2011 350 300 45% 250 43% 200 41% 150 39% 100 37% 50 35% 0 Västerbotten Sweden NSPA Note: High-skilled occupation includes the three highest occupational categories according to the ISCO classification: mangers; professionals; technicians and associate professionals. These are occupations that require tertiary education. Source: Statistics Sweden (2016), Statistical database, www.scb.se (accessed 15 December 2016). Source: OECD (2016e), Regional innovation, OECD Regional Statistics (database), http://dx.doi.org/10.1787/1c89e05a-en (accessed 14 December 2016). New enterprises, 1994-2015 Västerbotten Sweden 260 240 220 200 180 160 140 120 100 80 Note: Except agriculture and public administration.1994 value = 100. Source: Tillväxtanalys (2016), Statistikportalen, http://statistikportalen.tillvaxtanalys.se/ (accessed 1 February 2017). 18

302 II. REGIONS IN NORTHERN SPARSELY POPULATED AREAS: 14 CASE STUDIES In sum, improving the long-term economic performance will require improving transport connectivity, and building on the innovation assets of the region. Västerbotten s growth dynamics are linked to its natural resource base (mining, energy and forestry), and the role of the public sector through the university and hospital in Umeå. The absolute advantages of the region lie in its mineral endowments and forestry resources, a history and tradition of manufacturing and services linked to these natural resource based industries, its attractive landscapes and proximity to Norrbotten and Lapland, and the research and innovation infrastructure based around Umeå University and the Swedish University of Agricultural Sciences. Relative to other remote rural regions in the OECD countries, Västerbotten as with the other Swedish NSPA regions, has a high level of prosperity and wellbeing. However, this position to a considerable extent reflects ongoing support from the Swedish national government that provides a high level of social services across all the national territory. The region experienced strong growth prior to the crisis which was driven by increasing productivity linked to the mining and manufacturing sectors. The recovery postcrisis has also been relatively strong, particularly in terms of the labour market. The region is fairly well positioned for future growth because it has a favourable demographic profile, a skilled workforce and a relatively diverse economy. However, this growth is still dependent upon public investment. A future growth strategy for the region will need to focus on the tradeable sector, and how the region s innovation assets and services sector can be utilised to drive further productivity and diversification related to its traditional strengths in mining, forestry and related processing. In this sense, the key for Västerbotten is focusing on how to strengthen rural based industries and enhance urban-rural linkages rather than just focusing on the urban area of Umeå as the key economic engine of the region. Compared to the national level and the other Swedish NSPA regions, Västerbotten is performing relatively well in relation to key growth factors. An important asset for Västerbotten is the quality of its telecommunications infrastructure, particularly in rural areas. Benchmarking Västerbotten in relation to key growth factors Västerbotten Sweden 200 321 150 100 50 0 Higher education Lower education Patent intensity Start-up intensity High speed internet Road density to population Road density to area Note: A higher value for lower education means the region has a lower share of lower educated persons. Values on for higher and lower education and high speed internet refer to the year 2015. Patents values refer to the year 2011. Start-up values refer to the year 2014. Road values refer to the year 2010. Source: Statistics Sweden (2016), Statistical database, www.scb.se (accessed 15 December 2016) (education, internet and road data); Tillväxtanalys (2016), Statistikportalen, http://statistikportalen.tillvaxtanalys.se/ (accessed 1 February 2017) (enterprise creation); OECD (2016b), OECD Regional Statistics (database), http://dx.doi.org/10.1787/region-data-en (accessed 14 December 2016) (patents). 19

II. REGIONS IN NORTHERN SPARSELY POPULATED AREAS: 14 CASE STUDIES 303 Assessment of strengths and challenges Despite relatively high levels of well-being, like its peer counties in Sweden and the remainder of the NSPA region Västerbotten faces development challenges, particularly in terms of providing economic opportunities for the local population. The economic analysis and benchmarking in the previous section identified the importance of diversifying the economy and reducing its dependence upon the public sector. The following part of the case study provides an overview of the assets/growth opportunities and bottlenecks/risks identified during the OECD mission to Västerbotten conducted in February 2016. Assets and growth opportunities The population growth is concentrated in the two cities of Umeå and Skellefteå and this presents opportunities to strengthen the economy of the region. About threequarters of the region s population lives in Umeå, Vannas (30 minutes from Umeå), and Skellefteå, whilst the remainder is distributed across the territory in smaller settlements. This settlement structure is an asset for the region as it increases the size of functional labour markets and reduces the costs of delivering services. Umeå is growing faster than the national average, and provides an urban environment which is attractive to families and younger people. The growth of these cities has enabled the region to develop a diverse services sector. It will be important for municipalities to ensure infrastructure and land-use policy settings facilitate a sufficient supply of housing in areas experiencing population growth. Västerbotten has a significant endowment of natural resources and has benefited from favourable external conditions. The region has a long history of mining and embedded assets in terms of local political support, skills, and technology. Over the past decade growth has been supported by higher commodity prices and investment in extractive industries. However, these external conditions are changing and the region may be vulnerable to reduced production, investment and employment. The region has been proactive in developing a strategic approach to lifting the competitiveness of the mining industry and generating more value from it, and connections with the local universities have been strengthened. As mining activity slows down the challenge for the region will be developing new markets for local firms that provide mining related services (including engineering, maintenance, and managing environmental impacts). The region has a significant higher education presence which is an important source of professional jobs, income from students, and research. Umeå University and the Swedish University of Agricultural Sciences have research and teaching specialisations in areas such as industrial design, fine arts, environmental engineering, digital services, natural sciences, health and forestry. The public sector and the university have invested in an innovation infrastructure including science parks and business incubators, which is starting to provide a pay-off in terms of business start-ups. These areas of specialisation have informed the county s smart specialisation strategy. This strategy is focused on the following sectoral areas: innovations in health care, life sciences, technology and service in the industry testing, sustainable energy and environmental engineering, the cultural and creative industries, and digital services. The strategy also identifies the importance of promoting collaboration between these sectors to facilitate new economic activities. A key advantage for the region is the opportunity to link natural resource-based industries (food and agriculture, mining and forestry) with high technology sectors (life sciences, testing, environmental engineering and digital 20

304 II. REGIONS IN NORTHERN SPARSELY POPULATED AREAS: 14 CASE STUDIES services). Linking these rural and urban-based sectors should be a key focus of the strategy going forwards. Umeå Institute of Design: Umeå, Västerbotten The Umeå Institute of Design was ranked as the best design school in the world in 2016, following several years of being the best design school in Europe. The Institute focuses on industrial design, transportation design and interaction design, and is part of Umeå University. Its strength is in working with companies to connect its teaching and research programmes to professional design practice. The school emphasises making things as a way to connect student ideas to production, and to facilitate this provides a wide range of state of the art equipment for working with wood, metals, plastics, fibres and other materials. A particular strength is the integration of computers and electronics into the design and manufacturing process. Umeå is located at the north end of the Gulf of Bothnia, far from what might be conventionally considered the design capitals of the world. Yet the Institute has been able to develop a global reputation for its work, and attract students and collaborators from a considerable number of countries. While remote locations and small cities are not typically seen as being innovative, the Umeå Institute of Design proves that with effort and good ideas it is possible be as creative as design schools located in more traditional large city environments. Västerbotten has been proactive at improving digital connectivity and has taken a leadership role in the provision of tele-medicine. The region and municipalities have coinvested to improve broadband connectivity across the region, which has provided a platform for innovation in service delivery. The municipalities and the county are promoting e-government through a shared project, e-västerbotten. It includes an inventory to identify areas of potential collaboration, promoting new technologies and good practice, and creating common technological platforms for the delivery of e-services. There has been a strong focus within the region on tele-medicine to improve accessibility for rural communities to health care. Physical services are concentrated in a small number of places (e.g. two medical centres for sparsely populated areas in Storuman and Vilhelmina, and a number of smaller cottage hospitals), and tele-medicine is utilised to deliver services to more remote communities which also enables connection with experts in Umeå. Since the mid-1990s, close to 40 different health applications and 230 videoconferencing facilities have been rolled out across the county. Within the health services system this has resulted in increased efficiency, improved competencies amongst staff, and reduced travel times. Umeå University has also developed a research and teaching specialisation in this area, and established a centre Innovationssluss Västerbotten which provides a mechanism to develop new health-related products and services, including ICT solutions. Centre of Rural Medicine: Storuman, Västerbotten The Centre of Rural Medicine explores ways to use new approaches to deliver high quality health care at reasonable cost. Northern Sweden is leading a common challenge for OECD countries providing innovative health care for an ageing population. A high ratio of older people was reached earlier in northern Sweden than in most rural regions and led to earlier efforts to find ways to provide innovative health care solution in remote rural places where access to hospitals is difficult. A key advantage is the high level of penetration of broadband throughout all of Sweden that creates the opportunity for telemedicine. One focus is telemedicine, and virtual health rooms are the most recent innovation. These are free-standing facilities that have some basic testing equipment and a video-link to a regional hospital. At times the room is staffed but at other times people with health issues can access help, including basic diagnostics directly. In small rural communities that are far from a health professional virtual health rooms can be an important way to assure initial access. The Centre sees them as a part of a larger effort to develop better health care in remote rural places by designing a variety of alternative delivery mechanisms. Providing health care for an older and less mobile population is a challenge across the entire OECD, but it is a more difficult proposition in remote rural areas where traditional health care options are either not available or far more expensive to operate. Many countries are looking for new approaches but the Centre of Rural Medicine 21

II. REGIONS IN NORTHERN SPARSELY POPULATED AREAS: 14 CASE STUDIES 305 Centre of Rural Medicine: Storuman, Västerbotten (continued) is an example of a well-designed strategy to identify new innovative ways to bring about good health care at a reasonable cost. Because it is in a remote rural region and actually delivers health services it is well positioned to see what works and doesn t work quickly. And, because it is embedded in the rural community people are willing to try new approaches and provide their opinion on how well they work. Bottlenecks and risks The growth of Umeå is key for the region, however, there is a risk of an urban/rural disconnect. Umeå is growing strongly and is a key service and administrative centre. However, much of the services sector employment in Umeå is dependent on public funding of health, education and training, and public administration. The economy of the region is still dependent on extracting value from natural resources, and strengthening linkages between urban and rural areas. There is a risk that the region has an urban bias in its policy and decision making, which may lead to reduced investment in rural areas. The growth of Umeå also presents challenges including the provision of housing and improving transport infrastructure and services to the surrounding rural areas. Although there is a strong research base in the region, it is not generating a sufficient business and economic dividend. Umeå University was established in 1965 and has grown to become a significant player in the higher education market in Sweden. It has also invested in research and has established a number of research centres. However, there is still a level of disconnect between the structure of the regional economy and the research profile of the university. Businesses in the region are not effectively engaging with the university to drive innovation and develop new markets. Challenges include better engaging local firms in research and development, and building networks amongst firms particularly in dispersed rural areas. Västerbotten has a range of nature-based experiences and there is capacity to further leverage these assets. The key nature-based attractions of the region include attractive lakes and river valleys, fishing and hunting, camping and hiking, and skiing. These attractions are located in the sparsely populated parts of the region, and maximising the value of them is important for the prosperity of rural communities. There are also cultural experiences with the Sami community and for recreational and business tourism in urban areas (Umeå was the European capital of culture in 2014). The region is well-located being part of Swedish Lapland and bordering Norway, which provides access to a larger market of consumers (and potential investors). Linkages with Norrbotten and the broader Arctic region are improving but are not integrated with the tourism planning of the region. Tourism planning is not effectively integrated with spatial planning or the prioritisation of transport infrastructure and services. Improved rail connections could have a transformative impact on the growth of the region, and should be coupled with improvements to the public transport network. Västerbotten, along with the neighbouring region of Västernorrland, has a strong focus on attracting funds to improve rail infrastructure between urban centres along the Bothnian corridor, and the interior. This will have the dual benefit of improving accessibility for commuting and service-based industries (particularly between Umeå, Skellefteå, and Luleå), and facilitating the more efficient movement of goods from rural areas. These large scale investments will need to be coupled with improvements to the 22