Economic diversification can be difficult for oil-rich U.S. states. That’s even more true if you’re isolated and partly situated on a frozen tundra.
Welcome to Alaska’s reality.
Alaska’s gross domestic product has been falling since 2012, and it’s been hemorrhaging jobs in mining and logging, the largest single sector of its economy, amid a years-long oil price slump. Today, it has the highest unemployment rate of any state, at 6.7 percent. As its economy struggles, both the state government and regional and city administrators are pushing to create new industries in the land that likes to call itself the “last frontier.”
Several show promise – the state development office is looking at shellfish, peony cultivation and craft beer as fertile areas for expansion – and another idea is percolating in the cities: Alaska could become Silicon Valley’s understudy. The logic is simple: Tech jobs can be done remotely, and often provide services that don’t require close proximity to a customer base.
“Alaska and the tech sector aren’t usually found in the same sentence,” said Jon Bittner, vice president at the Anchorage Economic Development Corp. and one of the people leading the push to bring entrepreneurs – including tech startups – to his state’s snowy shores. “There’s no reason it can’t be done here.”
While the state can pitch its laid-back lifestyle and breathtaking scenery to draw in a creative class, there remains a significant barrier to fostering a vibrant tech community in Alaska. Up until now, it hasn’t been done much in the state, so the infrastructure and talent pools come up lacking.
“There is a brain drain,” said Carmina Santamaria, the Bolivian chief executive officer of Kwema, a tech startup that she and her co-founders are working on in Anchorage. Their product is an electronic panic button smaller than a quarter that’s styled into jewelry, meant to allow college-aged women to alert their friends, campus police and other Kwema-wearers if they’re being assaulted.
The team won funding competitions in New York and Anchorage, and chose Alaska both because the state has an extremely high sexual assault rate and because they thought they’d stand out in a smaller market. It’s been a struggle to find local electronic engineers and jewelry designers, Santamaria said.
Kwema’s experience isn’t that surprising, based on a the numbers. Alaska is still far from becoming a leader in the tech space: it actually lost tech jobs in absolute numbers between 2014 and 2015 and ranks 49th in the country for tech employment. Currently, the tech sector only contributes an estimated 2.4 percent to the state’s economy annually, based on a report from CompTIA, an information technology trade association.
Even so, the fact that tech companies like Kwema are coming to Anchorage even at their early stages is a step in the right direction for an area that’s striving to attract talent.
Kwema was drawn north by Launch: Alaska, a business accelerator that started this year with the help of a Small Business Administration grant. The new program is providing funding to them and four other teams of entrepreneurs, and they’re able to operate out of a new co-working space in downtown Anchorage. It and the other Launch: Alaska teams will pitch to potential investors this week, hoping to find additional funding.
“When I did my first start-up, I had to leave the state,” said Lance Ahern, managing director for Launch: Alaska. Now, he said, “we’ve got the ecosystem put together.”
While Anchorage is at the center of much of the effort, the startup scene also has potential in other cities as well, Ahern said. Alaska Startup Week, which took place in July, had scheduled events in Anchorage, Fairbanks, Sitka and Juneau.
To be sure, even if tech takes off in Alaska, its reach will probably be limited to the metropolitan areas, since far-flung towns with limited connectivity don’t offer great opportunities for app founders and other business creators.
That’s one reason why the push is largely local, while the state’s focus is elsewhere. Britteny Cioni-Haywood at the Division of Economic Development and her colleagues are working on the Alaska’s first comprehensive economic strategy. Maritime support services, peonies, drones and craft beverages are among the emerging industries they’re discussing.
The oil slump “does hasten the need” to diversify the economy, she said. “We face a crisis like this, and it kind of has some impetus. We’ll be able to actually get this done, constructed, and under implementation.”
The fact that prices aren’t projected to rise back to anything like their heyday levels could actually help that effort.
“All of the sudden we’re faced with this economic inflection point,” Bittner said. “What do we need to do to get out of the roller-coaster commodity cycle? We need to start our own businesses.”