In the last four years, Norway has experienced its strongest expansion since the 1950s thanks to its vast wealth of petroleum resources as the world’s third largest gas exporting nation and fifth largest oil exporter. It ranks as the second best place to live in the world on the latest United Nation’s human development index. And while other nations struggle with ballooning budget deficits, the country has channelled its oil surplus into the NOK 2.1 trillion Government Pension Fund – Global, the second largest sovereign wealth fund in the world.
It’s Very Much about the Oil
Norway’s oil adventure began in 1969 with the discovery of the Ekofisk field in the North Sea. Over the course of four decades, the petroleum industry has generated more than NOK 6 trillion in value creation.
Today, oil and gas exploration continues to dominate as the main industry in Norway and draws the biggest amount of direct foreign investment capital in Norway, according to Statistics Norway. A foreign direct investment is defined as a shareholding of more than 20% in a company, either public (ASA) or private limited (AS), including debt. Sweden tops the list as the largest investing country in Norway, followed by the United States, Denmark, the Netherland and the United Kingdom. The underlying trend has been a steady increase in foreign direct investments in Norway from NOK 195 billion in 1998 to NOK 583 billion in 2006, according to Statistics Norway. These numbers exclude foreign companies’ portfolio investments in stocks below 20%.
Another measure of foreigner investors’ appetite in Norway can be seen in the high ownership distribution in listed companies on the Oslo Stock Exchange (Oslo Børs). Foreign investors have held the leading ownership position since October 2005, according the Norwegian Central Securities Depository (VPS). The Norwegian central and local government recently reclaimed the top spot in October 2008 with a 39% holding in shares and primary capital certificates, followed by foreign investors with 34%. This is perhaps not surprising given that the government is the single largest shareholder in Norway’s biggest companies, owning about one-third in fertilizer producer Yara and banking group DnBNOR, as much as 44% in aluminium company Norsk Hydro, 54% in telecom Telenor and two-thirds of StatoilHydro.
||Jens Stoltenberg, Prime Minister of Norway.
© Guri Dahl/SMK
Attractive Place for Investors
Norway is politically stable, has a well-educated population, and is known for its good management, drive and initiative, and knowledge base in areas such as oil service. The country also has a regulatory environment that is conducive to business. It scored in the top ten among 181 economies in the World Bank Group’s Doing Business 2009 report on ease of doing business, registering property, trading across borders, enforcing contracts and closing a business.
“Norway has a legal system that you can trust,” said Tor Steig, senior economist at the Confederation of Norwegian Enterprises (NHO), Norway’s main business and employer organization. “We have better regulation in general, such as in the banking sector, and we have competent people on an egalitarian wage scale.”
The country is also competitive on an international scale. The IMD World Competitiveness Yearbook ranked Norway 11th out of 55 countries in 2008 ahead of Ireland, Taiwan, Austria, Finland and Germany based on economic performance, government efficiency, business efficiency and infrastructure. Another study by The World Economic Forum listed Norway as the 15th most competitive economy among 131 countries in the 2008-2009 edition of the Global Competitiveness Index. Here the country scored high on areas such as protection of minority shareholders’ interests, public trust of politicians, ethical behaviour of firms, government surplus, ease of access to loans, venture capital availability, technological readiness, higher education and training, cooperation in labour-employer relations, and reliance on professional management.
It is thanks in part to this vast oil wealth that the country should weather the current global economic downturn better than some. Stein Bruun, Chief Economist Norway at SEB Enskilda, points out the country still has a high level of investments in offshore activities (i.e. the petroleum sector); the Government’s proposed fiscal budget for 2009 is expansionary and may include more spending; and lower short-term interest rates tend to have more of an immediate effect in Norway because of the exceptionally high amount of floating rate mortgages (only 7% of Norwegian take out fixed-rate home loans).
“Norway is in a unique position to use its fiscal muscle,” said Bruun. “With a general election next autumn (2009), the government has both the means and the incentive.”
This is not to say that Norway will not be affected. The Nordic nation is an open, raw materials based economy as an oil, metals, fertilizer and seafood producer. NHO has recently forecasted Norway will be in recession in 2009 for the first time since the 1989 bank crisis. The contrast with the five years of economic upturn is therefore dramatic,” said Steig. “Norway has experienced only one other recession since the 1930s, in 1988/99.”
However, “Norway is still in a better position than most countries,” said Svein Gjedrem, Norway Central Bank Governor, in connection with the release of its monetary policy report in October 2008. “The current account balances and government finances are solid. The Norwegian banking system is not large, and the financial position of Norwegian banks is sound.”
Facts About Norway
Capital city: Oslo
Government: Three-party coalition (Labour, Socialist Left and
Centre) led by Prime Minister Jens Stoltenberg.
Next general election set for September 2009.
Population: 4.7 million inhabitants
Area: 385,199 square kilometres
International borders: Sweden, Finland, Russia
Languages: Norwegian (two forms: Bokmål and Nynorsk) and
Sami (equal status with Norwegian in parts of Troms
and Finnmark counties)
Current Account Balance 2007: NOK 350 billion
Current Account 2007 (% of GDP): 15.4
GDP 2007: NOK 2.277 trillion
GDP per capita 2007 : NOK 483,725
|Norway Economic Forecast (% change)
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|Gross fixed investment
|Fixed investment, mainland
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|Current Account (% of GDP)
© NHO half-year report 2008, Macroeconomic projections (Nov.2008)