Norway!!! the country known for fjords, aurora lights, skiing,
outdoorsy people, and the history of Vikings!
World Happiness Report shows Norway has one of the happiest people in the world.
The country also has one of the highest life-expectancy-index of around 81.
The country tops many international rankings, including human development index,
prosperity index, ease of doing business index, freedom of press index, democracy index, etc etc.
Some declared it as a ‘socialist heaven and others called it ‘capitalism with a conscience’.
The country has one of the highest GDP per capita in the world following just behind
Switzerland if we ignore the micro-nations. But the country wasn’t always rich like it is now.
But how did a small fishing nation became one of the richest countries in the world???
Imagine a person digging the ground in his backyard, and he happened to
have found a box of treasure. Some gold and jewels or whatever! Norway is that person!
I mean, Norway is a country, but you know what I am saying.
Back in the 1950s, no one would have believed that Norwegian Continental Shelf (NCS) contained
any Black Gold, also known as, well, OIL! This all changed in 1959, when gas in Groningen,
Netherlands, was discovered, leading to the belief that it could also be explored for oil.
In 1962, a company named Phillips Petroleum applied for exploration in
Norway Continental Shelf. The Norwegian government rejected the application,
as it was interested in opening up the resources to multiple firms.
In 1963, the Norwegian government went on even further by claiming sovereignty in an area in
the North Sea and started to issue licenses for oil exploration. The drilling licenses were given
in 1965 after the matters of division of shelf with Norway and Great Britain were resolved.
The first drilling in 1966 was fruitless. 200 more exploratory drills for the next few years
showed no signs of oil, and, the whole thing started to become hopeless, until,
Philips Petroleum in 1969, drilled in Ekofisk, resulted in one of the most
lucrative oilfields, that will later change the fate of the whole country.
In 1972, the Norwegian government established a new company named Statoil that declared 50%
of oil license money should be state-owned. More policies were introduced that gave
Statoil more power. The company was later partially privatized in 2001 and listed
on the Oslo and New York Stock exchanges with the Norwegian government owning 81.7%
of the shares. Statoil became StateOilHydro in 2007 after merging with Norsk Hydro,
the country’s main producer of hydroelectric power, followed by the company changing its
name to Equinor in 2018. The government is still the biggest shareholder in the company.
Norway’s exploitation of natural resources is the largest and most
vital industry that contributed somewhere between 40 to 70% percent of exports over the years.
Call it a helping hand from nature,
Norway would not be the country it is today without these natural resources. Norway’s
economy without oil would be as incomplete as Switzerland’s economy without its banks!
Remember that person we told you to imagine who found the treasure???
That person would have wasted the treasure on booze, parties,
and shiny stuff, and so would have anyone else who finds overnight wealth from gambling,
lotteries, and the fake treasure stories like the one we just told you.
Norway did not waste that money! Norway decided to save and invest the newly found treasure.
In 1990, the Norwegian government created Oljefondet, also known as the Government
Pension Fund Global or GPF-G, a fund into which the surplus money generated from the petroleum
income is deposited and invested. This changed the whole game. The fund was created to tackle
the fluctuating global oil prices AND to counter the effects of the expected decline in income. If
the discovery and production of natural resources could make any country rich, then Venezuela would
have still been rich. Norway did not become Venezuela. They made smart money decisions!
With investments in shares, bonds, and real estate of 9000 companies around the world,
including companies like Apple, Alphabet, Microsoft, etc. the fund is managed by a
division of the Norwegian Central Bank and is the largest pension fund in the world
currently having USD 1.2 Trillion. The fund was created in the name of
people. That means each Norwegian, on paper owns around USD 220,000 each.
But, you can’t just withdraw it out of the bank and start spending on booze and stuff. The fund is
supposed to be used in bad times. The government is also not allowed to just go on a spending
spree, except for a %3 percent allowance of the fund’s inflation-adjusted return.
Norway follows a strong ethical sense when it comes to investing the fund’s money.
It has a list of companies that it would invest in and not invest in. It
won’t invest in companies that contribute significantly to environmental damage.
In 2019, the fund managers decided to pull out their investments in oil exploration companies,
even though their fund is made up of oil-money.
Would you call it having ethics or would call it hypocrisy?
However, the fund will continue to invest in petroleum companies that have significant
investments in renewable energy. The decision of selling its stake in 134
companies knocked some big amounts off the combined market value of those companies.
Some have shown concerns about how such large
sovereign wealth funds could impact the investments without following the market.
But for Norway, the script is simple! We have exploited the natural resources,
but they have passed their peak time and our oil is going to end one day.
So, we are not going to invest in something that we won’t capitalize on in the future.
The whole idea of having ethics and environmental damage is not a concern for Norway. For Norway,
it’s all about business and watching their interests first.
Oil and gas like any other natural resources are going to run out one day.
According to estimates, Norway’s current oil resources have already reached close to %50
and it is estimated to stay operational until 2050.
Although there has been a push from some politicians to spend the money
on infrastructure and the welfare state, the Norwegians are somewhat divided on the issue
of spending the country’s pension fund on other sectors. Some say that investing in other sectors
is the way to save the declining economy while others argue that it can’t be the only way out.
Norway is a constitutional monarchy. Population density is low with 5.5 million people
compared to a huge landmass. That makes it easier for the government to manage.
Norway is the second-largest exporter of seafood after China. The long coastline, wide seabeds,
and preferable climate conditions provide Norway to capitalize on the seafood industry,
which is the second biggest contributor to its GDP. From Atlantic Salmon to trout, codfish,
mackerel, prawns, and king crabs, the country’s biggest seafood exports go to the European Union
countries. The country introduced Salmon sushi to Japan back in the 80s, who were keen on Sushi
but Salmon sushi was a new thing back then. Maritime goes hand in hand with
the seafood industry and Norwegians have been sea people entire their history.
Despite being one of the biggest oil producers, Norway is not powered by oil. The country’s
98 percent of electricity comes from hydropower, which is 65% of domestic energy use. and consumers
are inclined towards electric vehicles in recent years. The country plans to lead the world in
renewable energy, and estimates to have 100% renewable domestic energy by 2030. Inexpensive
hydropower also makes it easier for the country to export metals, papers, and chemicals.
Even though it’s an expensive country to visit, tourism continues to play an
important role. According to a report in 2018, tourism contributed to around 5% of the GDP
with every seven in hundred people throughout the country working in the tourism industry.
Beautiful landscapes, ski resorts, fjords, Viking museums, tons of mountains for hiking
and exploring, polar nights and midnight sun makes Norway a complete package hard to resist.
As the oil will deplete one day, economists have even talked about Norway’s economic future
as a tax haven by attracting foreign investment similar to Switzerland.
While many countries proudly give examples of Norway’s high corporate taxes,
it drives away many entrepreneurs to the UK and other European countries to find better
financial conditions for business. Norway would likely have to lower the taxes for business to
attract a non-oil economy in the future. Norwegians say they are not nationalistic,
but, that's highly arguable. They prefer to hire Norwegians over others for many reasons including
language proficiency. Oslo is different from other cities as it has the largest
number of immigrants. Just like many other countries that claim to be open and diverse,
it’s not hard to debate that the Norwegians are closed off compared to other countries.
Contrary to the popular belief, Norway does not have a free health care system.
It's partially true. Everyone pays for the prescriptions and doctor’s appointments,
but up to a limit of around 2200kr. After that, it’s free. This is to ensure fairness
as everyone pays but only up to a limit, and if someone falls seriously ill or comes
under a category where more medical budgets are needed then they don’t have to worry.
Norway has a very high cost of living and it’s a big downside. Other than the house
and rental prices, grocery prices are much higher compared to around the world and even compared to
its Scandinavian neighbors. The country known for creating the world’s first cheese slicer,
service-providing industries like restaurants and bars, etc. is very expensive. Some new to country
people can’t overcome this sticker-shock. The country has put high taxes on alcohol, tobacco,
and sugar. Alcohol is not cheap in the country. Some people take trips to Sweden to bring some
food-packed luggage including meat, alcohol, and groceries. Addicted to Grandiosa Pizza,
eating out in restaurants is less frequent in Norway compared to other countries.
Contrary to popular opinion, the country has no minimum wage set by the government.
But salaries are high, even at the lower end of the pay scales, but so is the cost of living.
Newcomers in the country are often most outspoken about the
expenses considering the relocation expenses in the country are huge.
Divorce rates are very high in the country,
and the unconfirmed reports of high promiscuity rates also rank Norway high on the list.
Norway voted no to inclusion in European
Union through a referendum in 1994 by a very close margin.
Norway is currently suffering from what is referred to as the ‘Dutch Disease’ in economics.
The Dutch Disease, simply put, indicates a relationship between an increase in the
economic development of one sector like oil, compared to a decline in other sectors. But,
on the bright side, the country has done so well when it comes to the creation of the pension
fund that can be used in bad times. Also, the country has done very well to realize that the
oil money would end one day and they would have to start working on a post-oil-dependent economy.
What can you learn from Norway’s economy? My dear RAVENS! Save and Invest like Norway! It
does not matter how much money you earn but what you do with that money is what matters the most!
There would be times in your life when you will get more money than usual.
At that moment, don’t just get excited and spend it on the shiny things you don’t even need,
instead, make smart money decisions, and save & invest it for a better outcome in the future!