How Norway has avoided the 'curse of oil'

[Adam]

By Sarah Treanor

Business reporter, BBC News, Bergen

Houses in Bergen, Norway

Bergen is not a place to go looking for supercars racing around

Continue reading the main story

Related Stories

 

Oslo’s rapid growth redefines Nordic identity

Big gains for Norway oil wealth fund

Hugged by mountains and perched on a stunning coastline of fjords, Bergen, Norway's second-largest city, has picture-postcard views.

 

As one of the centres of Norway's booming oil and gas industries, it is also a very wealthy place.

 

Yet there are few displays of ostentatious spending - there are no supercars with tinted windows, no designer handbag shops, and no queues of people outside exclusive nightclubs.

 

For while other countries have struck oil and then binged on the revenues, by contrast Norway is continuing to invest its oil and gas money in a giant sovereign wealth fund.

 

Continue reading the main story

“

Start Quote

 

We trust the government, we believe our tax money will be spent wisely”

 

Prof Alexander Cappelen

Norway School of Economics

The fund, worth about $800bn (£483bn), owns 1% of the entire world's stocks, and is big enough to make every citizen a millionaire in the country's currency, the kroner. In effect, it is a giant savings account.

 

And most Norwegians are seemingly very content with this - according to a 2012 study by New York's Columbia University Norway is one of the world's happiest countries.

 

"We had to invest a lot of money before we could spend anything," says Prof Alexander Cappelen, from the Norway School of Economics, explaining why the country has apparently avoided the pitfalls of vast wealth.

 

"In other countries the oil is much easier to extract, so they got the money straight away.

 

"We were put in the right mindset by knowing it was a long-term plan."

 

Trusting the government

So, no spending bonanza for Norway. In fact there is a closely followed guideline that only 4% of the surplus from the fund is spent or invested in public projects.

 

"Actually we are spending less than 4% currently - we are saving," says Prof Cappelen.

 

A Norwegian oil rig

Norway's economy has been transformed by its oil boom

There are several reasons, he says, why Norway is happy to save its wealth and shrug off the temptations of a luxury life.

 

"For this kind of system to work, you need to have an enormous level of trust," says Prof Cappelen. "Trust that the money isn't going to be mismanaged - that it's not going to be spent in a way you don't like.

 

"As a result of social democracy and egalitarian policies it is a homogenous society and has built up an enormous level of trust.

 

Siv Jensen

Norway is in a fortunate position, says Finance Minister Siv Jensen

"We trust the government. We believe our tax money will be spent wisely. once you start trusting that others are contributing their share then you are happy to contribute yours."

 

So is Norway rich because of Norwegians high level of trust, or are its citizens trusting because they are rich?

 

"I think it is both," says Prof Cappelen. "High levels of trust make economic growth easier."

 

Norwegian oil workers

Norway is already planning for when its oil and gas reserves run out

But this oil boom is tailing off. So what's next?

 

"Norway's economy is in a very fortunate situation. We are talking about a gradual shift over the next few years," says Norway's Finance Minister, Siv Jensen.

 

"We have had a slower growth in productivity over the past few years, and for this government we have to look at a competitive tax level and reducing red tape to attract investment.

 

"But it is true we have a higher cost level than any comparable country."

 

'We respect hard work'

Those costs can be quite shocking for a visitor. In cafe overlooking Bergen's fish market, while sipping a cappuccino costing almost $10, Tone Hartvedt from Business Region Bergen explains that costs are simply comparable to wages.

 

Drilling on an oil rig

It isn't cheap for Norway to get at all its offshore oil and gas deposits

"It may sound surprising, but for us it is not too expensive," says Ms Hartvedt. "We tend to have summer and winter holiday houses or cabins, and we can afford life here. It is comfortable."

 

This is surprising to the uninitiated visitor - after a trip to the local supermarket revealed that the cheapest pasta, bread, cheese and chopped tomatoes would come to around $50.

 

But, says Ms Hartvedt: "We pay our workers a wage that means they have a good quality of life. That is not so much the case in places like London.

 

"Here we respect hard work, but we don't believe that the highest paid worker in a company should earn vastly more than the lowest paid.

 

"This does mean that some very talented people leave for other countries where they will be paid more."

So, do people in Norway regard themselves as rich? "No, we don't think of things like that, it's for the future," she says.

 

Economic challenges

On an island half an hour from Bergen, is Coast Center Base (CCB), a huge support centre for the oil and gas industry. There's a rig, fire engine red and vast, sitting in the harbour being checked over.

 

"I remember the days when there were plenty of farmers and fish farmers in Norway. Life has changed for the average Norwegian," says CCB's chief executive, Kurt Andreassen.

 

"This base was started up in 1974, and there has been a tremendous change in those decades. The welfare is now very high. It is quite different to 40 years ago, many people are educated - things have changed."

 

Shoppers in downtown Oslo

Norway's shoppers are not often able to take advantage of a good bargain

As for when the oil does eventually run out, "Norway will survive, but it will be a challenge for all of us," he says.

 

"Our challenge will be to utilise our expertise and use it in other areas."

 

It's a point of view echoed by Dag Rune Olsen, rector of Bergen University: "I worry we do not invest to a sufficient extent in other ways to generate income in the next decades.

 

"We are very well aware that the oil and gas resources are limited, and at least for Norwegian oil it will cost us more year by year to extract the oil," he says.

 

"It is evident we need to find other sources of income, and now we have the ability to invest - it is crucial that we do."

 

'We will get jobs'

Perhaps this awareness that it won't last forever goes some way to explain the second-hand Volvos circling Bergen's winding streets, rather than the Porsches or Bentleys of wealthy parts of London.

Prudence and pragmatism rather than posing seems to be the attitude.

 

While there is an inkling of concern for what will become of Bergen, and Norway, when the oil runs out - most Norwegians remain confident about their prospects.

 

"We are in Norway, we are not worried about these things," reply students at the Norway School of Economics, slightly uncomfortably, when asked if they are concerned about jobs.

 

"We will work hard and we will get jobs."

 

[DoctorKenney]

Very interesting article and I especially agree with the point about Norway being a homogenous society helping them avoid the oil curse.

 

Nigeria on the other hand, also has oil and it has been a curse for them. You have all these ethnic groups competing for the oil money and all it does is create conflict and even bloodshed.

 

That's why it might be a good idea for Somalia to not drill for oil. Leave the oil in the ground until we have a stable peace and a unified society.

 

Because once the billions of oil dollars start coming into Somalia....that's when REAL TRIBALISM will begin. Tribal politicians and militias will start fighting over oil money and it will just cause more problems

[Miskiin-Macruuf-Aqiyaar]

When will Norway leave our natural resources alone as well and stop supporting Kiinya's intention to steal our sea's oil? They are too kind to their own people, but too greedy and aggressive against others' natural resources. Waa faarabuutiyaal.

[DoctorKenney]

<cite>

@Miskiin-Macruuf-Aqiyaar

said:</cite>

When will Norway leave our natural resources alone as well and stop supporting Kiinya's intention to steal our sea's oil? They are too kind to their own people, but too greedy and aggressive against others' natural resources. Waa faarabuutiyaal.

 

If Somalia was a peaceful, stable, and prosperous country with it's own oil companies, and Norway was in a civil war, then believe me Somali oil companies would travel to Norway to drill for oil.

 

It's human nature saaxib. It's how we are.

 

It's our job to resist them, and look out for our own self-interests. The Ethiopians, Kenyans, Ugandans, Yemenis, Saudis and other people always take advantage of Somalis, so it's not a surprise that Norway wants to join in as well.

[ElPunto]

It is a fairly successful society. But they live somewhat narrow lives - small houses, small cars, high taxes and high prices. You don't have to be ostentatious and lavish like some Arabs but there is a middle way and Norway's hoarding culture is not it.

 

BTW - Norway has less than 5 million people while Nigeria has 150 million. Oil can only go so far.

[DoctorKenney]

<cite>

@ElPunto

said:</cite>

It is a fairly successful society. But they live somewhat narrow lives - small houses, small cars, high taxes and high prices. You don't have to be ostentatious and lavish like some Arabs but there is a middle way and Norway's hoarding culture is not it.

 

BTW - Norway has less than 5 million people while Nigeria has 150 million. Oil can only go so far.

 

That's very true. But Somalia also has a fairly small population, and I feel as if once they start drilling for oil in Somalia, the different tribal groups will start fighting each other for the oil dollars.

 

We already seen what happened in Kismayo when they were fighting over the port. One small, measly port.

 

Imagine when there's billions of oil-dollars at stake. There's gonna be some serious fighting and EVERYONE would want a piece of the pie.

 

Keep the Somali oil in the ground.

[Alpha Blondy]

<cite>

@DoctorKenney

said:</cite>

 

Keep the Somali oil in the ground.

 

is that because the Jihadist will get it out?

[DoctorKenney]

<cite>

@Alpha Blondy

said:</cite>

is that because the Jihadist will get it out?

 

You're not even remotely funny, STFU Alpha

[YoniZ]

The tile of the article is vague to say the least.There are missing elements when terming the phrase oil curse. The curse didn't came with oil discovery although it might have exacerbated/exploited existing hitch.

 

Questions need answered in the above article:

 

What was Norway GDP per capita in 1969 (the date oil discovered)

 

What was the GDP per capita of the neighbouring Scandinavian countries in 1969?

 

How are the above figures compared today?

 

To juxtapose Norway, Nigeria, or Gulf countries is not the best option to prove so called oil curse cliché.

[nuune]

Norway is continuing to invest its oil and gas money in a giant sovereign wealth fund.

 

Yes, you all forgot that every cent of Norway's oil goes to USA, this was an agreement between the two countries back WW2 when Norway was about to be annexed and the US offered its hand, in return, the US demanded every cent of any oil that are operational or would be operational to be handed over to a sovereign wealth fund(not located in Norway), the article misled people to believe that sovereign wealth fund is in fact in norway.

 

 

So how does Norway survive, well it uses it's higher tax revenue to keep her alive, and that snow tourism, and that is why you would not see fancy cars, or fancy buildings, or even fancy shopping malls.

 

 

One Somali guy whom I met in Oslo 3 years ago was quite happy with his imported 1992 Ford, in fact, he was saying, this car is brilliant, and not many Norwegians have this 1992 Ford.

 

At some point, while I was with him driving in one street, we came across a police car, and this Somali guy went mad by saying, look, how the police are spending and destroying money with these cars, in fact, the police was also driving a shattered Ford Fiesta, year: 1995.

 

 

Welcome to Norway, this is Norway.

 

MMA, hala yaabin Norway, they don't enjoy their oil, the US ayaa ka qaadato and they can't withdraw from that WW2 agreement, so they try their best to negotiate Kenya to steal our resources and minerals.

[xabad]

 

what a moron.

 

 

[Tallaabo]

<cite>

@nuune

said:</cite>

Yes, you all forgot that every cent of Norway's oil goes to USA, this was an agreement between the two countries back WW2 when Norway was about to be annexed and the US offered its hand, in return, the US demanded every cent of any oil that are operational or would be operational to be handed over to a sovereign wealth fund(not located in Norway), the article misled people to believe that sovereign wealth fund is in fact in norway.

 

 

So how does Norway survive, well it uses it's higher tax revenue to keep her alive, and that snow tourism, and that is why you would not see fancy cars, or fancy buildings, or even fancy shopping malls.

 

 

One Somali guy whom I met in Oslo 3 years ago was quite happy with his imported 1992 Ford, in fact, he was saying, this car is brilliant, and not many Norwegians have this 1992 Ford.

 

At some point, while I was with him driving in one street, we came across a police car, and this Somali guy went mad by saying, look, how the police are spending and destroying money with these cars, in fact, the police was also driving a shattered Ford Fiesta, year: 1995.

 

 

Welcome to Norway, this is Norway.

 

MMA,

hala yaabin Norway, they don't enjoy their oil, the US ayaa ka qaadato and they can't withdraw from that WW2 agreement, so they try their best to negotiate Kenya to steal our resources and minerals.

45% of Norway's revenue comes from reindeer's hilib, harag, iyo caano :-D

[tutu]

<cite>

@nuune

said:</cite>

Yes, you all forgot that every cent of Norway's oil goes to USA, this was an agreement between the two countries back WW2 when Norway was about to be annexed and the US offered its hand, in return, the US demanded every cent of any oil that are operational or would be operational to be handed over to a sovereign wealth fund(not located in Norway), the article misled people to believe that sovereign wealth fund is in fact in norway.

 

 

So how does Norway survive, well it uses it's higher tax revenue to keep her alive, and that snow tourism, and that is why you would not see fancy cars, or fancy buildings, or even fancy shopping malls.

 

Where did you get this from? That the US handles Norway's oil money? Norway has its own national oil fund (oljefundet) that has been investing over 60 percent in the international stock market in the recent years, as well as in other commercial cooperations. They've decided to use the fund so as to counter the inevitable decline of oil production in the coming decades. Simply a prophylaxis measure against eventual reduction of oil income and as their other income avenues such as the fishing industry, tourism, ship construction (a global trader in this area), export of exploration expertise and the traditional income tax can sustain the day to day budget of the country.

 

Norwegians live comfortable lives with the average family possessing a holiday cabin by the beach or mountain and small leisure boat. Health and education is free. They're naturally down to earth people and hardly showcase or superficially brag about their wealth even for the wealthiest.

[Alpha Blondy]

did y'all hear about Somalia taking Kenya to the Hague because of Kenyan attempts to annex reer Somalia's territorial waters in a bid to access Somali oil?