Oil wealth causes angst for Norway
timesonline.co.uk
Maragreta Pagano
The Sunday Times - Business
The Sunday Times July 23, 2006
Oil wealth causes angst for Norway The Saudi Arabia of the north is struggling to work out what to do with the $1billion it earns each week. Should new reserves be left untapped or its citizens made even richer? Report by Maragreta Pagano
NORWAY’s prime minister, Jens Stoltenberg, looks as though he has just stepped out of a Bond movie. Tanned and fit from regular cycling and skiing, you can see why he is known as Norway’s pin-up. However, even his most devoted fans are grumbling that the election promises he made eight months ago have not been fulfilled.
They want to know why one of the richest countries in terms of income per head cannot afford newer schools and more homes for the elderly. It has fabulous oil wealth, but many Norwegians cannot understand why more of the $260 billion (£140 billion) earned from petroleum reserves isn’t invested at home rather than in an overseas fund.
With oil at more than $70 a barrel, Norway is earning $1 billion a week. At this rate the government’s pension fund, the world’s second-biggest investment pool, will be worth $410 billion by the end of the decade.
If this is tricky to manage, Stoltenberg has an even bigger question: how much richer should he let his country become? Recent new oil and gas discoveries in the Arctic, suggesting Norway has only just started to tap its hidden wealth, have provoked an unusually fierce debate among Norwegians. The environmentalists don’t want the oil touched. The right-wing opposition wants it pumped.
Somewhere in between is Stoltenberg’s Labour government. The 47-year-old, who trained as an economist, told The Sunday Times that his government was sticking to its recently adopted “compromise” policy on exploration. He said: “We are going to show that we can combine a sound environment and sustainable development with our oil and gas in the north. We have proved that already in the North Sea, the Norwegian Sea, and we are going to do the same in the Barents Sea.”
Earlier this year Stoltenberg’s coalition government published its “integrated management plan” with strict limits on the timing and amount of oil exploration.
However, many fear the Pandora’s box has been opened. One commentator said: “Once you start exploiting the oil and gas, people will get a taste for it and want more. You put a straw down into one of those wells and it becomes very difficult not to keep sucking it up.”
No wonder they are concerned. The US Geological Survey estimates that a quarter of the world’s undiscovered oil reserves lie below the Barents Sea, around the Lofoten Islands and along the coastline to its border with Russia — it is already being dubbed the northern Persian Gulf. Geologists say Norway has dipped into only a third of its potential liquid gold and a tenth of its gas deposits.
To date Norway has had only 1% of the world’s reserves. But it has been able to sell 90% of all the oil it finds because its production methods are so efficient.
Now it is the world’s No 3 oil exporter — only Saudi Arabia and Russia are bigger. Norway ships 2.9m barrels a day — half of China’s daily consumption — and is the fifth-biggest gas exporter, providing 30% of Europe’s needs.
Since oil was discovered 35 years ago, Norwegians have enjoyed one of the highest standards of living and a social welfare system whose generosity makes you gasp.
At current oil prices, Norway’s statistics show that it is the country with the world’s wealthiest citizens — per capita income is $64,000 — although the International Monetary Fund’s ranking puts it a close second to Luxembourg.
Since 2001 Norwegian governments have allowed only 4% of the money earned from oil revenues to be used in the domestic economy. Even so, there is no national debt, core inflation is negligible and unemployment is low and falling.
More pertinently, Norway is the only oil-based economy that has created a thriving high-tech industrial base with American levels of productivity and a manufacturing base at least level with its European peers.
During the summer, government employees stop work at 3pm (from May 15 to September 15). New pension reforms have reduced the working age, convalescent homes by the sea are routinely used after illness and childcare arrangements are amazing.
Marianne Troan has just had her second child. She gave birth at Ulleval, a swish hospital in the centre of Oslo that is so clean you could eat off the floor. After two days, she and her boyfriend spent three days in a “maternity hotel” to rest.
Troan can now choose either full pay for 10 months or 80% pay for a year. After the birth, her boyfriend, Stig, has two weeks’ off and then, after she goes back to work, he can take five weeks’ paid paternity leave.
When their child goes to kindergarten, the state will pay £300 a month to fund nursery care. If Troan chooses to stay at home, she will receive child support for three years.
Paradoxically, Norway’s birth rate is stubbornly low at 1.6%. Her elder sister, Cecilie Troan, a director of the Oslo Cinema chain, said Norwegian women were reluctant to have children because they had become so career-minded and well-off that they were loath to give it up.
Equality for women really is just that. The boards of every business, school or government body must be made up of at least 40% women. Nine out of the 19 members of the cabinet — including the minister of finance — are women and about a third of all MPs are female.
Norway may have the good life but it costs a bomb — a pint of beer is £5 while finding a bottle of wine in a restaurant under £25 is impossible. Only the state-run Vinmonopolet can sell alcohol to the public.
Norwegians don’t like it. Even petrol costs £1 a litre. Cars are also pricey — a Toyota Corolla is £28,000 and the latest Range Rover is £110,000.
Property is cheap, however, and about one in four of the 4.6m population has a second summer or winter home. Few Norwegians work in the service industries, preferring to import cheaper labour from Sweden, while Poles usually work as domestics. Immigration is becoming a big issue.
Like its predecessors, Stoltenberg’s government spends on big projects, such as building 25km tunnels under mountains and fjords. A £400m new opera house — designed to look like a rock emerging from the sea — is being built on stilts far out into the Oslo fjord.
All state projects get money for artwork. Cutting-edge design is apparent everywhere — from the latest high-speed Italian bullet trains to swipe-cards to pay for the ticket.
But still people are frustrated. This explains the latest polls, which show rising support for the main opposition right-wing Progress party. Progress wants more oil pumped, more money spent as well as more privatisation and tax cuts.
On Stoltenberg’s left in his coalition, the SV party wants even tougher controls on spending — and on new oil drilling — because it is terrified that more “easy money” will hurt the kroner and Norway’s exporters.
Norwegians don’t really like such debate. It is a tightly knit egalitarian society so the emergence of a middle class prepared to pay for schools and health — unheard of a decade ago — is slightly shocking to a nation so used to consensus.
One man who doesn’t want the oil touched is Knut Kjaer, 50, head of the government’s pension fund for the past nine years. He said the great secret of the fund’s success — being banned from investing in the local economy — was due to “picking the right people who pick the right stocks”.
Kjaer’s choices have been good. The fund has grown 6.6% and beaten its benchmark. He has more than 100 independent teams to avoid being hit by any one disaster.
About 60% is invested in bonds and the rest in equities. All 3,200 stocks are listed on the website of the central bank — Norges Bank.
Transparency is such that the salaries of the working population are noted on the tax department’s website once a year.
About 17% of the fund is invested in Britain and the top performers include Augean, the waste-disposal group, and Northern Rock, the bank. The Norwegians are also high-minded investors, though, and the ministry of finance has a list of banned stocks. Retailer Wal-Mart and Freeport Copper, the metals producer, have just been added to it.
Norges Bank is soon to get outside help. Tony Watson, formerly of fund manager Hermes, is the first foreigner to be invited to sit on a new international council to advise on strategy. Watson said: “The fund has done brilliantly. It’s too early for me to judge but my first reaction is to say stay away from US Treasury bonds. It is best to go for long- term high-yielding assets such as property.”
To spend or not to spend? It’s a tough one, but Watson thinks the money should be kept for future generations. “The worst thing to do is to allow a lazy attitude to develop — look at other parts of the world where the youngsters have squandered money with an extravagant lifestyle.”
A Bergen lady taxi driver says a local tragedy sums up Norway’s dilemma. Two elderly sisters froze to death in their home last winter. They were discovered with £19,000 under the bed. “This is Norway’s danger. We have the money and should spend a little more; certainly for the elderly. The future is now.”
Norway: basic facts of the country with the highest income per head
Government: Prime minister Jens Stoltenberg leads the Labour party, which governs in coalition with the Socialist Left and Centre party Population: 4.6m, making Norway the least densely populated country in Europe Gross Domestic Product: $194 billion Estimate for non-oil GDP growth for 2006: 2.7%-3% Core inflation (without energy) is 0.7%. Unemployment is 3.7% |
