Norwegian Economy

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Norwegian Economy
Topic Started: Oct 6 2008, 10:24 PM (15 Views)
Deleted User	Oct 6 2008, 10:24 PM Post #1
Deleted User	Economy Norwegians enjoy the second highest GDP per-capita (after Luxembourg) and third highest GDP (PPP) per-capita in the world, and has maintained first place in the world in the UNDP Human Development Index (HDI) for six consecutive years (2001-2006). However, in 2007 Iceland very narrowly beat Norway as the #1 place according to the Human Development Index. The Norwegian economy is an example of mixed economy, featuring a combination of free market activity and large government ownership. The government controls key areas, such as the strategic petroleum sector (StatoilHydro), hydroelectric energy production (Statkraft), aluminium production (Norsk Hydro), the largest Norwegian bank (DnB NOR) and telecommunication provider (Telenor). The government controls 31.6% of publicly listed companies. When non-listed companies are included the state has even higher share in ownership (mainly from direct oil license ownership). Referendums in 1972 and 1994 indicated that the Norwegian people wished to remain outside the European Union (EU). However, Norway, together with Iceland and Liechtenstein, participates in the European Union's single market via the European Economic Area (EEA) agreement. The EEA Treaty between the European Union countries and the EFTA countries – transposed into Norwegian law via "EØS-loven" – describes the procedures for implementing European Union rules in Norway and the other EFTA countries. This makes Norway a highly integrated member of most sectors of the EU internal market. However, some sectors, such as agriculture, oil and fish, are not wholly covered by the EEA Treaty. Norway has also acceded to the Schengen Agreement and several other intergovernmental agreements between the EU member states. The country is richly endowed with natural resources including petroleum, hydropower, fish, forests, and minerals. Large reserves of petroleum and natural gas were discovered in the 1960s, which led to a continuing boom in the economy. Norway has obtained one of the highest standards of living in the world in part by having a large amount of natural resources compared to the size of the population. The income from natural resources include a significant contribution from petroleum production and the substantial and well-managed income related to this sector. Norway also has a very low unemployment rate, currently below 2% (June 2007). The hourly productivity levels, as well as average hourly wages in Norway are among the highest in the world. The egalitarian values of the Norwegian society[citation needed] ensure that the wage difference between the lowest paid worker and the CEO of most companies is much smaller than in comparable western economies. This is also evident in Norway's low Gini coefficient. Cost of living is about 30% higher in Norway than in the United States and 25% higher than the United Kingdom. The standard of living in Norway is high, and the continuing increase in oil prices ensure that Norway will remain one of the richest countries in the world over the foreseeable future. Resources Export revenues from oil and gas have risen to 45% of total exports and constitute more than 20% of the GDP. Only Russia and OPEC member Saudi Arabia export more oil than Norway, which is not an OPEC member. To reduce over-heating from oil money and the uncertainty from the oil income volatility, and to save money for an aging population, the Norwegian state started in 1995 to save petroleum income (taxes, dividends, licensing, sales) in a sovereign wealth fund ("Government Pension Fund — Global"). This also reduces the boom and bust cycle associated with raw material production and the marginalization of non-oil industry (see also Dutch Disease). The control mechanisms over petroleum resources are a combination of state ownership in major operators in the Norwegian fields (StatoilHydro approx. 62% in 2007) and the fully state owned Petoro (market value of about twice Statoil) and SDFI. Finally the government controls licensing of exploration and production of fields. The fund invests in developed financial markets outside Norway. The budgetary rule ("Handlingsregelen") is to spend no more than 4% of the fund each year (assumed to be the normal yield from the fund ). By January 2006, the Government Pension Fund of Norway fund had reached a value of USD 200 billion. During the first half of 2007, the pension fund became the largest fund in Europe, with assets of about USD 300 billion (equivalent to over USD 62,000 per capita). The savings equal the Norwegian GDP and are the largest capital reserve per capita of any nation as of April 2007. Projections indicate that the Norwegian pension fund may become the largest capital fund in the world. Currently it is the second largest state-owned sovereign wealth fund, second only to the Abu Dhabi Investment Authority; Conservative estimates tell that the fund may reach USD 800-900 billion by 2017. Other natural resource-based economies, such as those of Russia and Chile, are trying to learn from Norway by establishing similar funds. The investment choices of the Norwegian fund are directed by ethical guidelines; for example, the fund is not allowed to invest in companies that produce parts for nuclear weapons. The highly transparent investment scheme is lauded by the international community. The future size of the fund is of course closely linked to the oil price and the developments in international financial market. At an average oil price of USD 100 per barrel, the trade surplus for 2008 is expected to reach USD 80 billion. At June 2008 oil prices, the trade surplus for 2008 is expected to reach USD 90 billion. In 2000, the government sold one-third of the then 100% state-owned oil company Statoil in an IPO. The next year, the main telecom supplier, Telenor, was listed on Oslo Stock Exchange. The state also owns significant shares of Norway's largest bank, DnB NOR and the airline SAS. Since 2000, economic growth has been rapid, pushing unemployment down to levels not seen since the early 1980s (unemployment: 1.3%). Norway is also the world's largest exporter of fish.
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