How wealthy is Norway?
Many believe that Norway was a relatively poor country until discovering oil and gas in the North Sea.
This may be a slight misconception, however, as in the 19th century, Norway’s wealth was, in fact, on par or slightly above average compared to the rest of Europe at the time.
However, Norway was certainly behind its neighbours Sweden and Denmark, until recently, in terms of wealth.
“Before oil, in the 1960s, Norway had an income some 10 to 20 percent below our neighbours Denmark and Sweden,” Professor Halvor Mehlum from the economics department at the University of Oslo tells The Local.
Today, however, things are slightly different, with Norway’s income now between 10 to 20 percent higher than its two neighbours, according to the professor.
Neighbour’s and Sweden and Denmark both make the top 20 with GDP’s of around $55,000 and $61,000 respectively.
The top three wealthiest countries in the world in terms of GDP per capita are Luxembourg, Singapore and Ireland with GDP’s off $122,000, $102,000 and $99,000 according to the IMF’s data.
The poorest countries in the world are Somalia, South Sudan and Burundi whose GDP per capital are all below $1,000.
Why is this?
As many of you will have guessed by now, oil has played a pivotal role in Norway’s wealth.
“Black gold” has been crucial to the Norwegian economy for three reasons, according to professor Mehlum.
“Oil is important for three main reasons. Firstly, it has provided an important income to the Norwegian economy, both public and private. Secondly, it has provided export earnings that can pay for imports. Third, it has brought an entire industry that is very productive,” Mehlum explains.
However, while oil has played a large part in the development of Norway’s economy, it isn’t the sole reason Norway is so well off.
“Norway is rich today because of the well-educated labour force, productive public and private sectors, and rich natural resources. In addition to this, Norway can buy goods at low prices from the international markets, such as garments, and sell goods at high prices, such as salmon,” Professor Mehlum explains.
It isn’t Norway’s income from oil that has contributed to the Nordic country’s wealth, instead what the Scandinavian country has done with the income.
Norway puts its oil revenues into the Government Pension Fund, the largest sovereign wealth fund in the world. In simple terms, the Government Pension Fund, or oil fund, is a giant savings pot that makes its money by investing in more than 9,000 companies all over the globe.
The fund is valued at around 11 trillion kroner or 1 trillion dollars. You can see the real-time value of the fund here on the Government Pension Fund’s website.
The wealth fund is an essential source of funding for the government, with around every fifth kroner of government spending coming from the oil fund. Without the fund, the government would have to dramatically lower its spending or raise taxes across the board, according to Mehlum.
Beyond material wealth, the oil fund also plays a part in Norway’s societal wealth, with money from the fund being invested into health, education and welfare.
Norway is the sixth happiest country on Earth, according to the UN’s World Happiness Report for 2021, thanks in part to its well-funded welfare, education and health systems making it not just one of the wealthiest countries in the world but also one of the happiest.
Will Norway stay wealthy as oil and gas are phased out
This is the elephant in the room when discussing Norway’s vast natural resources. What will happen to the economy when the oil and gas run out or are no longer needed?
The economy will be in for a massive shakeup once the oil wells run dry or demand drops as the world looks to greener energy.
“When Norway stops producing oil at current high prices, the economy is in for a serious transformation, as high paying jobs will disappear, profitable businesses will also disappear, and important tax income will disappear,” Mehlum points out.
“The fund will cushion part of this transformation. Not least because the government can continue using the fund even as the oil taxes go down,” he added.
How well the fund is managed and the success of its thousands of investments will also play a huge factor in determining whether Norway will remain rich in the future.
“If the returns in the stock and bond markets remain at current levels, then the fund will be important for many years to come. If the returns drop drastically, then the fund will be gone in a generation,” Mehlum explains.