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ECONOMY

EXPLAINED: Why is Norway such a wealthy nation? 

Norway is widely considered to be one of the wealthiest countries in the world, but why is the country so rich and where does the prosperity come from? 

EXPLAINED: Why is Norway such a wealthy nation? 
Norway is one of the wealthiest countries on earth, but why? Picture from Jan-Rune Smenes Reite on Pexels

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

Norway is currently the sixth richest country in the world when measured by GDP per capita. Norway’s GDP per capita is around $69,000, according to IMF estimates

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.

READ MORE: Norway taps oil wealth to cushion Covid impact 

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. 

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MONEY

EXPLAINED: What the revised national budget in Norway means for foreigners 

The Norwegian government has presented its revised budget for 2022. Here's The Local's roundup of some of the key proposals and what they mean for your wallet.

EXPLAINED: What the revised national budget in Norway means for foreigners 

Electric cars to become more expensive

The government will replace the VAT exemption for electric cars with a subsidy scheme. This means that electric cars that cost over 500,000 kroner will be subject to VAT, while EVs that cost less will be exempt from VAT. 

The government has said the cost of buying an EV with a sticker price of 600,000 would become 25,000 kroner more expensive. 

An EV costing more than a million kroner will become 125,000 kroner pricier, according to the government’s proposals. 

“If you can afford to buy a car for 1.7 million, it is only fair and reasonable that you also pay VAT,” Finance Minister Trygve Slagsvold Vedum said of the announcement

The scheme will come into effect next year. 

Free ferry tickets

All ferry journeys on routes with less than 100,00 passengers will be free from July 1st. This is likely to make around 30 of Norway’s 130 connections completely free of charge. 

The free trips will apply to local residents, tourists and other travellers. 

READ MORE: Why some ferry routes in Norway will be completely free this summer

It’ll become easier to get a better deal on energy prices 

The government will offer five million kroner in funding to help improve the Consumer Council’s electricity price comparison site strømpris.no.

The funding will make the comparison site better so that both spot price and fixed price customers can get the best energy deal available and save money. 

The government expects high electricity prices to continue

The government has written in its revised national budget that it expects high energy prices to continue. 

Tax revenues from the power companies will be used to cover the expenses of the electricity subsidy scheme, which sees the government pick up 80 percent of energy bills when the spot prices rise above a certain amount. 

Experts: Loan and mortgage repayments to increase faster

Loan and mortgage repayments could go up more quickly than anticipated due to increased oil spending, business and financial site E24 reports. 

In the revised budget, the government has said that it plans on spending 30 billion more of revenue from the oil fund than previously expected. 

“I think this is a somewhat more expansive use of money than Norges Bank (Norway’s central bank) had envisioned, and in that sense, I think that in isolation, it could contribute to a higher interest rate path, not strongly, but somewhat higher,” Kjersti Haugland, chief economist at DNB, told E24. 

If Norges Bank raises the key policy rate, lenders will follow suit meaning the loan or mortgage becomes more expensive to repay. 

Counties will be split up to improve local services

Viken will be divided into Akerhus, Buskerud and Østfold. Vestfold og Telemark will be split into two, as will Troms og Finnamrk. 

If parliament can make a final decision before the summer, the division will take place from January 1st 2024. 

The government wants to split the counties to improve the availability of local services in these areas, according to a press release from the Ministry of Local Government

Air passenger tax scrapped for the rest of the year

The air passenger tax, which was shelved for the last few years, will also be frozen until the end of the year. 

Cut in support for public transport

The government will be cutting its support scheme for public transport firms hit by a loss of income related to the pandemic from July 1st. 

For consumers, this means that some firms will cut the routes they offer due to the funding ending. 

Ruter has said that it is already cutting the number of routes from July 4th as passenger numbers are not back to pre-pandemic levels.Routes could also be cut in Oslo and Viken

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