Economy of Norway

By | April 29, 2022

According to cheeroutdoor, Norway is a small country at the post-industrial stage of development (in 2002, the GDP was 190 billion euros, per capita – 38.7 thousand US dollars, growth rate 2.1%, inflation 2.3%). The country leads in terms of the quality of life of the population and all social parameters, it is the third exporter in the world in terms of energy resources. Its supplies play an important role in providing oil and gas (over 12%) to Western Europe. They are provided by 8 main oil pipelines (total length of 1271 km with a total throughput of 2.93 million barrels per day) and 14 gas pipelines (total length of 5534 km with a total throughput of 169.1 billion m3 per year).

Although the specialization of the economy is still determined by natural conditions (cheap electricity, forest wealth, mineral and fish resources), recently new features have appeared associated with the use of advanced technology, highly skilled labor and the latest methods of organizing production. The country has a pronounced rental nature of the economy, dependence on raw materials, mainly oil and gas, exports, which, for example, amounted to St. 50% of all merchandise exports, while less than 15% of exports were in the technology sector. The oil and gas industry is the foundation of the entire Norwegian economy. In 2002, the oil and gas sector accounted for 23% of GDP and generated 32% of all revenues (NOK 223 billion, over $23 billion). It directly employs more than 74 thousand people, 3% of all employed, and indirectly another 220 thousand.

Economic growth (4.2% in the late 1990s-early 2000s) was driven by a combination of both favorable global economic factors and the successful macroeconomic policy of the authorities. Unemployment fell significantly, the state budget deficit disappeared and turned into a surplus. Although full employment creates favorable socio-economic conditions in the country, there is a danger of economic “overheating” due to limited resources.

The role of the state in the economy is still great and the public sector is significant. This is the result of the 30 years in power of the Social Democrats (NDP), who in their economic policy relied on Keynesian theory and the Scandinavian model of the “welfare state”. Although the public sector (approx. 5% in industrial production) includes a number of enterprises, incl. for the production of military equipment and ammunition, hydropower and construction, it mainly covers infrastructure. Significant positions of the state in the credit and financial sphere.

Much of the public wealth comes under state control through the tax sphere. Current total government spending was 42.4% of GNP. The state controls both key sectors (the oil and gas industry through large state-owned enterprises) and agricultural production and other areas, while the authorities experience a certain lack of resources.

The narrowness of the domestic market, the existing sectoral structure predetermined the country’s broad participation in the international division of labor. Thus, exports of goods and services accounted for 46% of the country’s GNP in 2002, while imports accounted for 30%. Oil and gas exports account for St. 45% of all national exports. With less than 0.2% of the population of developed countries and producing more than 0.5% of industrial output, Norway has St. 1% in the exports of these countries.

The fact that it is not a full member of the EU, which requires the member countries to unify the norms of economic legislation and strict coordination of economic policy, contributes to the consolidation of the role of the state in the economic life of the country. Norway, together with Iceland, still does not want to “dissolve” into the EU economy, lose control over oil and gas resources and lose its national identity.

The processes of globalization and regional integration are subjecting the Norwegian model of socio-economic development to serious tests. The state can no longer, as before, subsidize socially significant enterprises without the risk of sanctions from the EU or the WTO. In addition, in the context of employment growth of approximately 1-2% per year, the demographic situation is becoming more complicated, which requires additional social spending from the authorities. Contradictory processes took place in the sphere of state regulation. On the one hand, the authorities (both the first coalition government of H.-M. Bunnevik and the IRP cabinet of J. Stoltenberg) sought to use the levers of the liberal growth policy and limit the role of the state in the economy. The process of liquidation of state property was quite active (a number of hydroelectric power stations, part of the oil and gas industry and infrastructure facilities were privatized), there was a rejection of state intervention (income policy and attraction of foreign investment, etc.) and a number of social programs. In 2001, a partial privatization of the state company Statoil was carried out, its shares were placed on the stock exchange. On the other hand, significant oil revenues have allowed the state to increase domestic consumption and investment, ease the tax burden and expand investment in regional development, environmental protection and the social sphere. As before, many domestic industries (especially agriculture) that are vulnerable to foreign competition are subsidized by the state. A regional policy is being implemented – decentralization and the relocation of enterprises from large cities to the northern regions. In the conditions of the growth of the state budget surplus in 2000-02, the growth rate of wages increased.

The lever of state influence is the State Oil Fund (GNF), which is now St. 820 billion crowns (over 110 billion US dollars). The funds of the fund bring a solid income to the country: approx. 40% of the funds are invested in shares of foreign companies, and approx. 60% – in foreign government bonds. The fund is intended to serve as a financial buffer, giving the government the freedom to maneuver in economic policy in the event of a fall in world oil prices or a decrease in activity in industries not related to oil and gas production.

The country’s economy is divided (which is reflected in national statistics) into two parts: continental and shelf. The first – continental – is represented by traditional industries: electrometallurgical, electrochemical, mining, pulp and paper, engineering and other manufacturing sectors. The hallmark of the Norwegian industry is the production of offshore drilling platforms and related equipment, hydraulic turbines, industrial and household electrical and electronic equipment, production lines for fish processing. This segment includes fishing and the entire fish processing complex, shipping (among the traditional shipping powers, the country has the highest share of the fleet under its own flag, and its share in the country’s export earnings traditionally exceeds 10%).

The second part of the economy is the shelf one, which occupies a dominant position, it is represented by the oil and gas industries. By 2008, it is planned to increase gas exports to 80 billion standard m3 per year. The most significant gas fields are Sleipner, Ekofisk and Troll. Oil production amounted to 165 million tons with domestic consumption of 10 million tons (2002). The largest oil fields are Statfjord, Gylfaks, Oseberg, Ekofisk.

In 2002, the offshore sector generated almost 25% of Norway’s GNP, while the continental sector generated only approx. ten%. In addition, most sectors of the continental Norwegian economy are low-income and sometimes uncompetitive.

Of the total economically active population (2.3 million people), 23.7% are employed in industry and construction, 4.8% in agriculture, forestry and fishing, and 71.6% in trade and other service industries. The unemployment rate is 2.9%.

Despite the decline in the share of agriculture in GDP from 4% in 1968 to 2% in 2002, this industry continues to play a significant role. Animal husbandry is developed, mainly dairy. Although less than 2.5% of the total number of employees work here, and only 3% of the entire territory falls on the land, the level of self-sufficiency in agricultural products is almost 50% (75-80% in grains and almost entirely in livestock products).

Although the share of fishing in GDP is also declining, the fish processing and canning industries provide employment to the population in coastal areas, especially in the north. For the survival of the industry, the artificial breeding of salmon and trout plays an important role; fjords and mountain rivers are used for the industrial development of “aquaculture”.

Transport plays an important role in the economic complex: St. 80% of foreign trade cargo flow enters the country by sea, sea transport accounts for half of domestic cargo transportation. More than half of the merchant fleet consists of tankers. The length of highways is 90 thousand km, St. 55 thousand have an asphalt surface, 17.5 thousand bridges and approx. 1 thousand tunnels.

Share of foreign trade in GDP: export of goods and services 40%, import 33% (2002). Geographically, the EU accounts for 80% of trade. Approx. 120 companies with Norwegian capital. The share of the Russian Federation in Norwegian investments abroad is 0.1%, or $0.9 billion. Norwegian capital develops mainly the northwestern regions of the Russian Federation.

Economy of Norway