How Norway won the oil lotto

[barryqwalsh]

Norway has shown the world how to successfully manage the wealth from natural resources without being exploited by multi-nationals or squandering the windfall.



http://www.smh.com.au/entertainment...norway-won-the-oil-lotto-20160822-gqy1be.html

 

[barryqwalsh]

Norway offers lesson in avoiding the resources curse

A Norwegian offshore oil-drilling platform; the nation’s resource wealth has been wisely invested.

• PAUL CLEARY
• The Australian
• 12:00AM August 27, 2016
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• 3 Comments

Walk around the main streets of Oslo, or any major city in Norway, and what you’ll see looks surprisingly modest. Unlike so many other oil or mineral-rich countries, Norway is distinctly lacking in grand edifices or other trophies that attest to its triumph as a petroleum producer. One of the few such monuments is the sleek, iceberg-inspired Opera House overlooking Oslo fjord, but that was finished ahead of schedule and came in under its reasonable budget of $US500 million.

The main shopping centres are still the old-style high street rather than the modern-day mega-mall. Most government offices blend into the low-rise streetscape and there is a distinct absence of expensive vehicles on the road (other than a growing fleet of electric vehicles that run on the country’s abundant hydro power). Even Apple, which has planted its grandiose glass-fronted showrooms around the world, operates out of small shopfronts in the capital.

As a society, Norwegians have remained true to the sentiment put to visiting oil executives in the late 1960s about wanting to eschew the euphoria of oil riches. Norwegians were fearful of what oil would do to their society and their economy, and by and large they didn’t lose their heads.

Norway’s record is all the more remarkable because many other countries, and not just poor countries, have blown their boom-time windfalls on all forms of largesse, whether it be grand edifices, military hardware, white-elephant projects or cash splashes for swinging voters.

Its experience is all the more instructive because there is a misnomer found in much of the academic literature and media commentary about the effect on countries of plentiful natural resources.

This misconception is exemplified by Michael Ross in The Oil Curse: “Petroleum wealth is overwhelmingly a problem for low and middle-income countries, not rich, industrialised ones.”

Yet the view that resource-rich developed countries — such as Australia, Canada, the US and Britain — have all astutely managed their resource development is a flawed one. It’s true that they may not be run by authoritarian regimes but these countries have failed miserably in exercising good governance and long-term strategy over the development of their non-renewable resources.

At the end of Britain’s first decade as an oil-rich nation, the country had to ask the International Monetary Fund for a $US4 billion bailout, the biggest facility ever extended by the emergency lender.

Norway is alone in the developed world for having kept most of the windfall from its oil and gas wealth — 90 per cent of the cashflow now accrues to the Norwegian state. And only Norway has been able to set up sound institutions to manage this boom-time bonus for generations to come.

At the start of its oil era, Norway was a middle-income country with a per capita gross domestic product just ahead of Greece, and by the end of the 70s it was heavily indebted to the rest of the world. Its net foreign liabilities as a share of GDP peaked at 40 per cent. But its effective taxation and disciplined savings strategy turned that net debtor position into one of the world’s biggest creditors.

Its net foreign assets are worth 165 per cent of GDP, or about $US740bn ($970bn), and they have risen even more sharply when converted back into local currency as a result of Norway’s flexible exchange rate (one advantage of not being part of the euro).

During a 20-year period of relatively high oil prices, Norway has now salted away more than $US870bn in a long-term sovereign wealth fund. Despite lower oil prices, the fund is still growing and is on track to hit the $US1 trillion mark in 2020.

When compared with the record of Canada and Australia, two industrialised nations with Westminster political institutions and substantial resource sectors, Norway’s achievement is absolutely monumental. Canada, with an energy and mineral sector that generated 14 per cent of GDP in 2014, has established just one sovereign wealth fund that is tied to its resources sector. The oil-rich state of Alberta showed some foresight when it set up a future fund in 1976 to save windfall revenue, but it was repeatedly plundered by politicians and the lack of good governance is evident today, given it is worth a mere $C18bn ($18.27bn).

Despite the benefit of its biggest resources boom in history, Australia’s net foreign liabilities have almost hit the trillion-dollar mark in local currency. When the boom began in the early 2000s, Australia’s net foreign liabilities stood at about $400bn. By March this year they had more than doubled to $1.012 trillion, or about 60 per cent of GDP. Australia does have a sovereign wealth fund, the Future Fund, but its assets of around $120bn are expressly linked to funding a future pension liability for public servants.

Norway’s model is arguably the best example in the world today of how to exercise effective governance over non-renewable resources, but it is by no means perfect. The country made mistakes in the early years by allowing development to run ahead of safety controls, leading to the loss of many young lives in the 70s and 80s. It is now licensing new development in the Arctic region, which is questionable on technical and moral grounds.

Norway can also be criticised for relying too heavily on oil production and the onshore industry linked to it, which has meant that about one in four dollars of national income is directly and indirectly tied to this single commodity.

But there’s a great deal that can be learned from the Norwegian oil experience, and it’s one that is not appreciated as well as it should be outside Norway. Its long-term strategy and firm management, which has its origins in policies developed back in the early 1900s, really does set the country apart from all other resource-rich nations, and is salutary reading for resource-rich countries as they grapple with the aftermath of the biggest mineral and energy boom and bust since the early 70s.

Norway is the small country that’s become the big exception to the resource curse thesis.

This is an edited extract from Trillion Dollar Baby: How Norway Beat the Oil Giants and Won a Lasting Fortune, published next week by Black Inc and Biteback (UK).

 

[barryqwalsh]

This is certainly a book Donald Trump, and every politician or candidate, should read this book.

 

[Jomama]

Agreed on how well Norway has managed. Alaska did very well, considering it was the 1970s in the US West. My home state of Louisiana has done very poorly with oil.