NORWAY'S SOVEREIGN WEALTH FUND UNVEILED

Norway boasts one of the world's top-performing economies, characterised by low unemployment rates, an exceptionally skilled workforce, the highest national life expectancies, and a robust trade surplus. How did Norway evolve into such a thriving and efficiently functioning economy?

NORWAY'S ECONOMIC TRANSFORMATION: FROM MODESTY TO OIL WEALTH

Before the 1960s, Norway was a modest and less affluent nation compared to others, relying primarily on traditional industries such as agriculture and fishing for its income. However, in 1969, a significant discovery occurred when oil was found in the North Sea (an area claimed by Norway in 1963). This discovery sparked a boom in oil production, leading to an abundance of oil reserves. While private companies played a crucial role in the risky exploration work that uncovered these deposits, Norway mandated that the state must hold a 50% participation in every production license sold to private companies.

Additionally, a Norwegian company, initially named Statoil and later rebranded as Equinor, emerged in the field. Equinor not only extracts and sells crude petroleum and natural gas but also invests in refineries to process these fossil fuels. This investment enables direct sales to consumers in Europe. Norway possesses substantial oil refining capacity, importing crude petroleum from efficient facilities in countries like Sweden and Russia, which is then shipped or piped to end-users.

NORWAY UNVEILS WORLD'S LARGEST PHOSPHATE RESERVE

On July 8, 2023, Norway made a groundbreaking discovery: the world's largest supply of phosphate. A staggering 77 billion tons of this valuable resource were uncovered within the country, estimated to be worth $24 trillion USD. Phosphate finds application in various industries, including fertilisers, electronics, high-performance batteries, and solar panels. With the global transition towards net-zero emissions and reduced reliance on fossil fuels, Norway's phosphate reserves hold the potential to experience a significant surge in value.

NORWAY'S PRUDENT SOVEREIGN WEALTH FUND STRATEGY

The Norwegian government demonstrated exceptional prudence in managing revenue from oil by funnelling it into a sovereign wealth fund (SWF), now the world's largest. As of March 2024, this fund boasted over $1.62 trillion USD in assets, equivalent to holding 1.5% of all listed companies worldwide. Per Norwegian citizen, this amounts to over $295,000, though this sum isn't directly accessible to individuals. Instead, only the profits generated are utilised to support various initiatives such as education, a robust welfare system, public infrastructure, and reinvestment into the fund itself.

The fund's investment portfolio is diversified across stocks, bonds, cash, and commodities. Of particular interest are the stringent rules governing its investments. The SWF is prohibited from investing in weapons manufacturers, tobacco companies, entities causing severe environmental damage, or those that have violated workers' rights and labor laws. In a bid to diversify revenue sources, the fund is cautious about investing in fossil energy companies. Notably, investments within Norway itself are off-limits for the fund's operations.

PROGRESSIVE TAX SYSTEM

Despite Norway's abundance of natural resources and wealth, the government has upheld high tax rates to support its extensive welfare state. These taxes are levied to finance free services such as education, healthcare, robust welfare programs, and top-notch infrastructure. Through its progressive tax system, the Norwegian government manages inequality by ensuring that low-income workers pay proportionally less while high-income earners contribute more. This progressive tax approach reflects Norway's commitment to fairness, equity, and social support for individuals with lower incomes.