Norway’s oil wealth swamps innovation

It has had a bit of a shock in the past two years. The electronic ticker on the side of one Oslo bank shows only the price of Brent crude, the best guide to the country’s financial health. Its fall since 2014 has hurt Norway’s trade balance and made the government tap the sovereign wealth fund’s capital by $27.7bn, or $5,330 per citizen, to fill its budget hole this fiscal year.

Another sign of stress is the recommendation this week by a committee of experts that the sovereign wealth fund should invest more in equities, taking higher financial risks to raise its expected rate of return. The global fall in bond yields means that Norway’s energy wealth will not earn as much as its people once expected.

The oil fund is exemplary in many ways: by taking the wealth largely out of the hands of the government and directing it into overseas investment, Norway has avoided the worst of Dutch disease. But it adds to the sense of the country having a cushion against change: the fund’s very existence extends its deadline to reshape the economy.

The citizens are also cushioned. The government devotes the equivalent of 20 per cent of “mainland” GDP — the output of the non-energy economy — to social benefits, and Norwegians work 80 per cent of average hours in OECD countries, the equivalent of one less day a week. The energy sector is highly paid and productive but productivity growth elsewhere has lagged behind.

via Norway’s oil wealth swamps innovation

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