The Scandinavian nation is widely understood to be one of the wealthiest countries in the world. But is that really true and if so, why?
Historically speaking, Norway was always the poor cousin of Sweden and Denmark. The situation is somewhat different today!
Big country, small population
Before we move on to the obvious black gold, there are other issues to consider that are often overlooked. First and foremost, Norway has a huge amount of landmass, coastline and waters, but a relatively small population.
This combination means there the money earned by the land and the ocean goes a lot, lot further than you might expect. The same is true for Norway's Nordic siblings: Sweden, Finland, Iceland, and to a lesser extent Denmark.
A helping hand from nature
Its position on the planet has been beneficial to Norway in many ways. The country is blessed with natural resources.
The cold waters all around the country have for centuries provided rich fishing opportunities, and this continues through to the present day. Although Lofoten is known for its tourism, the fishing industry still plays a critical part in the local economy.
Despite the cold winters, agriculture too has always played an important role. But of course, Norway's fortunes changed significantly upon the discovery of another even more valuable resource lurking underneath the water.
The discovery of oil
As recently as the late 1950s, very few people in the industry believed that the Norwegian continental shelf (the ocean bed off the Norwegian coast) might be rich in oil and gas deposits. It was the discovery of gas in the Netherlands that persuaded some to look again at the North Sea.
Phillips Petroleum were the first movers, sending in an application to the Norwegian authorities in 1962 seeking permission to explore in the North Sea. It was at this point that the Norwegian government claimed sovereignty of large offshore areas, but awarded licenses to conduct seismic surveys to private companies.
Despite some early setbacks, the industry took off in 1969 with the major discovery of what is today known as the Ekofisk field. The government released licenses gradually, mainly to international companies until the formation of Statoil in 1972, which gave the state a direct interest.
A significant contributor
Over the last forty years, petroleum activities on the Norwegian continental shelf have contributed significantly to Norway's economic growth and financed much of the welfare state. According to government figures, the industry has created values in excess of NOK 12,000 billion in current terms.
The government's own website says that the oil and gas sector accounts for approximately 23% of Norway's value creation, more than twice that of the manufacturing industry. Of course, while the discovery of oil was purely one of chance, how Norway has managed and used the substantial funds generated by the industry is a whole different story.
The Government Pension Fund Global is a fund into which the surplus wealth produced by Norwegian petroleum income is deposited and invested. The money comes from taxes on operating companies, exploration license fees, dividends from the partly state-owned Statoil, and profits from the state's ‘Direct Financial Interest' in some fields.
The fund was established in 1990 to counter the effects of the expected decline in income and to smooth out the disruptive effects of fluctuating oil prices. Money coming into the fund is expected to significantly fall over the coming years, so the focus on how the money is being invested has never been greater.
Given the sheer size of the fund it's value fluctuates significantly on a daily basis, but at the time of writing it stood at just over 8,000 billion Norwegian kroner. The current value is displayed on this website.
As at 31 December 2017, the fund's assets were split two-thirds in equity investments, just over 30% in fixed-income investments, with the relatively small remainder in real estate.
“The Government Pension Fund Global is saving for future generations in Norway. One day the oil will run out, but the return on the fund will continue to benefit the Norwegian population” – Norges Bank Investment Management.