Norway wonders what to do with its oil wealth

Norway was one of Europe’s poorest countries when oil was discovered off its coast 40 years ago. Now its citizens are considered the wealthiest in the world according to the UN Human Development Index.

AFP

For the past 15 years, the profits from oil have been paid into two sovereign wealth funds. Norway’s Government Pension Fund Global invests in stocks and bonds around the world. It's now worth over 500 billion euros.

This may sound like a dream come true, especially given that many of the world’s leading economies are faltering. But debate is raging in Norway about how the money should be spent.

"I'm not against us investing in stocks and bonds around the world but I think more of the money should be spent in Norway,” says Siv Jensen, leader of the opposition Progress Party.
 
As the leader of Norway’s second largest political party, Siv Jensen is not alone in her belief that more of the country’s oil wealth should be invested at home. But Norway already has the highest wages in the world and ranks second after Japan for high cost of living. Pumping oil wealth into infrastructure projects would lead to sky-high inflation making Norway uncompetitive on the world market.

In addition to oil, Norway also exports peace. Every year the Nobel Peace Prize is awarded in Oslo. Mediation and peacemaking are also central to Norway’s foreign policy. So it came as a shock when it was revealed the sovereign wealth fund had been investing in defence companies.

"At one point every week was a new scandal involving companies manufacturing cluster bombs, arms and other weapons," explains Arild Hermstad, the managing director of the NGO Future in Our Hands.

The transparency of Norway’s Government Pension Fund Global has led to it being used as the yardstick for measuring other sovereign wealth funds including China, Kuwait, Libya and Qatar.

But these funds’ unwillingness to disclose exactly how they generate income means they’ve lost out on bids to rescue failing Western companies. The Norwegian fund, by contrast, has a whiter than white image around the world. But environmentalists in Norway are beginning to question whether money earned from oil should be invested in foreign oil companies.
 
“We have one single investment in the company BP that's worth more than the government's entire investment in renewable technologies,” says Arild Hermstad.
 
So while Norway’s sovereign wealth fund is being hailed as a beacon of hope in these financially uncertain times, it remains selective about who deserves to be kept afloat. Multinational oil companies are seen as a safer option than emerging markets.
But the tide of public opinion could be about to turn in the wake of the Gulf of Mexico oil spill.

If Norwegian environmentalists get their way, environmental polluters may join weapons manufacturers in the sin bin. This will make companies providing environmental solutions to the global problem of climate change a more attractive investment opportunity for Norway’s Government Pension Fund Global.