Norway may be famous for its outdoor landscapes and northern lights, but international investors know the country for its growth rates, which compare favorably with growth rates elsewhere in the Eurozone. Since the industrial era, Norway's economy has posted strong growth rates that have consistently outperformed many of its European neighbors, particularly during economic downturns.
Here is a detailed look at how investors can build exposure to Norway's economy into their portfolios, as well as some benefits and risks to consider.
Key Takeaways
- Much of Norway's economy relies on the North Sea oil industry, which is mostly controlled by government agencies or quasi-governmental organizations.
- American Depository Receipts of Equinor ASA (NYSE: EQNR), an oil and gas company, is one of the most popular ways to invest in Norway.
- American investors can also buy Norweigian exchange-traded funds, such asGlobal X FTSE Nordic Region ETF (NYSE: GXF).
- Norway's reliance on a single industry, with changes in oil production and prices impacting the whole economy, creates potential risks for investors.
Norway's Oil-Centric Economy
Norway has relied heavily on its North Sea oil to finance its extensive welfare system and better-than-average economic growth. Unlike the oil and gas operations of many of its neighbors, Norway's are largely controlled by governmental or quasi-governmental entities. It should also be noted, however, that rise in the petroleum industry since the 1970s has resulted in a slowdown in many other economic sectors.
The growing petroleum industry has shielded the country against many economic downturns since the industrial era. But, it has also made Norway one of the most expensive countries in the world to live in and caused concerns that too much of its labor force is tied to petroleum. A drop in the petroleum market could create significant problems for the country.
Equinor & Other Norwegian ADRs
American Depository Receipts ("ADRs") provide U.S. investors with an easy way to purchase an individual stock trading on a non-U.S. stock exchange. When creating ADRs, U.S. banks purchase a bulk lot of shares from a foreign corporation, bundle them into groups, and then reissue them on the New York Stock Exchange, American Stock Exchange, or the NASDAQ. Most of these ADRs range in price from $10.00 to $100.00 per share, making them very affordable for smaller investors.
The most popular Norwegian ADR is Equinor ASA (NYSE:EQNR), which is an integrated oil and gas exploration and production company. The company has operations in 30 countries and territories, with proved reserves of 6 billion barrels of oil and natural gas. With a market capitalization of $58 billion as of February 2021, the company is one of the largest oil and gas companies in terms of both market cap and total profit.
Investing in Norway with ETFs
Exchange-traded funds ("ETFs") represent the easiest way for investors to gain exposure to Norway's companies since they provide access to a diverse basket of securities across several different industries. For a relatively low management fee, ETFs enable investors to purchase broad exposure and diversification within a market sector or, using index ETFs, in the broader market. As with all investments, some risk is inevitable, including the loss of capital.
The most popular Norwegian ETF, with an expense ratio of 0.56%, is the Global X FTSE Nordic Region ETF (NYSE: GXF), with an expense ratio of which tracks the FTSE Norway 30 Index that encompasses the country's largest companies. With net assets of $28 million, the company holds primarily oil and gas companies, including Novo Nordisk A/S-B, Vesta Wind Systems A/S, and Orsted A/S. The largest holding is Novo Nordisk, which accounts for about 14.15% of assets as of February 10, 2021.
Risks & Other Considerations
Norway's robust economy represents a great way for international investors to diversify their portfolios. But with its heavy exposure to the oil and gas industry, investors should be aware that a downturn in crude oil prices or production levels may lead to a downward turn in Norway's economy. Investors should carefully consider this exposure when incorporating Norwegian ADRs or ETFs into their overall investment portfolios.
FAQs
The government says Norway's oil and gas resources are essential to Europe's energy security and will be needed for decades to come. Norway last year overtook Russia as Europe's biggest gas supplier after Moscow cut supplies amid the war in Ukraine.
Why is Norway's economy so successful? ›
Norway is one of the world's most prosperous countries, and the production of oil and gas accounts for 20 percent of its economy. Other important sectors include hydropower, fish, forests, and minerals. Revenues from petroleum are deposited in the world's largest sovereign wealth fund.
How important is oil to Norway's economy? ›
Fifty years later, it is more important than ever. The industry plays a vital role in the Norwegian economy and the financing of the Norwegian welfare state. The oil and gas sector is Norway's largest measured in terms of value added, government revenues, investments and export value.
What are the pros of the oil and gas industry? ›
America is the world's leading producer of oil and natural gas. The oil and gas industry supports millions of American jobs, provides lower energy costs for consumers, and ensures our energy security.
Is Norway rich because of oil? ›
That's thanks to its gigantic North Sea petroleum deposits — the spoils of which have been used to provide a robust safety net for current and future generations. The Norwegian government's net cash flow from petroleum sales is transferred into Norway's $1.3 trillion sovereign wealth fund.
How much of Norway's economy is oil and gas? ›
Norway is unique among the 38 Organisation for Economic Co-operation and Development (OECD) countries: its oil revenue amounts to 4.3 percent of GDP— compared with 0.2 percent for the OECD as a whole.
How strong is Norway's economy? ›
Norway is a modern, energy-rich country with a population of 5.4 million. It is considered one of the world's wealthiest countries with a GDP per capita based on purchasing power parities (PPP) exceeding USD 79,200. Incomes are also more evenly distributed, making every person a consumer.
What are the economic weaknesses of Norway? ›
Norway's long-term fiscal challenges are one of its major economy problems. While the country's public spending is high, its wealth-fund growth is slower, one reason being the lower returns. This will put a cap on the amount that could be spent on new initiatives.
Is Norway's economy better than the US? ›
The United States has a lower per capita GDP than Norway with a GDP of 51,749 compared to 99,558, respectively, and is also home to one of the most pressing income distribution gaps in any industrialized nation, surpassed in income inequality by only Russia and Mexico.
How does Norway tax oil? ›
This entails a special tax rate of 71,8 % in order to maintain a combined marginal tax rate of 78 %. Total estimated tax payments from petroleum activities are about NOK 651,5 billion in 2023. Norway's tax revenues from petroleum activities between 1971 and 2021 is shown below.
Accumulated resources on the Norwegian continental shelf, 1966-2022. In the early days, foreign companies dominated exploration activities, and they were responsible for developing the first oil and gas fields. Norwegian participation gradually increased as Norsk Hydro became involved.
Why is oil so expensive in Norway? ›
Because Norway has the highest fuel taxes in the world. To give perspective, the United States imposes a 20¢ fuel tax, and individual states add between 12.4¢ and 52.9¢ per gallon. The price of gasoline/petrol is heavily dependent on where the refineries are located.
What are the pros and cons of oil and gas? ›
Pros and Cons of Petroleum
It is easy to extract but is a non-renewable, limited supply source of energy. Petroleum has a high power ratio and is easy to transport. However, the extraction process and the byproducts of the use of petroleum are toxic to the environment.
What are the negative effects of the oil and gas industry? ›
Pollution. Oil and gas operations could release many tons of harmful pollutants into the air and discharge dangerous chemicals into the water, thereby degrading the clean air and water that polar bears, whales, walrus—and humans—depend on for survival.
What is the future of Norway oil and gas? ›
Norway's government said on Wednesday it has given approval for oil companies to develop 19 oil and gas fields with investments exceeding $18.5 billion, part of the country's strategy to extend production for decades to come.
Where does Norway rank in oil production? ›
Summary Table
| Barrels per Day | Global Rank |
|---|
| Oil Production | 2,003,748 | 13th in the world |
| Oil Consumption | 204,090 | 55th in the world |
| Daily Surplus | + 1,799,657 | |
| Oil Imports | 9,927 | |
2 more rowsAbout. Exports In 2021, Norway exported $41.5B in Crude Petroleum, making it the 8th largest exporter of Crude Petroleum in the world.
What will happen to Norway when oil runs out? ›
The Norwegian Oil and Gas Association has calculated that shutting down Norway's petroleum industry from 2020 would mean the loss of NOK 140 billion in annual government revenues. It also estimates that around 300 000 people employed in the country directly and indirectly by the industry would lose their jobs.
