7. A Sketch of an Evaluation

In addition, it is customary to attach value to participation by citizens in public life and public decision-making. This element, however, may have a less obvious value in circumstances where large economic values are at stake.

Two other main contenders were ruled out by that author—the ‘resource differences’ explanation based on the value of the resources being produced and the costs of extraction, following the approach of The Alberta Royalty Review Panel (2007), and the ‘obsolescing bargaining model’ which predicts that the host country’s bargaining position vis-à-vis private oil companies will strengthen over time (e.g., Penrose 1959 and Jenkins 1986).

A main problem in many developing countries, is that funds are siphoned-off both by oil companies and other corrupt agents of the private sector, as well as by public officials. Thus, the story might end here. If it should continue, one might hope that a meaningful portion of money can be put aside and invested for the future. However, as Dixon and Monk (2011) makes clear in an African context, “It is not enough to simply set money aside. The successful SWF is ultimately a function of good governance and clear mandates (…)”.

A stylized fact of property prices in Norway, is that the setbacks in price were more serious in earlier years: It took 90 years for real prices to recover following a crash of the Christiania (Oslo) property market in 1899. Both the dot.com crisis of 2001 and the 2008/2009 Great Recession led to only moderate setbacks, with quick recoveries. Thus for the same seems to hold true for the Covid-19 Pandamic.

An early piece in this tradition is Gelb (1988), who studied the effects of the sharp oil price increases of 1974 and 1979 for six poor oil producing countries in Sub-Saharan Africa. His conclusion, after studying institutional and political factors and how the oil revenues were used, was that these countries were unable to capitalize on the new-found wealth. Much of the potential benefits had disappeared, and resources alone seemed insufficient to spur economic development. In that author’s view, the respective countries needed sound economic management, and to address political factors that were seen to conflict with wise policy choices. Later, Karl (1997) explained why in the midst of the two oil booms of the 1970s very different oil-exporting governments chose common policies to follow common development paths, with disappointing outcomes. This book, The Paradox of Plenty, illuminated economic, political and social factors that Karl saw as the nature of the oil state. Very different oil countries, like Algeria, Indonesia, Iran, Nigeria and Venezuela, were characterized by similar social classes and patterns of policy-making. Dependence on petroleum leads to fiscal reliance on oil revenues and high spending. Oil booms are seen by that author as reinforcing the oil-based interests, and weakening the state’ policy capacity. One can see this as a high risk if institutions are unsuited for growth at the time of a major first discovery of oil. See also Mehlum et al. (2006).

This publication was written by Michelle E. Jarvie, and released by the World Commission on Environment and Development, sponsored by the United Nations and chaired by Norwegian Prime Minister Gro Harlem Brundtland. Source: Britannica.com, accessed 31 March 2020.

Buckman (2004: 112–113) includes these ‘landmark publications’, together with some other contributions in his discussion of the emergence of the opposition to globalization in the so-called anti-globalization movement.

This figure could still rise due to negotiations on stimulation packages in Parliament in late November.

In January 2021, however, the price of Brent Blend oil held well above U. S. dollar 50 per barrel. The utilise in oil prises has since continued.

These factors are constructed based on historic price data. Assessments with such a foundation are bound to be at least somewhat naïve with regard to the future, which is genuinely unknown. The factor approach still seems to work well enough over time to be maintained as a tool of investment management. Systematic risk is risk with respect to the entire market, or a segment thereof, also known as undiversifiable risk, volatility or market risk.

However, Parliament may as mentioned change this regulation. Needs could arise which could justify changes. Thus, one may not want to take for granted a continuation of the current framework for the long term.

Source: Meld. St. 32 (2019–2020). The return for 2020 was 10.9 per cent (Source: Norges Bank).

The inflation given in the table for the Fund’s currency basket, of 1.68 per cent for that period, would indicate a real return of about 4.6 per cent. However, real estate investments are concentrated to only a few markets.

For instance, brexit, the exit of the UK from the EU, could have such consequences for real estate in London.

Cf. Part I, section I.4 of this book. As far as this author understands the agenda is currently to increase the fraction of external, active mandates to about 5 per cent, compared to a current about 3½ per cent, of the Fund.

The web site Investopedia.com offers the following definition: “Frontier markets are less advanced capital markets in the developing world. A frontier market country is a country that is more established than the least developed countries (LDCs) but still less established than the emerging markets because it is too small, carries too much inherent risk, or is too illiquid to be considered an emerging market. Frontier markets are also known as pre-emerging markets.” Source: Investopedia.com, accessed 15 April 2020.

As late as in 2002, no-one seemed to believe that the Fund could exceed GDP, at least not by much. In a conversation with some fellow economists that year, there was disbelief expressed when this author suggested that the Fund could perhaps become twice as large as twice the size of GDP.

The fiscal year follows the calendar year in Norway. The funds set aside to cover the non-oil deficit can in principle exceed resource income from the same year. The first example of this, was registered in 2016.

Demographic developments are making the welfare state more expensive to operate over time, with fixed qualification criteria for the various entitlements. The main component is pensions due to old age, which increases both due to an increased number of old citizens and an increased number of years that people who reach retirement age are supported by this arrangement. Other items, for instance disability pensions, envisage similar implications on the cost side of the budget. Overall, there is a strong tendency for welfare arrangements to require a steadily increased funding by the state. However, these problems are to a large extent linked to the politically determined content of entitlements. Compared to in other OECD countries, the increase over time in expected life length at birth is moderate in Norway.

An exception is Andvig (1995), who studied corruption directed against middle-level management in oil companies in the Norwegian and British oil industry in the North Sea.

An important question, is the degree to which Norway will be able to capitalize on this after the oil era. There is some positive evidence on this.

There were 20 counties and 428 municipalities in 2017. As of January 2020, the number of counties, or regions as they were now called, had through mergers been reduced to 11, and the number of municipalities to 356—a 17 per cent reduction. The ambition of the government, however, had been to reduce the number of municipalities to about 100—by 77 per cent.