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In 1969, one of the world’s largest offshore oil fields was discovered off the coast of Norway, and the country suddenly had a huge amount of product to sell.
Norway did not waste this money and, unlike the UK government detailed in the Macron Report series, recognized early on that the revenue generated would need to be used judiciously.
In 1990, the Norwegian parliament passed legislation creating a fund, now known as the Global Government Pension Fund, and the first funds were deposited in 1996.
One day, oil will run out. But rather than forcing funds to follow the same path, this fund means Norway can think long-term and protect its economic future.
The National spoke to a variety of academics about why this fund is so important and how this model can be replicated.
What is the Fund and how does it work?
Revenues from oil and gas production are transferred to the fund, but these deposits actually account for less than half of its value (which exceeded $1 trillion in 2017).
Its value has since increased to more than $1.3 trillion, according to the latest figures.
Professor Paul de Leeuw, from Robert Gordon University, told The National: “Norway has used the fund in a wise way. This is a shining example of using the proceeds to the benefit of the country for future generations.”
Most of its impressive profits came from smart investments. This fund owns his 1.5% of all shares in listed companies in the world.
In addition to owning shares in about 9,000 companies around the world, the company also invests in real estate, which generates income.
The fund is estimated to continue covering Norway’s social costs for 300 years and is worth approximately $250,000 per Norwegian citizen.
Broadly diversifying your investments and creating a diversified portfolio reduces your risk of loss if oil and gas prices decline.
In terms of structure, the Norwegian Parliament sets the formal framework for the Fund, and the Ministry of Finance and the Norges Bank Board are responsible for managing the Fund.
The CEO of Norges Bank Investment Management is responsible for implementing the requirements defined by the Board of Directors.
Why has it been so successful?
Rob Bauer, a professor at Maastricht University in the Netherlands, explains that the best way to understand why the fund is working so well is to compare it to what’s wrong with other countries.
“The best way to explain it is to actually say how it doesn’t work,” he said.
“For example, the Dutch discovered gas and used it to finance their annual budget rather than for savings.
“Norway, admittedly with a very small population, has saved over a long period of time and set up long-term oriented funds. means.”
What are the funds invested and how is it structured?
Both De Leeuw and Bauer stress that, despite its value, the fund should not be treated as a piggy bank.
“They’re using their funds wisely. It’s smart to take some of the profits out to balance the books, but generally they’re keeping it for the future so they can’t use it now.” No,” explained De Roux.
According to the fund’s website, the Norwegian government can only spend a small portion of the funds generated, but this still amounts to almost 20% of the budget.
The website states that “deficits will be covered with funds from the fund,” but it also explains that there is a rule not to spend more than the expected revenue.
In this method, only the proceeds are spent, not the fund’s capital.
This money has been invested in some of the world’s biggest companies, including Apple, Nestlé, Royal Dutch Shell and Microsoft.
It also owns stakes in prime real estate such as the Champs-Elysées in Paris, Times Square in New York, and Regent Square in London.
In 2019, Congress approved investments in renewable energy, purchasing stakes in solar and wind power projects in Spain and Iberdrola.
It is also used as a source of funds for pension expenditures. Overall, statistics show that he has invested in 9,228 companies in 70 countries around the world.
transparency is key
Of course, it will take time and wise investment for a country to generate Norway’s levels of revenue over a long period of time, but both De Leeuw and Bauer believe it can be replicated.
There have been calls for Scotland to adopt this model for many years.
For example, following news that the fund had passed the $1 trillion mark, SNP MP John Nicholson tweeted: Alas, we listened to the wrong political leaders. ”
But above all, both scholars emphasize that transparency is central to making the fund work.
“Funds may make decisions that don’t directly benefit individuals financially. They may do it because of ethical or sustainability decisions,” Bauer explained.
“I have no say in this, so there is a huge obligation on operators to explain what they are doing and why they are doing it.”
But, as Bauer points out, the very nature of democracy is that elected representatives are chosen by the people, so “their decisions are our decisions.”
Mr de Leeuw added: “Everything is a political choice. Nothing is easy, but we can put together something that will benefit people in the future.”
Read the latest issue of OGV Energy magazine here
Publication date: February 27, 2024
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