Norway Has Too Much Of a Good Thing

The country’s oil industry thrives while costs throttle other sectors | “I would like to have a bit more than one leg to stand on”

Josiane Kremer

Glomfjord, Norway


For the town of Glomfjord in Norway’s Arctic, the country’s oil boom has turned into a curse. Unemployment has more than doubled to 7.3 percent and people are moving out after solar-energy component maker Renewable Energy closed a 200-person plant in March before shifting production abroad to cut costs. “It’s an earthquake — a catastrophe,” says Per Swensen, the 65-year-old mayor of Meloey, a district of 6,600 people scattered across 755 islands that includes Glomfjord.

Norway is Europe’s second-largest oil producer, and its energy boom has turned some fishing villages into affluent towns with living costs rivaling Zurich and Tokyo. Less welcome has been the Nordic nation’s status as Europe’s most expensive place to do business. That’s hobbling the ability of towns and regions far from Norway’s oil resources to attract and keep new industries. “I would like to have a bit more than one leg to stand on today and in the future,” says Hilde BjØrnland, a professor of economics at the Norwegian Business School in Oslo. “What we’re doing now is cutting away at one of the legs.”

Thanks in part to the Norwegian economy’s heavy reliance on the oil industry, average manufacturing labor costs are about $57.50 an hour, 31 percent higher than in Germany and 65 percent higher than in the U.S., according to the U.S. Department of Labor. The oil companies pay top dollar for workers, who enjoy the world’s highest salaries, with annual paychecks averaging $180,300, according to a report from Hays Oil and Gas. It’s hard for non-oil companies to compete for workers. Complicating life for exporters, Norway’s krone has surged 24 percent against a basket of currencies from its trading partners in the past three and a half years as investors seek an oil-rich haven from the global financial crisis.

The dominance of oil is felt in the stock market. Of the 20 biggest listed companies, only one non-oil-related company, Algeta, a maker of cancer drugs, was founded in the past 40 years. Among the remaining big companies, half are either directly involved in oil production or provide oil services such as rigs and equipment.

Some Norwegians don’t see any cause for alarm. The third-richest nation per capita has a jobless rate below 3 percent and offers its citizens free health care and education. It has amassed a $640 billion sovereign wealth fund from its oil revenue. “We’re sitting on easy street,” says Arne Joakimsen, who owns 22 restaurants and bars on Norway’s west coast and in the city of Stavanger, the nation’s oil capital. “I feel we are very, very lucky.”

The oil dividend is nevertheless causing problems for Norway’s welfare state as the cost of living climbs across the country. Record investments in oil and gas filter through to the rest of the economy, driving up not only wages but also housing costs. In Stavanger, an old fishing port now crammed with expats and upscale restaurants, local authorities can’t find enough health-care workers who can afford to live there. House prices in Stavanger have tripled since 2000 to 40,000 kroner ($6,740) per square meter as workers from ExxonMobil, Total, and other oil giants come to town, according to the Norwegian Association of Real Estate Agents. The city is the fifth-most expensive in the world, beating Geneva and Zurich, according to a March ECA International Cost of Living Survey.

“One of the biggest challenges for me is those who don’t work in the oil sector,” says Stavanger Mayor Christine Sagen Helgoe, the granddaughter of the first head of Texaco in Norway. “They don’t earn that much, and it is difficult for people to be engineers in the municipality or nurses or preschool teachers — that type of personnel — in a region that has so many possibilities in the oil industry.”

Norwegian oil is likely to keep gushing for decades. Since 2010, Statoil and Sweden’s Lundin Petroleum have made separate discoveries in the North Sea that are estimated to be the biggest since the 1970s. The finds will allow Norway to delay the end of the oil era despite a 50 percent drop in output from its original North Sea fields over the last decade. Gross domestic product, which in Norway deliberately omits oil and gas production, has expanded by an average of 2.6 percent over the past decade, compared with 1.1 percent for the euro region. The country’s oil bounty prompted a warning earlier this year from central bank governor Øystein Olsen, who says the government’s generous, oil-fueled spending could overheat the economy.

In Meloey, the mayor is counting the people moving away: About 50 had left as of July, he says. “We hope to prevent as many as possible from moving away and get them into jobs here, but if that many leave then our finances will not allow us to have so many schools.”

The bottom line While Norway’s oil wealth has helped create a $640 billion sovereign wealth fund, it’s also driven labor costs to more than $57 per hour.


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