How Norway has avoided the ‘natural resource curse’

In recent years, natural resources exploration and production has been given bizarre names such as “the oil curse” or “the Dutch disease” and this is mainly because many mineral rich and oil producing countries in developing economies have experienced poor economic performance, poverty among others.

However, every individual country has an explanation for these failures. Many attribute the situation to corruption, weak institutions, colonialism, influence of foreign investors, history and others.

It is important to discuss all these problems, but much focus will be put on the psychological makeup of the people involved in policy design and natural resources management, in the meaning of policy makers, professionals and the economic class, in the sense of what they have in mind and what they want to achieve.

This article has been inspired by Norway’s strategies to avoid the manifestation of the ‘oil curse’ by designing policies and management principles that are people-centric and with long-term outlook.

The aim of this piece is to guide new and old natural resources-rich countries to view things in a new dimension in terms of overcoming unending explanations of natural resources historical governance failures and shift to accepting the cost of adopting best practices of progressive natural assets and productive assets development and forward thinking.

In general terms, most governments in developing economies are desperately seeking for funds to address short-term challenges at the cost of future generations.

That same observation was also made by Paul Kagame [African Union chairperson and President of Rwanda] who said, “Africa’s top challenge is the mindset not funding”.

This implies that even the available natural resources, funds and most importantly the people are mismanaged hence not achieving the set goals with the funds available, thus the urgent need to fix the fundamental basics.

Most natural resources extraction activities are profitable; however, the biggest concern remains how the ordinary people benefit, best reminded that the citizens are the backbone of any economy.

This brings me back to Norway. Traditionally, energy consumption in Norway was mainly from imported petroleum and coal.

Phillip Petroleum was the first company to express interest in the mid-1962 to acquire the license for exploitation after the discovery of oil in neighbouring Netherlands.

However, according to Carl August Fleischer, professor of law, before issuing any license to explore, Norway had to first establish clear legal frameworks on two important aspects of governance which are;

(1) To establish Norway’s sovereign rights and the property of the State, (2) to have a law that ensured the resources belonged to the State.

The legal situation was unclear; Norway wanted to make the legal framework clear before the licenses were issued.

After establishing the regulatory frameworks, international oil companies were invited and clearly informed right from the start.

“We want Norwegian control. We will make the rules. We will listen to you. But we will have a License system that you must follow. That’s how it is. anyone who doesn’t accept these terms can go home.”

The statement made by Jens Evensen, who was the Norwegian Trade Minister in the 1970s (when the regulations were drawn) in trying to draw clear lines of every interested participant in the exploitation of the Norwegian Continental Shelf.

This statement is observed as one of the driving force behind Norway’s oil and gas industry blueprint.

The policy was drawn with three main objectives; to provide a regulatory framework for profitable production of natural resources in the long term, ensure that the government accrues larger revenue from natural resource activities and to ensure citizens benefits largely from the natural resource’s extraction activities.

Norway did establish strong mechanisms that prevented the worst manifestation of the resources curse right from the 1960s. This was achieved because of many factors, such as:

Transparency, the Norwegian culture is rooted on the values of ethical awareness (Jensen, 2014). This is very important because it pervades the mindset of both policy makers and the citizens to develop a working responsibility of doing what is right with the natural resources.

The ten (10) oil commandments, from the Norway’s parliament (Storting) produced a set of principles in 1971 that have subsequently shaped the direction of Norway’s natural resources policy design.

Norway’s sovereign wealth fund originally known as the Government Petroleum Fund was established in 1990 so that the current government´s natural resources revenues: 1). Can benefit future generations, 2). To avoid overheating the economy by investing abroad and 3). To reduce heavy reliance on natural resources revenues that are vastly affected by production and price fluctuations.

In 1996, the government through its ministry of finance made the first capital deposit to the fund. In 2017 financial year, the fund accumulated to capital market value of NOK 8,488 billion (around USD 1,044 billion) in assets, this fund is ranked as the largest sovereign wealth fund in the world (International Energy Agency, 2017).

Most natural resources rich countries have seen widening gap between the rich and the poor citizens, shrinking middle class and fractured communities upon exploration and production.

According to the World Economic Forum (WEF) (2017) Norway tops the list of the most inclusive advanced economies with a GDP per capita of $89,741, highly above the average of $44,656 of top 30 developed economies.

These rankings about Norway demonstrate a clear indication that despite the presence of a big State-owned oil company and high tax rate on natural resources, the private sector is still competitive and most importantly is the progressive Human Development Index, which is an inclusive measure of state welfare.

Thus, it is a combination of many bold strategies outlined in this piece that have turned Norway’s natural resources into a blessing and not a curse.

The writer is a member of the Association of International Petroleum Negotiators and a Masters Graduate in Oil and Gas Management.

The views expressed in this article are of the author.

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