UNCTAD Secretary-General's
High-Level Multi-Stakeholder Dialogue on Commodities
in the context of UNCTAD XII
28-29 January 2008
Managing Petroleum Revenues
– the Norwegian Case
By
Mr. Arent Skjæveland
Deputy Director General, Economic Policy Department,
Norwegian Ministry of Finance
The views expressed are those of the author and do not necessarily reflect the views of UNCTAD
Managing petroleum revenues
– the Norwegian case
Geneva 28.01.2008
Deputy Director General
Arent Skjæveland
Economic Policy Department
1
Norwegian Ministry of Finance
The Norwegian petroleum production profile
300
250
Mill. Sm3 o.e.
200
150
100
50
0
1970
1975
1980
1985
Oil
1990
Gas
1995
2000
2005
2010
2015
2020
2025
2030
NGL (included condensate)
Source: Norwegian Petroleum Directorate
2
Norwegian Ministry of Finance
The importance of the petroleum sector
in Norway
2006
25 %
Share of GDP
3
38 %
Share of state revenues
51 %
Share of total exports
Source: Statistics Norway, Ministry of Finance
Norwegian Ministry of Finance
…but labour force is our most important asset
•
Pension and tax system
must give incentives for
work
•
Welfare scheme reforms:
More people at work fewer on benefits
•
Good policy fundamentals
- sustainable
macroeconomic policy
National wealth per capita
4 %
7 %
1 %
88 %
4
P etroleum Wealth
Real Capital
Financial Assets
Labour Force
Norwegian Ministry of Finance
Higher natural resource income reduces GDP growth
Transmission channels
•
Dutch disease
•
Bad investments - fund
invested domestically
•
Loss of focus on
structural policy
•
Poor governance &
weak institutions
(rent-seeking )
GDP/capita 1970-89 vs. share of natural resource
export in GDP in 1971 for 97 developing countries
GDP per
capita
Natural resource intensity ->
Source: Sachs and Warner (1995)
5
Norwegian Ministry of Finance
Wealth management – from theory to practice: How
to manage the petroleum revenues so they can give
basis for a permanent wealth increase
•
Spending must be separated
from current (volatile) oil &
gas income
•
A petroleum fund can support
fiscal management and play a
separating role if:
ƒ Wide political and public
support
ƒ Clear rules
ƒ Stores genuine savings
Extraction
Path
Consumption path
after discovery
Consumption path before
petroleum discovery
t0
6
Time
Norwegian Ministry of Finance
The Norwegian revenue profile
Per cent of GDP for Mainland Norway
24
24
Government net cash flow
20
16
16
12
12
8
8
4
4
0
0
-4
1960
7
20
1970
1980
1990
2000
2010
2020
2030
2040
2050
-4
2060
Norwegian Ministry of Finance
From a fluctuating net cash flow to stable
spending according to the fiscal rule
Per cent of GDP for Mainland Norway
24
24
Government net cash flow
20
16
12
8
16
Oil
adjusted
deficit
Real expected return
4
0
-4
1960
12
8
4
8
20
0
Structural, oil adjusted deficit
1970
1980
1990
2000
2010
2020
2030
2040
2050
-4
2060
Norwegian Ministry of Finance
The Fund mechanism – integrated with fiscal policy
Revenues
Return on investments
Petroleum
revenues
Fund
Transfer to
finance non-oil
budget deficit
State
Budget
Expenditures
Fiscal policy guideline
(over time spend real return of the fund)
9
• consumption
• investment
(infrastructure,
human capital)
Norwegian Ministry of Finance
Benchmark for the Pension Fund – Global
Strategic benchmark
Equities 60 %
America
and Africa
35 %
10
Europe
50 %
Asia and
Oceania
15 %
Fixed Income 40 %
America
and Africa
35 %
Europe
60 %
Asia and
Oceania
5%
Equity index:
Fixed income index:
FTSE All-Cap Index
Approx. 7000 equities
Lehman Brothers Global Aggregate/Global Real
Government / Agency / Corporate / Securitized
Approx. 7500 bonds
Norwegian Ministry of Finance
Biggest Investment Portefolio in Europe,
further strong growth
Norwegian State Fund „GPF-Global“ – Market value 1996–2016(e)
700
700
Billion €
600
600
500
500
expected
growth
400
400
300
300
200
200
100
100
0
0
1996
11
2000
2004
2008
2012
2016
Norwegian Ministry of Finance
Sovereign Wealth Funds’ growing role in
international financial markets (1)
The international debate – what are the issues?
•
SWFs’ size and prospective growth
9
9
9
•
Lack of transparency
9
•
may make SWFs less predictable and even increase volatility in
some situations
Suspicion of whether non-financial objectives are guiding
investment decisions
9
12
2.5 trillion USD today and maybe 4-5 times more in 2015
6 countries holds 85% of the capital
potential market movers
may encourage financial protectionism, but equal treatment of
shareholders is a fundamental principle
Norwegian Ministry of Finance
Sovereign Wealth Funds’ growing role in
international financial markets (2)
1. Well functioning markets are good for everyone
2. Sensible management of oil-producing countries’ petroleum wealth
is in everyone’s interest
9
9
stabilizing the oil market by producing near maximum capacity
if restrictions on investments possibilities oil production may has to be reduced
3. SWF’s act as an stabilizing factor in international financial markets
9
9
9
9
9
9
long investment horizon
no leverage
no short term liquidity requirements
strong risk bearing capacity and ability to accommodate short term volatility
offsetting possible predominance short term investors
enhance market liquidity by transitioning oil revenues into the market
4. Transparency is key
9
9
9
13
Build trust and confidence – domestically and internationally
Has disciplinary effect on management
We would like other funds to follow our example
Norwegian Ministry of Finance
What can be learnt from the Norwegian experience?
•
Successful in:
ƒ
ƒ
ƒ
•
And more generally:
ƒ
ƒ
ƒ
•
14
Limiting fiscal spending
Sheltering Norwegian economy
Good results from the management of the Fund capital
Labour supply has remained high
Productivity growth has been good
Transparency is high in all areas of our management model
But: Still a risk that oil revenues can be a curse…