Kristian Helgesen/Bloomberg

Kicking The Crude Habit Doesn't Come Cheap for Richest Scandinavians

Government plans to diversify the economy come under fire
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Reducing Norway’s oil dependency and living up to campaign promises is proving a costly affair for Prime Minister Erna Solberg.

With just eight months to go before Norwegians head to the ballot box, signs that western Europe’s biggest crude producer is building up viable alternatives to its oil industry remain scarce.

Struggling to keep up output after 40 years of production, and hammered by the worst plunge in oil prices in a generation, Solberg’s government saw its plans laid to waste soon after taking power, in 2013. 

To promote a more diversified economy, her Conservative Party has so far focused on cutting taxes and boosting public spending, thanks in no small part to the country’s vast kitty of... oil money. 

The government plans to withdraw money for a second consecutive year from the $880 billion wealth fund and spend 226 billion kroner ($27 billion) of its oil revenue, equal to almost 8 percent of the economy. General government spending is already topping 50 percent of gross domestic product, a level not seen in 20 years.

So, what’s it getting for the money?

Well, you get a 66 billion kroner transport budget earmarked for infrastructure projects and network maintenance, a huge amount for a country of just 5 million people. Some of that will help fund the E39 Coastal Highway Route, a gargantuan and challenging $40 billion network of tunnels and bridges designed to halve travelling times around Norway’s fjord-dotted western coast.

The country’s biggest bank, DNB ASA, says that while the government’s counter-cyclical measures are helping mitigate the effects of weak oil prices, "one must wonder if this development will contribute to sustained growth in the Norwegian economy."

In other words, building fancy new roads amounts to little more than a short-term fix with a potentially limited impact on long-term industrial diversification.

Norway’s engineers certainly seem skeptical.

"Engineers don’t lay down tarmac," Trude Skogesal, vice president of NITO, the country’s largest engineers union, said in a recent interview in Oslo.

DNB says some 21,000 jobs have been lost in the oil and gas sector between the beginning of 2015 and the third quarter of last year. Many of those jobs have ended up in the construction sector, which is booming thanks to ultra-low rates.


Unemployment among engineers in Norway "is now higher than it has ever been," Skogesal said. The simple reason for that is that Norway is still "very dependent on oil," she said.

To be fair, Solberg has always stressed that her oil-weaning project is a long-term affair. She also readily admits that the current level of record spending can’t continue. With the economy now improving, there are risks of overheating. What's more, there's a danger that voters may get accustomed to public spending levels that may not be sustainable during the next downturn.

Norway still has decades before it runs out of oil. But the question is how much future politicians will be able to let go of the safety net that is the world’s biggest wealth fund. 

Labor Party leader Jonas Gahr Store, Solberg’s main challenger in the September election, says that scaling back record spending will be a key challenge for the next government.  But his party has also so far shown little appetite for tempering the largesse. 

Ending a dependency is always difficult, particularly when the benefits are immediate and the damage long term. Just ask any addict.

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