IV.

Economy

A.

Overview

Before the 20th century, most Norwegians made a living by farming, forestry, or fishing. Norway rapidly industrialized during the 20th century. Until the 1970s, this industrial expansion was based mainly on the exploitation of Norway’s vast waterpower resources and the materials provided by Norway’s farms, forests, and seas. During the 1970s, offshore drilling for petroleum and natural gas in Norway’s sector of the North Sea expanded rapidly, providing valuable new resources for industrial growth. Norway’s economy has since grown dependent on oil and natural gas production and is subject to fluctuations in international oil prices.

Norway’s standard of living has increased steadily since World War II. Taxes have also increased. Norwegians pay about half of their income directly or indirectly to the government, making Norwegians among the highest taxed of all Europeans. At the same time, Norway’s growing prosperity, driven in part by the exploitation of North Sea oil and gas reserves, has allowed the country to enlarge its already extensive social welfare system. Today, Norwegians enjoy one of the highest per capita standards of living in the world; estimated gross domestic product (GDP) per capita in 2005 was $63,918.10. In 2005 Norway’s GDP was $295.5 billion.

Norway depends heavily on foreign trade and therefore advocates free trade. However, Norway has shown reluctance to forge closer bonds with other countries. Part of this reluctance stems from Norway’s desire to preserve its unique social democratic institutions as well as its small-scale agricultural and fishing operations. Norway was a founding member of the European Free Trade Association (EFTA, established in 1960). But Norwegian voters have consistently rejected membership in the European Union (EU). As an EFTA member, however, Norway is permitted to participate in a free-trade zone called the European Economic Area (EEA). With the exception of the fishing and agricultural sectors, this allows Norway full access to the EU’s large internal market.

B.

The Government’s Role in the Economy

Norway’s economy is a mixed one of public and private enterprises. Although the economy is based on free-market principles, the government exercises considerable supervision and control. The state owns railroads and most of the public utilities, and state-owned enterprises largely control the vital oil and natural gas sectors. However, private industry is free to compete directly with state-owned enterprises in various fields, such as hydroelectricity. The government also holds investments in some companies that are privately operated, including Norsk Hydro, a leading producer of oil and metals. Other industries are entirely privately owned. All industries are subject to strict government regulations to protect the health and safety of workers and the environment.

The Norwegian government actively supports the nation’s industrial development. After World War II (1939-1945) the state took a lead role in promoting construction of power centers and industrial plants. Norway’s rate of domestic investment remains one of the highest in the world. The state works with the banking sector to channel financial resources and loans to various industries. In addition, about 2 percent of the nation’s GDP is invested in research and development to promote new industries and industrial processes in the areas of biotechnology, information technology, metallurgy, and other fields.

C.

Labor

In 2005 Norway had a total employed labor force of 2.5 million. Labor was distributed among the various economic sectors as follows: services, 76 percent; industry, 21 percent; and agriculture, forestry, and fishing, 3 percent. Norwegian labor is well organized; about two-thirds of the labor force belongs to unions. The Norwegian Federation of Trade Unions comprises 28 national unions with a total of about 780,000 members; the Co-operative Union and Wholesale Society represents 570,000 members. Unemployment in Norway is low compared to other members of the Organization for Economic Cooperation and Development (OECD); it stood at 4.4 percent in 2004.

D.

Agriculture

Agriculture accounts for just 2 percent of the annual GDP. Because of the mountainous terrain and generally poor soils, only 3 percent of the total land area is cultivated. The most important agricultural regions are the eastern valleys north of Oslo and the areas around Trondheim. Most farms are small and are worked by their owners and their families. Despite difficult conditions, farmers achieve high yields through mechanization and intensive use of fertilizers. Some farmland is so steep that tractors are impractical and farmers use power-operated cables to pull their plows.

The most important agricultural products in Norway are dairy products and cereal grains. More than half of the land under cultivation is meadow and pasture, most of which is planted with hay. Other important crops include oats, potatoes, barley, and corn. Norway must import about half of the grain needed to feed its livestock. The main livestock raised include cattle, hogs, sheep, and domestic fowl. Norway produces all of the meat and dairy products it needs and some of its vegetable and fruit requirements.

E.

Forestry

The Norwegian forestry industry accounts for a relatively small proportion of Norway’s yearly GDP. More than one-fourth of Norway is forested, with the densest woodlands in the east, where most of the timber is felled. In 2005 annual timber production totaled 9.7 million cu m (341 million cu ft), most of which was spruce and pine.

Forestry work is seasonal and usually lasts from November to April. Two-thirds of the forests are privately owned, but all forests operate under close government supervision. The government subsidizes the planting of new trees.

F.

Fishing

An important source of wealth for Norway is its fishing industry. Norway is one of the world’s leading fishing nations, accounting for about 3 percent of the world’s total catch. The nation’s large fishing fleet has an expansive catch area that extends to the banks of Newfoundland and Labrador in Canada. Since the early 1970s, the government has helped finance the development of a fish-farming industry (particularly of salmon and sea trout). The total yearly marine catch in 2004 was about 3.2 million metric tons. Important species caught include capelin, herring, mackerel, cod, sand lance (sand eel), pollock, salmon, and prawns.

Norway paused commercial whaling in 1988, following a moratorium on the practice issued by the International Whaling Commission (IWC). However, Norway resumed commercial hunting of the minke whale in 1993. As a member of the IWC, Norway has consistently resisted efforts to ban the slaughter of whales. Today, the Norwegian government sets a yearly quota of whales that can be killed based on estimates of the whale population.

G.

Mining

Before offshore drilling for petroleum and natural gas began in the 1970s, mining was relatively unimportant in Norway, and the country had to import most of its fossil fuels. This sector now accounts for about one-eighth of Norway’s GDP; the percentage in any given year depends on world oil and gas prices.

Large petroleum and natural gas reserves were first discovered in Norwegian areas of the North Sea in the late 1960s, and petroleum production began on a trial basis in 1971. In 1974 a pipeline was completed to carry crude oil to Teesside in northeastern England. By 1975 Norway was producing enough petroleum to satisfy all of its domestic needs and also to export large quantities to Europe. By 2004 annual crude petroleum production was 1.04 billion barrels; natural gas production was 73.4 billion cu m (2,592 billion cu ft). Natural gas is piped to both Scotland and Germany. Today, Norway is the world’s third largest exporter of petroleum, behind Saudi Arabia and Russia, and one of the world’s top exporters of natural gas.

Other mineral products of Norway include iron ore, lead concentrates, titanium, pyrite, coal, zinc, and copper. The largest iron mines are located at Sydvaranger, near the border with Russia. Coal is mined in the Svalbard archipelago.

H.

Manufacturing

Manufacturing accounts for 11 percent of the annual GDP. The electrochemical and electrometallurgical industries form an important sector of manufacturing. These industries need an abundance of inexpensive electrical power, which Norway’s well-developed waterpower resources can supply. Although the raw materials for aluminum—one of the chief products of the country’s electrometallurgical industry—must be imported, Norway produces about 4 percent of the world’s supply of refined aluminum. It is also an important producer of ferroalloys. A major product of the electrochemical industry is nitrogenous fertilizer, produced from nitrogen that is extracted from the air using large amounts of electricity.

Norway was traditionally a major shipbuilding nation, but by the mid-1980s Norway’s share of the world’s new shipping capacity had declined to less than 1 percent. Shipbuilding contracted dramatically in the late 1970s as the industry encountered financial problems; many shipyards have since shifted some of their capacity to the production of equipment for the oil and gas fields. Other major manufactures include confections and processed fish, chemicals, paper, machinery, and electronic goods. The country has several petroleum refineries and a major integrated iron and steel plant at Mo i Rana, which is situated near the Arctic Circle.

About half of Norway’s manufacturing occurs in the counties surrounding Oslo. However, manufacturing facilities are located in many parts of the country, especially along coastal areas. Factories are typically small, and few enterprises employ more than 500 people.

I.

Services

Services contribute 55 percent of Norway’s annual GDP. Services encompass a broad economic sector that includes public administration, banking and financial services, wholesale and retail trade, and the hotel and restaurant business, among other activities.

I.1.

Currency and Banking

The basic monetary unit of Norway is the Norwegian krone. The krone is divided into 100 øre. The central bank is the Bank of Norway (established in 1816), which is the sole bank of issue.

I.2.

Foreign Trade

The composition and flow of Norway’s export trade changed dramatically in the 1970s with the development of North Sea petroleum and natural gas reserves. Today, Norway is Europe’s largest exporter of these two products, which together normally account for between one-third and one-half of the country’s total annual exports. Other important exports include nonferrous metals, primarily aluminum; food products, particularly fish; chemicals and related products; paper; and iron and steel. In 2004 exports were valued at $80.5 billion; the main recipients were the United Kingdom, Germany, the Netherlands, France, Sweden, and the United States. Leading imports include machinery, transportation equipment, chemicals, clothing and accessories, iron and steel, and metal ores. Imports were valued at $47.4 billion; chief suppliers were Sweden, Germany, the United Kingdom, Denmark, the Netherlands, France, and the United States.

I.3.

Tourism

By the late 20th century a vigorous tourism industry had emerged in Norway, despite the nation’s comparatively high prices, and the country has seen a steady rise in the number of annual visitors. Most of Norway’s visitors come from the United Kingdom and continental Europe. In summer, when the days are pleasant and long, Norway’s coastal ports are a popular destination, especially among the many visitors who arrive by cruise ship or ferry. Other visitors are drawn to Norway’s historic sites, including its Viking museums and medieval stave churches. Norway’s scores of ski resorts and vast network of cross-country ski trails attract many winter tourists.

J.

Infrastructure

J.1.

Energy

Norway has the most developed waterpower resources of any country in Europe. Its hydroelectricity is the least expensive and its per capita consumption among the highest in the world. Development of this resource began in the early 20th century, and by 1960 Norway was exporting hydroelectricity to Sweden. Today, Norway obtains about three-quarters of its total energy requirements from electricity, virtually all of which is generated by waterpower. Electricity production in 2003 was 106 billion kilowatt-hours.

Most of Norway’s hydroelectric installations are built deep in the mountains. Tunnels, blasted through miles of rock, carry water from interior lakes to the mountain turbines. About one-quarter of this power is used for Norwegian homes, farms, and shops or is exported. The remaining three-quarters is used to power Norway’s major industries.

J.2.

Transportation

Building roads and railroads is difficult and expensive in Norway because of the rugged terrain, and in much of the country water traffic is still vitally important. Norway is served by a road network of 91,916 km (57,114 mi), of which about one-third are national main roads. The road network is densest in the southeast. Railroads are state operated and have a total length of about 4,000 km (about 2,500 mi), more than half of which is electrified. Coastal transport, of both passengers and freight, is especially important in the west and north. The coastal towns of Bergen (in the southwest) and Kirkenes (near the Russian border) are linked by daily boat service. Oslo is the country’s principal port. The Norwegian merchant marine, with 1,461 vessels of 1,000 gross tons or more, is one of the largest in the world. It is an important source of foreign-exchange earnings. International and domestic air service is also well developed. The country has dozens of airports, with Gardermoen, the main international airport, located just north of Oslo.

J.3.

Communications

Until 1981 radio and television broadcasting in Norway were monopolized by the state agency NRK. Since then, a growing number of privately owned radio and television broadcasters have competed with NRK, attracting substantial audiences. Norway has one of the world’s highest rates of newspaper readership, with most households receiving more than one paper. The newspaper industry is heavily subsidized by the government. In the past most major daily newspapers were associated with political parties; today, they are largely independent but they remain openly partisan. Important dailies include VG, Aftenposten, and Dagbladet.

Until 1998 the Norwegian state maintained a monopoly on the telecommunications industry. The industry was deregulated to meet requirements for participating in the single market of the European Union (EU). The state still owns most of the telecommunications infrastructure, but private companies—from small local companies to international telecommunications giants—are now permitted to offer services in a competitive marketplace.