III. ECONOMIC TRENDS AND OUTLOOK NORWAY: KEY ECONOMIC INDICATORS =============================== Percentage Value USD volume change (a) ------------------ millions ---- ---- ---- National Accounts: 1993 1993 1994 1995 ------------------ --------- ---- ---- ---- Total GNP 100,261 2.3 4.0 2.6 Total GDP 103,467 2.3 4.0 2.6 Of Which: Mainland GDP 85,396 1.9 2.6 2.5 Total Domestic Demand 96,461 2.9 3.0 2.7 Exports of G & S 44,791 1.8 5.9 4.2 Imports of G & S 37,767 3.3 2.8 3.2 -------------------------------- PRICES, MONEY, AND GOVT. BUDGET: -------------------------------- As Marked (a) 1993 1994 1995 ------------ ---- ---- ----- Cons. Price Inflation (%) 2.3 1.3 2.0 Ann. Money Growth (M2) (EOP, %) 0.5 4.0 6.0 Interest Rate (b) (EOP, %) 6.7 4.5 3.9 Govt. budget bal. (C) (US Bill.) (6.0) (5.6) (5.4) --------------------------- OTHER DOMESTIC INDICATORS: --------------------------- GDP Per Capita (USD) 23,951 23,334 24,273 Population (Mill., Mid-Year) 4.32 4.35 4.37 Labor Force (Mill., Mid-Year) 2.13 2.13 2.14 Unempl. Rate (d) (%) 6.0 5.5 5.3 Industrial Prod. Index (e) 103.9 108.1 112.9 Change in Ind. Prod. (f) (%) 3.9 4.0 4.4 -------------------------------------- BALANCE OF PAYMENTS AND RELATED ITEMS: -------------------------------------- Total Exports (USD mill; FOB) 32,098 31,773 33,362 Oil and Gas Exports (USD mill) 14,594 14,187 15,600 Exports to the U.S. (g) (USD mill) 1,938 2,000 2,150 Total Imports (USD mill; CIF) 24,847 25,267 26,400 Imports from the US (g) (USD mill) 1,212 1,250 1,350 Tot. Trade Balance (USD mill) 7,251 6,506 6,962 Trade Balance with the U.S. (USD mill) 726 750 800 Curr. Acct. Balance(USD mill) 2,412 2,653 3,000 For. Exch. Res.(EOP;USD mill) 20,836 21,100 23,500 Net For.Debt(h)(EOP;USD mill) 8,180 5,467 4,500 Debt-Serv. Ratio (i) (%) 29.1 22.0 20.0 For. Investm. (j) (USD mill) 15,588 16,000 16,300 Of Which U.S. Inv. (j) (US$ mill.) 5,300 5,500 5,750 Avg. NOK/US$ Rate 7.09 7.50 7.50 Tourism Receipts (USD mill) 1,969 2,200 2,350 Tourism Expend. (USD mill) 3,747 3,900 4,150 -------------------------------------------------------- Principal U.S. exports to Norway: aircraft and parts, adp machinery, other machinery incl. oil equipment, telecommunications equipment, fruits and vegetables, and motor vehicles and parts. Principal U.S. imports from Norway: crude oil, fish, metals, paper and products, cheese, and misc. manufactured goods. Memo Notes: ----------- (a) Projections by the Norwegian Ministry of Finance, the Norwegian Central Bureau of Statistics, and the Embassy; (b) 1-month nibor; (c) central government; (d) surveyed unemployment; (e) volume index, 1992=100; (f) nok-based avg. annual change in (e); (g) US Dept. of Commerce statistics; (h) net foreign liabilities; (i) gross debt payments as a percent of exports of goods and services; (j) stock of foreign investment; (k) embassy projections. EOP = End of Period. ======= SUMMARY ======= Prospects for the Norwegian economy are improving thanks to the impact of falling interest rates since 1993 and the ongoing OECD recovery. Thus, the Norwegian market will continue to offer interesting opportunities for U.S. suppliers of high-tech machinery and equipment---notably oil and gas technology--autos and aircraft. Opportunities in the Norwegian offshore oil and gas sector should continue to attract U.S. suppliers and investors. Major competitors in the Norwegian market have been and will remain EU member states, Sweden, and low-cost producers in Asia and elsewhere. U.S. suppliers will face increased competition in the Norwegian market should Norway join the EU. Meanwhile, Norwegian state monopolies and other non-tariff barriers continue to complicate U.S exports ranging from communications equipment to farm products. ====================== MAJOR TRENDS & OUTLOOK ====================== Economic Growth --------------- In 1993, real GDP growth slowed moderately because of slowing growth in household demand and non-oil exports, the latter brought about by recession in Europe. Non-oil investment remained weak, while offshore oil and gas investment rose to a postwar peak with the completion of several large projects. On external accounts, the foreign trade surplus remained comfortably in the black thanks to growth in oil exports and relatively weak imports. Looking to 1994-95, Norway's mainland economy (excludes oil, gas and shipping) will become stronger. The ongoing recovery will gather momentum as private consumption and investment respond to lower domestic interest rates since 1993. An expected pickup in world trade will likely provide additional impetus to the mainland economy. With exports becoming stronger, Norway's balance of payments is expected to remain in the black despite prospects for increased imports. Inflation --------- In 1993, Norwegian consumer price inflation (CPI) stabilized at 2.3 percent. Looking to 1994, consumer price inflation is expected to fall to the 1.5 percent range. Near-term resurgence in Norwegian inflation is unlikely considering the labor market glut. Despite slowing inflation since 1987, Norway's cost of living ranks near the top of the world list. ============================ RESOURCES AND GROWTH SECTORS ============================ Economic Resources ------------------ The Norwegian economy is dominated by energy and energy-based production--crude oil, natural gas, and metals. This domination renders Norway vulnerable to downturns in a handful of global commodity prices, particularly that of crude oil, which accounted for 40 percent of Norway's 1993 merchandise exports At current extraction rates, Norway's remaining discovered oil and gas reserves will last some 20 years and 100 years respectively (double the time if expected/undiscovered reserves are added). At the end of 1993, combined discovered oil and gas reserves totalled 5,890 mtoe. North Sea reserves stood at 4,950 mtoe (48 percent oil), mid-Norwegian shelf reserves at 670 mtoe (58 percent oil), and Barents Sea reserves at 270 mtoe (5 percent oil). Norway has limited land deposits of non-renewable energy resources (i.e., coal on Spitsbergen), but the country is blessed with abundant hydro-power for industry and domestic use. Growth Sectors -------------- The petroleum production sector will likely continue to dominate Norwegian non-services industry for the next several decades, although the petroleum sector's significance will decline gradually along with the depletion of Norway's crude oil and gas resources. In the past decade, the economic significance of the offshore petroleum sector fluctuated with world oil prices. In 1993, petroleum production accounted for 16.7 percent of Norwegian GDP, compared with a peak of 18.5 percent in 1984. The Norwegian primary sector (agriculture and fishing) remains heavily protected, but its share in GDP has declined gradually to 2.9 percent of GDP in 1993 from over 5 percent a decade earlier. In the past decade, the share of manufacturing production in GDP eased to 13 from 16 percent. Activity was dominated by large- scale export-oriented industry producing metals (e.g. aluminum), chemicals, and pulp and paper. Service industry activity rose to 53.6 percent of GDP in 1993 from 42.4 percent in 1983, with increased public sector administration activity contributing to expansion. ================================= GOVERNMENT ROLE & ECONOMIC POLICY ================================= Government Role --------------- Norway remains a mixed economy, with resource allocation determined by both state intervention and free market forces. The Norwegian public sector--which employs about 30 percent of the labor force-- is more significant than in the U.S. In 1993, public spending in Norway amounted to 59 percent of GDP compared with about 35 percent in the U.S. The GON uses extensive subsidy schemes to support agriculture, outlying regions, and some industry. A welfare system which redistributes incomes via taxes is firmly in place, and the GON puts a premium on containing unemployment. The tax burden on the economy (46 percent of GDP vs. 30 percent in the U.S.) remains one of the highest in the OECD. Public sector owned or controlled enterprises dominate Norway's key oil and gas industry, the telecommunications and the commercial banking sectors. The private sector remains dominant in industries such as shipping, non-bank services, and small to medium-scale manufacturing. EU Accession ------------ On March 16, 1994, Norway reached an EU accession accord following difficult negotiations on fisheries and agricultural issues. Accession could come as early as January 1, 1995, if approved by a national referendum scheduled to be held on November 28 this year. Should Norway join the EU, U.S. suppliers will face increased competition from other EU members in the Norwegian market. Moreover, they would face higher EU tariffs on some commodities (e.g., chemicals and other industrial inputs) if Norway enters the EU. Trade & Investment Barriers --------------------------- Generally, Norway supports the principles of free trade and is quick to condemn protectionist measures of other countries. U.S. exporters experience few problems doing business in Norway but some areas of tension exist. The results of the Uruguay round would require Norway to replace its non-tariff barriers with tariffs whether or not Norway enters the EU. Due to the substantial GON ownership of major Norwegian companies (e.g., Statoil; Wine & Liquor Monopoly, among others) and the GON organization of business groups, American companies that have a Norwegian subsidiary or agent/distributor are able to operate in this market much more effectively. Meanwhile, Norway allows wide ranging foreign investment; but foreign ownership continues to be restricted or prohibited in areas of financial services, mining, hydropower, and acquisition of property in areas regarded as "politically" sensitive. Foreign Exchange Rate Policy ---------------------------- Norway strives to keep its currency stable vis-a-vis its major trading partners. Thus, the Norwegian Krone tends to follow variations in the major European currencies (e.g., the German Mark and the British Pound). The Norwegian Krone--which was unpegged from the European Currency Unit (ECU) in December 1992-- remains on a relatively free float. In 1993, the Norwegian Krone depreciated nearly 15 percent vis-a-vis the dollar. The Krone depreciation has reduced the competitiveness of price-elastic U.S. goods in the Norwegian market. =================================== BALANCE OF PAYMENTS & FOREIGN TRADE =================================== Healthy Balance of Payments --------------------------- Norway's economy remains highly dependent on foreign trade. While the country's balance of payments deteriorated after the 1986 collapse of world oil prices, Norway has posted hefty current account surpluses since 1989 which have contributed to the reduction of the country's net foreign debt. Significance of Foreign Trade ----------------------------- The country's combined 1993 merchandise exports and imports account for 54 percent of GDP, compared with 16 percent in the U.S. Petroleum dominates, and represented the bulk (over 45 percent) of exports. Thus, the value of Norway's total exports tends to fluctuate along with world oil prices, while imports depend on domestic economic activity, foreign exchange rate variations, and respective customs duties. Directions of Foreign Trade --------------------------- In 1993, the U.S. retained its position as Norway's fourth largest trading partner (exports plus imports). The UK (Norway's major oil terminal), Germany and Sweden topped the list. In the past decade, Norway has posted surpluses in its trade with the U.S. thanks largely to high levels of oil exports via the UK. In 1993, the trade surplus vis-a-vis the U.S. stood at USD 727 million, according to U.S. Department of Commerce statistics. Taken as a group, the EU (including all of the oil exported to UK loading terminals in the North Sea) remains Norway's principal trading partner. In 1993, the EU accounted for 66 percent of Norwegian exports and 49 percent of imports. The other Nordic countries remain important trading partners (16 percent of exports and 25 percent of imports), and trade with low-cost developing countries in Asia continues to increase rapidly although from a low starting point. Norway continues to look for ways to increase trade with central and Eastern Europe and Northwest Russia, but such trade remains at low levels but with large surpluses in favor of Russia. Norwegian Exports By Category ----------------------------- Primary and semi-processed goods continue to account for the bulk (nearly 80 percent) of Norwegian merchandise exports. The remainder consist of exports of machinery, equipment, and various manufactured articles. In 1993, Norwegian merchandise exports totaled USD 32.1 billion: with petroleum accounting for some 46 percent, metals and metal products--11 percent, chemicals and various raw materials--over 25 percent, and foodstuffs (mostly fish)--8 percent. Norwegian exports to the U.S. totalled USD 1,938 million in 1993. Exports to the U.S. were dominated by crude oil and refined products, metals, chemicals, fish, and various semi-processed and manufactured goods. Norwegian Imports by Category ----------------------------- In 1993, the bulk of Norwegian merchandise imports (56 percent) consisted of machinery, equipment, and miscellaneous manufacturing goods. These were followed by industrial inputs (40 percent) and food and beverages (7 percent). Total 1993 imports stood at nearly USD 25 billion. In addition to goods, Norway imported some USD 12.8 billion worth of services, of which 29 percent were spent on ship maintenance and repair services and another 30 percent on services provided to Norwegian tourists. Norway's 1993 imports from the US stood at USD 1,211 million, with imports dominated by aircraft and aircraft parts; automatic data processing and office equipment; defense-related and other machinery and equipment; other manufactures; various chemicals and industrial inputs; and food beverages, and other manufactured consumer products. Direct Foreign Investment in Norway ----------------------------------- According to Norwegian statistics, the book value of the total stock of direct foreign investment in Norway stood at about USD 15 billion at the end of 1993. The U.S. remained Norway's leading single-country foreign investor followed by Sweden and the various EU member states. The stock of direct U.S. investment in Norway rose to an estimated USD 5.3 billion (nearly 34 percent of total foreign investment) at the end of 1993 (vs. 3.8 billion a year earlier), with Kraft General Foods' acquisition of the Norwegian chocolates and snacks maker "Freia Marabou" contributing to the increase. The bulk of U.S. investment in Norway remains in the petroleum sector. =============================== WAGES, EMPLOYMENT & LABOR FORCE =============================== Wages and Working Hours ----------------------- Rising unemployment since 1988 has contributed to slowing wage growth. Average hourly wage growth in manufacturing eased gradually to 2.7 percent a year in 1993 from 16.1 percent back in 1987. For 1994, the GON expects moderate wage growth of about 2.5 to 3 percent. Despite falling wage growth, Norwegian wage costs remain high from a global perspective. In 1993, hourly wages in Norwegian manufacturing averaged an estimated USD 14.60, compared with USD 11.76 in the U.S. In addition, the average work week is short in Norway, having been reduced to 37.5 hours from 40 hours in 1987. Employment and Labor Force -------------------------- In 1993, unemployment (surveyed) reached a post-war record of 6.0 percent, reflecting the impact of the economic slowdown and continuing structural problems in industry. Looking ahead, modest growth in the mainland economy will likely contribute to a moderate decline in the unemployment rate this year and next. In 1993, the Norwegian labor force numbered 2.13 million (55 percent of which was male) by mid-year out of a population of 4.31 million. The bulk of Norwegians employed (70 percent) were engaged in the services sector, followed by manufacturing (15 percent) and building construction (6 percent). Being capital intensive, the offshore petroleum sector and mining absorbed only 3.7 percent of total Norwegian employment. ========================= IMPLICATIONS FOR THE U.S. ========================= Trade/Procurement Opportunities ------------------------------- Strengthening of the U.S. dollar since December 1992 has reduced competitiveness of price-elastic U.S. products in the Norwegian market. However, since major Norwegian imports from the U.S. are price-inelastic (e.g., aircraft; oil technology), the U.S. will likely retain its position as one of Norway's key trading partners. As in the past, Norway will need to import goods which are in short supply or not produced domestically. The Norwegian market will therefore continue to offer interesting opportunities for U.S. suppliers of specialized high-tech machinery and equipment (e.g., oil and gas technology, aircraft, and defense products), various industrial raw material supplies, foods and other manufactured consumer goods. Norway is in the process of implementing several mainland infrastructural projects including the construction of a new international airport at Gardermoen and modernization and rehabilitation of the country's railways. These projects should open up opportunities for U.S. suppliers. Investment Opportunities ------------------------ Apart from opportunities in trade, Norwegian offshore petroleum developments will likely continue to provide the bulk of opportunities to U.S. investors in the coming decade. In 1994, oil companies operating on the Norwegian continental shelf estimate that their investment will total USD 7.5 billion, moderately down from USD 8.1 billion in 1993. Looking ahead, offshore oil and gas investment activity is expected to decline gradually because the days of big projects are over. Major Competitors/Challenges ---------------------------- Major competitors in the Norwegian market remain the EU countries, Sweden, and low-cost producers in Asia and elsewhere. The existence of state monopolies, non-tariff trade barriers and relatively high operating costs (e.g., transportation costs; wages) will likely continue to complicate U.S. exports in some areas such as fruit, vegetables, drinks, pharmaceuticals, and communications equipment. In fact, as Norway adopts EU standards, there will be more national trade barriers that the USG and U.S. exporters have to work together to overcome. Oslo American Embassy Facilities -------------------------------- The American Embassy in Oslo remains well-equipped to assist American business visitors. Working closely with the U.S. Department of State, the Department of Commerce, and other Washington agencies, the Embassy provides services and information for U.S. exporters, investors, and their Norwegian partners. There is a commercial library open to business users, and trade specialists are available to assist american companies, as well as Norwegian agents, importers and end-users. If you are traveling to Norway on business and need to open doors to Norway's business community, please call your local office of the U.S. department of commerce (listed in the phone book) or the Embassy Commercial Section for assistance. ======================================================== Fact Sheet: A Decade Of U.S. Exports to Norway (a) ======================================================== (USD Million) ------------- Avg. Annual Category 1983 1993 Growth (Pct) -------- ----- ---- ----------- 1. Food, Drinks & Tobacco 74.9 109.8 3.9 Fruit and Vegetables 26.3 36.5 3.3 Fish and Products 2.8 10.6 14.2 Grain and Products 20.1 29.4 3.9 Drinks 3.0 6.2 7.5 Tobacco 16.9 14.7 (1.4) 2. Raw Materials (Non Edible) 106.9 28.1 (12.5) Oilseeds 87.8 5.3 (24.5) Misc. Minerals 5.8 9.7 5.3 3. Energy (e.g. Coal and Mineral Oils) 64.7 38.3 (5.1) 4. Chemicals & Products 49.1 131.7 10.4 Inorganic & Organic Chemicals 13.4 27.4 7.4 Pharmaceuticals 4.3 21.7 17.6 Plastics 12.1 21.7 6.0 5. Metals and Products 27.4 68.1 9.5 6. Machinery & Equipment 760.4 1,187.4 4.6 Industry Machinery 211.0 305.2 3.8 EDP & Office Machinery 133.3 281.3 7.8 Telecommunication Equip. 32.0 64.4 7.2 Electrical Machinery & Equipment 63.2 137.5 8.1 Road Vehicles 19.4 92.2 16.9 Aircraft & other Transportation Equip. 301.4 307.0 0.2 7. Misc. Manufactured Goods 107.6 328.1 11.8 Clothing and Footwear 4.7 14.8 12.2 Scientific/Techn. Instruments 49.1 142.6 11.3 Photographic & Optical Equipment 19.3 25.4 2.8 ------------------------------------------------------- 8. Total US Exports to Norway 1,232.2 1,942.1 4.7 ------------------------------------------------------- 9. U.S. Share of Norway's Imports 9.1 8.1 (1.2) ------------------------------------------------------ Memo notes: (a) Compiled from Norwegian foreign trade statistics, which differ somewhat from data provided by the US Department of Commerce for statistical reasons.