‘Oil fund’ reaches dizzying new highs
September 21, 2010
The numbers are so big that they’re hard to fathom: Norway’s fund that sets aside oil revenues for future generations is likely to reach a value of three-thousand billion Norwegian kroner by the end of the year. Every single Norwegian can probably be considered a millionaire within the next 10 years, at least on paper.
“It’s kind of like a dream,” Norwegian Finance Minister Sigbjørn Johnsen told newspaper Aftenposten on Tuesday. “The size of the fund exceeds the expectations of most of us.”
New figures indicate the value of the fund, NOK 2,792 billion at the end of June, will surpass NOK 3,000 billion sometime this fall. Norway thus has gone from being one of the poorest countries in Europe to its wealthiest, with much of the affluence clearly emerging just in the past 20 years.
By the early-1990s, oil revenues from Norway’s offshore fields were flowing into the state treasury at such a rapid rate that the government decided to save most of the money from oil taxes, fees and the state’s own direct investment in oil fields, instead of spending it and risk overheating the small country’s economy.
So the oil money goes to what’s formally called Statens pensjonsfond utland (the Norwegian Government Pension Fund Global) but popularly still called oljefondet (the oil fund). And then it’s invested all over the world.
Despite turbulent markets and the global finance crisis, the fund has grown at an astonishing rate. Johnsen, a veteran Labour Party politician, was also finance minister when the fund received its first deposit of NOK 2 billion in 1996. Now the fund ranks as the second-largest of its kind in the world with assets valued at NOK 2,910 billion (about USD 485 billion) as of Monday, reported Aftenposten, equal to NOK 590,000 for every person legally resident in Norway.
Only around NOK 24,000 is officially used per person in the state budget, though. While some argue for more use of the money, to fund needed infrastructure improvements in Norway, for example, Johnsen and all governments since 1996 have remained intent on saving the money for future generations. Only 4 percent of the fund’s asset value is allowed to be used during any given year, to help fund child- and elder care for example.
“The oil fortunes belong to the Norwegian people, both today’s and future generations,” Johnsen told Aftenposten. “There is broad agreement that society’s political organs will manage it.”
The fund is actually managed on a day-to-day basis by a unit of Norway’s central bank called Norges Bank Investment Management (external link), which has offices in New York, London, Oslo, Singapore and Shanghai, and is charged with safeguarding and building its wealth.