Last Updated on 21 November, 2023 by Samuelsson
Norway isn’t just popular for its beautiful landscapes and majestic northern lights but also for the attraction it has become for foreign investors with its unprecedented growth rates in comparison to elsewhere in the Eurozone. Since the industrial era, Norway has reported powerful growth rates and has gained a reputation over its neighbors in the European region especially in the unfortunate economic downturns.
The Nordic region is considered inspiring when it comes to its economic model that portrays a healthy welfare model and happy statistics. And even now, it has been gaining attraction for how well Nordic stock markets have been performing for the last 50 years, especially Norway, Denmark, and Sweden.
It comes as shock to many that according to studies, the Nordic region has been gaining higher annual returns for the last 50 years than the US stock market. The US stock market carries the attraction of the majority since it holds 50% of the world’s stock market capitalization.
Looking at the past data, Norway has depended majorly on its North Sea oil to make up for financing its large-scale welfare and higher than average growth in the economy, contradictory to its neighbor countries that differ in gas and oil operations. Government or quasi-government entities heavily control Norway. But it should also be considered that the other economic sectors have suffered heavily with the rise of the petroleum industry since 1970.
However, the growth in the petroleum industry is also behind protecting the country in times of severe economic downturns since the industrial era. The counter of the same has resulted in making Norway one of the most costly countries across the globe to live in. Moreover, heavy reliance on the petroleum industry has made the majority of the labor tied to it. As a result, any kind of negative fluctuation in the petroleum market can potentially lead to critical problems for the entire country.
Below are the reasons that justify why Norway is a good investment.
Statistics in the previously held studies have shown higher annual returns than the US stock markets. The authors of Triumph of the Optimists established in their study with the help of statistics that nordic regions have even higher annual than US stock markets which are famous for getting attraction for being home to 50% of the world’s stock market capitalization. As it is found that the Nordic region has been outperforming the US markets since 1965 till the time of their study (2015).
Despite being a considerably small region with a population close to 28 million, the Nordic region holds a great number of worldwide brands. The small size of the population is actually the contributing factor as to why the companies are leaning towards expanding internationally.
A positive effect of competing internationally is the increase in incentives in the local economy to maintain competitiveness. The negative effects of the same bring vulnerability to the world business cycle fluctuations and the global economy.
Worldwide brands include companies like – H&M, Spotify, Evolution Gaming, Volvo, Skype, Alfa-Laval, Equinor, Novo Nordisk, IKEA, etc. But each country in the Nordic region varies on the basis of industrial structure. For instance, Norway inclines towards its more extensive sector in petroleum, shipping, fishing, etc. while a diverse industrial base is more potent in Sweden Denmark.
Norwegian region is a great example of the population that leads to a long-term mindset. A mindset is a significant factor when talking about the economy. The welfare state heavily works on mutual state and the Norwegian region seems to have a lot of it.
The Norwegian sovereign wealth fund in respect to the above statement is actually set for future generations to come that enjoy the returns with an intact capital. Norway has been very successful in comparison to other oil-exporting countries and credit is not limited to just dumb luck.
Almost 3300 billion NOK has been put into the Norwegian Sovereign Wealth Fund but gains and interest income have increased the value to over 11 000 billion NOK (1 250 billion USD). Such is the value in the long-term mindset of the Norwegian Region.
In Norway, it is believed that culture is the reason that dictates the competitive economy as well as the happiness and social health of the nordic countries. The reason behind this is that the cultural aspects of the country define political reasoning instead of the other way around.
The model can’t possibly be applied to a different country with a completely different cultural lifestyle. Typically the entire nation serves a set of common social issues. So be it, honesty, care for one another, trustworthiness or togetherness, respect for law and rights lends to a lower rate of corruption, crime and forms healthy values for the country.
The region of Norway is quite business-friendly and productivity-oriented in order to prioritize wealth. Capital accumulation stems from the fact that the capital included fewer taxes than salaries. Moreover, there are no corporate taxes on dividends and capital gains while the ordinary tax rates for companies are pretty low (22%) along with high relativity in business operations.
Back in 2017, a new but optional tax regime was introduced for private investors that mention dividends and capital gains to defer, if they are reinvested.
The welfare model is also reasonably sustainable but with an increasing number of people living partially or completely on welfare. About 12% of the working population falls under the model. The numbers seem to be consistently increasing with the decades.
About 225 000 people are somewhat directly or even indirectly employed in the petroleum sector, which is estimated to be about 4.5% of the entire population of Norway.
Investing in foreign stocks gives a diverse exposure to an investor. Norway, currently stands as the 33rd largest economy in export, globally. The gas and oil sectors are two of the major export markets with the fishing industry in Norway. There are many benefits to exploring international markets and have become significantly hassle-free with the help of ADRs.
– Why is Norway considered an attractive destination for foreign investors?
Norway’s attractiveness stems from its unprecedented growth rates, stable economy, and historical outperformance of the US stock market. The country’s reliance on North Sea oil and a robust welfare model are key factors.
– How does Norway’s oil-centric economy impact its investment landscape?
Norway has historically depended on North Sea oil to finance its welfare system, resulting in higher-than-average economic growth. However, heavy reliance on the petroleum industry poses challenges, and fluctuations in oil markets can affect the country significantly.
– Why does the Nordic region, including Norway, outperform the US stock market in annual returns?
Studies reveal that the Nordic region has consistently provided higher annual returns than the US stock market for the last 50 years. The region’s small population encourages companies to expand internationally, contributing to economic growth.