$Unique_ID{COW02684} $Pretitle{436} $Title{Norway High tide for Norwegian exports} $Subtitle{} $Author{Jon-Age Oyslebo} $Affiliation{Embassy of Norway, Washington DC} $Subject{norwegian industry percent industries norway norway's production companies million products} $Date{1990} $Log{Leading the Sheep*0268402.scf } Country: Norway Book: Fact Sheets on Norway Author: Jon-Age Oyslebo Affiliation: Embassy of Norway, Washington DC Date: 1990 High tide for Norwegian exports "What do you actually live off here?" tourists to Norway often ask when they look out over beautiful, but often decidedly rocky and unfarmable areas. Oil and gas, yes. And possibly other natural resource-based industries such as fishing and forestry. But high tech industries and modern export products? Nope, not in Norway. The perceptions foreigners have of Norway's economy is hardly uplifting reading for Norwegians who believe that people in other countries have great faith in Norwegian industry. In a recent survey conducted by Time Magazine, only 18 percent of the 5,000 European readers polled believed that Norway has technologically advanced products. Nevertheless, world demand for Norwegian industrial products, especially those that have undergone a sophisticated manufacturing process, is unprecedented. This has been a tremendous boom to the Norwegian economy. The austerity measures introduced over the past few years strangled growth in private consumption and led to a domino-like round of cutbacks, sackings, and bankruptcies in that sector of the economy that produces for the home market. The healthy and prolonged high tide in exports was thus made to order. The result of the export boom is manifested in Norway's balance of accounts: an expected current account deficit of 1.5 thousand million US dollars in 1989 has, in six months' time, been turned around into a predicted surplus of 1.8 thousand million USD, according to the Government's revised national budget. What the accounts will show at the end of this year is however uncertain. Natural resources and technology The reason for these widely diverging predictions can be found in one of the many distinctive characteristics of Norwegian industry: the wide fluctuations in export prices for important products. Ever since the first shaky attempts at industrialization in Norway, the country's natural resources - ore and minerals, lumber, fish and gradually also oil and gas - have served as an important foundation for Norwegian activity. Instead of exporting commodities as they were, large sectors of industry have been built up around the processing of raw materials, based on access to cheap electricity from Norway's abundant waterfalls. Norwegian industry gradually developed unique manufacturing technology, which has made it possible for Norwegian suppliers to easily compete with countries with lower cost levels, but with less advanced technology. It is first and foremost these traditional industries that are now increasing their exports. This applies, among others, to the producers of metals, ferroalloys, paper and pulp and chemicals, which have all had to crank up production to satisfy the demand. Metallurgical exports in the first quarter of 1989 totalled nearly 1.3 thousand million USD, around 40 percent more than in the same period last year. The demand for aluminium and nickel is especially heavy. According to Ministry of Industry predictions, the export industries will increase their production by 2 percent this year and 1.5 percent in 1990. The strongest hike has been registered by the metallurgical industry, which grew 8.2 percent from 1987 to 1988. The paper and pulp sector, having experienced strong, demand and good prices for four years, noted a more modest 0.5 percent increase in production from 1987 1988. For this and next year the Ministry of Industry predicts more moderate growth in metals and paper and pulp, while the chemicals industry is expected to see rising demand for its products. Combined with higher oil prices and a higher dollar, these traditional manufacturing industries are responsible for the gigantic turnaround in the external economy. Dependency Natural resources are therefore obviously a blessing for Norway. But in many ways the concentration on them, has, too, become Norway's curse. One characteristic manufactured products such as paper, cellulose, ferroalloys and aluminium have in common is that the price foreign markets are willing to pay for them is not always predictable. The same applies to oil and gas. Markets are cyclical, is the usual laconic comment. Sometimes they go up, sometimes down. Particularly exposed in this respect is the oil industry, with the consequences these cycles have for the entire Norwegian economy. When the existence of commercially exploitable reserves of oil on the Norwegian Continental Shelf was confirmed in the late 1960s, it was stressed early on that oil revenues must not hinder necessary investments in mainland industry. Norway's economic basis was not to become captive to fluctuating oil prices. The fact that this still happened was clearly demonstrated when prices fell dramatically a few years ago. In its recent report to Parliament on industrial policy, the Government concluded: "...Up until 1985-86 Norway adjusted its production on the basis of continued high prices for oil." The impact of oil and gas production varies widely. In 1988, this sector accounted for 8.3 percent of the gross national product (GNP), or 6.9 thousand million USD. Other industries contributed 16.2 percent of the GNP - 13.5 thousand million USD. In 1985; the situation was the reverse: oil and gas accounted for 18.5 percent of GNP (13 thousand million USD), while the rest combined for 14 percent (9.8 thousand million). The export industries are vulnerable to extreme shifts in the market. Good times are replaced by bad. For the moment, the picture is bright, but the long-term view is uncertain. Today, the Government is trying as best it can to create the proper conditions so that production and profits can also increase in those sectors exposed to international competition that have escaped the boom in the traditional export industries. Stringent wage regulation two years in a row, increased appropriations for research and development and an emphasis on education and infrastructure are buzzwords in this connection. But experience shows that restructuring takes time. In its long-term programme, the Government admitted that the transfer effect to the competitively exposed industries had been "less than desired". Competence Far from all industry in Norway is based on raw materials. The country supplies both itself and foreign markets with a wide spectrum of products, from tinned goods and soap to advanced data-based control systems. Every branch has its success story, and its special technology, and contributes to the creation of both wealth and employment. Something that nevertheless sets Norwegian industry apart are those activities that are based on Norway's topographical conditions and on activities on the Continental Shelf. Up through time, fjords, mountains and oceans have posed major challenges for engineers which they have had to master. As a result, Norwegian engineering companies have long been able to offer internationally recognized competence and technological solutions when it comes to, among others, construction of power stations and dams, tunnels and bridges. The exploitation of petroleum reserves in the North Sea has also been a driving force behind the development of a high level of competence and advanced technology in Norwegian industry. As orders for large ships placed with Norwegian shipyards declined, more and more of their activities have become directed towards offshore technology. Many yards quickly switched to building rigs, permanent installations, and offshore equipment. Research centres, first and foremost the Norwegian Marine Technology Research Institute, lead the way in the development of offshore technology. Today, Norwegian companies can offer foreign customers specialized expertise in both petroleum production technology and project management. The shipbuilding industry, one of Norway's traditional activities, is still capable of turning out ships. Today, the yards have to a large degree specialized in the building of supply ships, fishing boats and high speed passenger vessels. Export oriented Another main feature of Norwegian industry is that it is strongly export oriented. Norway's approximately four million residents represent a small market. Forty percent of the goods and services that are produced are therefore sold abroad, especially to countries within the EC and the European Free Trade Association (EFTA). Over half goes to Sweden, Denmark, West Germany, Great Britain and the USA. The export industries cover a wide field, from the raw materials-based sectors such as metallurgical manufactures, energy production, chemicals and paper and pulp to the electronics, computer, food, mechanical engineering and consumer-oriented industries. In addition, comes, as previously mentioned, the competence associated with the shipping and offshore industries. The largest contribution to exports comes from the mechanical engineering industries, or engineering industries as they are often called. From 1984 to 1987, this sector increased its export earnings by 35 percent to 2.7 thousand million USD. This corresponds to around one-fourth of mainland Norway's combined exports of goods. The sector accounts for around 37 percent of the aggregate value added and employment in Norwegian manufacturing. The development of new technology was a central element during the time the Norwegian engineering industries switched from domestic to export-based production. The most important products manufactured by the engineering industries today are electrical power equipment, electronic products, non-electrical machinery, offshore equipment, ships and ship's gear. In addition, metalwares, foundry products, bicycles and other means of transport, together with a substantial amount of tools, are produced. Norway does not have its own car manufacturing industry. On the other hand, the production of car components has become a growing export trade. Today, a number of Norwegian firms deliver light metal wheel rims, aluminium bumpers, axles, power steering systems and brakes, exhaust systems and safety equipment to European car factories. On the consumer side, the focus the last few years has increasingly been on form and user friendliness. A characteristic of Norwegian design is that distinctively national styles are meshed with modern international design standards. This is particularly obvious when it comes to furniture, glassware, eating utensils and other products that have their basis in Norwegian handicrafts. The industry has understood the need to use modern techniques and streamlined operations in order to deal with competition on the world market. Norwegian industry's international engagement is not limited to export sales. Over 40,000 people are employed by Norwegian subsidiaries abroad. To an ever increasing degree, companies are expanding their participation in the world market by founding subsidiaries or joint ventures in other countries. The EC's efforts to create an internal market by the end of 1992 has stepped up the internationalization of Norwegian industry. In just the first two months of this year, Norwegian companies invested close to 44 million USD in EC countries, according to Norway's central bank, Norges Bank. By comparison, EC investments in Norway in the same period amounted to 20 million USD. Small and medium-sized [See Leading the Sheep: Courtesy Norway Information Service, New York.] Norwegian industry consists of more than large exporters. A third feature of Norway's industrial base is the large undergrowth of small and medium-sized companies (SMCs) - by Norwegian standards companies with fewer than 100 employees. In number, 95 percent of Norwegian industrial concerns fall into this category. SMCs account for nearly half of all employment and over 40 percent of the total production value in industry. SMCs are the hotbed of entrepreneurship, allowing people with initiative to bring their ideas into production. New inventions and steady product development are probably the small and medium-sized companies most obvious hallmark. Otherwise, SMCs represent a great variety of firms. Their differences are more obvious than their similarities. Some have found a niche for their usually highly specialized products in the international market. Others are more directed towards local or regional markets. Some aim to grow big, while others are determined to limit growth in favour of the flexibility that goes with being small. Fifteen years ago, Norsk Data was a tiny company consisting of a handfull of enthusiasts. Today, it is a multi-million dollar corporation with several thousand employees. In addition to their direct economic impact, small companies are an important element of the Government's rural policy. With Norway's thinly spread population, it is imperative that the rural communities have several legs to stand on and that employment opportunities are not concentrated in the larger centres. Because small companies so easily fit into a local community without creating one-sidedness, they help underpin the continued residence of people in the rural areas. They have, in addition, an important function in that they can serve as suppliers to other companies, especially the engineering industries, maintaining reasonable price levels as a result of low administration costs and fixed expenses. Earlier studies indicate that the profit margins of small and mid-sized concerns are somewhat higher compared to large companies, which are often more influenced by international market changes. Still, there are both profitable and unprofitable companies in all sizes - in Norway as in most countries. Environmental investments In closing, it would be appropriate to point out a fourth characteristic: the comprehensive investments in environmental protection carried out by Norwegian industry. Over the last 10 to 15 years, industrial emissions and discharges into the air and water from energy use and industrial manufacturing have been substantially reduced through pollution control and production changes. From 1974-85, Norwegian industrial concerns invested altogether 1.2 thousand million USD in 1985 dollars in environmental protection systems, and are now on the threshold of carrying out what are usually termed "second-generation" anti-pollution investments totalling between 420 and 560 million USD. As a result, the most dangerous and heavily used environmental toxins will be reduced by 60-90 percent. Discharges into the North Sea will be dramatically reduced. One of the goals of the Norwegian government is that Norway serve as an example to others and take an active part in international efforts to reduce discharges that lead to the deterioration of the ozone layer, climatory changes, acid rain and ocean pollution. The regulations for treatment of industrial waste and efficient use of resources are therefore strict. And they will become even tighter. In its follow-up to "Our Common Future", the UN Commission for Environment and Development report, the Norwegian government set forth several environmental policy goals. A major challenge to industry will be to adjust to these goals, without losing competitiveness. These are: Carbon dioxide (CO2) emissions are to be stabilized in the 1990s and reduced after the year 2000. Emissions of chlorofluorocarbons (CFCs) are to be reduced by 50 percent by 1991 and at least 90 percent by 1995. Special duties will be imposed on environmentally harmful products as one way of achieving this goal. Discharges of sulphur dioxide are to be brought down to 50 percent of their 1980 level by 1993. In addition, industry will have to take into account the Government's desire to cut emissions of nitric acid from automobiles and lorries by 30% by 1998, using 1986 as a basis year. Transport costs represent a major expense for Norwegian industries. Many companies eye an opportunity in the growing market for environmental protection technology, both in Norway and abroad, with a view to future production and sales. Only by being in the forefront in the use of anti-pollution equipment, will they be able to meet this challenge. Challenges of the 90s The 1990s pose numerous challenges for Norwegian industry. Environmental protection is just one of these. Another is to resist foreign takeovers that result in the transfer of manufacturing from Norway. But the biggest undertaking lies in Norway's active adjustment to the EC's single market. The 12 EC countries take in around two-thirds of Norway's exports. Every step in the direction of a "Fortress Europe" - the erection of an open internal market with high external barriers - will therefore have an enormous impact on Norwegian industry and the economy. The industrial sector's standpoint is unequivocal: EC membership as soon as possible. For the time being this is not current Norwegian policy. Instead, the Government has embraced a policy of adjustment to the EC through EFTA. At the same time, the authorities continually stress that it is up to each concern and sector to assume the responsibility for carrying out the alignments in their specific area. How well they manage to carry out these assignments in the years to come will be decisive for their futures.