It must be tough, trying to figure out what to do with US$1 trillion in a responsible and forward-thinking fashion.
We in Canada, of course, do not have this problem. Unlike a certain other Arctic nation, Canada failed long ago to take advantage of our wealth of natural resources and energy reserves to build a nest egg all Canadians could enjoy today.
That honour goes to Norway. A country that’s a fraction the size of Canada by almost any measure – in size, in population, in Tim Hortons outlets.
Way back in April 2014, I wrote about how Compared to Norway, Canada is frittering away its wealth.
As I recounted in that article, the story goes that it all began in the late ’60s with an Iraqi geologist who brought his family to Norway in search of the best cerebral palsy treatment for his son. The geologist’s work led to the discovery of oil reserves that are expected to last until 2050.
A long-term view of wealth
The Norwegian government of the time was fully aware that oil reserves are not infinite. So, it implemented planning policies to manage the resource in a way that would create long-term wealth for the country and cushion it against the cyclical volatility of global commodities markets.
This interventionist approach is in sharp contrast to Canada’s free-market approach, which leaves the fickle fates of supply, demand and private-sector stakeholder interests in charge.
Norway protected its interests through a national oil company, StatOil, an independent industry regulator, and a provision that StatOil would have no less than a 50 per cent share in all future discoveries with foreign oil companies.
However, it’s what came next that’s important. In 1990, Norway set up a national oil fund.
Only four per cent of that fund is used for general government revenue, and then, only to fund important initiatives for infrastructure, education and research. The rest has been invested and reinvested.
Canada barely even tried to follow suit
At the national level, Canada has never undertaken such a bold and prudent initiative. Alberta attempted it, with its Heritage Savings Trust Fund established in 1976. As a result of management decisions I won’t bore you with here, it hasn’t amounted to much – about $17 billion in 2014, according to the last data available.
Why am I harping on this subject again now? Because of this story in the news recently, Here’s what lawmakers want to do with Norway’s $1 Trillion Fund.
The Bloomberg article reads:
“Key lawmakers gave a nod to a range of changes for Norway’s $1 trillion sovereign wealth fund – from divesting some of its oil stocks, to an overhaul of its fixed-income holdings and tighter restrictions on coal investments.”
Tight government control of the world’s largest wealth fund continues to rule the day, with ethical guidelines that include a ban on tobacco investment to climate and human rights criteria.
Norway’s Conservative government has set up a panel to review these, while the opposition Labour Party is pushing for its own rules to screen new markets or industries for investment on ethical or climate grounds.
All of which to say, when you own about 1.5 per cent of the planet’s stocks, have no debt, and account for only 0.07 per cent of the world’s population, US$1 trillion does allow you to put yourself into a position of some authority and power.
It’s never too late to learn from past (or ongoing) mistakes and plot a new course. So, what lessons should Canada take from Norway?
A cure for Boom-and-Bust Syndrome
In our system, we bounce between political ideologies and give political parties a majority position with as little as 40 per cent of the electorate’s support. The party in power then proceeds as best it can, which seldom yields impressive results in the absence of a long-term strategic plan.
Alberta had a plan to invest its oil and gas royalties, then got sidelined by the lure of not needing a sales tax – short-term gain for long-term bankruptcy.
We need to be good financial stewards of our natural resources, and recognize that some of them, like oil, are once-only assets.
Our industrial policies need to be longer term so we can avoid the Boom-and-Bust Syndrome different industries in Canada too often experience. You know what I mean – those cycles that see communities get built up on speculation, housing prices skyrocket and consumers overextend themselves on credit.
Then the whole house of cards falls for lack of a long-term plan . . . and takes the local real estate market with it.
To discuss this or any valuation topic in the context of your property, please contact me at [email protected]. I am also interested in your feedback and suggestions for future articles.