Scandinavian trading titans: Norway and Sweden
09:00, 21 June 2018
Norway and Sweden are regularly lauded as economic and social super-models. Free market capitalism and a generously backed welfare state? Tick. A commitment to private ownership and a robust public sector? Tick. Strong growth balanced by high levels of redistribution? Tick again.
That’s quite a bunch of paradoxes to unravel when trying to grasp the success of both: Sweden and Norway are regarded as the gold standard when it comes to egalitarianism and wealth creation.
But with this usually come several pre-cooked assumptions of high taxation, salaries and higher levels of social cohesion.
Tax, herrings and great furniture
Some slight laziness is present in these expectations. One misnomer is that Scandinavian corporate taxation is uncompetitive. It’s not. Many Nordic nations have lower corporate tax rates than the US as well as a greater degree of free trade in some areas.
Inequality is on the rise. According to the OECD, growth in social and economic inequality has risen faster in liberal Sweden since the 1980s than in any other OECD region, helped by the deregulation of credit plus government tax cuts.
However Norwegian and Swedish income tax does tend to raise a lot of revenue because taxation is rather flat. “They tax most people at these high rates, not just high-income taxpayers,” acknowledges taxfoundation.org.
One major factor responsible for Scandinavian success – it is rare to work more than 40 hours a week or even work late – is high productivity. Sweden ranked second globally (just behind Switzerland) in the Global Innovation Index which scores economic performance on 81 distinct indicators.
High taxation may keep you warm in your old age: ShutterstockWhat is the Nordic model, exactly?
The Nordic Model is Scandinavia’s attempt to blend free market economics with progressive taxation and state provision of essential services, namely energy, public transport and education. The Nordic Model rejects some of the neoliberalism of the West with an emphasis on resources allocation, free healthcare, gender equality and the promotion of family life.
If this sounds slightly suffocating the Norwegian School of Management claims greater collectivity means less dependence on others – and more individual freedom.
Including the freedom to do very little of anything. Come July, much of Sweden closes down. Even some police stations and hospitals shut their doors. Long summer breaks, so regional culture claims, are linked to higher overall annual productivity: long work breaks replenish job performance.
The Nordic Model has proved durable and successful. But it faces, like most other European countries, some fracturing from right-wing populist political parties as economic immigration increases – more of that shortly.
Higher house prices in both countries not to mention higher personal debt levels are also creating further pressure. It’s not all perfect.
Norwegian wealth is recent
Peace-loving, progressive Norway (like Sweden) is a creation of the 20th century. Before this time the region was as tribal as most other European regions.
Economic success in the land of lakes, fjords and forests should be seen in the historical long run: half a century ago Norway was one of the poorest countries in Europe with more than 40% of a household budget being spent on food.
Striking oil in the Norwegian sector of the North Sea – a rich seam of oil and gas deposits was discovered at Ekofisk 180 miles out from land in 1969 – changed all that.
At the time Norwegians had come close to giving up on discovering oil on the Norwegian Continental Shelf. But US technical expertise from the Phillips Petroleum Company ultimately shattered OPEC’s grip on the global oil market and made Norway rich.
Only 4% of Norway’s oil fund assets can be spent every year (though many Norwegians would understandably like to see that proportion rise). Barry Bosworth, an economist at the Brookings Institution, told ABC News in 2014 that the Norwegian fund should be regarded as a model way to run a sovereign wealth fund.
"Norway has done an excellent job of saving and investing a portion of its oil revenues for future generations.”
Striking oil made all the difference for Norway – but the find is relatively recent: ShutterstockSweden’s prosperity is a ‘quiet revolution’
Sweden’s rise to prosperity and stability does without the rocket fuel of Norway’s North Sea oil and gas reserves. What differentiates the two reaches back to 1945.
Sweden emerged out of the Second World War with much of its infrastructure intact due to its decision to stay neutral (indeed Sweden’s neutrality made war a boom time for exports). In the early 1950s Swedish government spending was below that of the US. It went on to make up for this with a massive, and ultimately unaffordable, public sector hiring binge between 1970-1990.
By the 1990s the country was in dire financial straits. Between 1990-1993 unemployment took off and GDP crashed by more than 5%. Sweden’s real estate boom crashed and burned. Welfare spending was out of control.
During the noughties there was widespread finance, media and telecoms deregulation and an increased focus on exports. Long term debt levels fell.
In 1993 Sweden’s public debt represented 70% of GDP. By 2010 this had slumped to 37%. Typically Swedish, this economic change was achieved by quiet revolution. However, Sweden’s public sector still remains high by most West European standards.
Trading in Norway and Sweden
Norwegian and Swedish stock markets managed to avoid some of the worst of the eurozone crisis 2007-2009 sell-off. This was helped by the fact that both countries possess their own currency and debt levels were universally low, compared with much of the West.
Low central bank interest rates also played their part. However, the appreciation of the euro in 2017-2018 has meant headwinds for some Scandinavian investors (though not for Finland which adopted the euro in January 2002). There is a wealth of stand-out blue-chip names.
Bear in mind that there is substantial ownership of public companies in key strategic economic areas, particularly with natural resources. Beneath Scandinavia’s understated low profile hides some impressive stock market returns.
According to Credit Suisse, Swedish real returns were worth 8.7% a year between 1965-2015 while Norwegian returns were worth 6.3%. Both these results are ahead of US (5.3%) and other European benchmarks for this period including the Credit Suisse World Index (5.0%).
For shorter term traders, the Scandinavian stock market offers plenty of opportunity because so many stocks are under-researched – lots of inefficiencies to be grasped and taken advantage of.
Many Scandinavian players have their roots in agricultural services – but modern entrants are increasingly high-tech and serve several jurisdictions: ShutterstockStock market basics – in brief
Norway’s main share trading market is the Oslo Børs which has roots going back to 1819. The Oslo Børs followed London’s October 1986 Big Bang by going part-electronic in 1988 while taking the full electronic plunge by 1999.
To make trading cost-effective the Oslo Børs has co-operative links with the Copenhagen Stock Exchange, Iceland Stock Exchange and Sweden’s Stockholm Exchange.
Norway’s main stock market index is the OBX which includes the top 25 most liquid Norwegian stocks on the index. It opens at 9am and closes at 4.30pm local time. The Oslo Børs All-Share hit an all-time high of 940.47 in January 2018 and a record 13.97 low in January 1983.
Sweden’s main stock market exchange lists more than 300 Swedish stocks and its history stretches back to 1863. Today it’s part-controlled by the Nasdaq OMX Group and has a market cap of 5.521trn SEK.
According to Trading Economics, the OMX 30 hit an all-time high of 1719.93 in April of 2015 and a record low of 98.86 in November of 1987. Normal trading hours are slightly longer than Norway’s at 9am-5.30pm.
Corporate big-hitters – Norway
On a country-by-country basis Norway’s Statoil – soon to be re-branded as Equinor – with revenues of €94bn is a true giant though with a 67%-33% ownership split between state and other investors. On the communications front there is Telenor (131.4bn NOK). DNB is an enormous and highly diversified Norwegian financial player (revenues of 54bn NOK).
Norsk Hydro (81.9bn NOK) is a massive aluminium and renewables player while Norwegian Orkla Group is a retail and branded goods conglomerate (revenues of 40bn NOK). Yara International is Norway’s biggest agri-chemical company (revenues of 95.2bn NOK).
Corporate big-hitters – Sweden
The list of Sweden’s publicly traded companies is much more extensive and headed by AB Volvo with revenues of $35,269m (2016), telecommunications player Ericsson ($26,004m) and multi-national fashion retailer Hennes & Mauritz AB ($22,618m), known better as H&M. A formidable ‘fast fashion’ player.
In the background is a wealth of other publicly traded operators straddling banking (Nordea, Svenska Handelsbanken), electronics (Electrolux), food and drugs (Axfood, AarhusKarlshamn), general industrials (Atlas Copco, Sandvik, Hexpol and Heliospectra), automotive (Loomis) plus healthcare (Vitriolife, BioGaia).
A classic Volvo P1800 – the Swedish car company is now owned by the Zhejiang Geely Holding Group: ShutterstockDefensive plays – take your pick
Many mainstream Scandinavian shares have strong defensive qualities with a substantial utility presence: mining, oil, agriculture and consumer staples though be aware too of cross-international ownership and currency volatility.
International mergers and acquisitions can also have a profound knock-on effect of Scandinavian business prospects. In March 2018 President Trump blocked Broadcom’s proposed acquisition of Qualcomm which supplies Swedish tech players Ericsson and Nokia.
Ericsson and Nokia had profound worries about R&D being slashed had a Broadcom-Qualcomm merger gone ahead. Longer term Nordic tech companies are also under increasing pressure from South Korean and Chinese players.
Nordic trading nuts and bolts
Sweden, in particular, has a high ratio of stock market investors compared to its European neighbours. More than 80% of the adult population are exposed to stock market funds.
Technology is making it easier for many in both countries to switch banks (and trading platforms) though major banking operators like Handelsbanken and Nordea still dominate.
There is a higher average interest in stock market investing and trading in Sweden than in Norway. Part of that is due to a larger proportion of Swedish microcap operations. Because of the diminutive size of many small scale operations it can be difficult for investors and fund managers to take meaningful positions.
The Lilliputian size of many companies means it’s hard to make meaningful peer-to-peer comparisons. For the companies themselves, this can lead to highly uneven share ownership and liquidity challenges.
And for all the zeal and energy thrown at Norwegian and Swedish start-ups, ensuring success stays local and puts down roots remains problematic. There are too many examples of successful entrepreneurs who have upped sticks and headed elsewhere, as the Economist worried as far back as 2013.
“Too many successful start-ups still choose to sell themselves to foreign (mainly American) multinationals rather than becoming local champions,” the report noted. Not a lot has changed.
Winter in Oslo – but some businesses may have left for warmer climes: ShutterstockSpotify the change?
Spotify’s 35-year-old founder Daniel Ek grew up in a working class district of Stockholm. Recently the Swedish streaming service underwent a $20bn public listing on the New York Stock Exchange, despite Ek previously claiming Spotify would be better off without public ownership.
However this was an unusual IPO; it was designed so that earlier backers could, well, back out. There were no roadshows to try and goad the interest of investors. Nor were there teams of international investment investors to underwrite the shares and propel it through a traditional marketing campaign where an offer price would eventually be arrived at.
Some Wall Street watchers say this hands-off approach neatly echoes a low-key Scandinavian approach: a firm reluctance to rely on ‘establishment’ routes. A close eye on unnecessary expense was exerted. And larger institutional investors were not given first refusal on big share allocations.
In other words, the public were given the chance to buy shares direct at the offer price with no intermediary. Spotify kept its listing restrained, thoughtful and rational. How Scandinavian.
Is virtuous Scandinavia free from corporate scandal?
Scandinavia though is as vulnerable to excess and greed as anywhere else. In an FT report into ‘Scandi’ corruption in 2016, one company exec told the paper that despite the carefully burnished image for clean-dealing and fairness, the reality was as ragged and free-wheeling as anywhere else.
“We’re like couples that like swinging: we look polite and well-behaved but behind the curtains — wow!”
In 2017 Fredrik Lundberg, Sweden’s most powerful and well-known businessman plus ex-finance minister Anders Borg were questioned by anti-corruption investigators on suspicion of bribery. Lundberg has close links to several large Swedish companies including Volvo Group and Ericsson.
Boardroom blood has also been spilt over allegations of boardroom excess: the use of private jets to fly the families of execs to far-flung hunting lodges, for example.
Hunting remains a big draw for much of the Swedish population. But questions have been asked about how much corporate deal-making is done on such networking trips, away from the scrutiny and glare of conventional controls and governance.
Shareholder governance questions have been posed for Scandinavian bank Nordea, criticised for its poor money-laundering safeguards. In February 2018 Swedbank was warned by the central bank of Lithuania it needed to tighten up on terrorist financing concerns.
Spotify is a Swedish company doing something revolutionary – but it's doing it in a low key way: ShutterstockNorwegians are richer than Swedes
Norwegians are 39% richer than their Swedish neighbours with a GDP per capita of $89,600. This contrasts with $55,100 in Sweden according to 2017 statistics.
The Swedish economy grew 0.9% in the last three months of 2017, following an 0.8% expansion in the previous period, Trading Economics claims. In 2017 Norway’s economy grew 1.8% following a 1.1% acceleration in 2016.
Norway’s monster oil reserves means it now has a $1trn pension fund to pay for public liabilities and other spending well into the future. Paradoxically, Norway is now considering selling some oil assets: the Norwegian government knows it can’t promote wider ‘green’ policies when itself is heavily funded by fossil fuel revenues.
Climate champion and oil giant? No-one wants the risk of being branded a hypocrite though this risk hasn’t stopped Norway drilling in the Artic, dead against the spirit of the 2016 Paris accord.
The gift of oil brings other pressures. With so much energy directed at this sector it has meant Norwegian technical expertise is not as widely spread across other sectors as it is in other neighbouring countries.
Sweden’s population is 9.9m; Norway’s population numbers 5.2m (2016 figures).
Ahead on crypto-assets
Sweden is thought to be close to launching its own state-backed crypoto-asset E-Krona. If the concept comes to fruition – hacking and other security concerns remain high – then E-Krona could debut in 2019. However just what the underlying technology will be isn’t yet clear. Transactions themselves are likely to be stored on a card or an app.
Bitcoin mining generates large reserves of heat so access to low-cost power – hydro-electric power, especially – helps. Bitcoin mining in hot countries, especially, demands massive reserves of air conditioning. So it’s an astute move to shift operations to a colder climate – no problem for the Nordics.
‘Green’ concerns hang around, especially in this highly environmentally-conscious trading region. In October 2017 Dutch bank ING claimed that a single Bitcoin trade – the most intensive part of the process is verification checks – could power a home for the best part of a month.
Greenpeace itself takes Bitcoin donations so the carbon footprint question will demand significant reserves of Scandinavian rationality. Meanwhile Google and Facebook maintain large server farms in the sub-Artic region of Sweden. "There is a lot of (engineering) competence... and good cooperation with the technical universities," CNN reported in 2014, and little has changed since then.
“On top of that,” the CNN report added, “good transport links ensure its easily accessible by road and by air while solid infrastructure ensures business stability.”
The Vemork Hydroelectric Power Plant in Rjukan, Norway. The first plant in the world to mass-produce heavy water: ShutterstockDoing business in the Northern Lights
Both Sweden and Norway have managed to become economically stable helped by strong unions working closely with management. Wage rises are linked to productivity and quality. There is a big emphasis on training and collective bargaining.
In other words, industrial relations are underpinned by a strong corporate collaborative culture (and good productivity). Measured by the World Bank’s Ease of Doing Business Index, both Sweden and Norway are in the Top Ten, well above free-market outliers Australia and Ireland (2018 figures).
Both are also in the top dozen countries on the World Economic Forum’s Global Competitiveness Index.
Scandinavian influence on corporate pay is taken notice of. In April 2018 Norway’s $1trn oil wealth fund backed UK engineering player Weir Group to abandon long-term controversial ‘fat-cat’ bonuses in favour of more easily understood financial rewards. Many UK bonuses can exceed annual salaries, by some margin.
Union membership is though on the decline (though union co-operation with industry is strong). What all Scandinavian countries can legitimately claim is a lengthening history of social democracy, mobility and relatively low levels of corruption.
Norwegian oil influence extends far beyond its own territorial waters: ShutterstockImmigration and security – learning to say No?
Scandinavia has taken in more refugees than anywhere in the world for several decades. In 2016 the Swedes absorbed more than 163,000 of the world’s desperate, equivalent to 1.5% of their total population. A huge number.
Attitudes are hardening. There is on-going worry that a generous welfare systems inhibits work and integration. Norway introduced a ban on public begging in 2014. In 2016 Stockholm police foiled, just in time, a plot by 100 masked citizens to physically attack asylum seekers.
“For us, mass immigration and welfare are opposites. You can’t have both,” Jimmie Akesson, leader of the populists Sweden Democrats, has said in the past.
What gets less attention are growing masses of elderly Norwegians and Swedes. “The chief threat to the stability of the Nordic welfare system is not the presence of foreigners,” said a New Yorker article in 2015. “It’s the growing ranks of elderly people, who draw on the system while giving little back.
Scandinavian worry over Russian and US relations since the election of President Trump is said to have deepened economic ties between Norway, Sweden and Finland. Nearby, the Baltic states remain anxious about future Russians intentions. In 2018 Lithuanian, Latvian and Estonian Presidents visited the White House to urge Washington to take a harder stance against Moscow.
The three major Nordic economies have agreed to share more air surveillance information over Russia’s increasing military activity.
Capital ownership – more complex than it looks
While Norway and Scandinavian labour markets have been spectacularly successful in creating equality in wages and productivity, actual capital ownership – property and other assets – remain as unequal as anywhere else in the West.
There is no ‘dividend’ paid out by the Norwegian government to private citizens from its huge national pension fund, for example. Any idea of a people’s ‘northern utopia’ should be treated with caution, for both.
A people’s contract between Norwegian and Swedish private companies and public institutions is still there. It's just being questioned harder – and more regularly.