Alarming reports
REUTERS:
“The Norwegian economy, once one of Europe's brightest, ground to a halt in late 2015, leaving full-year growth at its lowest in six years and strengthening the case for central bank rate cuts. Norway is Western Europe's top oil and gas producer, and its economy has been hit by the 70 percent decline in crude prices since mid-2014.” (Reuters tele text 16/02/2016)
"Investments in Norway's key oil and gas sector will fall further in 2016 and in the coming years following a 16-percent drop in 2015, the Norwegian Petroleum Directorate (NPD) said on Thursday, suggesting more pain ahead for the country's economy. ...
Norway's economy, long one of Europe's best performers, has begun to struggle as its main industry, oil production, is hit by a three-quarters fall in the price of Brent crude since June 2014." (Reuters 14/02/2016 Full story Here)
The bad guy: Oil
Oil is to blame for all of it.
That would be one side of the coin and easy to understand. In this Norway is not alone: To mentione a few, Venezuela and Russia are in the same situation. Oil!
And, yes: Here is what Bloomberg money has to say on that issue:
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BLOOMBERG:
“The financial crisis was nothing compared to this,” said Teodor Sveen Nilsen, an analyst at Swedbank. “Exploration activity will drop. It’s not good for Norway and not good for the Norwegian shelf. ...
The total effect on the economy then depends on the spillover we see to other sectors,” said Gaute Marius Langeland, chief analyst at Nordea in Oslo. “But this is being counteracted by a number of excellent shock absorbers.” (Bloomberg 14/02/2016 Full story Here)
Diversity of economy as problem and motivation for changes ahead
In 2013 Norway exported $147B, making it the 32nd largest exporter in the world. During the last five years the exports of Norway have decreased at an annualized rate of -2.3%, from $165B in 2008 to $147B in 2013. The most recent exports are led by Crude Petroleum which represent 32.5% of the total exports of Norway, followed by Petroleum Gas, which account for 25.1%. (OEC / Norway).
Norway like many other countries making riches and wealth primary using (excess) natural resources become utterly vulnerable to global pricing of that commodity. Oil is one, raw materials in general are others - even gold. Chep labor can be mentioned and country vise tax benefits not to be forgotten. But there are also other "commodities" in the knowledge and financial economy. Ireland and Iceland made them selves dependent on the "financial excess boom" ending 2008, when lending, investing and risk taking become a scarce commodity. So why is this all so bad?
Not only is price fluctuations a risk, but the whole economy is at risk as it has a tendency structurally to be "under developed with respect to complexity and diversity".
This is the case for Norway with a ECI (Economic Complexity Index, 2013) value of 0.946 and ranking 24th (between Mexico and Spain) when compared to neighbouring Sweden ranking 4th (1.83), Finland 8th (1.64) and Denmark 19th (1.19). What this says is: When the primary commodity ceases to fuel the economy there are too little of compensating other businesses to fill that gap. They need to be created or at the least activated. Measured by IMD 2015 Norway scores 3.61 (on a 0 - 10 scale) where Sweden scores 6.25, Finland 4.22 and Denmark 6.22 when it comes to "Diversification of the economy".
And, how serious should we be over the situation, this matter? Well, to use Standars & Poor's credit rating 31/10/2014 for Norway we would say: "In our base-case scenario we don't envisage a sudden significant … oil-price shock. … However, if such situations persevered and the government was slow to address them, ratings pressure could build."
Thus there is a structural problem in the economy of Norway ahead, this we know - nothing new here -, but what we perhaps do not realize is that the problem goes even deeper: Not only is the economy structurally at risk, it is at risk from lower quality, content and (economic) added value.
This is to say: If we know there is a structural short coming in complexity and diversity of the national economy how have we not noticed this also implies a shortage in equally complex and diversified national intangible capital NIC?
Why? Because national intangible capital NIC is embedded in the very same institutions/organizations (government, private and 3rd sector), businesses and (social and demographic) infrastructures and can not surpass these necessary embodiments of NIC. These are the basis for both economic complexity and diversity and national intangible capital NIC - and us humans not to forget.
We could her also use OECD Economic surveys Norway (March 2014): "Still, one interpretation of …(declining GDP growth) … would be that during times of resource abundance Norway did not invest sufficiently in other forms of wealth, such as human or physical capital, to maintain its ability to generate similar increases in income when resource use is declining."
We need to look into this more carefully.
National intangible capital NIC measures quality, content and added value, national spillovers to say?
One could believe that Norway would match up with other high performing and GDP wealthy countries when it comes to national intangible capital. Then the problems facing Norway today would be only economic and structural, but this is not the case.
In 2012 we launced the concept of a NIC Tipping point: The point on a time line (from now) where impacts of national intangible capital NIC stagnates, i.e. growing impacts ceases to benefit the economy. We calculated NIC Tipping point estimates for all (48 as of 2011, 61 today) countries and here, as an example, is Sweden:
As you can see: No Tipping point ahead. And remember: We made these projections 2012 based on 2011 data. NIC impacts in GDP formation gets stronger for Sweden by the minute.
And Norway:
A decline, stagnation of growth, can be spotted 2016/2017 (2018 at the latest in this projection from 2012). Sorry to say: This alarm did not reach the head lines at that time, 2012, when the results was first made public.
So, now we could say: We said it! We saw it coming.
However: We did not see oil triggering the inbuilt weakness, but we saw that there was a deeper weakness than low complexity and diversification of the economy. A vulnerability, weakness, not structural, but a disadvantage in quality, content and added value of the economy.
In short: What we saw already then (2012) was: Norway has significant NIC weaknesses and these will ultimately lead to a collapse of NIC boosting the economy of Norway in a near future. And this is fatal as the economy globally and inevitably is developing from being industrial (tangible) to becoming a knowledge (intangible driven) economy.
This is the really worrying problem: How to strenghten Norways NIC?
Comparing Norways NIC performance:
Norways overall NIC index (2014) scores 7.66 when scandinavian average is 8.19. Impact for Norways NIC in GDP (as percentage of GDP) is 52.58 % compared to scandinavias average 65.01 % or Sweden 75.74 %. And, what about NIC efficiency; how well are NIC potentials utilized? Norways NIC efficiency ratio (output/input) is 4.13 compared to a world average 4.25 and USA as champion with 5.77.
Thus Norway faces a doubble challenge when tackling its indispensable transition to the kowledge economy era: To multipy complexity and diversification of the national economy and powerfully strengthen its national intangible capital NIC.
Summary:
- Norway faces a multiple challenge: to multiply economic diversity and powerfully strenghten its national intangible capital NIC.
This is a developing story: Next update 12:00 CET 23/02/2016, we position Norway making path for a more detailed outlook on Norways NIC focusing on strengths and weaknesses, SWOT analysis, and on finding most critical NIC Tipping point drivers determining the projections for Norway.
Stay tuned!
Any questions? Mail a NIC team member or mail your question to: nic research.
NOTE:
Till official release and publication of NIC 2016 Report in April (2016) we elaborate only NIC 2001-2013/14 public data based analysis and results, i.e. data available to all. Customers find latest NIC 2016 data and analysis results on login area. However: Elaborations and results presented here are tried to be in line with results you will find in the NIC 2016 Report and database.
NIC profile for Norway
Recap:
- Norway faces a multiple challenge: to multiply economic diversity and powerfully strenghten its national intangible capital NIC
To understand the importance of NIC, how it creates value and to be able to analyse real strenghts and weaknesses and spot opportunities and threats we need to position Norway. This is to say: We need to understand that NIC is not an isolated phenomenon or measure, but a real measure in real life. As for humans it matters where you live on the map, say it matters wether you live in Greenland or Paris it matters for nations. And where is Norway? Likevise it matters if you are coworking with persons in your same league. For Norway: We are looking for structures of co-operation and trade partners.
All these have real influence on how Norway is capable of using its national intangible capital and what networks and tools it has to make NIC work and create value for the country.
We therefore start by just positioning Norway from some essential perspectives, giving building blocks for a Norway NIC fact sheet .
Positioning Norway on the world map / globally: Norway as part of Scandinavia
Positioning Norway in its surrounding by measures of GDP and NIC: Norway as part of Scandinavia
Despite some significant differences in size the Nordic countries are rather similar in terms of welfare.
Denmark, Finland and Norway are 50-60% of Sweden by population. The exeptions are Iceland by being only about 3% of Sweden by populatio, and Norway having a 33% bigger GDP per capita compared to Sweden. However, when measuring development by NIC, all the countries perform on a high level.
Positioning Norway in its surrounding by measures or trade and (socio-) political aliances: Norway as part of the global community
Concerning value-added trade (red connectors) and its structure, EU political positioning, fiscal policy and security issues Nordic countries form a rather heterogenous environment.
Value-added trade clusters Denmark with Germany, Sweden with Finland, and Norway with Iceland.
Denmark, Finland and Sweden are EU member states, Finland is the only EURO member; Denmark, Iceland and Norway are NATO memebs, wheras Finland ad Sweden strenghten co-operation to increase their security.
*) WTO: Clustering value-added trade: Structural and policy dimensions. **) EUROSTAT 2015
Positioning Norways NIC performance on a scatter plot: Index as potential (x-axis) vs Impact (y-axis)
Positioning Norways NIC performance: Index values, impacts in GDP for different capitals and efficiency
NHC = National human capital / Capacity and capability of people
NMC = National human capital / Global business attractivity
NPC = National human capital / Operational functionality of the nation
NRC = National human capital / Capacity for knowledge creation, exploitation and innovation
The overall picture ready
We now have a picure as where Norway stands, how it is connected globally and how it in general is performing when it comes to NIC.
Comparing to Scandinavia main strenghts is Norways potential (as measured with NIC indexes), especially when its comes to its market capital NMC. A clear weak potential can be spotted in Norways renewal capital NRC, its innovation and R&D activities. However, having said this and Norway having potentials, weaknesses are imminent when it comes to NIC impacts and efficiency.
We need now start asking the question: Having potentials (generally good index values), where are the real strengths and weaknesses that matter, opportunities and threats we should be aware of, to disclose why impacts and efficiency are lagging behind? To accomplishe this we need to look into the various components of national intangible capital in more detail, look into some trends for Norway, and also recognize the inner dynamics of NIC.
Summary:
- Norway faces a multiple challenge: to multiply economic diversity and powerfully strenghten its national intangible capital NIC.
- National intangible capital for Norway has potential (high index values), but weaknesses are in impact and efficient utilization.
This is a developing story: Next update 12:00 CET 24/02/2016.
Stay tuned!
Any questions? Mail a NIC team member or mail your question to: nic research.
NOTE:
Till official release and publication of NIC 2016 Report in April (2016) we elaborate only NIC 2001-2013/14 public data based analysis and results, i.e. data available to all. Customers find latest NIC 2016 data and analysis results on login area. However: Elaborations and results presented here are tried to be in line with results you will find in the NIC 2016 Report and database.
WICI: The world's business reporting network
WICI, the world's business reporting network, is a private/public sector collaboration aimed at improving capital allocation through better corporate reporting information.
WICI was formed in November 2007 and participants include organizations representing companies, analysts and investors, the accounting profession and academia.
The Promoting Parties of WICI are:
- Enhanced Business Reporting Consortium, which was founded by American Institute of Certified Public Accountants, Grant Thornton LLP, Microsoft Corporation and PricewaterhouseCoopers
- European Federation of Financial Analysts Societies
- Japanese Ministry of Economy, Trade and Industry
- Organization for Economic Cooperation and Development
- Society for Knowledge Economics
- University of Ferrara
- Waseda university
The European Commission participates in WICI as an Observer.
BREAKING:
WICI has now published “WICI Intangibles Reporting Framework Version 1.0 Consultation Draft” to further enhance the reporting on intangibles information and metrics. WICI is seeking comments on all aspects of the Framework from All stakeholders.Public consultation has started Feb 15th, 2016 ending May 16th, 2016.
Find out more here and bookmark WICI home page
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Developing story / Norway in crisis as oil price plunges?: Next update 12:00 CET 25/02/2016.
Stay tuned!
Any questions? Mail a NIC team member or mail your question to: nic research.
NOTE:
Till official release and publication of NIC 2016 Report in April (2016) we elaborate only NIC 2001-2013/14 public data based analysis and results, i.e. data available to all. Customers find latest NIC 2016 data and analysis results on login area. However: Elaborations and results presented here are tried to be in line with results you will find in the NIC 2016 Report and database.
Strengts and weaknesses in Norways national intangible capital NIC
Recap:
- Norway faces a multiple challenge: to multiply economic diversity and powerfully strenghten its national intangible capital NIC
- National intangible capital for Norway has potential (high index values), but weaknesses are in impact and efficient utilization
How to determine NIC strenghts and weaknesses?
To produce a list for 8 strongest indicators we could easily approach the issue by i.e. just pick 2 strongest indicators in each capital group (human, market, process and renewal capital) and each category (index value, impact and efficiency). We would then get one list. On the other hand we could just take 5 strongest / weakest from each category. Doing this latter we get:
Suddenly all efficiency strenghts are only in the group of market capital. Does this mean that no streghts at all in the efficiency category can be found in human, process and renewal capital? No, it only means that the approach lack conceptual accuracy:
We ask once more: How are we to determine Strong / Weak?
We take the following steps: For each driver (indicator) we calculate
- Distance to group average, i.e. D1 = value - average(group) with a weight = 1. Motivation: Internal weaknesses and strenghts need to acknowledge intrinsic differences between different NIC capital groups.
- Distance to world average for driver, i.e. D2 = value - average(world) with a weight = 2. Motivation: Internal weakness / strenght does not automatically imply that this is true when compared to world averages.
- Distance to NIC trade value, i.e. D3 = value - NIC trade value with a weight = 3. Motivation: Strenghts and weaknesses need to be measured in the economic realm of production and trade as country specific.
- Weighted distance, i.e. WD =(D1*1 + D2*2 + D3*3)/6
Weights are here chosen to reflect what matters: What matters more than just high values (in group) is that the value is competitive (vs world) and generates economic activity (competitive trade).
All Norways strenghts only in the market capital group? The picture changes when real dynamics of NIC is taken into account:
Analysed this way dominating market capital vanishes: Direct approach would have placed 75 % of strenghts in market capital (blue bar), but weighting strenghtens value of process and renewal capital (brown bars) and actually efficiency of renewal capital surpasses market capital efficiency!
We believe this is a more true picture of how strenghts in efficiency of Norways national intangible capital is distributed. Still, we ask once more:
When looking for strenghts and weaknesses: are drivers potential (index values), impact (as percentage shares in GDP formation and growth) and efficiency (as output/input ratio for impacts) equally important?
One can argue that they are equally important and should be given equal weights and analysed separately. This is OK and is certainly done. However, if we seek a compact list of weaknesses and strenghts combining potential, impact and efficiency (dynamically) we could give impact greatest weight followed by efficiency and potential. The rationale is that focusing on improving any (weak) driver will innevitably also strenghten its efficiency and its potential, but benefits in impacts will be fastest and strongest when initially impact has highest selective power.
Giving impact, efficiency and potential weights 3, 2 and 1 (and calculating Doubble Weighted Distance DWD) we can picture how strenghts and weaknesses is distributed over the various NIC capitals in Norway: Here strenghts:
This final profile strenghtens human and process capital on the expence of renewal capital (compare green bars to brown). We can now look on the distribution of strenghts and weaknesses (!) for Norway.
Distribution of NIC strenghts in Norway / profile break down:
Distribution of NIC weaknesses in Norway / profile break down:
The rest is easy: We can now pin point strenghts and weaknesess by selecting top 12 and bottom 12 drivers by their DWD values. We could even make shorter selections, but here are strongest 12 drivers for Norway 2014 and weakest.
NIC strenghts in Norway 2014 / Linked drivers:
NIC weaknesses in Norway 2014 / Linked drivers:
Can NIC boost Norways economy? Yes: By strenghtening weak intangible capital drivers.
We need to analyse these results more carefully and identifiy drivers affecting the NIC Tipping point projection.
Summary:
- Norway faces a multiple challenge: to multiply economic diversity and powerfully strenghten its national intangible capital NIC.
- National intangible capital for Norway has potential (high index values), but weaknesses are in impact and efficient utilization.
- Present output drivers dominate strenghts, but there are only few input strenghts which sets future potentials at some risk. Weak inputs sets future potentials/productivity at risk. Generally enhancers not at risk, but output/productivity is closing in on being at risk.
This is a developing story: Next update 12:00 CET 26/02/2016.
Stay tuned!
Any questions? Mail a NIC team member or mail your question to: nic research.
NOTE:
Till official release and publication of NIC 2016 Report in April (2016) we elaborate only NIC 2001-2013/14 public data based analysis and results, i.e. data available to all. Customers find latest NIC 2016 data and analysis results on login area. However: Elaborations and results presented here are tried to be in line with results you will find in the NIC 2016 Report and database.
NIC Tipping point drivers project weakening NIC gains and profits for Norway
Recap:
- Norway faces a multiple challenge: to multiply economic diversity and powerfully strenghten its national intangible capital NIC.
- National intangible capital for Norway has potential (high index values), but weaknesses are in impact and efficient utilization.
- Present output drivers dominate strenghts, but there are only few input strenghts which sets future potentials at some risk. Weak inputs sets future potentials/productivity at risk. Generally enhancers not at risk, but output/productivity is closing in on being at risk.
NIC Tipping points
We define a NIC Tipping point as a point on time line (future) where NIC impacts in GDP formation and growth ceases to grow, i.e. NIC impact stagnates on a certain level.
In order to estimate the existance of a tipping point (in near or far future) we calculate a NIC TP value for each driver (indicator) = annual projected increment on impact in GDP. This is performed by analysing near past and far past behavior of the driver (i.e. we perform trend analyis of driver). Schematically a positive TP value granting growth looks like this:
As you notice the projection is then calculated using best performer as a target / optimal value for impact (strenghtend by 10 %). All values are calcualted on a year to year basis starting 2001. Schematically a negative TP value causing negative growth (declining impacts) looks like this:
Finally we add together (aggregate) the net cumulating effect(s) of all drivers and come to a NIC Tipping point projection for each country. Here NIC Tipping point projection for Norway 2014:
As NIC TP values are calculated for all drivers we can pin point "strenghts":
Strongest Tipping point drivers weak or even negative for Norway 2014
... and weaknesses:
Weak Tipping point input drivers sets future NIC potentials at risk for Norway
Summary:
- Norway faces a multiple challenge: to multiply economic diversity and powerfully strenghten its national intangible capital NIC.
- National intangible capital for Norway has potential (high index values), but weaknesses are in impact and efficient utilization.
- Present output drivers dominate strenghts, but there are only few input strenghts which sets future potentials at some risk. Weak inputs sets future potentials/productivity at risk. Generally enhancers not at risk, but output/productivity is closing in on being at risk.
- Strong input and enhancing Tipping point drivers are leveling out and this already affect NIC output efficiency and performace. Major input Tipping point drivers are deteriorating rapidy putting future strenghts at risk. Only a few few Tipping point enhancers are weak, but the few weak decline real fast. Output Tipping point drivers weakening worryingly.
- Conclusion: Only focusing on fast actions strenghtening Norways NIC will make the difference for the future.
NIC on the week: Next update 12:00 CET 29/02/2016.
Next week developing story: UK/GB/GBR: Brexit, Exit or Grexit? How will this all affect NIC effeciency in EU (EU28), EMU (Euro zone) or USE: the "United States of Europe" (EU as one)? And Britain? Loosers and winners?
Stay tuned!
Any questions? Mail a NIC team member or mail your question to: nic research.
NOTE:
Till official release and publication of NIC 2016 Report in April (2016) we elaborate only NIC 2001-2013/14 public data based analysis and results, i.e. data available to all. Customers find latest NIC 2016 data and analysis results on login area. However: Elaborations and results presented here are tried to be in line with results you will find in the NIC 2016 Report and database.