When even the country’s capital owners flee the country, it is no wonder that foreign investors lose confidence in the Norwegian economy, says investor Øystein Stray Spetalen.
Crimes politicans for weak krone: Investor Øystein Stray Spetalen believes that politicians have damaged the view of Norway as a stable country in which to invest.
– There is no person who goes to work in New York or Frankfurt and says that now I want to buy kroner, says Spetalen.
In the last ten years, the krone has lost value against most currencies. The exchange rate tells what the country’s money costs, measured against another country’s money. It tends to reflect how things really are in an economy.
US dollars have gone from costing NOK 5-6 in 2013 to NOK 10-11 today, while euros cost NOK 7-8 and are currently NOK 11-12.
The krone has weakened against most currencies, with the exception of some special currencies such as the Nigerian naira or the Argentine peso.
This should frighten the politicians, Spetalen believes. According to him, it is not the central bank, which is supposed to keep the value of money in check, that has reduced confidence in the krone:
– More of Norway will be in the public sector. Everything from business is being throttled. In addition, we see that many foreign investors are fleeing the Norwegian capital market, says Spetalen.
Points to the Labor crisis as serious for Norway
Spetalen believes that foreign countries see Norway as politically unstable. At the general election in 2021, the smaller parties on the wings historically received many representatives.
The Conservative Party and the Labor Party, which have traditionally been regarded as governing parties, accounted for less than half of the Storting for the second time.
– They have stood for political stability in society. When you get factional parties that want to achieve special advantages with far-reaching proposals, uncertainty is created. What is happening with the Labor Party now, I think, is harmful for Norway in the long term, he says, and continues:
– Buying currency is buying future earnings in a country. You buy economic and political stability in a country. In Norway, there are discussions about closing the oil business, and the long-term outlook for Norway is becoming dangerous.
Other problems are also in the queue, according to Spetalen: Electricity prices have skyrocketed, the government has increased both wealth tax and dividend tax.
The krone weaker after tax shock
The crown example for Spetalen is 28 September last year. Then the government shocked by announcing a special tax for farming and wind power.
– On the day the salmon tax was introduced, the krone fell 2-3 per cent, says Spetalen.
Dane Cekov is a senior economist at Nordea. He says Spetalen is right that the krone exchange rate weakened in the following days.
– It could be that what the authorities came up with then has meant that foreign investors have thought that they do not want to sit on the shares. In that process, they have sold shares and kroner. It is something that cannot be ruled out, he says to NRK.
In the past year alone, the krone exchange rate has lost around 15 per cent of its value. Cekov believes that there is a weakness in Spetalen’s reasoning, and that is that the analysis overlooks the fact that the Swedish krona has also become weaker. The Swedish politicians have not come up with a tax shock.
But they have in common that they are small currencies.
– Both the Norwegian and the Swedish krone are risk-sensitive currencies. We know that in the last year there has been a lot of turbulent development in the stock market. That uncertainty has been with us for the past couple of years, and it has meant that foreign investors have invested less in kroner, he says.
Cekov believes that political uncertainty is not the main explanation, but may have something to say in the big picture.
– There is an explanation with political uncertainty, but Swedish kroner has weakened accordingly in the last couple of years. I’m not saying it’s not true, but currency is extremely difficult to analyze because there are many factors that affect exchange rates, says Cekov.
Think the Swiss flight contributes to krone flight
Spetalen believes that the political uncertainty and electricity prices will cause industry to disappear from Norway, while the country is left with a large oil and gas business.
– There is a reason why they are called industrialized countries and developing countries. If we base ourselves only on oil, we will become a developing country, he says.
In Spetalen’s book, on the other hand, Switzerland is a country with political stability and predictable tax conditions.
When British and American newspapers write about Norway’s own financial leaders escaping to Switzerland, that is not exactly a buy signal for the krone, Spetalen believes.
– It sends an unfortunate signal abroad, he says, and continues:
– It is unnecessary to chase people out. It is short-term happiness. It is not good for Norway and those who want to invest money, technology and ideas.
– Do you think there are large dark figures compared to the people we see in the media?
– I think it is a lot. A lot! I hear there are many now. Very many. That’s what the father is. It is accepted to leave, he says, who believes few will return.
Points to the difference in interest rates abroad
Cekov points out that it is difficult to trace the effect on the krone exchange rate of the Swiss emigrants.
– Did the krone become weak because people left Norway due to political uncertainty? Or do foreign investors refuse to invest in Norway because they are afraid that the krone will become even weaker? asks Chekov.
– We must also remember that many of those who have moved out have not necessarily sold everything they owned in Norway. If they had done that and transferred all the money abroad, it would have had a negative effect on the krone exchange rate.
Nordea sees another main explanation for the fall in the krone than political uncertainty. From 2010, the krone became unusually strong against the euro and dollar. Then the debt crisis ravaged Europe with glowing warning lights for, among others, Italy and Greece.
– It was not known whether the euro would survive the uncertainty in Europe. Europeans looked for safe harbors, and then Norway was seen as a stable country. Relatively speaking, Norway was a safe haven, but the krone exchange rate therefore became far too strong based on fundamental values, he says.
Until last winter, Norway also had a higher interest rate than the eurozone, while last week Norway received a lower interest rate for the first time since before the financial crisis in 2008. At the same time, the central bank is selling kroner because the oil revenues are enormous and are exchanged into Norwegian currency. Thus, the large trade surplus is almost neutral for the krone, according to Cekov.
– By and large, the krone is among the currencies with the lowest interest rates. On top of that, we have extremely high uncertainty in the financial markets, which makes it unpopular to sit on Norwegian kroner. That is a far more important explanation than political uncertainty as to why the krone has become so weak, he says.
Spetalen is aware that the krone will only get weaker.
– Have you taken steps to protect yourself?
– Far too little.
– What is the solution to reverse the trend going forward?
– First, they must make arrangements for foreign capital to invest in Norway. In the things we are internationally competitive. Battery factories are just bullshit. Panasonic has an average return of 6 per cent, so you have 12 per cent on salmon and fisheries in Norway. I have more faith that we invest in what we can in the primary industries. Then we can’t tax it in pieces, says Spetalen.
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