Part 10 of the “5% for Ukraine” opinion piece
Why 5%
Because we can afford it
Part of the 5% to Ukraine opinion piece. The original Norwegian text was written to implore the people of Norway to invest 5% of our sovereign wealth fund in a Ukrainian victory and the future of Europe. It has been translated into English for a wider audience.
Why exactly 5% of the sovereign wealth fund?
The main reason is that this is the amount required to make a decisive difference in the war. It should still be possible to vote for smaller percentages in a referendum, but 5% is truly transformative for Ukraine.
But why not propose giving more?
One reason is that this would become so political that no decision regarding a referendum would ever be made. Ukraine does not have time for this. They are dying because they don’t have the weapons they need.
Another important reason, is that giving 5% is almost sustainable. Let’s take a quick look at how Norway’s sovereign wealth fund works.
In Norway, all state oil revenues are deposited into the fund (called “Government Pension Fund Global”). The budgetary rule of the fund states that the Norwegian state budget can annually be supplemented by up to 3% of the value of the fund at the beginning of the year. The calculation for the krone value of the fund, at the end of 2024, will therefore look like this:
Let us imagine that the sovereign wealth fund will have the same value at the end of the year as it does today. If we simplify the calculation, and assume that both petroleum profits and transfers to the state budget are already priced into today’s value, it will look like this.
This means that, if the fund has the same value at the end of the year as 28th July, we will have an increase in the fund’s value of 2,766 billion kroner — or over 17%.
However, as most vacationing Norwegians know, the value of the krone plummeted this year. The depreciation of the krone is therefore responsible for a large part of the fund’s growth, as the fund can only be invested outside of Norway (hence the “global” part of the fund’s name).
The fund invests are in a variety of currencies, making it difficult to accurately calculate how much of the fund’s growth is due to the depreciation of the krone. Norges Bank, who manage the fund, only has a detailed overview of the fund’s development until the end of March 2024, so we have to make some assumptions.
The krone has depreciated by 8.28% against the dollar and 6.17% against the euro on July 28th this year. Since the fund’s return is also affected by this depreciation, let’s overestimate by a good margin and say that 9% of the fund’s development is due to the declining value of the krone.
Excluding the growth attributed to the depreciation of the krone, the fund’s value still increases by a respectable 8%.
Let’s see what happens if we give 5% of today’s value of the sovereign wealth fund to Ukraine:
The krone value of the fund will still increase by almost 12%. Without the impact of the depreciation of the krone, the fund’s value increases by around 3%. If you include inflation, the fund’s real value remains almost unchanged in 2024.
Investments are volatile and the average growth in a fund’s value depends on the good years, over time, being better than the bad ones. If the fund is to continue growing, we cannot make such withdrawals often, but we can afford this expense. The average Norwegian won’t even notice it.
This gives us another card to play. We can signal to Russia that Norway is not only prepared to provide more military support to Ukraine than any other NATO country, but that we can afford to do it again if the war continues. While we’re not committing to this outright, it’s time for the West to start leveraging the power of strategic ambiguity.
This might be enough to change Russian thinking, but only if we act now and give 5% to Ukraine.
How the oil price has made it easier for us to support Ukraine
It has been said that Norway is a war profiteer, as we have benefited from the rise in oil and gas prices due to the war in Ukraine. This simply isn’t true — Norway is no more of a war profiteer in this war than the US is.
War profiteers are generally defined as those who make unreasonable gains from warfare, or from selling equipment and goods to the warring parties. Norway has done nothing to increase oil and gas prices. We have not held back our supplies to Europe, in an attempt to drive up the price of oil and gas to increase our profit margin. We have done the opposite. We have worked to supply Europe as quickly and efficiently as possible. It was the policies of European countries that made them dependent on Russian oil and gas, and it was this dependency that lead to the price increase.
Nevertheless, it cannot be denied that Norway has benefited greatly from the increase in oil and gas prices that the Ukraine war has caused. This does not give us an obligation to help Ukraine, but it makes it easier.
Let’s take a look at the impact the Ukraine war has had on the Norwegian petroleum profits, which are transferred to the sovereign wealth fund.
It’s easy to notice a rather significant increase in profits since the war started in 2022.
If we use 2021 as a standard year, Norway had a total of 1,714 billion in additional profits in 2022 and 2023, because of the war. Nearly double the value of the 5% it is suggested we give to aid Ukraine.
Ukraine is fighting a battle for democracy in Europe. It is due to our functioning democracy, that Norway has its sovereign wealth fund. It is due to the political planning for future generations of Norwegian citizens, that we have the ability to invest in peace and democracy.
Let us continue to invest our sovereign wealth fund in a better future for Norway, Ukraine, and the world.
Let us give 5% to Ukraine.
All parts of the opinion piece
