Chapter 6

Measures to Improve the Functioning of the Economy

Measures to improve the functioning of the economy shall contribute to achieving an efficient use of resources, thereby strenghtening the growth potential of the economy.

The budgetary support to industries is estimated at NOK 19.4 billion in 2000, a slight increase from the level in 1999, measured at constant prices. During the 1990s, annual budgetary support payments to industries were reduced by about 27 per cent in real terms. As a percentage of GDP, support to industries fell from 2.6 per cent in 1990 to 1.4 per cent in 2000.

Chart 16. Budgetary support to industries

NOK billion in 2000-prices

Source: Ministry of Finance

In the period 1990-2000, the budgetary support to the agricultural sector was reduced, but by far less than the overall support to industries. Agricultural support accounted for almost 70 per cent of total budgetary support in 2000.

Support payments to the fisheries sector are estimated at NOK 427 million in 2000. Transfers through the fisheries agreement represent a substantial portion of support to this sector. Transfers through this agreement were reduced sharply in the first half of the 1990s.

Support to manufacturing, mining and private services amounted to about NOK 4.8 billion in 2000, which is a reduction in real terms of 3.9 per cent from 1999. The total support to the sector was reduced by more than 30 per cent during the 1990s. However, support to the shipbuilding industry remained high throughout the 1990s, with an annual average of NOK 1.5 billion (2000 prices). This level was maintained in 2000. As a result of the EEA regulations applying to the shipbuilding industry, all support for contracts concluded after 1 January 2001 is discontinued.

Research is a high-priority area. The Government's objective is that by 2005 research activities in Norway shall as a minimum correspond to the average OECD level, measured as a percentage of GDP. The Government will make a contribution both by proposing substantial increases in appropriations to research the next few years and by proposing measures to encourage the business sector to invest more in R & D. Moreover, the Government will initiate measures to increase the quality of Norwegian research and strengthen recruitment to research.

As a result of the EEA Agreement, two sets of competition rules have existed since 1994: the national Competition Act and the competition rules under the EEA Agreement. The purpose of both sets of rules is to ensure that commercial undertakings do not restrict or distort competition. The Norwegian authorities have appointed an official committee that is to review Norwegian competition legislation and table proposals for new rules by November 2002. The committee has submitted its first report, which proposes giving the Norwegian authorities responsibility for fully enforcing Article 53 of the EEA Agreement prohibiting anti-competitive practices and Article 54 prohibiting an abuse of a dominant position. Moreover, the committee recommends that a new Norwegian competition act should be drawn up on the basis of the model set out in the EEA Agreement's competition rules.

Public sector ownership in the Norwegian business sector is somewhat higher than in most other OECD countries and relatively concentrated on certain companies or industries. A large portion of government ownership is related to the use of natural resources, natural monopolies or regional policy considerations. In recent years, a number of companies have been converted to ordinary limited companies, partially privatised, listed on the stock exchange and, in some cases, fully privatised. Following the partial privatisation of Statoil and Telenor, the proportion of companies that are partially owned by the public sector is becoming far greater than the proportion of wholly owned state companies. In the Long-Term Programme 2002-2005, the Government presented several measures to clarify and enhance the state's role as owner in entities that shall remain in public ownership. This is followed up in the National Budget 2002 through a more precise formulation of the management of government ownership interests with regard to, for example, the use of required returns, dividend policy, the valuation of unlisted companies and the evaluation and composition of boards.

Extensive changes took place in the electricity market in the 1990s. As a result of the Energy Act of 1990, the electricity supply sector was changed from a sector that focused on meeting local/regional demand for electricity to a market where prices are determined by supply and demand. The opportunity to switch from one supplier to another has steadily improved for end-users. In recent years, there has been a tendency towards increased cooperation and mergers between energy plants as well as acquisitions of distribution companies and customer portfolios in electricity turnover. Statkraft SF is by far the largest production company in Norway. In spring 2001, the Storting decided to transfer NOK 6 billion in new capital to the company and gave the Ministry of Petroleum and Energy authority to expand Statkraft's loan and guarantee limit by up to NOK 10 billion.

In the telecommunications sector, Norway has generally adhered to the schedule for deregulation laid down in the EEA Agreement. With effect from 1 January 1998, the remaining exclusive rights pertaining to general telecommunications infrastructure and speech telephony in the established transmission line network were removed. So far, Telenor AS has maintained a strong market position in most market segments. Except for the market for GSM mobile telephony, competitors have only won small market shares in the market for private customers, while competition is somewhat stronger in the market for corporate customers.

In December 2000, four nationwide licences were awarded for the establishment and operation of a third-generation mobile communication system in Norway. One of the licences was revoked after the owner was declared bankrupt in August 2001. The Ministry of Transport and Communications, in cooperation with the Norwegian Post and Telecommunications Authority, will work on a reallocation of the available licence.

In recent years, the Norwegian civil aviation market has shifted from a market based on exclusive right to a regulated competitive market, albeit with fairly dominant operators. SAS and Braathens are the only airlines that have a large scheduled network for domestic flights that are trafficked by competing companies. On 21 May 2001, SAS concluded an agreement with the largest owners of Braathens concerning the purchase of the company. The Norwegian Competition Authority, however, has announced that it is evaluating intervention to prohibit the purchase. The case is still being considered.

The taxi industry has traditionally been heavily regulated. Municipalities regulate market entry by allocating licences. Moreover, the Norwegian Competition Authority has regulated prices in the market by setting maximum taxi rates. With effect from 1 May 2000, the Competition Authority is no longer responsible for regulating taxi rates in areas with two or more taxi exchanges and where conditions are otherwise conducive to competition. According to the Competition Authority, the deregulation has resulted in an improvement in the relationship between the supply of taxi services and demand in the areas involved.

The Norwegian market for pharmaceuticals continues to feature extensive regulations. A new Pharmacy Act entered into force on 1 March 2001, setting out less restrictive entry requirements. According to the new Act, pharmacies will continue to have exclusive rights for selling non-prescription pharmaceuticals. When the new Act has been in force for a period, the authorities will evaluate whether some non-prescription pharmaceuticals can also be sold outside pharmacies. The practice of setting maximum prices for prescription pharmaceuticals was changed with effect from 1 July 2000. According to the new regulation, maximum prices are generally set on the basis of selling prices in countries within the EEA, but with the exception of southern European countries. As a main rule, the price is set at the average of the three cheapest comparison countries. The change in the way prices are set has probably resulted in lower pharmaceutical prices.

A special feature of the fisheries industry is the extensive set of rules relating to activities in the industry. The regulations contribute to maintaining sustainable stocks and to a better adaptation of fleet capacity, thereby increasing value added in the industry. The formulation of some regulations, however, may result in lower value added in the traditional fisheries sector than would otherwise have been the case. The fish farming industry is also regulated with regard to establishment, ownership and fish farming installations.

The fisheries industry exports more than 90 per cent of its production. It is therefore in Norway's best interest to reduce trade barriers that limit exports of seafood. The Government will use the opportunity provided by the round of negotiations in the World Trade Organisation to secure improved trading conditions for the fisheries industry.

Reforming the public sector is an important part of economic policy. Since Norway has a relatively large public sector, productivity developments in this sector is of vital importance to the overall economic efficiency. The Government is in the process of implementing or initiating a number of extensive reforms in the public sector: