Norway is a TOP10 investor in Latvia and the country’s 12th largest export partner. Citizens regard Norway as a prosperous and socially responsible country, while businesses see it as a solvent and secure market where cooperation is based on reputation and trust. What trends did 2023 bring, and what can Latvian companies expect from the market this year?
Exports – in the grip of the krone
Total exports from Latvia to Norway fell by 14% in the first three quarters of last year due to the weak Norwegian krone, rising inflation, the real estate crisis, and other factors, while exports had increased by 33% to EUR 662.3 million the year before. Although the Norwegian government expects moderate growth in gross domestic product (GDP) this year (+1.1%), the weak Norwegian krone has created a new challenge for exporters to Norway. Only a few years ago, the euro-krone exchange rate could be easily calculated as 1 euro to 10 kroner. Last year, the Norwegian krone hit one of its lowest points in history, with an exchange rate of more than NOK 12 to the Euro. Financial and banking experts are cautious in their forecasts, with most predicting no significant exchange rate improvement this year. While it increases the cost of travelling abroad as well as purchasing foreign goods, services, and technologies for Norwegians, it makes price negotiations and compromises with Norwegian partners more difficult for Latvian businesses.
The construction sector – will the agony continue?
The modular timber construction and building sectors remain important export segments for Latvia. Simultaneously, the construction industry in Norway is more likely to remember 2023 as a year of crisis and non-production. Last year, Norway experienced its lowest construction activity since the 1990s due to high bank interest rates, rising costs and a weak currency. The situation remained particularly dire in the residential sector, but especially in the capital Oslo, where construction activity was the lowest in the country in the third quarter of last year, with only 10 new building permits for residential projects issued.
The Norwegian construction sector is expected to continue its agony in 2024, but according to various experts and industry organisations, activity could pick up significantly in 2025 and 2026, driven by the following factors:
1) There is a severe housing shortage in Norway, particularly in Oslo. According to the Norwegian Home Builders’ Association, Oslo alone has a shortage of around 5 000 homes each year.
2) Refugee resettlement. Since Russia launched a full-scale war in Ukraine, Norway has welcomed approximately 70 000 Ukrainian refugees. Furthermore, the responsible authorities predict that the total number of Ukrainian refugees will reach 100,000 by 2024, reinforcing the need for housing or at least temporary accommodation solutions.
3) Bank interest rates appear to have reached a ceiling. At the end of last year, the Central Bank of Norway raised interest rates from 4.25% to 4.5%. This rate is projected to remain in place until autumn next year, with a gradual decrease thereafter. This could provide the necessary push to stimulate activity in the construction sector as well.
4) After discussing the market situation with leading Norwegian construction companies, construction activity in other segments such as industrial buildings and public sector infrastructure (schools, kindergartens) remains relatively high.
“All of Norway exports”
Historically, Norway’s economy has been heavily reliant on oil and gas exports, as well as responsible resource and financial management. Despite record oil and gas exports in 2022 and 2023, the Norwegian government, in collaboration with industry organisations, is committed to diversifying exports in preparation for a “new reality” without oil and gas. It should also be noted that the oil and gas industry employ around 200,000 professionals. This means that export diversification is an important long-term issue for employment and workforce retraining. In spring 2022, the Norwegian government presented a new export promotion strategy, “All of Norway Exports”, with the goal of increasing exports by 50% by 2030. Moreover, oil and gas exports do not contribute to this target. Norway intends to develop its economy in the following ways, utilising the resources and expertise available in the oil and gas industries:
Offshore wind – Norway aims to reach 30 GW of offshore wind capacity by 2040.Last year, the Norwegian Directorate of Water Resources and Energy identified 20 areas along the Norwegian coast where offshore wind farms could be investigated in greater depth. The first tenders for offshore wind power in the North Sea areas of Utsira Nord and Sørlige Nordsjø II were announced as well.
Green maritime – Norway has the world’s second longest coastline (more than 100,000 kilometres), and shipping has long been one of the country’s leading industries. It continues the transition to sustainable freight and transport solutions, as well as smart ports, with the port city of Bergen in western Norway leading the way and aiming to become the world’s first zero-emission port.
Security and defence – Norway’s defence budget will rise by around € 1.3 billion in 2024, compared to the NATO target of 2% of GDP in 2026. Norway, as in the Nordic region, will continue to strengthen the defence capabilities of Ukraine as well as provide support. In addition to humanitarian and military aid, the Norwegian government has allowed Norwegian companies to export defence technology to Ukraine since 1 January of this year. The recently launched European Defence Fund project “FACT” (“Federated Advanced Cyber physical Test range”), which aims to strengthen the resilience of European military systems and equipment to cyber-attacks, is an important example of Latvia-Norway cooperation. The 26.9 million project has Norwegian technology giant Kongsberg Defence & Aerospace as the lead partner, with the innovation company Latvijas Mobilais Telefons as a partner.
Space – Last November, Andøya Space, with government support of around € 30 million, opened a small satellite launch base in Norway’s far north, bringing Norway into the elite group of countries with their own satellite launch bases. Norway aims to establish Andøya Space as a global hub for the space industry, providing data and expertise to various sectors. Latvia and Norway already have successful space cooperation, including the Space Education Centre in Cesis, which was established with support from the Norwegian Financial Mechanism.
What to consider when working with Norwegians?
1) Local partner and language as a bonus – Norwegians trust each other’s advice and are much more open to new collaborations when communicating in Norwegian.
2) Arm yourself with patience – Norwegians have a horizontal and democratic decision-making hierarchy. This means it may take longer to decide on new partners. Similarly, Norwegian trust must be gradually built up, which implies that the first projects or deliveries may be small, but as quality, timing and sustainability are demonstrated, volumes can grow significantly.
3) Values and sustainability in action, not just words – alongside quality and deadlines, Norwegians expect to see their company’s values and solutions to climate change.
4) Work/life balance – emails and phone calls outside of business hours are unlikely to send the correct signal to Norwegian partners. While there may be a desire to impress with your work and diligence, Norwegians are more likely to be concerned that partners are falling behind on deliveries or the project.