Report:The impact of coronavirus on Norwegian export-oriented trade and industry

The coronavirus crisis and the drop in oil prices is hitting Norwegian export industries hard. A new report prepared by Menon Economics on behalf of Export Credit Norway estimates that the impact may be severe and lasting for export industry, particularly for the maritime and oil service industries.

Up to 55,000 jobs in the most important export industries are at risk of being lost by the end of 2020.

The drop in revenue may exceed NOK 1,000 billion by 2023.

Download the full report here (in Norwegian only)

This is dramatic not just for the export companies, owners and employees who are directly affected, but also for many local communities and Norway as a whole.

“The Menon report shows that the crisis has major negative consequences for the Norwegian export industry. At worst, we risk causing permanent damage to critical value chains in the export industry all along the coast. If the major engines of the system are lost, this will probably have consequences for hundreds of subcontractors,” says Otto Søberg, CEO of Export Credit Norway.

Companies with a turnover of over NOK 500 million account for over 70 per cent of Norwegian exports. Larger companies are the clients and customers of smaller supplier companies. Challenges, and at worst bankruptcies, among the larger companies will filter down the value chains to small and medium-sized enterprises. These are companies that currently possess unique technology, products, solutions and expertise that is critical to industry.

Menon Economics has calculated the impact of the coronavirus crisis and the associated drop in the price of oil for four industries representing 70 per cent of Norwegian exports, besides oil and gas: the process industry, seafood, tourism, and the maritime and offshore supplier industry.

Value chains critical for future-oriented growth

Søberg is particularly concerned because the maritime and offshore supplier industry is not only important for current exports, but is also vital for the development of new export industries and the green shift in the form of floating offshore wind power, green shipping and other technological developments.

“If today’s offshore industries are reduced to a considerable extent, we will be at risk of losing both skills and key suppliers of technology and solutions that are necessary for establishing future new industries. In other words, we run the risk of losing a crucial prerequisite for realising the commercialisation and scaling of new products and solutions in export markets,” says Søberg.

Menon Economics also points out that Norway has lost large export shares in the last twenty years. Norway’s export volumes are small compared to other countries in Western Europe, and industry concentration in the Norwegian export industry is significant. In addition, it also points out the significant international focus of Norwegian industry.

Søberg believes that Norway must now address a double export challenge.

“We see a need to safeguard the offshore value chains while increasing growth in smaller export industries, such as health and ICT,” he says.

The report outlines three scenarios

Menon believes that it is impossible to determine how deep and prolonged the crisis will be for the Norwegian economy, and has therefore outlined three scenarios to illustrate how serious the consequences may be:

Scenario 1: The coronavirus infection will be relatively short-lived, and measures implemented by the Norwegian and international authorities against the spread of the virus will be effective. As a consequences, the Norwegian and international economy will continue to grow again after the summer. After a brief drop, the world will quickly reach a production level just below the level that existed before the crisis.

Scenario 2: The pandemic will be prolonged. At the same time, the world’s attempts to counteract its spread will be effective, which will allow production to recover in the autumn. However, the low oil price will mean that Norwegian production will remain lower than before the crisis.

Scenario 3: The pandemic is prolonged. The risk of infection and mortality rates are higher than expected. At the same time, the world’s attempts to counteract its spread are not particularly effective. Global economic growth falls significantly.

In scenario three, which is the most negative, Menon estimates an overall decline in revenue for the four export industries alone of over NOK 1,000 billion.

Severe for coastal Norway

Of the four export industries examined by Menon, it is the maritime and offshore supplier industries that will be hardest hit by the crisis. They are the industries that since the drop in oil prices in 2014 have been working hard to re-establish profitability and competitiveness. This restructuring has been costly. A number of oil service companies, equipment manufacturers, shipyards and ship owners along the Norwegian coast have high debt levels and negative results. The crisis we are in the midst of is again creating significant challenges for large parts of the maritime cluster and offshore supply industry. According to the analysis, several of the players do not have enough liquidity to cover their costs for more than three months.

Hard, but brief

The impact of the coronavirus crisis will hit the travel industry hard in the short term. However, the Menon report believes that the industry will recover relatively quickly. The industry consists of a large number of small companies with weak finances. A number of companies will therefore probably go bankrupt in the next few months. However, export income for travel constitutes only one quarter of the industry’s total turnover. Income from Norwegians holidaying in their home country is more important than income from foreign tourists. If the domestic travel restrictions are lifted, while the crisis makes it less appealing to travel abroad, Menon believes that the industry will quickly experience a significant recovery.

The seafood industry has good finances on the whole after several years of growth and high income. Companies in this industry are, therefore, well equipped to deal with any potential drop in demand. In addition, the strong depreciation of the Norwegian krone against the dollar and euro in the meantime will help to alleviate the impact of reduced demand.

The processing industry accounted for about 25 per cent of exports from the Norwegian mainland in 2018. Most factories are the lifeblood of their communities and produce intermediate goods for global industry. There is a strong correlation between demand and the level of activity in the global economy. The industry will therefore experience a drop in income in all scenarios. However, the industry largely consists of financially stable companies. The temporary decline in revenue is likely to affect employment to a lesser extent.

Menon stresses in its report that there is great deal of uncertainty regarding the consequences of the coronavirus crisis, because it does not resemble any crises we have faced previously.

The report from Menon is the first of two reports, and has been handed over to the company’s owner, the Norwegian Ministry of Trade, Industry and Fisheries. The first report deals with the effects at national level.

Another report will follow shortly examining the effects at regional and municipal level.