North Korean Economy Watch

According to Yonhap:

South Korea’s planned shipment of its first food aid to North Korea in years has hit a snag due to sourcing difficulties, an official said Saturday.

The South has been preparing to send 10,000 tons of corn to the impoverished neighbor since mid-January, right after Pyongyang accepted its aid offer made months earlier. The shipment would mark Seoul’s first food assistance to the North since President Lee Myung-bak took office in early 2008.

The government has since approved a 4 billion won (US$3.5 million) budget to fund the assistance and notified the North of a shipping route, based on a plan to buy corn in China and ship it directly to the North from there.

“Considering shipping costs, it would make the most sense to send Chinese corn” to the North, a government official said on customary condition of anonymity.

The official said, however, that the plan has faltered because of China’s “grain export quota,” which places restrictions on food exports in order to meet the country’s rising domestic demand.

The delay has raised concern that the planned aid may not be delivered by the time the North needs it the most — usually between March and May when food shortages in the country worsen — because it usually takes at least a month after the purchase is made for such to be delivered.

But the government official said that he believes the problem will be resolved soon, though he did not elaborate.

Read the full article here:
South Korea’s planned food aid for North Korea hits snag
Yonhap
3/6/2010

According to the Associated Press (via the Washington Post):

North Koreans are getting better medical treatment as the result of a joint program between the two Koreas that has trained thousands of doctors, provided modern equipment and renovated hospitals, the World Health Organization said Thursday.

Maternal mortality has declined by over 20 percent since 2005, and diarrhea cases and deaths in operations have also dropped, said Dr. Eric Laroche.

The World Health Organization has helped in the wide-ranging program, which started in 2006 and is funded by South Korea. It has cost a total of $30.2 million so far.

The program has trained more than 6,000 doctors and nurses in emergency obstetric care, newborn care and child illnesses, said Laroche, who assessed its progress in a four-day visit to North Korea.

The specialization marks a change in health strategy in North Korea, which has about 90,000 family doctors who care for about 130 families each, according to Laroche.

“They know each family one by one,” he said. But, he added, “they’re extremely keen to be trained.”

…

Laroche said hospital staff have been trained in hygiene and clinics have received better material for operations, blood transplants and other medical interventions.

Numerous hospitals have been renovated, and material has also been distributed to 1,200 rural clinics.

Between 2007 and 2009, the number of patients dying in operations fell 73.4 percent, said Laroche, citing a study by the University of Melbourne.

He declined to give an overall view of the health system in the isolated communist nation. But he said services were well-spread among cities and communities.

Read the full article here:
WHO: Korean cooperation boosting health in north
Associated Press (via Washington Post)
Elaine Engler
3/4/2010

According to the Financial Times:

“The WFP can continue to support around 1.4m children and pregnant women with fortified foods until the end of June. However, new contributions are required now or the operation will come to a standstill in July. We are hopeful that donors will come forward with contributions, given the situation,” he told the Financial Times.

In 2008 the WFP hoped 6.2m people would receive such aid but found it increasingly hard to get donations. Annual aid to North Korea is equivalent to $4.50 (€3.30, £3) per person across the population. The average across other low-income countries is $37 per person.

The WFP has survived such funding crunches in the past, but UN officials fear donors have now become exasperated with North Korea, which expelled US non-governmental organisations last March. Pyongyang has severely restricted aid workers’ access, has demanded they give longer notice periods before rural visits and has barred teams from using their own Korean speakers.

Rocky relations with the US and South Korea after Pyongyang launched a long-range missile last April and tested an atomic warhead in May have further discouraged donations.

The US, once the leading food donor, has said it will not supply cereals until North Korea resumes proper monitoring, allowing aid agencies to track the final recipients.

North Korea’s harvests cannot feed all its people and in recent years the annual food deficit was about 1m tonnes. People are chronically malnourished and as many as 1m are believed to have died during famine in the 1990s.

It is hard to determine the scale of malnutrition but Kim Jong-il, the country’s dictator, made a very rare apology this year for failing to deliver “rice and meat stew” to the people. Food markets were thrown into disarray late last year by a currency redenomination but Mr Due, based in Pyongyang, said these seemed to be returning to normal.

Read the full article below:
Donor fatigue threatens aid for North Korea
Financial Times
Christian Oliver and Anna Fifield
3/3/2010

Choson Ilbo
2/26/2010

North Korea is still demanding rice and fertilizer in return for an inter-Korean summit, even as it keeps sending increasingly urgent messages to Seoul to bring such a summit about.

Since a secret meeting between South Korean Labor Minister Yim Tae-hee and Kim Yang-gon, the director of the North Korean Workers’ Party’s United Front Department, in Singapore in October, “North Korea has kept asking us for a huge amount of economic aid in return for arranging a meeting” between President Lee Myung-bak and North Korean leader Kim Jong-il, a South Korean government source said on Thursday.

But the North seems to have no interest in giving in to South Korean demands to put denuclearization and the repatriation of prisoners of war and abduction victims on the summit agenda. “The North basically wants economic gain in return for letting us make political use of an inter-Korean summit for the upcoming local elections” on June 2, the source said. “It seems that the North still feels nostalgic for the Sunshine Policy,” which netted it huge benefits over the past decade.

The first inter-Korean summit in 2000 was announced only three days before the general election and was bought through a secret payment of billions of won. The second summit in 2007 was announced two months before the presidential election. Since 2000, the North has received more than 300,000 tons of rice and the same amount of fertilizer almost every year worth more than W1 trillion (US$1=W1,163) a year.

In another secret meeting between South Korea’s Unification Ministry and the North Korean Workers’ Party’s United Front Department in November, the North again insisted on specifying humanitarian aid in an agreement to be signed at an inter-Korean summit.

A “tree planting campaign for North Korea” initiated recently by the Presidential Committee on Social Cohesion also reportedly went awry because the North demanded a huge aid of food in return for letting South Korea plant trees there.

Kim Jong-il is apparently not aware that Seoul is serious about ending this cash-for-summits policy. A South Korean government official with experience in inter-Korean talks said, “At secret meetings, each side often had its own way of interpreting agendas. Maybe North Korean delegates who are accustomed to the Sunshine Policy are trying to interpret the current government’s messages the way they did with past governments.”

It seems the North has attempted to earn economic aid worth W1 trillion by prevaricating over the issue of the POWs and abduction victims, offering to handle it like part of reunions of separated families, and discussing the nuclear issue only with the U.S. 

Whether the attitude will change remains to be seen. The North is now in a worse economic situation than before in the wake of a recent disastrous currency reform on top of international sanctions and a severe food shortage.

Prof. Cho Young-ki of Korea University said, “The North is in dire need of support from the outside including South Korea to stabilize the regime for a smooth transition of power” to Kim’s son Jong-un. “It is possible that the North will reluctantly accept our request depending on progress in the six-party nuclear talks.”

The government believes that a dramatic turning point in inter-Korean relations could be reached if the North makes “big decisions” in the nuclear or POW issues, according to Kim Tae-hyo, the presidential secretary for foreign strategies.

According to the Choson Ilbo:

North Korea is believed to have been given 300,000 tons of food either on credit or as aid last year, mostly from China, the Unification Ministry told the National Assembly’s Foreign Affairs, Trade and Unification Committee on Tuesday. That is enough to feed the entire population of North Korea for a month.

The UN Food and Agriculture Organization on Monday said North Korea faces a shortage of 1.25 million tons of food, but that did not take into account the amount provided by China and other countries. Unification Ministry Hyun In-taek said, “North Korea has been suffering from problems in food supply and distribution since its currency reform and has been taking measures to deal with the situation.”

Read the full article here:
N.Korea Took 300,000 Tons of Food Aid Last Year
Choson Ilbo
2/24/2010

UPDATE 2: The Wall Street Journal’s Evan Ramstad published some analysis of the DPRK’s 2008 census data.  According to the article:

North Korea is getting bigger, older and less healthy, according to data from the country’s latest census, and its fabled million-man army might have fewer than 700,000 people.

The authoritarian government in December released results of the census conducted in 2008, saying its population had climbed to 24 million people from 21.2 million in the previous census in 1993.

More details have been published by the United Nations Population Fund, which helped North Korea conduct the census and sent five teams of observers to monitor it.

Even so, it’s difficult for outsiders, with so little access to the country, to be certain of the precision of North Korea’s data. For decades, the government has cut off the dissemination of most information about the country. The new census numbers provide a rare glimpse of official statistics.

The census reported that North Korea’s population grew at an annual average rate of 0.85% for the 15-year period, a time that included a devastating multiyear famine that analysts and foreign aid agencies estimate killed between one million and two million people.

A separate U.N. report published last year found that North Korea’s population has grown more slowly since 2005, at an annual rate of 0.4%. The global population has grown 1.2% annually since 2005, the U.N. report said.

North Korea’s census said the country’s population has proportionately fewer children and more middle-aged people than it did in 1993.

It also reported that people are less healthy.

Babies are more likely to die: The infant mortality rate climbed to 19.3 per 1,000 children in 2008 from 14.1 in 1993, though North Korea’s rate is still well below the world average, which a 2009 report by the U.N. agency put at 46 per 1,000 children.

North Koreans are living shorter lives—average life expectancy has fallen to 69.3 years from 72.7 in 1993.

As in many places, women live longer than men, with a gap of about seven years, compared with the world average of 4.4 years.

North Korea has 5.9 million households, with an average of 3.9 people in each, according to the census.

The typical home is 50 to 75 square meters in size (540 to 800 square feet). About 85% of homes have access to running water and about 55% have a flush toilet.

The census provided only a glimpse of the country’s economic structure, but even that produced some surprises. The occupation that provides the most employment—farming—has more women, 1.9 million, than men, 1.5 million.

The second-biggest occupation, working for the government or the military, employs 699,000 people. The census doesn’t break that group down further, but the figure suggests North Korea’s military isn’t as large as had been thought.

The military is often portrayed by outside military analysts and media as a force of one million people, mostly conscripts who are required to serve 10 years.

The third-largest employment sector by number of workers is education, followed by machinery manufacturing, textiles and coal mining. About 40,000 people work in computer, electronic or optical-product manufacturing.

North Korea hasn’t shared meaningful information about its economy or its financial system with the outside world since the early 1960s.

Outside estimates of its economic performance, most prominently an annual estimate by the South Korean central bank, the Bank of Korea, are filled with assumptions that even their authors say render them almost meaningless.

Read the full article here:
Pyongyang Reports an Aging, Less Healthy Population
Wall Street Journal
Evan Ramstad
2/20/2010

UPDATE 1: Oikono did some good work analyzing the census data here.  

ORIGINAL POST: Thanks to a responsive employee at the UNFPA, I obtained a summary of the DPRK’s census findings.  You can download the summary here.

Thanks to a reader I was able to obtain a copy of the entire census.  You can download it here.

Both documents have been added to the “DPRK Economic Statistics” Page.

Happy reading.

According to Yonhap:

South Korea said Tuesday it will send 1 billion won (US$866,000) worth of hand sanitizer next week to North Korea to help the impoverished neighbor combat the spread of the H1N1 flu virus.

The shipment of 200,000 liters of sanitizer, scheduled for next Monday, comes after South Korea delivered some $15 million in anti-viral medications to the North in December in the first state-level cross-border humanitarian aid in nearly two years.

North Korea first acknowledged cases of Influenza A virus infection on Dec. 9, but it has yet to report any flu-related deaths.

The hand sanitizer will be transported to the North Korean border town of Kaesong on South Korean trucks across the military demarcation line and handed to the North there, Unification Ministry spokesman Chun Hae-sung said.

“North Korea agreed to accept the aid on Feb. 22,” he told reporters, adding about 20 25-ton trucks will likely be mobilized to deliver the aid.

The Tamiflu aid in December marked the first humanitarian assistance provided by the South Korean government to North Korea since conservative President Lee Myung-bak took office in Seoul in early 2008. Lee cut off the unconditional aid that his liberal predecessors had shipped to the North over the past decade, conditioning exchanges on progress in the North’s denuclearization.

Read the full story here:
S. Korea to deliver anti-viral sanitizer to N. Korea next week
Yonhap
2/16/010

UPDATE: The shipment has been delivered

SKorea sends 2nd batch of swine flu aid to NKorea
AP via Business Week
2/23/2010

South Korean trucks have crossed the border into North Korea to deliver a second batch of swine flu aid.

Unification Ministry spokeswoman Lee Jong-joo says South Korea sent 52,840 gallons (200,000 liters) of hand sanitizers to North Korea on Tuesday.

South Korea sent enough doses of the antiviral drugs Tamiflu and Relenza for 500,000 North Koreans in December in its first direct humanitarian aid to the communist country in nearly two years. North and South Korea have remained in a state of war since 1953.

North Korea acknowledged in December that swine flu had broken out in the country though hasn’t mentioned any virus-related deaths.

Tamiflu is made by Switzerland’s Roche Group. Relenza is a procuct of GlaxoSmithKline.

According to Yonhap (1/15/2009):

North Korea told South Korea on Friday that it will accept the 10,000 tons of corn aid that South Korea offered in October, Seoul’s Unification Ministry said.

North Korea sent a fax message to the South, saying it “will receive the corn aid,” said ministry spokeswoman Lee Jong-joo.

According to Peter Beck in the Wall Street Journal:

The cost [of reunification] will depend in large part on how that transition unfolds. The best of the plausible scenarios would see Korea following the German path of sudden and bloodless reunification. The worst outcome would be violence akin to the unification of Vietnam or Yemen. A middle road would resemble the chaotic post-Communist transitions of Romania and Albania. This seems most likely given the similarities between Kim’s autocratic, autarkic rule and Nicolae Ceausescu’s and Enver Hoxha’s reigns in their countries.

Any of these outcomes is sure to be expensive because the North will require massive investments to build a modern economy. The economy collapsed in the 1990s amid a massive famine that likely killed hundreds of thousands. Infrastructure, starting with the power grid, railway lines and ports, will require tens of billions of dollars to build or upgrade. Few factories meet modern requirements and it will take years to rehabilitate agricultural lands. The biggest expense of all will be equalizing North Koreans’ incomes with their rich cousins in the South, whether through aid transfers or investments in human capital like education and health-care.

Even the best-case German model will cause heartburn in South Korean officials. Despite the $2 trillion price tag West Germany has paid over two decades, Bonn had it relatively easy in the beginning. East Germany’s population was only one-quarter of the West’s, and in 1989 East German per capita income was one-third of the West. The two Germanies also had extensive trade ties.

In contrast, North Korea’s per capita income is less than 5% of the South’s. Each year the dollar value of South Korea’s GDP expansion equals the entire North Korean economy. The Northern population is half the South’s and rising thanks to a high birth rate. North and South still barely trade with each other—China-Taiwan trade is 54 times greater in dollar terms than inter-Korean trade. That the North is starting from so far behind means even more resources will be needed than Germany required to achieve convergence in standards of living.

More than a dozen reports by governments, academics and investment banks in recent years have attempted to estimate the cost of Korean unification. At the low end, the Rand Corporation has figured on $50 billion. But that assumes only a doubling of Northern incomes from their current level, which would still leave incomes in the North at less than 10% of the South. At the high end of these projections, Credit Suisse estimated last year that unification would cost $1.5 trillion, but with North Korean incomes rising to only 60% of the South. I estimate that raising Northern incomes to 80% of Southern levels—which would likely be a political necessity—would cost anywhere from $2 trillion to $5 trillion, spread out over 30 years. That would work out to at least $40,000 per capita if distributed solely among South Koreans.

All of this leads to the question of who would foot the bill. China is the greatest supporter of the current regime in Pyongyang, with trade, investment and unconditional economic assistance worth $3 billion a year. Yet even if that flow continues to the Northern part of a reunified Korea (it most likely would not), it will be a fraction of the $67 billion a year that would be needed to equal $2 trillion over three decades. After South Korea, Japan would become the largest source of aid, but the $10 billion it is prepared to pay in reparations for having colonized the North would barely make a dent.

That leaves international institutions like the World Bank—and Seoul and the United States. It will be a wise investment to secure peace and prosperity in North Asia, but that money won’t grow on trees. Policy makers need to start considering now how they would spend it, to minimize the risk of wasting it in post-reunification confusion. And officials need to think about where they’ll secure the cash. Multinational corporations will rush in, but the bulk of the burden will fall on the shoulders of South Korea—requiring careful fiscal management, borrowing and tax increases.

Korean unification is unlikely to take place in the near future, but since it will most likely be sudden and cost trillions of dollars, the time to prepare is now.

I cannot find a copy of the Credit Suisse research on line this evening.  Here and here are a couple of media stories reporting on its findings.

Here is a link to the Rand Corporation study, “North Korean Paradoxes,”  mentioned above.

Here are some additional studies on this topic:

Global Economics Paper No. 188: A United Korea? Reassessing North Korea Risks
Goldman Sachs Slobal ECS Asia research
Goohoon Kwon, CFA
September 2009
(Post here)

Currency Conversion during Korean Unification
Brookings Institution
Yeongseop Rhee, Nonresident Fellow, Foreign Policy
January 2009
(Post here)

Prospects from Korean Unification
Colonel David Coghlan
Strategic Studies Institute, US Army

According to the AFP:

South Korea said Monday it would provide 26 billion won (22.2 million dollars) for humanitarian projects in North Korea, the second donation this month to its communist neighbour amid easing relations.

The unification ministry said it would donate 15.2 billion won to the World Health Organization’s programme for malnourished children and 4.7 billion won to the UN Children’s Fund UNICEF.

Spokesman Chun Hae-Sung said some six billion won has been allocated for a variety of other projects run by private groups.

“We decided to assist North Korean infants and children through private and international organisations, after considering the urgent situation in North Korea,” he told a briefing.

On December 18 the South shipped swine flu medication worth 15 million dollars to the North.

It was the first direct aid to Pyongyang from Seoul’s conservative government since it took office in February 2008.

Relations between the two Koreas have been interesting recently.   Official assistance from the South Korean government is at a near-term low, and the South Korean government spent little of the funds it appropriated for inter-Korean projects this year (See: here, here, and here).  South Korea has also tightened import rules for a number of North Korean goods (to protect local businesses), halted the export of luxury goods to the DPRK, and blacklisted DPRK businesses sanctioned by the UNSC. In addition, 2009 saw turmoil in the Kaesong Industrial Zone and a (predictable) naval clash along the NLL.

“Economic relations,” however, seem to have turned the corner recently.  Despite several months of decline, inter-Korean trade increased in the past two months.