North Korean Economy Watch

Geoffrey Cain writes in Time:

Few investors can boast the one-of-a-kind global pedigree of Felix Abt. Since 2002, the Swiss businessman has found his calling as a point man for Western investments in — of all places — North Korea, where he helped found the Pyongyang Business School in 2004. He also presided over the European Business Association in Pyongyang, a group in the capital that acts as a de facto chamber of commerce. A few years ago, that position led him to help set up the first “European Booth” featuring around 20 European companies each year at the Pyongyang Spring International Trade Fair, an annual gathering of 270 foreign and North Korean companies currently underway in the hermit kingdom until Thursday.

Yet Abt, 55, who lives in Vietnam and therefore won’t be attending the trade fair this year, laments the giant cloud hanging over the country: in recent years, political turmoil on the peninsula has raised the stakes even further for doing business in North Korea — even for the country’s main patron, China. Though investors have always faced the prospect of sanctions, he says, the situation has worsened after the United States ratcheted up sanctions on the government in 2006 on allegations that it was counterfeiting U.S. dollars. And in 2006 and 2009 the Kim Jong-il regime tested two small nuclear bombs, prompting heavier sanctions from the United Nations in 2006. Recently, tensions with Seoul have spiked over the March sinking of a South Korean corvette in waters near the North.(See pictures of the rise of Kim Jong-il.)

Those measures hit home for Abt. While he was running a pharmaceutical company in Pyongyang called Pyongsu in the mid-2000s, he learned that the U.N. Security Council had imposed sanctions on certain chemicals — a move that could have forced him to completely stop manufacturing medicine. Thankfully, he adds, he had already secured a large stock of the substance beforehand. “Whatever business you are involved in,” he says, “some day you may find out that some product or even a tiny but unavoidable component is banned by a U.S. or U.N. sanctions because it can, for example, also be used for military purposes.”

Those dilemmas haven’t stopped Abt. In 2007, he co-founded an information technology firm in Pyongyang called Nosotek, whose 50 or so employees design software applications for the iPhone and Facebook. The venture has already seen its share of success: one of its iPhone games ranked first in popularity for a short while on Apple’s Top 10 list for Germany — though he can’t name the software out of concern for protecting his contractors from bad publicity.(See pictures of North Koreans at the polls.)

For some companies, the stigma of a “Made in North Korea” label matters less than the competitive edge gained from having low overhead costs and a diligent workforce whose wages remain less than outsourcing powerhouses like China, Vietnam and India. In the past, North Korea has attracted the interest of multinational corporations looking for cheap labor in fields as diverse as electrical machinery and cartoon animation. Yet few multinationals show their faces at this month’s fair, a decline from the early 2000s when Abt says they were appearing regularly to look for opportunities in electricity, infrastructure, transportation and mining.

Not all foreign ventures in the North are driven by profit margins alone. The 2005 animated Korean movie Empress Cheung, a popular fantasy film drawn jointly by South and North Korean animators, brought attention to the animation industry in North Korea. Nelson Shin, head of the Seoul-based animation studio that started the project, claims he worked with North Korea for a greater cause than cheap labor. “It wasn’t so much because of cost efficiency as because of cultural exchange between the two Koreas,” he says.

For a country so poor, North Korea has churned out a remarkable number of talented engineers and scientists who fuel some of these small sectors (along with its controversial nuclear weapons program). In the 1960s and 1970s, the government pushed the country to become self-sufficient through development projects, a part of its ideology of “Juche” that promotes absolute autonomy from foreign powers. The communist regime of Kim Il-sung prided itself on its universities and public housing system, in particular. “It was an advance from pre-World War II days,” says Helen-Louise Hunter, a former CIA analyst now in Washington, D.C., who researched North Korea during those decades. “Kim Il-sung was genuinely interested in improving his people’s standard of living, and was off to a good start in a couple of areas compared to South Korea in those early days.”

Yet North Korea fell behind after the South’s own military dictators put their country into industrial overdrive throughout the 1970s and 1980s. Then the Soviet Union collapsed in 1989, depriving North Korea of valuable aid. Then came a famine in the mid-1990s that delivered the final blow, leaving up to 3 million people dead and crippling the capacities of the already isolated state.

Today, the pariah regime of Kim Jong-il is allegedly known to raise money through illicit activities like trafficking narcotics and money laundering. But it’s not known how much those activities figure into the country’s GDP of $28.2 billion in 2009 and its $2 billion worth of exports in 2008, the most recent year data is available. “Not that much income comes from illegitimate operations if you mean drugs and counterfeited dollars,” says Andrei Lankov, a North Korea expert at Kookmin University in Seoul. “More come from arms sales, though, but I would not describe this as an illegitimate trade.”

Abt shakes off the image of Pyongyang being the center of a mafia state. He sees himself and other foreign investors as the potential movers and changers of Kim’s hermit regime. “Cornering a country is ethically more questionable than engagement,” he says. “Foreigners engaging with North Koreans are change agents. The North Koreans are confronted with new ideas which they will observe and test, reject or adopt.”

Read the full story here:
Can North Korea Be Safe for Business?
Time
Geoffrey Cain
5/20/2010

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 data set.  You can download it here.

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

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UPDATE 1: 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.

Word of the availability of the North Korea census data was disseminated last week on North Korea Economy Watch, a Web site run by Curtis Melvin, a Virginia-based graduate student in economics and a specialist in North Korea.

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

UPDATE 2 (1/12/2011): According to the Choson Ilbo:

Each year, Statistics Korea publishes population figures for North Korea in a booklet based on surveys conducted by international organizations like the UN and data released by the Education Center for Unification under the Unification Ministry.

Most of these statistics were compiled based on a census the North took in 2008 with the UN’s help.

North Korea’s only previous census was in 1993, which established that the population is 21.21 million. Although rumor has it that several millions of people starved to death during the famine of the 1990s, nobody knows how many exactly died.

The second census in 2008 was taken with funds provided by the UN Population Fund to obtain basic data for humanitarian aid to the North. The North accepted the offer, presumably because it wanted a good grasp of the reality to develop its own economy.

The census lasted for 15 days, from Oct. 1 to 15, 2008. The North’s Central Statistics Bureau surveyed 5,587,767 households nationwide by mobilizing a total of 35,000 census takers through municipal and provincial statistics offices. The questionnaire consisted of 53 questions about income, furniture, electronic home appliances, toilets, heating system, and tap water and sewage facilities, as well as basic personal information such as age and gender.

Like in South Korea, the North Korean census takers visited homes to ask the questions face to face. Statistics Korea officials flew to China, where they taught North Korean officials census methodology and techniques, and the South gave the North as much as US$4 million for the census from the Inter-Korean Cooperation Fund.

According to the census, the North’s population was 24,062,000, up 2.85 million from 1993. Average life expectancy was 69.3 years, and infant mortality was 19.3 per 1,000. But these data are quite different from UN estimates, which put life expectancy at 67.3 years and infant mortality at 48 per 1,000. The credibility of the North’s census data has not been verified.

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

Using the STALIN search engine I found the 1997 KCNA articles which claim that “natural phenomena” are signs of future prosperity in the Kim Jong il era.  All the stories are posted below. 

Here are the dates  and brief summaries of the stories:

1. 3/21/1997 –Weather protects KJI.  Sunshine pours dowm on him for photo.
2. 9/29/1997–Flowers bloom on trees when KJI nominated SG of KWP.
3. 10/1/1997–Flowers and leaves bloom on trees.
4. 10/6/1997–KJI makes fog go away, fruit trees blossom.
5. 10/7/1997–Friut trees and flowers blossom – sign of good fortune under KJI.
6. 10/20/1997–Twenty-five consecutive days of beautiful sunrise at Mt. Paektu and sounds of cheers from Lake Chon when KJI nominated SG of KWP.
7. 12/8/1997–KJI visit brings good weather.

After 1997 we see only two more stories where “natural phenomena” legitimize Kim’s rule:

8. 8/29/2001–Natural phenomena occur in Russia as KJI travels to Moscow.
9. 2/12/2009–Snow melts on KJI birthday.

Further Information:

1. Below are the comparative DPRK/ROK per-captia GDP numbers in the KJI era (usual caveats apply). The numbers are in 1990 $US and are from Angus Maddison.

2. Here is a graph comparing DPRK/ROK growth from 1950-2006, again from Dr. Maddison.  In 1950, both countries enjoyed a per-capita income of $850 (a number higher than I believe most North Koreans enjoy today).  In 2006, Dr. Maddison estimates that the representative North Korean earns an estimated $1,133 and the representative South Korean earns $18,356:

3. Below are all of the stories about the natural phenomena:
Great man and natural phenomena
Pyongyang, March 21, 1997 (KCNA) — A new legend is these days gaining circulation in korea, stirring up the hearts of people. it says, “the Snowstorm of mt. Paektu Fell in Fog”. A legendary phenomenon occured on November 24 last year when the respected General Kim Jong Il, the son of mt. Paektu and a peerlessly great man, was giving on-site guidance to the Panmunjom mission of the Korean People’s Army, an outpost of the forefront. That day, the area of Panmunjom was enveloped in thick fog from dawn. In the previous days, it had been cloudy but fog never set in in the area. The General went round various places of Panmunjom and mounted the balcony of the Panmun House to acquaint himself with the enemy situation. The fog would not go while he was making an inspection tour of the area. So, the enemy failed to observe the kpa post and, accordingly, they could not take any hint of happenings there. Mysterious is the fact that the fog began to lift suddenly and the weather cleared when the general posed for a photograph in front of the monument dedicated to an autograph signature of the great leader President Kim Il Sung. The fog disappeared after the General ended his inspection of Panmunjom. It was when he inspected the KPA Post on mt. Taedok in the western sector of the front on March 18 last year. No sooner had his car arrived at the entrance to the post within the range of the enemy observation than its sky was covered with inky clouds. Instantly the car passed by, the sky began to clear up. a mysterious natural phenomenon took place at a time when the General was inspecting a kpa unit which is defending cho island in the West Sea. After mounting a forward command post, exposed to rain and wind, he stood by a map of operations when the black rain cloud cleared and bright sunrays spread. Such a natural phenomenon happened when he posed for a photograph with sailors at a naval unit on that same day. Informed of them, people say that even the heaven ensures the personal safety of General Kim Jong Il, working mysterious wonders.

Mysterious phenomena in Korea
Pyongyang, September 29, 1997 (KCNA) — Mysterious natural phenomena are being witnessed in different parts of Korea while provincial party conferences adopt resolutions on recommending Secretary Kim Jong Il as General Secretary of the Workers’ Party of Korea. White flowers came into bloom on a pear tree, attracting butterflies and bees at a factory in Pyongyang on September 27. The tree is as old as the factory. On their way to work, factory workers witnessed this phenomenon and said nature also welcomes the festive event. More than 100 blossoms opened on an apricot tree at the film processing plant in the city on that same day. Eighty-five blossoms were witnessed on five ten-year-old apricot trees and two fifteen-year-olds on a stock farm in Sangwon county on September 25. Fifty pear trees on the Jangchon Cooperative Farm in Sadong district made thousands of blossoms open between September 22 and 25. About 400 blossoms came into bloom on a 20-year-old wild pear tree in a park in front of the Kaesong Municipal Party Committee building in the same period. On the morning of September 22, fishermen of the fishery station in Rajin-Sonbong city caught a 10 cm-long white sea cucumber while fishing on the waters off Chongjin. They said the rare white sea cucumber has come to hail the auspicious event of electing Secretary Kim Jong Il as Party General Secretary. Seeing the mysterious natural phenomena, Koreans say Secretary Kim Jong Il is indeed the greatest of great men produced by heaven and that flowers come into bloom to mark the great event.
(more…)

North Korea doesn’t release official economic data.  Since 1991, the South Korean central bank has released its own estimates of the North Korean economy to fill the void.  Its figures are derived from information provided by the ROK’s National Intelligence Service and other sources.  The 2008 statistics can be downloaded here.

According to coverage by the Associated Press:

The North’s gross domestic product for last year was estimated at $24.7 billion, a 3.7% increase from 2007, Seoul’s Bank of Korea said in a news release. The impoverished North’s economy shrank 2.3% in 2007 and 1.1% in 2006.

The central bank said the North’s economic growth was mainly because of “temporary factors” such as favorable weather conditions that resulted in an increase in agricultural production, and the arrival of oil shipments under an international disarmament deal on its nuclear program.

The size of North Korea’s economy, however, was still about 2.6% of South Korea’s, the bank said, adding it was “difficult” to determine whether last year’s growth means the country’s internal economic conditions have improved.

The bank said the North’s agricultural production increased 10.9% last year compared with 2007. The production of coal, iron ore and other minerals expanded 2.3% and the manufacturing industry 2.5%.

…and BBC coverage:

Agricultural production rose nearly 11% in 2008 compared with 2007. And coal, iron ore and other mineral production grew 2.3% for the year.

UPDATE from Business Week:

The surprise underscores the tiny size of the North Korean economy, which could be easily swayed by such factors as weather and outside assistance. Just over two-thirds of the 3.7% growth came from the agricultural sector, and that is heavily dictated by weather. North Korea’s agricultural output increased by 10.9% in 2008 after falling by 12.1% in the previous year as it managed to escape from major floods and drought. Its 2008 manufacturing production also grew by 2.5%, compared with a gain of a mere 0.8% in 2007, thanks to heavy oil supplies by the U.S. and its allies as a result of Pyongyang’s agreement last year to begin dismantling its nuclear facilities.

Even as hope builds in South Korea about a recovery, with the U.S. and China showing signs of revival, prospects for North Korea’s economy are looking grimmer. North Korea’s nuclear test in May and the regime’s missile tests this year have led to an end to outside help and economic sanctions by the U.N. This heralds a poor performance in the manufacturing sector, which will almost certainly face an acute shortage of oil and electricity this year.

Pyongyang can’t count on the agricultural industry for any major contribution to economic growth in 2009, either. Even if North Korea manages to maintain the 2008 grain output of 4.3 million tons, which will be difficult to achieve unless last year’s exceptionally good weather is repeated, it won’t help the economy grow as it starts from a high base.

Those factors make North Korea’s economic growth last year an anomaly. “There’s no indication that North Korea’s growth engine has improved in any fundamental way,” says Bank of Korea economist Shin Seung Cheol. Even with last year’s extraordinary growth, North Korea’s gross domestic product was 1/38 of South Korea’s $935 billion and its trade volume was 1/224 of the South’s $857.3 billion in 2008. As long as North Korea’s reclusive leader Kim Jong Il refuses to open up his country, the gap is bound to keep expanding.

I have collected the most commonly referenced North Korean economic statistics here.

Read more here:
South Korea’s Central Bank Says North’s Economy Grew in 2008
Associated Press
6/28/2009

North Korea’s GDP Growth Better Than South Korea’s
Business Week
Moon Ihlwan
6/30/2009

Newsweek has an interesting article which makes the case that the DPRK economy is not as bad as the public tends to think.  According to the article:

…North Korea isn’t broke—and its economy has been moving away from collapse in recent years-. The Hermit Kingdom may not be getting rich—the CIA estimates its GDP at roughly $40 billion, ranking 96th in the world. But it’s not failing either, and for the past decade, its economy has grown at an average rate of about 1.5 percent a year, according to South Korean statistics. While Seoul estimates that the North’s GDP shrank by 2.3 percent last year, some analysts say it actually expanded, arguing that South Korea’s recent figures on the North are deflated for political purposes.

To understand how the Dear Leader has managed this, you must first drop a few of the myths surrounding his country. First, the North Koreans haven’t been living in caves for the past two decades, nor is their economy de-industrializing, as is sometimes reported. Instead, with help from Beijing, Pyongyang has revamped its outdated infrastructure in recent years and repaired the mining facilities that were battered by massive floods during the mid-’90s. It now aims to shift from recovery to growth, with a focus on steel production, mining and light-industrial manufacturing.

Second, the North doesn’t have to rely on the black market to support itself. True, Pyongyang has sold missiles to Iran, Syria and Pakistan, and annual revenue from such exports is roughly $100 million, but analysts say that other illicit activities like drug trafficking and counterfeiting add very little to that sum. According to a former U.S. diplomat in East Asia who asked not to be named discussing sensitive intelligence, during the Bush years Washington investigated the oft-heard counterfeiting accusations, and found that the notes in question had actually been produced privately by former Chinese military officials, in China. “The Treasury Department couldn’t find a single shred of hard evidence pointing to North Korean production of counterfeit money,” the American says.

The biggest myth is that North Korea remains isolated. Despite supposedly comprehensive sanctions, Pyongyang today has diplomatic and commercial relations with more than 150 countries, including most European Union members. North Korea trades its abundant gold reserves—estimated at 1,000 to 2,000 tons—in cities like London, Zurich and Hong Kong, and buys and sells shares on the New York Stock Exchange via a legitimate London-based brokerage firm it essentially owns. While there are no figures on the volume of such transactions, the former U.S. diplomat says that such activities are “a substantial source of hard currency for North Korea.” In recent years, European firms have also begun eyeing investment opportunities there; In 2004, the London-based energy firm Aminex signed a 20-year deal with Pyongyang for exclusive rights to explore on- and offshore oil-and-gas deposits. Other companies are looking for ways to exploit the North’s cheap labor supply, and while most of these deals have yet to take off for technical and political reasons, ties to the outside world are expanding. In 2008, the country’s overall trade rose 30 percent from the previous year, reaching a record $3.8 billion, including imports of $2.7 billion, according to Seoul’s Korea Trade-Investment Promotion Agency.

North Korea has proved adept at avoiding restrictions: when Tokyo slapped it with sanctions five years ago, Pyongyang simply reshuffled its deals, turning to the BRIC economies as well as South Korea and Singapore. Meanwhile, China now accounts for nearly three quarters of North Korea’s total trade, sending it crude oil, petroleum and manufactured goods in exchange for coal, steel and rare metals like tungsten and magnesite. The North’s natural resources have become a major growth engine: the Musan mine in the country’s northwest is now said to be one of the largest iron-ore fields in Asia, and could eventually yield 10 million tons of ore a year.

Finally, there’s the southern connection. Despite deteriorating relations between Seoul and Pyongyang, factories at the joint Kaesong Industrial Complex are still operating at full gear, earning the North about $35 million annually—enough for eight or nine No-dong missiles. And that figure was projected (before the current crisis hit) to jump to $100 million by next year, says Lim Eul Chul of Seoul’s Kyungnam University.

I should point out that the CIA estimate of the DPRK’s GDP is among the highest.  Most other estimates are below $30 billion for 2008.

Read the full article here:
How Kim Affords His Nukes: The myth of a failing economy.
Newsweek
5/30/2009

Institute for Far Eastern Studies (IFES)
ICNK Forum No. 09-2-2-1
2/2/2009

ASSESSMENT OF THE NORTH KOREAN ECONOMY FOR 2008

In the 2008 North Korean New Year’s Joint Editorial, Pyongyang established the year 2012 as “The Year of the Perfect Strong and Prosperous Nation,” while labeling 2008, “The Year of Turnabout,” and, “The Year of the Betterment of the Livelihoods of the People.” As the year marked the 60th anniversary of the establishment of the Democratic People’s Republic of Korea (DPRK), the regime projected a highly motivated façade, but there was no sign of new changes in the North’s economic policies.

Faced with the inability to produce any substantial results in the realm of international economic cooperation, North Korean authorities focused on how to put a positive spin on international conditions that were tied to the progress of 6-Party Talks. However, no visible measures appeared to emerge. Internally, North Korea’s chronic supply shortages drove further disparities between official and market pricing and monetary exchange rates as authorities were unable to stabilize the domestic economy. The growing global economic instability also caused economic policy makers to act more conservatively.

In 2008, North Korea’s food production in 2008 amounted to 4.31 million tons, recording a 7.5 percent increase over the previous year, while energy production is estimated to have grown by approximately 10 percent. Through joint development projects for North Korea’s underground resources, the North received raw materials for light industries (soap and shoes) amounting to 70 million USD in 2007, and 10 million last year. In addition, DPRK-PRC trade and inter-Korean economic cooperation both grew (DPRK-PRC trade increased significantly, while North-South cooperation grew only slightly), but it is difficult to measure the extent to which these increases impacted the North’s economy.

It appears that overall, North Korean trade and industry has improved since 2007, and the 2008 economic growth rate was positive. However, when estimating the North’s economic growth rate in light of the quickly rising exchange rate for South Korean won, DPRK economic growth for 2008 could be seen as a negative value.

While North Korea’s overall industrial production grew in 2008, when compared to previous years, and the primary reason for such was the refurbishment of equipment in most stable industries, development assistance and heavy oil aid as part of the 6-Party Talks, the provision of raw materials for light industries by South Korea, and the rise in prices on goods internationally.

Because of favorable weather conditions and increased production of fertilizer in the North, the agricultural sector showed a relative increase in production in 2008, despite the suspension of fertilizer aid from South Korea. Grain production was up 300 thousand tons, for an estimated total of 4.31 million tons last year. Boosted energy production was helped by improvements in hydroelectrical production and heavy oil tied to 6-Party Talks, and the provision of parts and materials for power plants, which considerably increased power production, at least in the first half of the year. This played an important role in the increase in industrial operations, as well. As electrical supply is the biggest obstacle to raising the operating rate of production facilities, more power resulted in overall production increases.

The construction sector has focused efforts on Pyongyang, and in particular on efforts to improve the lifestyles of its residents. Housing (averaging 20,000 family dwellings per year), restaurants, waterworks, roads, and other construction and repair projects have been aggressively undertaken.

North Korean authorities emphasized the science and technology sector in 2008, although it appears that the actual impact of this campaign topped out at the supply of some practical technology and the at production facilities, power plants, and other factories, and the promotion of modernization and normalization of industrial production.

At the mid-point of 2008, inter-Korean trade had grown by 1.2 percent compared to the same period the year prior, reaching 1.82 billion USD. The freeze on the annual supply of 400 thousand tons of rice and between 300~350 thousand tons of fertilizer from the South had a negative impact on the North’s food situation. On the other hand, DPRK-PRC trade from January-November 2008 jumped by 29.3 percent over the same period in 2007, considerably more than the 14.9 percent recorded in 2005, the 14.9 percent seen in 2006 and the 16.1 percent rise last year.

The increase natural resource development and improvements in core industries, the possibility of expansion of markets, and the advantage of low-cost labor give China, Russia, and other adjacent countries positive perceptions regarding investment in the North, and as Pyongyang continued to expand economic cooperation with these countries last year, it also improved economic relations with Europe as well as Egypt and other Middle Eastern countries.

PROSPECTS FOR THE NORTH KOREAN ECONOMY IN 2009

If one looks at North Korea’s domestic economic policies, one will see that basically, in the 2009 New Year’s Joint Editorial, North Korea’s domestic and international economic policies have not undergone any significant changes. However, in order to accomplish the goal of establishing a Strong and Prosperous Country by 2012, it is expected that all efforts will be poured into reviving the economy. Based on the Joint Editorial, this year, the North’s economic policy is not one of reform due to transformation of the outside environment, but rather a revival of pas, conservatively grounded economic policy. Regarding international economic relations, the 2008 Joint Editorial specifically stressed the building of an economically strong nation based on the principle of the development of external economic relations, but there was no particular reference to this in 2009.

In 2009, resolution of agricultural problems was again prioritized as the task most necessary for the realization of a Strong and Prosperous Nation by 2012. Along with this, the North’s economic policy for 2009 will prioritize the modernization and normalization of the economy’s ‘vanguard sector’, and it is expected to continue to strengthen efforts to revive the economy. As it continues to work toward creating an environment in which it can concentrate efforts on the building of an ‘Economically Strong Nation’, North Korean authorities are expected to issue new measures to strengthen the economic management system, including the planned industrial system, the distribution and circulation framework, and an effective market management system. The North is also expected to further emphasize efforts to modernize the People’s Economy, as it considers modern vanguard science and technology to be the answer to recovery from its current economic crisis.

There is a possibility North Korea’s foreign trade, including that with China, will shrink in the future, as its external economic activity is hit by the current international economic situation and the rising value of the U.S. dollar and Chinese Yuan. Just as was seen in 2008, with the shrinking growth of the Chinese economy, DPRK-PRC trade will be hit negatively. Progress on the rail link being promoted between Rajin and Hasan, as well as the redevelopment of the Rajin Harbor is also expected to face difficulties. This is likely to lead to further efforts by the North to expand economic cooperation with the EU and Middle Eastern countries.

Despite North Korea’s removal from the U.S. list of terrorism-sponsoring states, because sanctions against North Korea still remain, the North will need to make progress in non-proliferation, human rights improvement, and marketization in order to see real economic benefits from improved relations with the Obama administration. However, because of a lack of confidence regarding market reform, differing stances between the U.S. and DPRK on denuclearization, and deeply rooted mistrust, there is a more than a small chance that progress on the nuclear issue will be stretched out over the long term.

Looking at prospects for the main domestic economic sectors of North Korea, firstly, the amount of development in the energy and mining sectors could take a favorable turn if there is movement on the nuclear issue, and this would have an overall positive effect on the entire industrial sector. The drop-off of demand due to the international financial crisis could have a considerable impact on the North’s mining sector, making it difficult to see much growth past the levels seen in 2008.

In 2009, the supply-demand situation regarding North Korean grains is expected to improve over last year. North Korea requires 5.2 million tons of grain, and is expected to harvest 4.9~5 million tons, falling only 200~300 thousand tons short. This is an improvement over the 790 thousand ton shortfall the North suffered in 2008. However, the actual amount of grains distributed to the people may not increase, because some of the 2008 shortage was relieved through the release of emergency rice reserves, and so some portion of the 2009 harvest will need to be set aside to restock that emergency reserve.

In the manufacturing sector, the increase in electrical production and increase in large-scale equipment operations in metalworks, chemicals, construction materials, and other heavy industries, the supply of materials for light industries as well as fertilizer will be extended, but the reduction of inter-Korean economic cooperation and foreign capital will mean a reduction in the ability to import equipment and materials, making it difficult to meet 2008-level growth in industrial production numbers.

In the construction sector, housing construction in Pyongyang and other areas will not fall off suddenly, but with the anniversary of the founding of the Party Museum upcoming and the impact of the furious construction activity that has been underway, it is likely to slow down in 2009. With North Korean authorities restricting private-sector economic activity, controlling the size of markets, and other measures controlling commerce in the North are expected to strengthen, which will considerably restrict anti-socialist commercial activity. To what extent official commerce networks will absorb this activity will be pivotal.

Trade between North Korea and China is expected to shrink as the global economic crisis drives down the price of raw materials that the North exports to the PRC. Following the North Korean authorities’ enforcement of a measure reducing inter-Korean economic cooperation on December 1, 2008, without improvement in the North Korean nuclear issue, and in U.S.-DPRK relations cooperation between Seoul and Pyongyang will gradually shrivel. Trade with other countries is also expected to fall as a result of the current global economic situation. Therefore, reduction of inter-Korean economic cooperation, North Korea’s principle provider of foreign capital, and sluggish trade between Beijing and Pyongyang will weaken the North’s foreign reserves supply-and-demand situation.

As for the investment sector, if North Korea is to succeed in its push to build a Strong and Prosperous Nation by 2012, it must attract foreign investment through aggressive policies of opening its economy. In order to improve the investment environment, Pyongyang must work more aggressively to resolve the North Korean nuclear issue, but despite the demands of the surrounding countries, it is likely North Korea will insist on recognition as a nuclear power, making it difficult to expect progress on this front. Therefore, foreign investors’ interest in North Korean markets, and North Korea’s assention into international financial institutions through improved relations with the United States, appears to be a long way off.

Asian Survey Vol. 39, No. 2 (Mar. – Apr., 1999), pp. 287-309
Kongdan Oh and Ralph Hassig

Download PDF here or download from Jstor.org here

The refusal of North Korea’s letters to institute serious economic reforms has frustrated those who study the country and those who seek to alleviate the suffering of the North Korean people.  Two French medical aid organizations have withdrawn from the country complaining that the Pyongyang government interfered with their work.  This is but one sign of a growing donor fatigue.  The muddling through plan that the Kim regime has adopted involves soliciting foreign aid, bargaining with its military and nuclear products, making minimal unofficial changes in the domestic economy, and waiting for the international environment to become more favorable—perhaps even expecting a resurgance of international communism.  Equally important, Kim and his ruling cohorts are willing to sacrifice the economic health of their nation for the security of their regime, just as other dictators, both communist and non-communist have done.  The painful difference in North Korea’s case is that it is half of a divided nation, posing an immediate humanitarian dilemma for the millions of Koreans in the Southern half of the penninsula whose families are suffering in the north.  For this reason more than any other, the future of North Korea cannot be ignored.  

Journal of Comparative Economics, 35 (2007) 564–582
Kim, Byung-Yeon, Kim, Suk Jin, and Lee, Keun

PDF of paper here

Abstract: This paper adjusts the official data from North and South Korean sources, taking into account hidden inflation to estimate North Korea’s GNP growth rates from 1954 to 1989. The factors of economic growth are decomposed subsequently into changes in inputs and factor productivity. Finally, a panel cointegration technique is used to assess the level of productivity in the North Korean economy in comparison with that of the former Soviet Union. We find that the average of annual growth rates of North Korean GNP and GNP per capita from 1954 to 1989 was 4.4 and 1.9%, respectively. The results from decomposition suggest that the prime cause of slow economic growth was extremely low or even negative total factor productivity. According to the panel cointegration estimation, productivity in North Korea was lower than that of the Soviet Union by 33%.

JEL classification: P27; E01; O47
Keywords: North Korea; Growth; Growth accounting; Panel cointegration

I get many requests for North Korea’s economic statistics.  In order to make these things easier to find, I have created a page on the menu to the right called “North Korea Economic Statistics.”  This resource provides links to the most frequently quoted and cited statistics.  It is not yet complete, but I will be continually expanding it. 

I believe these should be taken with buckets of salt, but here they are nonetheless.

Also on the menu are links to the following information:
North Korea Academic Resources
North Korea Blogs
North Korea Books
North Korea CRS Reports
North Korea Films

If you have anything to add to any of these resources, please let me know.