Archive for the ‘RoK Ministry of Unification’ Category

North Korea’s economic contraction in 2018: what the BoK numbers tell us

Friday, July 26th, 2019

By Benjamin Katzeff Silberstein

The Bank of Korea has released its yearly estimate of North Korea’s economic trends for last year. The estimate gives a contraction of the economy by 4.1 percent. Reuters/Channel News Asia:

North Korea’s economy shrank in 2018 for a second straight year, and by the most in 21 years, hit by international sanctions to stop its nuclear programme and by severe drought, South Korea’s central bank said on Friday (Jul 26).

North Korea’s gross domestic product (GDP) contracted by 4.1 per cent last year in real terms, the worst since 1997 and the second consecutive year of decline after a 3.5 per cent fall in 2017, the South’s Bank of Korea estimated.

North Korea does not disclose any statistics on its economy. The South Korean central bank has been publishing its estimates since 1991, based on information from various sources including the South’s foreign trading agencies.

North Korea’s international trade fell 48.4 per cent in value in 2018 as tougher international sanctions in late 2016 and 2017 cut exports by nearly 90 per cent, the Bank of Korea said.

Output in the mining sector shrank 17.8 per cent because of sanctions on exports of coal and minerals, while the agriculture, forestry and fisheries sector contracted by 1.8 per cent because of drought, it said.

North Korea’s population was estimated at 25.13 million and annual income per head at S$1,298, the South Korean central bank said.

Article source:
North Korea’s economy shrinks most in 21 years in 2018: South Korea
Reuters/Channel News Asia

I won’t go into much depth on the methodological issues with all this, but suffice to say that because Bank of Korea doesn’t release much information on their models, estimates, assumptions and the like, their analysis is always difficult to evaluate. That’s why it’s not particularly helpful to state that it’s the lowest growth (or largest contraction) since 1997. That may be true, but proportions aren’t necessarily all that relevant or accurate here.

That said, broadly, the estimate makes sense. In fact, it may be a slight lowball estimate. South Korean economist Kim Byung-yeon put estimated a 5-percent contraction for 2017, which sounds more reasonable to me.

The BoK estimate of the mining sector is particularly interesting. They give a contraction of 17.8 percent of the sector as a whole for 2018, after claiming in 2017 that it shrank by 11 percent. On the one hand, it’s interesting to think about how all this might look domestically. This would mean that around 70 percent of the mining sector which operated in 2016, continues to operate today. So what’s happening with all that coal, and all those minerals? Well, we get a hint of that in the estimates for electricity generation and water. This was down by -2.9 percent in the estimate for 2017.

Now, the estimate instead gives an increase of 5.7 percent. This positive effect for domestic electricity generation has been anecdotally reported by outlets such as Daily NK for quite a while. Cheaper electricity has made supply much better in parts of the country. This is a relatively minor positive, as the revenue loss from decreased exports is much greater. Nonetheless, there may be a slight impact here of cheaper electricity cushioning some of the lower demand for industrially manufactured goods.

Here’s a graph comparing the 2017-2018 estimates, based on the BoK data (which you can find here).

Bank of Korea estimates of North Korean GDP growth, by sector, 2017 and 2018. Graph by NK Econ Watch.

It’s also important to bear in mind that the baseline here was fairly high. North Korea has experienced a few years of solid economic trends, so a negative growth of four percent isn’t necessarily catastrophic. Of course, it’s very bad, but there are more nuances to these things than full stability or complete disaster.


North Korea’s economic growth – from Pyongyang’s perspective

Monday, October 15th, 2018

By Benjamin Katzeff Silberstein

Has North Korea’s economy been growing under sanctions? That’s what an economist in Pyongyang claims. In a recent interview with Kyodo (published here by Japan Times), Ri Gi Song at Pyongyang’s Institute of Economics at the Academy of Social Sciences, claimed that North Korea’s GDP per capita grew by 3.7 percent in 2017, a year during which the country was virtually banned from selling its most crucial export goods, and faced very harsh conditions for importing crucial resources such as oil and fuel. When factoring in population growth, the GDP-growth-figure diminishes somewhat to 3.2% (see below), but it’s still firmly in the same range.

Strange as it may sound, it is possible to imagine that North Korea’s economy wouldn’t contract severely during a year of sanctions. GDP growth alone is a poor way of measuring long-run, sustained economic growth and progress. While it may sound counter-intuitive, the sanctions, while depressing the economy in certain ways, may have boosted it through other mechanisms. The ban on coal imports from North Korea, for example, may well have boosted certain industries, as this blog has covered in the past. Because exports have dwindled drastically, the price at which North Korean coal can sell – domestically as well as internationally – gets much, much lower than when it could be sold in greater quantities on a somewhat competitive market. So with lower prices for factors of production, industry could certainly experience growth in the short-run. But this would only be a temporary and meaningless boost, since the losses from unsold goods abroad would be much greater.

In other words, Ri may be partially right, but numbers are also likely inflated for political reasons. Here’s an excerpt from the interview, annotated with comments:

North Korea’s economy grew 3.7 percent in 2017, a professor of a think tank in Pyongyang said in brushing aside the view that the country has faced an economic contraction against a backdrop of international sanctions.

Even though North Korean economic data has become somewhat more public and plentiful in the past few years, there are still undeniable political imperatives in publishing data that makes the country appear resilient in the face of sanctions. After all, if sanctions aren’t “working” (whatever that may mean), what’s the point in keeping them? That, of course, doesn’t mean that such figures are accurate, wholly or partially.

Ri Gi Song, a professor of the Institute of Economics at the Academy of Social Sciences, said in a recent interview with Kyodo News that North Korea has achieved economic expansion without depending on other nations.

Well, he would say that, since that is how Juche is spoken. That doesn’t mean it comes from a place of literal belief; it’s simply what you say if you’re a North Korean economist speaking from your official position, and shouldn’t be read as an expression of delusion or the like.

Ri said gross domestic product totaled $30.70 billion in 2017, up from $29.60 billion in 2016. It is very rare for North Korea to disclose its GDP and also the first time that the country’s GDP data in the past two years have been unveiled.

But it is impossible to verify the accuracy of the figures, as the professor did not make public other economic indicators such as consumer spending, investment and inflation rate.

Although a report released by South Korea’s central bank showed in July that the North’s economy shrank 3.5 percent in 2017 from the previous year, Ri shrugged it off, saying Seoul’s calculation is “only an estimation.”

Ri is right that South Korea’s figures are only estimates, albeit careful ones based on models developed and refined (presumably) through years of experience. But the thing is, Ri’s official North Korean figures, too, are only an estimate. Even in the best of situations, no GDP-figure is exactly certain and precise. To calculate as vast of an “object” as a country’s economy, some assumptions inevitably have to be made. One of them is that various forms of reporting is generally accurate.

In the case of North Korea, however, this problem is incomparably worse than in open, democratic free market-economies. Let’s assume for a moment that the North Korean government genuinely is eager and willing to generate real, trustworthy and truthful economic statistics, which in many ways does seem to be the case. Even so, how do you generate accurate accounts reporting in an environment when the going principle for a long time has been that planning targets must be met regardless of actual conditions? And with so many different forms and models of enterprise in action throughout the country, seemingly with little but perhaps improving consistency across the board, how would it be reasonable to expect the North Korean government to be able to calculate a reasonable GDP-figure? That’s not even getting started on the investments-portion, a crucial variable to determine growth. Private investments into partially private enterprises is still technically illegal in North Korea, but there are many signs to suggest that it’s taking place on an increasingly substantive scale.

So, even if the North Korean government’s statistical authorities have all the right intentions, I don’t envy their working conditions one bit.

He said North Korea’s population grew to 25,287,000 last year from 25,159,000 in 2016. Based on the figures, the country’s per capita GDP stood at $1,214 last year, equivalent to that of Myanmar.

This means that the actual growth rate claimed by Ri, factoring in population growth, is 3.2%. This, however, still isn’t the “real” growth rate. To get those numbers, we’d need to factor in inflation, and no reliable numbers are available to let us do that. But on the face of it, judging by the price trends for foreign currency and rice through 2016–2017, inflation wasn’t visibly large or out of the ordinary. Even so, we simply don’t know.

In an attempt to overcome the negative impact of international economic sanctions, North Korea has “developed various technologies” under the spirit of “self-reliance,” Ri said, adding the nation has implemented measures to save the utilization of crude oil, for example.

This is certainly true to an extent. Just look at the masses of North Koreans purchasing solar panels for electricity rather than relying on scantly available government supplies of power. And as mentioned above, there is some sense in this argument, if interpreted in a slightly broader manner, that North Korea’s economy may have experienced some gains in efficiency from sanctions, as people are forced to find new, creative ways to get around increasingly tricky conditions. And industry may have gotten a boost from lower energy prices, as may other consumption, since citizens can theoretically spend more on other items if energy prices fall.

Still, this boost would only be marginal, and temporary at best. It certainly wouldn’t create 3.2 percent growth rates, although it might have contributed.


Ri acknowledged that North Korea has suffered food shortages, but emphasized that the heavy and light industries as well as the chemical sector have been growing and electric power conditions have been improving.

Amid a thaw in inter-Korean relations, Ri expressed hope for economic cooperation with the South.

Full article:
North Korea’s economy grew 3.7% in 2017, Pyongyang professor estimates
Japan Times/Kyodo

At the end of the day, as Andray Abrahamian points out, neither North nor South Korea publishes their methodology for calculating North Korea’s growth rates, so all we can do is speculate about the assumptions that go into the models.


North Korean defector numbers up by 15 percent from last year

Friday, August 5th, 2016

By Benjamin Katzeff Silberstein

After diminishing to relatively low numbers following Kim Jong-un’s ascension to power and tighter controls preventing people from leaving the country, the number of defectors reaching South Korea was 15 percent higher between January and July this year as compared to 2015, Chosun Ilbo reports:

From January thorough July this year some 815 North Koreans fled their country and arrived in the South, up around 15 percent from the same period last year, the Unification Ministry said Tuesday.
This suggests that international sanctions and the resulting economic straits in the repressive North are driving many away. More defectors now come from the elite, which for long thrived while ordinary North Koreans starved.
From 2006 to 2011, some 2,000-plus people fled the North every year, but when Kim took power in 2012 numbers dropped to about 1,500.
Last year the number was down to 1,276. The regime boosted border patrols, forcibly relocated the families of defectors, and meted out tougher punishment for those who aided and abetted defections.

To me, the claim that people are leaving in higher numbers because of sanctions sounds very unlikely, to say the least. Even if sanctions are hitting the economy in a way that most people feel (which is itself doubtful at this time), it is difficult to see that it would be enough to tip the scale toward 15 percent more people defecting. One could argue that the speed battles of the past year may well have done much more to lower the quality of life for most North Koreans than sanctions have, but of course, it is impossible to pinpoint a specific reason for this increase.

Full article:
N.Korean Defections on the Rise Again
Chosun Ilbo
Lee Yong-soo


Russia and DPRK discuss economic opportunities

Saturday, March 29th, 2014

What are the opportunities? Rason port, Iron Silk Road (Rail), Kaesong Industrial Complex, gas pipeline.

According to RIA Novosti:

Russia and North Korea have signed a new protocol to transition to using the ruble for payments between the two countries as part of an effort to boost annual bilateral trade to $1 billion by 2020, Russia’s Far East Development Ministry said Friday.

The announcement came as Russian officials have expressed a desire to explore new markets for the country’s businesses, following the introduction of sanctions by the West in reaction to Moscow’s stance over Crimea. Russian leaders have simultaneously reassured international investors the country remains open for business, and there are no plans to restrict international commerce.

The protocol announced Friday came following a visit of a Russian delegation to the Asian country for a meeting of a standing bilateral commission, timed to mark the 65th anniversary of a cooperation agreement between the Soviet Union and North Korea.

The parties agreed to move towards settling payments in rubles as well as adopting further measures to boost bilateral trade, including easing visa procedures and providing for Russian access to proposed special economic zones in the country, the ministry’s statement said.

The ministry reaffirmed the countries’ mutual interest in joint projects with South Korea, including international connections for railways [Iron Silk Road], gas pipelines and power lines.

The Russian delegation also proposed the entry of Russian businesses into the Kaesong Industrial Park, a special economic zone in North Korea just north of Seoul where South Korean companies are allowed to employ northern workers.

The two sides identified areas for further cooperation, including a transshipment complex at the port of Rason and technical cooperation for the modernization of North Korea’s mining sector, automobile industry and electric power plants.

According to the statement, during the talks Russian Far East Development Minister Alexander Galushka emphasized that achieving such goals would only be possible if stability is maintained on the Korean peninsula.

The next meeting of the bilateral commission is scheduled for June in Russia’s far eastern Vladivostok.

Here is what Yonhap reports:

North Korea and Russia have agreed to boost economic ties by pushing for trilateral projects involving South Korea, including a plan to support Russian companies’ entry into an inter-Korean industrial complex, a media report said Saturday.

The agreement between the two was made earlier this week when Russia’s Far East Development Minister Alexander Galushka visited the North for a five-day run until Friday to explore ways to boost bilateral economic cooperation, according to the Russian news agency RIA Novosti.

“The Russian delegation proposed the entry of Russian businesses into the Kaesong Industrial Park, a special economic zone in North Korea just north of Seoul where South Korean companies are allowed to employ northern workers,” the RIA Novosti reported, citing the ministry.

Officials of Seoul’s unification ministry, which handles inter-Korean affairs, welcomed the agreement between the North and Russia, while stressing the importance of Russia’s prior consultation with the South.

“Russian companies’ making inroads into the Kaesong park is desirable in terms of the internationalization of the complex … It would also prevent the North from unilaterally reversing its agreement with Seoul over the Kaeesong operation,” the ministry official said, requesting anonymity.

Internationalization of the enclave, a symbol of inter-Korean detente, is one of the key topics for inter-Korean meetings aimed at ensuring its normal operations and further invigorating the complex. The Kaesong park resumed operations in September, more than five months after the North unilaterally closed it in anger over Seoul-Washington joint military exercises.

“But it is crucial for Russia to discuss the matter with our side first as it is basically operated by the South Korean authorities,” he added.

A handful of companies from China, Australia and Germany have so far expressed interests in making an investment in the Kaesong complex, prompting the Seoul government to review holding joint presentation sessions with the North to lure investors from overseas, according to another ministry official.

Here is additional information from Yonhap on recent shipments from Russia to the DPRK:

Russia exported US$21.16 million’s worth of jib cranes, machinery used mostly for cargo handling at ports, to North Korea last year, accounting for nearly 22 percent of its total exports to the North, according to the report by the Korea Trade-Investment Promotion Agency (KOTRA). The amount surpasses that of Russia’s traditional export goods such as coal, petroleum and bituminous oil.

There were no records of the machines being exported to North Korea the year before, with the 2011 amount standing at $139,000.

North Korea and Russia maintain economic relations that include a project that would make North Korea’s northeastern port city of Rajin a logistics hub by connecting it to Russia’s Trans-Siberian Railway. North Korea is said to have agreed to a long-term lease of the No. 3 dock at Rajin port to Russia and that it is modernizing facilities there. The cranes may be for such modernization efforts, the KOTRA report said.

Also noteworthy is Russia’s exports of ambulances to the North, amounting to approximately 10.1 billion won ($9.45 million), the fourth largest in terms of value. Ambulances are a relatively new product on the trade list.

KCNA’s reporting of the meeting was much more muted:

DPRK Premier Meets Minister of Development of Far East of Russia

Pyongyang, March 26 (KCNA) — Pak Pong Ju, premier of the DPRK Cabinet, met Alexandr Galushka, minister of the Development of Far East of Russia who is chairman of the Russian side to the Inter-governmental Committee for Cooperation in Trade, Economy, Science and Technology between the DPRK and Russia, and his party.

He had a friendly talk with them who paid a courtesy call on him at the Mansudae Assembly Hall on Wednesday.

Minutes of Talks between Governments of DPRK, Russia Signed

Pyongyang, March 26 (KCNA) — Minutes of talks on cooperation in trade, economy, science and technology between the governments of the DPRK and Russia were signed here Wednesday.

Present at the signing ceremony were Ri Ryong Nam, minister of Foreign Trade who is chairman of the DPRK side to the Inter-governmental Committee for Cooperation in Trade, Economy, Science and Technology between the DPRK and Russia, and officials concerned, Alexandr Galushka, minister for the Development of Far East who is chairman of the Russian side to the Inter-governmental Committee, and his party and Alexandr Timonin, Russian ambassador to the DPRK.

Ri Ryong Nam and Alexandr Galushka signed the minutes of the talks.

Read the full story here:
Russia, North Korea Agree to Settle Payments in Rubles in Trade Pact
RIA Novosti

N. Korea, Russia to discuss supporting Moscow firms’ advance into Kaesong park


ROK report claims DPRK luxury imports up

Monday, October 14th, 2013

According to Yonhap:

According to Rep. Yoon Sang-hyun of the ruling Saenuri Party, imports of luxury goods reached US$645.8 million last year, up sharply from an annual import average of around $300 million tallied under the current leader’s father Kim Jong-il.

Citing data provided by the government ahead of the parliamentary audit on the Ministry of Unification, the lawmaker said the isolationist country imported such non-essential goods as pets, feed for such animals, and various European and U.S.-made bath, sauna and maternity products.

The report also showed a noticeable rise in imports of expensive musical instruments, cosmetic goods, handbags, leather products, watches, and mid-sized sedans made in Japan and China.

“The products were given as gifts to key figures in North Korean society to ensure their loyalty to the regime,” Yoon said. He claimed that handing out such gifts contrasted with the hardships felt by ordinary people.

The United Nations Food and Agriculture Organization said earlier in the month that North Korea remains one of the 34 countries in the world that require external assistance to properly feed their people.

It estimated that some 2.8 million “vulnerable” people in the communist country needed outside assistance at least until this year’s fall harvest.

The Saenuri lawmaker said that imports of wine, liquor, consumer electronics, fur products and expensive watches led the growth last year.

Imports of alcoholic beverages surpassed the $30 million mark, with electronics and watches reaching $37 million and $8.2 million, respectively, for the whole of last year, he said.

Read the full story here:
N. Korea’s luxury goods imports surge under Kim Jong-un leadership


Kim Jong-un’s activities for the first half of 2013

Friday, July 5th, 2013

Institute for Far Eastern Studies (IFES)

Compared to last year, the activities of Kim Jong Un for the first half of 2013 revealed that he took part in more public activities with working groups rather than senior officials.

According to the ROK Ministry of Unification (MOU), Kim Jong Un has made 95 public appearances, which is an increase of 117 percent compared to the previous year of 81 public activities.

In particular, Kim took part in military related activities the most (29 times) as the U.S. and South Korea held joint military exercises (Key Resolve and Foal Eagle) in the earlier part of this year. His other public activities were economic related (28 times), social and cultural (18 times), political (14 times), and attendance at various performances (8 times).

However, starting from April 1, Chairman Kim’s military-related activities from first quarter to second quarter decreased from 50 to 15 percent while his economy-related activities increased from 10 to 50 percent.

Furthermore, economy-related activities this year entailed visitations to production units in machinery factories, cooperative farms, and business enterprises and complexes. The previous year saw mainly entertainment-related activities.

Compared to his father Kim Jong Il, on his onsite inspections Kim Jong Un was accompanied by an entourage consisting of proportionally more working-level officials rather than senior officials. While his first year inspections were accompanied by senior officials, the group accompanying Kim Jong Un are younger and experienced officials in the field. In particular, Choe Hwi, first vice department director of the Korean Workers’ Party Central Committee, is seen with Kim Jong Un the most. Choe Hwi is a graduate of Kim Il Sung University and served as secretary of the Youth League and senior deputy director of the Korean Workers’ Party politburo.

Meanwhile, South Korea’s Unification Ministry estimated the amount of rice reserve in North Korea remains the same as last year, although there is regional variation. Grain imports are at 75 percent against the previous year, and the food ration and situation range widely by region. The market price for 1 kg of rice is 5,000 KPW, which is valued at approximately 1.667 USD, or about 600 g per one USD or 8,000 KRW.

In addition, the MOU assesses that North Korea is making changes in its economic management under the name of “Our Method of Economic Management,” with relatively heavy focus on agriculture, light, and distribution industries. The North Korean leadership seems to recognize the importance of production output in the economic sector. However, it will be impossible to observe immediate results without improvements in raw materials, power, machines, and equipment.

On the other hand, the MOU analyzes that the North Korean leadership is placing more attention on the agricultural sector and improving production and supply of fertilizer since it shows an immediately visible result in the agricultural sector, especially to the North Korean residents. In this regard, the military is also increasingly emphasizing “self-reliance” and the need for “solving food issues on its own.”


Lee Myung-bak administration sets the lowest record for assistance to North Korea

Thursday, January 31st, 2013

Institute for Far Eastern studies (IFES)

The total amount of assistance provided to North Korea by the South Korean government and private organizations in 2012 decreased by 28 percent against 2011, which marks six years of continuous decline.

The Ministry of Unification revealed on January 27 that the total amount of South Korean assistance to North Korea tallied 14.1 billion KRW (13 million USD), with 2.3 billion KRW (2.12 million USD) of government aid for vaccines and medical trainings and 11.8 billion KRW (10.89 million USD) from the private sector for medical supplies. This is a 28.1 percent drop from the previous year’s total of 1.96 billion KRW (18.09 million USD).

The South Korean government sent about 6.5 billion KRW (6 million USD) of medical supplies to North Korea via UNICEF and the private sector sent about 13.1 billion KRW (12.1 million USD) of malaria prevention supplies, powdered milk, soy milk, and flour.

Last year was the lowest record for humanitarian assistance to North Korea in sixteen years. Prior to this low was 1996, which recorded 3.6 billion KRW (3.3 million USD).

Lee Myung-bak administration’s aid to North Korea for the last five years reached a total of 257.5 billion KRW (236.2 million USD), with 102.4 billion KRW (93.94 million USD) in government funds and 155.1 billion KRW (142.3 million USD) from the private sector. This is equal to only 20 percent of the Roh Moo-hyun administration’s 1.275 trillion KRW (1.17 billion USD), and 44 percent of the Kim Dae-jung administration’s 582.9 billion KRW (534.8 million USD) of total aid to North Korea.

The highest record for South Korean humanitarian aid to North Korea was in 2006 at 298 billion KRW (273.4 million USD), in both government and private sector aid and continued to remain at a high level in 2007 with 289 billion KRW (265.1 million USD) in 2007. However, with the launch of the Lee Myung-bak government in 2008, it dropped to 116 billion KRW (106 million USD), and continued the downward slide recording 67.1 billion KRW (61.6 million USD) in 2009; 40.4 billion KRW (37.06 million USD) in 2010; 19.1 billion KRW in 2011 (17.5 million USD); and 14.1 billion KRW (12.9 million USD) in 2012.

The source of the drop in humanitarian assistance can be attributed to deadlocked inter-Korean relations followed by the shooting death of a Mount Kumgang tourist in 2008; long-range rocket launch and second nuclear test in 2009; and Cheonan and Yeonpyeong Island incidents in 2010.

From 1995 to 2012, the total amount of humanitarian aid to North Korea from the South Korean government was 1.48 trillion KRW (1.36 billion USD) and from the private sector was 871 billion KRW (799.1 million USD), equating to about 2.347 trillion KRW (2.15 billion USD) in total.

Meanwhile, international humanitarian aid to North Korea increased 30 percent in 2012 against the previous year. According to the United Nation’s Office for the Coordination of Humanitarian Affairs (OCHA), total aid to North Korea in 2012 was 113 million USD while the previous year reached 89.2 million USD. It quadrupled to the total amount, 24.4 million USD of 2010.

Nineteen countries joined in the effort to provide humanitarian aid to North Korea such as South Korea, Norway, Switzerland, Canada, Russia, Brazil, and Sweden. In 2010, there were only six countries, and it later increased to seventeen countries in 2011. The OCHA announced that the humanitarian aid provided in 2012 focused mainly on improving the food supply and nutrition, and provided agricultural support.

UPDATE: Here is a similar report in Yonhap (2013-1-27):

South Korea’s humanitarian aid to North Korea dropped 28 percent to a record 16-year low last year, the unification ministry said Sunday, as the cross-border relations remained chilled under Seoul’s outgoing government of President Lee Myung-bak.

Seoul’s humanitarian aid to the impoverished North totaled 14.1 billion won (US$13.1 million), compared with 19.6 billion won a year earlier. Last year’s amount is the lowest since 1996 when only 3.6 billion won was provided to the North in humanitarian aid.

The sharp drop came as relations between the two Koreas remained frozen since the North sank a South Korean warship near their Yellow Sea border in March 2010 and then shelled a border island in November that year. Pyongyang’s nuclear test and rocket launches also affected their ties.

The total amount of assistance the South provided the North during the five years of President Lee was 257.5 billion won, including 155.1 billion won of civilian aid. The total amount is only 20 percent of the aid sent during the presidency of Lee’s predecessor, the former late President Roh Moo-hyun.


A review of the last five years of people-to-people exchanges and inter-Korean economic cooperation under the Lee Myung-bak government

Wednesday, January 23rd, 2013

Institute for Far Eastern Studies (IFES)

The Ministry of Unification’s recent monthly report on ‘Trends on Inter-Korean Exchanges” included an examination of the last five years of the Lee Myung-bak administration’s (January 2008 to November 2012) people-to-people exchanges and economic cooperation between North and South Korea.

Over the past five years, total inter-Korean trade reached 8.94 billion USD, a growth of 58 percent against the previous Roh Moo-hyun administration’s 5.62 billion USD. This increase can be attributed to the steady growth of the Kaesong Industrial Complex (KIC). The KIC recorded a total trade volume of 6.695 billion USD under the incumbent administration, which is nearly a seven-fold increase compared to the previous Roh administration’s record of 957 million USD. Considering its importance, the KIC was exempt from South Korea’s May 24 (2010) sanctions imposed against the North.

During the Lee government, 108 companies were authorized for inter-Korean cooperation projects (including the Kaesong Industrial Complex). This represents a drastic drop from the previous government’s 370 companies. Under Lee, the number of cultural exchanges and related businesses that were approved were a mere 5, compared to the former administration’s record of 121.

Combined government and private sector assistance to North Korea totaled 256.3 billion KRW, only one fifth of what was recorded during the Roh administration (i.e., 1.27 trillion KRW). While the current government had more private sector support, the previous government showed more government support.

Over the 5 years of the Lee Myung-bak administration, 664,000 people traveled across the North-South border, which is significantly higher than the number (i.e., 390,002 people) recorded during the Roh administration. However, the majority were government officials, mainly those involved with the KIC.

The number of North Korean defectors that entered South Korea during the Lee administration’s term in office was 724 people, a significant drop from the 4,571 people during the 5-year term of the previous administration. Last year, no defectors entered South Korea — the first “zero-entry” in 14 years (that is, since 1998.

In terms of cross-border vehicle traffic, vehicles traveled across the border 840,009 times, an increase from the previous administration’s 490,000 visits. However, the quantity of goods transported dropped 40 percent from the previous, at 1.39 million tons.

In particular, after the ROKS Cheonan incident on March 2010, people-to-people exchanges and economic cooperation were completely halted due to the May 24 (2010) measures. The amount of goods transported was also largely reduced.

As far as cross-border rail is concerned, the Gyeongui Line (connecting South Korea to the KIC) and the Donghae Line (connecting the South to Mount Kumgang) were actively utilized during the Roh administration; but under the incumbent administration, only the Gyeongui Line was utilized.

During the Roh administration, the air traffic recorded 589 trips (42,495 people), but during the Lee government reached only 77 (3,812 people).

The number of separated families members reunited during the last five years was 1,774 (888 people in 2009 and 886 people in 2010). This is only a tenth of the 14,600 family members reunited during the former Roh Moo-hyun government.


Kaesong Industrial Complex: Accumulative production output exceeds US$ 1.7 b

Friday, August 3rd, 2012

Institute for Far Eastern Studies (IFES)

Kaesong Industrial Complex (KIC) has recorded 1.7 billion USD in accumulative production output as of May this year. The first phase construction of KIC consisting of some 3.3 square meters was completed in July 2006.

According to a report submitted to the National Assembly on July 25, the Ministry of Unification (MOU) specified that, out of the 123 companies in KIC, there were 51,452 North Korean employees (as of May 2012) and the accumulative export reached 1.21 billion USD out of the accumulative production output.

Despite the severed inter-Korean ties from the May 24 sanctions of 2010, the KIC continued to operate while most economic cooperation, social and cultural exchanges and humanitarian aid were halted.

The report also included MOU’s pledge to continue to support for stable development of KIC consisting of building fire stations and emergency medical facility and road repairs, among other measures.

Currently, there are water purification and supply plant (30,000 ton/day), waste water treatment plant (15,000 ton/day), waste landfill (60,000 ㎥), and waste incineration plants (12,000 ton/day) in operation and health and safety facilities such as police and fire stations, Green Doctors Hospitals are in the vicinity. Power is provided by South Korea with 100,000 kilowatts capacity power supply system.

In addition, MOU announced that it will continue to coordinate with North Korea to improve transportation, communication and customs system at the next meeting, and engage in negotiation to solve other issues including improvement of personal safety and labor shortages.

MOU also claimed it is making efforts to obtain the “Made in (South) Korea” labels for the products made in KIC for FTAs (Free Trade Agreement) with the EU, United States, and China. MOU officials are also a part of the South Korean FTA negotiation team.

Currently, the top agenda for the KIC is housing for North Korean employees. Unification Minister Ryu Woo-ik stated, “While I understand the positions of both North and the South, in which South Korean companies are in need of more labor and North Korea wants for more employment opportunities, dormitory construction for employees is a large-scale project similar to building a new town. Therefore, it must be coordinated carefully with North Korea to find the best solution.”


KOTRA on DPRK trade

Friday, June 1st, 2012

UPDATE (2012-9-19): The South Korean government is offering compensation to companies affected affected by the South Korean government’s policy decisions. According to the JoongAng Daily:

The Ministry of Unification announced a plan yesterday to pay cash to local firms financially distressed by the suspension of inter-Korean trade and economic cooperation.

The unprecedented aid totaling 7.5 billion won ($6.7 million) will go to South Korean businessmen who have financially suffered from Seoul’s imposition of economic sanctions on North Korea on May 24, 2010 in the wake of the North’s sinking of the South’s naval vessel Cheonan earlier that year, said Kim Hyung-suk, a unification ministry spokesman. The 7.5 billion won comes from the Inter-Korean Cooperation Fund.

The offer of cash aid to companies doing business with North Korea is a first. Previously, authorities provided loans worth a total of 56.9 billion won to 221 companies on two occasions in 2010 and this year.

The decision comes as all economic cooperation between Seoul and Pyongyang has been put on hold except at the Kaesong Industrial Complex, since the implementation of measure announced by the Lee Myung-bak administration in May 2010.

The sanctions on trade with North Korea in the wake of the sinking of Cheonan, which killed 46 naval officers in March 2010, stopped all business partnerships.

“As it is mainly small- and medium-sized companies that are in financial difficulties due to the halted economic activities in the North, we expect the funds to help them recover,” said Yoon Min-ho, director of the economic cooperation division at the ministry.

To be eligible, companies must have investment records in the North during the two years before May 2010 or a history of trading with Pyongyang one year before May 2010.

The ministry will provide between 5 million won and 20 million won to each company that invested in the North following due diligence. Business groups that invested more than $3 million in the North will be given the maximum amount of 20 million won.

For traders with volumes of trade of over $1 million, aid of 15 million won will be given.

Companies that invested in the Mount Kumgang tourism business, which was curtailed after a North Korean guard shot a South Korean tourist in 2008, can also apply for assistance.

Article citation: Kang Jin-kyu, “Cash aid for ailing investors in North”, JoongAng Daily, 2012-9-19

ORIGINAL POST (2012-6-1): Along with the anniversary of the “May 24 Measures”  we have seen many reports on the status of the DPRK – ROK trade relationship. I have previously blogged about the reports by the Korea Development Institute (KDI)Hyundai Research Institute and  Korea International Trade Association.

Now we have a new report by the Korea Trade-Investment Promotion Corporation (KOTRA).

Because I am unable to locate the original report (in Korean), I have posted commentary on the report below.

According to the Hankyoreh:

Seoul’s attempts to handle North Korean provocation by isolating it economically appear to have been ineffective. A report on 2011 North Korean trade trends released May 30 by the Korea Trade Promotion Corporation (KOTRA) had the country’s exports up by 84.2% and its imports up by 32.6% from the year before. The numbers did not include inter-Korean trade figures.

North Korea had trade of US$6.3 billion for 2011, comprised of US$2.8 in exports and US$3.5 in imports. This marked a 51.3% increase from the year before.

Its biggest export was coal, at US$1.17 billion, followed by minerals (US$400 million) and textiles (US$390 million). The largest import was petroleum and other fuels (US$810 million), followed by machinery (US$300 million) and electronics (US$270 million).

The country’s largest trading partner was China, with US$2.46 billion in exports and US$3.17 billion in imports last year, for total trade of US$5.63 billion, or 89.1% of all North Korean trade. In 2004, only 48.5% of North Korea’s trade was with China. The next largest trading partners were Russia, Germany, India, and Bangladesh, in that order.

Meanwhile, trade with South Korea slid amid Seoul’s efforts to isolate Pyongyang. A report on inter-Korean trade by the Unification Minister showed a total of US$1.7 billion last year, down nearly US$200 million from the US$1.9 recorded in 2010.

The numbers show that while inter-Korean economic cooperation is being stymied by the South Korean government‘s policies, North Korea has been making up the difference and then some by trading with other countries.

University of North Korean Studies professor Yang Mu-jin said, “Not only are the government’s isolation policies completely ineffective, but they’ve increased [North Korea’s] reliance on China. These policies have been proven ineffective and should be abandoned immediately.”

Here are some additional details from the Financial Times:

Trade with China increased 62.4 per cent from a year earlier to $5.63bn.

“The increased trade does not mean a better life for North Koreans because the hard currency earned from mineral exports to China was mostly spent on the large-scale events to promote the regime,” said Suh Jae-pyong, a North Korean defector who works for the Committee for the Democratisation of North Korea, a civic group.

Stephan Haggard comments on the KOTRA report on his blog:

So how important is China to North Korea? The numbers cited are often wildly exaggerated in the policy debates, largely because of the difficulty of getting accurate information on the DPRK’s overall trade. The government of North Korea regards economic statistics as state secrets; as a result, all trade data has to be reconstructed by examining the “mirror statistics” of the country’s trade partners: by adding up what other countries say that they import from the country.

But even such an apparently simple exercise is fraught. First, a number of countires—including Iran—also do not provide reliable trade statistics. Second, nearly every year the statistical agency of some country around the world gets North and South Korea confused and reports an amazing spike in trade with North Korea, consisting of imports of North Korean cell phones and automobiles. Not!

The most widely cited source on North Korean trade is a South Korean public agency, KOTRA, which carefully screens the mirror data for such obvious anomalies. But KOTRA adopts a number of other conventions that distort the overall trade picture. In calculating North Korean trade it excludes the country’s trade with South Korea (on the constitutional grounds that inter-Korean trade is within the nation) and oddly ignores trade with many Middle Eastern countries that do in fact report trade with North Korea to the UN statistical agencies. We have never figured out why they do this, and it may have reasonable motivations, such as beliefs about the reliability of the data. But simply throwing the data out makes now sense.

The upshot is that the prominence of the trade partners that KOTRA does count is greatly exaggerated. The New York Times and Washington Post, for example, have both reported that China accounts for 80 percent of North Korea’s trade; even with smuggling that is wildly exaggerated given the ongoing important of Kaesong for North Korea’s balance of payments.

The actual figure, once North-South and other missing entries are accounted for, is roughly half as much by our estimates (see the figure above). But over 40% reliance on China is not trivial. Moreover, the prevalence of private firms in this trade—as we have reported in two recent working papers (here and here)—is high. Moreover, state-owned enterprises are themselves profit-driven. Even if Chinese authorities were aggressive in enforcing sanctions—which they do not appear to be—the opportunities for mischief are high.

Scott Snyder comments on the numbers here.

Read the full stories here:
North Korea keeps doing business in spite of isolation
Lee Jeong-hun

N Korea trade soars on Chinese demand
Financial Times
Song Jung-a

Sanctions Busing
Stephan Haggard