DPRK looks to capitalize on high gold prices

Back in 2002 the price of gold was approximately US$300/oz. Today it is closer to US$1,600/oz. Here is a chart:

The rapid increase in the price of gold is having a supply side effect of stimulating more gold mining across the planet, and North Korea is no exception.  Though the DPRK leadership has traditionally kept a watchful eye on the nation’s gold mines, reports began surfacing back in March that individual North Koreans were getting into the prospecting business:

Located at the base of Mt. Nokbong, near Hyesan in Yangkang Province, one particular village of 24 households saw its schools, public facilities and all other vestiges of welfare disappear following the construction of the Samsoo Power Station in 2004, which deprived the area of power.

And yet this village is now overflowing with people. They are here from all over the country, cramming homes and the nearby valley with one purpose in mind; searching for gold. Housewives, workers, university students, farmers, children, drifters, criminals, soldiers and bureaucrats; men and women alike from all different classes are living in this one place with the same aim.

The majority of people dig, without permission from the authorities and with only rudimentary tools. Their only wish is to avoid having to leave town and, hopefully, find some gold. The soldiers and bureaucrats, on the other hand, do not dig, instead using their authority to cream a share of others’ profits. (Daily NK)

It appears that the gold rush continues to this day, though it may be a bit more organized, at least officially.  A recent visitor to the DPRK took the following picture:

The caption of the photo reads:

“There are hundreds of people working certain rivers in North Korea in what can only be described as a gold rush. The government is buying gold from people who work the rivers. This has expanded considerably from past years when dozens were working the rivers. In one area I saw heavy equipment used to mine the river. The guides explained what was going on yet I cannot help but think this is a form of individual capitalism since it is individuals and families doing the mining.”

I would be interested to know more about what mechanisms the DPRK is employing to manage (control) “spontaneous” gold prospecting–an industry that would be hard for any central authority to police (particularly a poor country with high levels of corruption).  Given the limited amount of information, I can conceive of  two broad institutional arrangements:

Option number 1: Individual families and/or groups are simply registering their “mining companies” as branch enterprises or subsidiaries of existing state owned enterprises and mines.  In this way they take on the legal protection of the state in exchange for some defined percentage of their output.  This is the way many de-facto private North Korean businesses are run.   Under conditions of weak oversight (likely), this would imply that substantial profits from mining can be retained at the lower levels of production (with the firm “owner” or the miners themselves).  Pyongyang would have to be policing the rivers pretty hard and effectively auditing all the enterprises involved if expected to see a substantial increase in revenue from these “spontaneous” mining operations.

Option number 2: The North Korean government has essentially set up a “gold board” that sets a single legal domestic price for the purchase of gold from its people (just as many [exploitative] agriculture boards are set up in developing countries).  The DPRK government would earn revenue by keeping the difference between the amount paid to the domestic miners and the international price at which it sells the gold abroad. This option might make more fiscal sense in a weak institutional environment because the only thing the DPRK needs to police really well is the Chinese border. Under this system, the government does not need to worry about who mines the gold (or where or how) since the “gold board” would ultimately be selling it abroad and retaining the earnings.

I have not heard anything about such and institution existing, however, so until I am told differently I am more inclined to believe that option 1 is being utilized despite its fiscal shortcomings. This would imply that the increase in gold prices will translate to a real increase in wealth for a number of “ordinary” North Koreans. Though the work is not likely to be long lasting, it will provide some with savings or potential operating capital for the next business idea down the line.

Are you aware of other options or do you have some specific knowledge on how the DPRK is managing (controlling) freelance prospecting and mining? Please let me know.


One Response to “DPRK looks to capitalize on high gold prices”

  1. Martienne says:

    Option 1 is hardly possible in a marxist economy. Registering a company is almost impossible and the DPRK is tighter than my reference point, the USSR. Probably the whole thing is simply black market based, carried out by people living outside the official system. I think the best these freelancers are finding, is nuggets, they could hardly be mining veins. As far as I am aware the state there has state owned enterprises doing mining in a conventional way, simply payinh workers a salary and benefits.