Did North Korea really see its best harvest “on record last year?

January 17th, 2020

By: Benjamin Katzeff Silberstein

As I and Peter Ward discovered some weeks ago, the claim by Kim Jong-un that North Korea had its “best harvest on record” did not make it into the English-language summary of Kim’s plenum speech put out by KCNA. Several media outlets have picked up on this claim, and that is not surprising. Not even a year ago, last spring and summer, both the North Korean government and UN organs sounded the alarm bells that North Korea’s harvest was so disastrous as to suggest a famine might be looming.

So what happened?

First of all, it should be noted, as always, that one must be extremely cautious in studying data on anything related to the North Korean economy. Most people who follow North Korea are well aware of this but especially when it comes to an issue like this, one cannot be cautious enough.

I focus here on the claim by Kim that the harvest was the best “on record”. It may well have been a good harvest, or at least a much better one than anticipated. This seems to be the case. The only attempt I’ve seen at a numerical estimate comes from South Korea’s Rural Development Administration. They estimate that North Korea’s harvest grew by around two percent in 2019 over 2018. This sounds fairly plausible and could perhaps be explained by weather conditions unexpectedly improving, or fertilizer donations from China, and the like. Or the government and FAO’s projections were simply wrong from the beginning.

To understand why it is so unlikely that this year’s harvest would be the best on record, we have to look at what ‘the record” really says. The following graph shows North Korean harvest figures between 1990 and 2017, as recorded by the FAO. These figures are not independently recorded or verified but, to the best of my knowledge, generated by FAO in cooperation with the North Korean government, or provided directly by the government. Usually, that would be a problem, but here, it’s actually quite helpful since it helps us analyze the claim about the “record”.

Graph by NK Econ Watch/Benjamin Katzeff Silberstein. Data source: FAOSTAT.

I downloaded these numbers from the FAO database some months ago. For whatever reason, I’m unable to access the data at their website at this time of writing, and therefore, can’t fill in the data further back. This data also differs somewhat from other data on North Korean harvests from the World Food Program and FAO. Still, they match quite closely with other data the two organizations have published in recent years about North Korean food production. Again, keep in mind that this data is produced and published in concert with the North Korean government. In that sense, these numbers are the “record”.

Over the past few years, estimated harvests have gravitated between four and five million tons in milled rice equivalent.  (You can read more here about what that actually means.) In 1993, North Korea’s record of harvests notes 7.5 million tons. Harvests hovered around 8 million tons in the 1980s – again, to the best of my recollection, as I can’t access the FAO statistics database numbers of North Korea at this time of writing.

Graph by NK Econ Watch/Benjamin Katzeff Silberstein. Data source: WFP/FAO. 2019 is a projected figure.

For Kim’s claim to be true, therefore, this past year’s harvest would have had to go from around five million tons in 2018, to surpassing eight million tons in 2019. I am no agricultural economist, but Kim would likely need something like a miracle of nature for this to happen. I am not aware of North Korea’s landmass suddenly doubling, for example, or the amount of arable land increasing by one third overnight. Therefore, Kim’s claim is most likely, beyond reasonable doubt, simply not true. Note also that outlets such as Daily NK have reported that the government has taken predatory measures against grain trade as a result of what the outlet describes as “poor agricultural yields”.

In other words, there is very little to back up the claim made by Kim (and subsequently by North Korea-affiliated Choson Sinbo). This claim is a break with a pattern over the past few years, where North Korean media has been very frank – often, probably exaggerating – in describing difficulties and damage caused by flooding and inclement weather. There are several reasons why this may have changed with regards to the harvest. For one, food security a very basic need for any country. With bad food security, North Korea appears weak in the face of sanctions. It would hardly be the first time the North Korean government lied for strategic, propaganda purposes. It is also possible that harvests were much better than anticipated, and that Kim’s claim is merely a strong exaggeration. Perhaps “best on record” should be read as a superlative, rhetorical claim rather than a literal one. At the end of the day, we simply don’t know, and the ways of the inefficient North Korean bureaucracy are mysterious.

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North Korea’s largest fertilizer plant reportedly shut down

November 6th, 2019

By Benjamin Katzeff Silberstein

Fertilizer production is one area where UN sanctions appear to have rather dire unintended consequences. Daily NK reports:

Daily NK reported in February of this year that production at the complex was gradually falling.

UN sanctions and the ensuing ban on the import of oil, a key ingredient in chemical fertilizers, may have also been a factor in the factory’s closure, the source added.

FAILING TO MEET DEMAND

North Korea’s fertilizer production is currently meeting only one third of the country’s total demand. North Korea uses a total of 1.55 million tons of chemical fertilizer per year but only produces about 500,000 tons, Daily NK sources said.

North Korea relies predominantly on imported fertilizer. Farm workers reportedly prefer the fertilizer from the Hungnam Fertilizer Complex because it is superior in quality than fertilizer imported from China. The military was given priority for fertilizer produced at the complex.

The shortage of fertilizer is adversely affecting agricultural production, particularly given that this year’s production of fertilizer has fallen far short of demand, Daily NK sources said.

“Collective farms have had an overall poorer harvest this year compared to the last,” said one of the sources. “Farmers are blaming the lack of fertilizer for the poor harvest.”

UN SANCTIONS HAMPER PRODUCTION

North Korean authorities have made various attempts to normalize fertilizer production. For example, the authorities have installed large ammonia synthesis facilities and introduced 4,000 horsepower compression engines to help increase fertilizer production, Daily NK sources confirmed.

The import of a wide range of machinery and raw materials is banned under UN sanctions, however. Some North Korea observers argue that the ban on these imports only make it harder for North Korea to improve its agricultural production by itself.

“North Korea needs a dependable supply of coal, oil and electricity, and a total revamp of its fertilizer manufacturing facilities to normalize fertilizer production. None of this is possible due to UN sanctions,” a former North Korean agricultural official familiar with fertilizer production in the country told Daily NK. “If the Hungnam Fertilizer Complex remains nonoperational, it is highly likely next year’s agricultural production will be adversely affected.”

WORKERS REASSIGNED TO OTHER PROJECTS

Daily NK sources also reported that some 70% of the workers at the Hungnam Fertilizer Complex were sent to construction sites throughout the country after the complex shutdown. These construction sites included the Wonsan-Kalma Coastal Tourist Zone, the Hamhung-Wonsan highway, and the Tanchon Power Plant. Some workers were even sent to the fields to farm.

“The Hungnam Fertilizer Complex employed more than 10,000 workers. Lots of workers complained after they were sent to do other work following the shutdown,” one of the sources told Daily NK. “Many people wanted to work at the complex because it gave employees a stable supply of rations. That’s all in the past now.”

Article source:
N. Korea’s largest fertilizer complex no longer operational 
Jang Seul Gi
Daily NK
2019-11-06

Note that the article confirms that rations are (at least in this case and most likely usually, if at all) distributed by enterprises as remuneration rather than through PDS centers.

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What explains North Korea’s exchange rate drop? How significant was it?

August 25th, 2019

By: Benjamin Katzeff Silberstein

Over the past few weeks, both Asia Press and Daily NK have reported the North Korean won depreciating against the dollar on the markets.

According to the figures from Asia Press, it seems the won first fell drastically, but that the initial FX-rise was a so-called “overshoot”, a disproportionately high rise of the exchange rate, but later corrected itself to levels more reflective of actual availability of dollars. The Asia Press index rose from 8,593 won/1$ on July 19th, to 9,463 won/$1 on August 6th, to 8,625 won/$1 on August 21st. Asia Press notes that the reason for the dollar appreciation is unclear, and speculates that it may be related to sanctions. That’s true, but it’s unclear what would have changed so suddenly and drastically in sanctions implementation as to cause a sudden rise of around ten percent. All in all, discounting the sudden and very temporary rise,  the exchange rate rose by not even one percent.

Reporting by Daily NK confirms the exchange rate spike reported earlier by Asia Press:

Daily NK conducted a market survey on August 6 that found the price of US dollars in North Korea was 7,850 KPW in Pyongyang, 7,880 KPW in Sinuiju and 7,900 KPW in Hyesan. The price ballooned some 800 to 900 KPW in just two weeks.

North Korea’s currency rate regularly sees significant volatility, but the last time the rate increased by 900 KPW in just two weeks was in 2015. During the second half of 2015, the North Korean authorities conducted harsh crackdowns on Chinese-made products and heightened international sanctions came into effect. The combination of these two factors caused the exchange rate to skyrocket more than 700 KPW.

There were even areas of the country that temporarily saw a spike to more than 9,000 KPW. In Rason, North Hamgyong Province, the exchange rate rose to 9,740 KPW on August 14 but has since retreated to between 8,500 and 8,700 KPW.

A Daily NK source in North Hamgyong Province said that the rising exchange rate may be related to stagnation in North Korea’s domestic markets. “The currency rate changes every day and it rose in August again,” he said. “The spike in the currency rate this year suggests that businesses aren’t doing so well and it may also be due to external factors.”

The source suggested that the external factors include the US-China trade war and China’s recent intentional devaluation of the yuan. For the first time in 11 years, the Chinese yuan broke past seven renminbi to the dollar on August 5.

Source:
USD – North Korean Won exchange rate spikes in North Korea
Kang Mi Jin
Daily NK
2019-08-22

The FX-rate spikes aren’t reported in the Daily NK price index, so it doesn’t even appear in the broader exchange rate graph. The following graph shows the exchange rate from 2015 until Daily NK’s latest report, only a few days ago:

Graph 1. North Korean won/$1, 2015–August 2019. Graph by NK Econ Watch, data from Daily NK price index.

The won has depreciated against the dollar, for sure. Particularly in the short run. The past few weeks have seen slightly more volatility than usual. But still, in the big-picture context, things look fairly stabile.

Graph 2. North Korean won/$1, September 2018–late August 2019. Graph by North Korean Economy Watch. Data source: Daily NK.

A spike such as the one reported earlier in August can happen for many reasons. There is likely so little of US-dollars in circulation in North Korea that fairly minor changes can make a big dent in the market exchange rate. Communications function so poorly in North Korea that rumors spread easily with little possibility for quick confirmations or denials.

I and Peter Ward have previously argued, among other things, that the dollar isn’t a currency of general use in North Korea. The main holders of dollars are, most likely, state-owned corporations and other non-human entities. One move by a major holder could therefore have a significant impact on the market as a whole. The RMB has held completely stabile, so it’s very likely not a matter of any general stress on the markets. Had the source been something related to sanctions implementation, upped pressure, significantly changed expectations, or the like, we should have seen changes in the won-to-RMB-rate as well. As things stand right now, the market exchange rate does not look to be out of its normal range.

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How the North Korean government manages the economy

August 8th, 2019

By Benjamin Katzeff Silberstein

One of the most poorly understood aspects of policy change in North Korea in the past few years is the extent to which the North Korean government manages the economy in some ways like any government would in a market economy. Consider, for example, this story by Daily NK:

Amidst signs that housing prices in North Korea are falling due to economic stagnation, the authorities are assessing the state of the housing market in order to implement measures to stabilize the situation.

“The authorities recently began a survey of housing prices and will likely intervene in transactions and setting house prices,” a South Pyongan Province-based source told Daily NK.

The authorities have also begun to set prices for land designated for urban housing plans as part of efforts to control housing transactions, the source added.

These efforts are ostensibly aimed at setting an upper limit for house prices, but the authorities have yet to announce any official numbers.

The aim appears to be to prevent price spikes and ensure that buyers and sellers can conduct transactions within a stable housing market.

In North Korea, the state traditionally owns all land and housing by law, which is supposed to mean that the government provides housing to its citizens without any monetary transactions.

After the widespread famine in the 1990s, however, residents acquired the “right to use” housing and began conducting housing transactions on the basis of market prices. Even before the economic crisis, North Koreans in the upper class engaged in housing transactions on the black market, although such transactions could typically be considered a form of housing “trade.”

These changes came about because North Koreans began proactively taking advantage of the “right to use” housing. Essentially, the authorities gave them the right to inherit and transfer the ownership of the houses they lived in, and North Koreans actively bought and sold these rights on the market.

“The authorities have invested a massive amount of money in building new housing and these efforts have led to an increase in ‘donju’ who have made money out of the projects,” said the source. “The authorities probably thought they needed to step in and control the housing market because of the sheer number of new apartments.”

Full article and source:
Government conducts survey on housing prices in North Korea
Jang Seul Gi
2019-08-05

Now, we still know very little about how these market interventions may come to work. The state just stepping in and fixing prices may be it, but measures like that tend not to work for long.

Consider, also, this story about how the government may come to lower market stall operations fees on some markets. The reason cited is the general economic downturn (presumably following sanctions). In lowering fees, the North Korean government is doing what most governments would do in that situation: launching a fiscal stimulus, of sorts. By lowering taxes (because that’s essentially what these fees are), the government is hoping to stimulate economic activity.

Whatever language it may use to describe how the economy works, this is market management, albeit not of a very sophisticated kind.

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Daily NK on foreign currency shortages

August 8th, 2019

Benjamin Katzeff Silberstein

This is an interesting article by Daily NK. It highlights how little we actually understand about how the exchange rate works in North Korea. Basically, their sources say that foreign currency is available in increasingly short supply, but confirm that despite reports to the contrary, exchange rates haven’t moved noticeably:

Sources report that sanctions have reduced the flow of foreign currency into and out of the country, while the amount in circulation has further fallen because residents are hoarding it. While foreign currency is still being used to pay for major transactions, residents are increasingly using local currency to pay for daily items in the local markets.

“North Koreans are using local currency more often to buy things at the market. They’d prefer Chinese yuan or US dollars, but there’s just not enough of it in circulation to use,” a source in South Pyongan Province told Daily NK.

“There are concerns that the situation could lead to an increase in counterfeit bills circulating in the country.”

“International sanctions have definitely led to a fall in circulating foreign currency,” added a North Hamgyong Province-based merchant in his 40s. “The authorities implement measures to entice people to use foreign currency at particular shops and restaurants, or demand that the wealthy make donations to the regime’s loyalty fund, but there’s no avoiding the fact that the circulation of foreign currency has fallen compared to a couple of years ago.”

“There are rumors that the Arduous March [widespread famine of the mid-1990s] is returning, so people are trying to save up and not spend anymore,” he said, adding that broader forces are at play.

Despite the developments, the exchange rate remains relatively stable. Generally, a fall in foreign currency in the market would lead to an increase in the value of foreign bills and a rise in the exchange rate. But the exchange rate between the US dollar and North Korean won has fluctuated only slightly at 1 USD to 8,000 North Korean won, while the exchange rate between the Chinese yuan and North Korean won has remained at 1:1200.

However, if there is an increase in the use of foreign currency in the markets while the overall circulation of foreign bills continues to fall, it could lead to a significant impact on exchange rates.

Article source:
North Koreans turn to local currency due to foreign currency shortages
Ha Yoon Ah
Daily NK
2019-08-06

I’ve written quite a few times about how all this is possible. Logically, it is. That doesn’t make it less of a mystery.

If current conditions continue, I’d be very surprised if we don’t see a sharp fall in the won soon enough. But then again, the market has defied a lot of reasonable, logical expectations already…

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Chinese tourism to North Korea rising

August 6th, 2019

Benjamin Katzeff Silberstein

Yonhap:

In the report on North Korea published by the state-run Korea Development Institute, Kim Han-gyu, a deputy director at the Korea Tourism Organization, estimated that the number of Chinese tourists to North Korea hit a record high last year, and the trend is likely to persist for the time being.

“This is a probable scenario if current relations between North Korea and China, and the international political situation either persist or improve,” Kim said.

In June, Chinese President Xi Jinping visited North Korea for the first time since he came to power in 2012, a trip that suggested that bilateral relations are back on track after being strained over Pyongyang’s nuclear tests in recent years.

The bilateral ties — once described as being as close as “lips and teeth” — had been soured over the North’s defiant pursuit of nuclear weapons.

North Korea has stepped up efforts to attract more tourists in an apparent bid to earn hard currency in the face of U.N. sanctions over its nuclear tests and its long-range rocket launches.

In 2002, 121,000 Chinese visited North Korea, accounting for 62.4 percent of all foreign tourists to the North that year.

The number of Chinese tourists fell sharply to 24,000 in 2009, when North Korea carried out a second nuclear test in May that year.

Source:
Chinese tourists to N. Korea on rise: official
Yonhap News
2019-07-31

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Rice prices up in North Korea, market price data says. How bad is it?

August 2nd, 2019

By Benjamin Katzeff Silberstein

Asia Press reports that rice prices have “skyrocketed” in North Korea this month:

The price of domestic rice, which stood at roughly 4,500 won (about 0.53 USD) per kilogram for most of the year, began to rise in July, surpassing 5,500 won (about 0.65 USD) per kilogram by the end of the month.

Multiple reporting partners living in the northern regions of the country were asked to investigate the reason behind the rise in the price of rice.

A reporting partner living in a city in Hamgyong Province explained, “The rice merchants say that, ‘domestic rice is scarce, so it is only a matter of time before it runs out’. The rise in price will likely continue from after the next harvest until the end of the year.”

Still, rice is not disappearing from the markets. Imported Chinese rice is sold at stable prices across all markets.

Most of this Chinese rice, however, is old and was harvested some time ago. The North Korean government, though, continues to import the low-quality, cheap Chinese rice, favoring ‘quantity over quality’.

Domestically produced North Korean rice, on the other hand, is not old and sticky. Due to its higher popularity, it is generally 5% more expensive than Chinese rice. This slight price difference was very stable and had remained unchanged over the last 20 years.

The cause of the domestic rice’s scarcity and subsequent rise in price is presumed to be the effects of last year’s heat wave and drought on production.

A rise from 4,500 won to 5,500 in only a few weeks is indeed quite noteworthy and potentially alarming. But what does context tell us?

I know very little about where in the country Asia Press sources its price data from, but I suspect it’s primarily or perhaps even only North Hamgyong province. It does seem like this steep price rise may be a somewhat localized phenomenon. Looking at the Daily NK price data gives us a little bit of a clue. It hasn’t been updated since July 23rd, so it may be that it will catch up and register similar shifts later on. But looking at the numbers for the past few weeks, prices in Hyesan have increased much more than in Pyongyang and Sinuiju.

So this might, for various reasons, be a localized phenomenon.

It should also be noted that prices usually rise during the summer months, as the next harvest draws closer, and storage runs lower and lower. Prices last summer around this time were much lower than present, but in 2017, they were significantly higher. So I would caution against drawing any hard conclusions as of now, and hopefully the next report by Daily NK will tell us more.

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Market fees may be lowered on some North Korean markets

July 30th, 2019

Benjamin Katzeff Silberstein

Daily NK:

“Merchants working in the markets feel that business this year is worse than last. I’m not sure if the authorities were thinking about the merchants when they made the decision, but it’s good that they have reduced the taxes in Pochon, Sinpa and Kimhyongjik County,” said the source in Ryanggang Province during a telephone interview.

According to the source, market fees in Pochon and Sinpa County are relatively low compared to other areas. The fees for industrial goods were reduced from 1000 won to 500 won. Fees charged to vendors of food and ice cream were lowered from 500 won to 300 and 200 won, respectively.

The market fees are determined based on the size of the city, the size of the stall and the type of product being sold. The rough national average fees being charged per day as of early this year was 1500-2000 KPW for meat stalls, 1000-1500 KPW for industrial products (clothes) and 500-1000 KPW for food and vegetables.

According to the Center for Strategic and International Studies’ analysis of markets in North Korea, the authorities collect over $56 million USD per year from the markets. The largest market in North Korea, Sunam Market in Chongjin, generates an estimated $840,000 USD for the government.

Before the markets were formally recognized, market fees were 3-5 won until the early to mid 1990s, before being raised ten-fold in 2001, to 30-50 won. After the regime legalized the country’s private markets in 2002 with its ‘New Economic Management Improvement Measures,’ the fees rose another ten-fold.

Source:
Market fees in North Korea set for reduction in parts of border region
Kang Mi Jin
Daily NK
2019-07-30

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China’s Xi promised funding for bridge connections in North Korea, reports say

July 30th, 2019

By Benjamin Katzeff Silberstein

This is quite interesting, and hardly surprising. Overall, I’ve seen very little to suggest that China regards the current sanctions pressure as anything but a temporary measure. That would fit the historical pattern well. (For more on this, feel free to check out my chapter on Trump’s “maximum pressure” strategy and its impacts on the North Korean economy.) This time is very different because of the longevity and extent of the Chinese sanctions pressure, but in nature, I don’t believe China’s medium- to long-term strategy on North Korea and sanctions has changed. Talk of China “abandoning” North Korea, which used to be rife when Chinese trade data on North Korea pointed in a downward direction, has often been and remains much overblown.

The news is that Xi Jinping, during his June visit to North Korea, supposedly promised that China would fund facilities on the North Korean side of the new-ish border bridge between southwestern Dandong, as well as fund work on the Hwanggumpyong SEZ. Asahi Shimbun:

China has promised to foot the bill for the construction of related facilities for an already-completed bridge across the border between China and North Korea, sources said.

Chinese President Xi Jinping made the pledge when he visited North Korea in June, they said.

During the visit, Xi also promised that China will promote construction of an economic development zone on North Korea’s Hwanggumpyong Island in the Yalu River, which forms a natural border between the two countries, the sources added.

Construction of the bridge and the economic development zone were agreed on when former North Korean leader Kim Jong Il was still alive. But the projects were effectively frozen after his son and successor Kim Jong Un became the country’s leader.

Xi’s willingness to pay the costs of building an access road to the bridge on the North Korean side of the border, as well as customs-related facilities, suggest that economic relations between the two neighbors are moving to a firmer footing.

According to sources knowledgeable about trade between the two countries and those with links to North Korean authorities, Xi’s promises were conveyed to high-ranking North Korean government officials during meetings to report on the outcome of a summit meeting between the two countries.

Xi’s largesse was also shared in the North Korean military as it will be involved in the construction of bridge-related facilities as well as the economic development zone.

The New Yalu River Bridge connects Dandong in China with Sinuiju in North Korea. Although the bridge has been completed, it is not yet open to traffic.

China will provide about 2.5 billion yuan (39 billion yen, or $360 million) for the construction costs. Chinese engineers have been conducting field surveys since late June.

Since around that time, the upper parts of the bridge have been lit up at night.

In mid-July, cars carrying Chinese government officials traveled to a border gate in the middle of the bridge.

Construction of the bridge started in 2011 when Kim Jong Il was in power. China spent about 1.8 billion yuan in construction costs. The bridge was completed in 2014 under Kim Jong Un’s regime.

Source:
China to fund costs so bridge to North Korea can open to traffic
YOSHIKAZU HIRAI
Asahi Shimbun
2019-07-29

On the North Korean side, the bridge has been lacking a connection to the broader road network (or to anywhere, really) since construction began in 2011, as these pictures show:

The new Yalu river bridge, October 1st, 2011. Image from Google Earth/Digital Globe.

The new Yalu river bridge, March 2nd, 2019. Image from Google Earth/Digital Globe.

Overall, this emphasizes the reality that China really is the only country that North Korea has close, substantive and sustainable trade links with. It was truly unlikely that Xi’s visit to North Korea would occur without any promises for economic benefits or the like. Kim Jong-un’s visits to China have rendered similar benefits, though perhaps not of the same economic magnitude.

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Posted in China, Foreign direct investment, Hwanggumphyong and Wihwado Economic Zones (Sinuiju), International trade, Special Economic Zones (Established before 2013) | Comments Closed

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

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
2019-07-26

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.

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