The DPRK's foreign relations are limited: the policy of isolationism has led to the fact that the country has less than a dozen trading partners. Large deliveries are made to China, Egypt and Iran. European countries do not conduct active trade with the republic - they account for less than 2% of the turnover. The aggressive policy of North Korea has led to the tightening of trade sanctions, which weaken the already underdeveloped economy of the state.
Industry of the DPRK
North Korean enterprises are aimed at meeting the internal needs of the state. They mainly produce clothing and footwear, household chemicals, and furniture. Difficulties arise in the production of food products. The climate and natural conditions of the DPRK lead to low yields: drought alternates with floods, and 80% of the territory is occupied by rocky infertile soils.
In the last thirty years, the country has been focusing on the development of heavy industry. Due to the low economic level and limited resources, movement in this direction has been slowed down.
Attention is paid to such industries:
- energy production;
- coal;
- engineering.
However, none of the areas is not developed so well that products can be exported. The situation is better with light goods.
In this regard, the DPRK has succeeded in the following areas:
- textile and haberdashery industry;
- processing bauxite into aluminum;
- production of accessories for everyday purposes.
The rest of the needs of the DPRK are provided by foreign supplies - mainly Chinese. The country needs to import food, medicines, fuel. Due to disagreements with the world community and the imposition of sanctions against the country, the supply of humanitarian aid was stopped.
Official export in North Korea
The World Bank provided information according to which the trade turnover of the DPRK in 2011 is 3.7 billion dollars. Over 60% trading operations produced in China, but in the last decade this figure has been declining. The country is one of the twenty largest exporters of seafood - a quarter of all export money comes from this industry.
The following positions are occupied by light industry, machinery, metals and minerals. Demand is also found in the sale of ginseng, deer antlers, medicinal herbs and other specific products used in folk medicine.
North Korea carries out large deliveries of weapons to third world countries, mainly African. Since they also fall under the sanctions policy, such exports cannot be called illegal.
World political forces, however, speak out negatively about deals of this kind. North Korea does not produce new weapons in sufficient quantities, so modernized models of Chinese and Soviet designs are sent for export.
Black market
In addition to official deliveries, the DPRK carries out shadow economic activity. Of course, there were no government statements in this regard. However, on the global underground market there is a product conditionally labeled “made in the DPRK”, and it is far from always legal.
The most frequently mentioned categories are:
- Medicines, including drugs. The black market resells drugs intended for residents as part of a humanitarian program, as well as funds seized for profit from public hospitals. North Korea is rumored to be smuggling methamphetamine, which is 99% "purity".
- Cheap labor . Residents of the DPRK travel on voluntary terms to neighboring countries - China and Russia. Wages are meager, but worth the risk by country standards. At the same time, up to 80% of the amount is taken by the state.
- Human trafficking . Refugees confirm rumors that consignments of women are regularly sent to China and forced into prostitution. Up to 40% of women refugees in South Korea decided to emigrate illegally precisely for this reason.
In addition, the DPRK has a dubious reputation for counterfeiting. There is no official confirmation of these facts, but there are statements in the Western media that large amounts of counterfeit banknotes produced in the DPRK are being withdrawn from circulation.
The North Korean government claims that their country is a real paradise: everyone is happy, secure and confident in the future. But refugees from describe a different reality, a country where they have to live beyond the limits of human capabilities, without a goal and the right to choose. been in crisis for a long time. The publication will present the features of the country.
Characteristic
In economics, there are three distinctive features. First, it represents an order in which resources are distributed centrally. This one is called planned. Secondly, resources are used to counter possible threats that can destroy the integrity of the country. This use is called the mobilization economy. And thirdly, they are guided by the principles of socialism, that is, justice and equality.
From this it turns out that the economy of North Korea is a planned mobilization economy of a socialist country. This state is considered the most closed on the planet, and since the DPRK has not shared economic statistics with other countries since the 60s, one can only guess about what is happening beyond its borders.
The country is distinguished by not the most favorable weather conditions, so there is a shortage of food products. According to experts, the inhabitants are below the poverty line, only in 2000 did hunger cease to be a problem of national scale. As of 2011, North Korea ranks 197th in the world in terms of purchasing power.
Due to militarization and the policies of the national communist state ideology of Kim Il Sung, the economy has been in decline for a long time. Only with the advent of Kim Jong-un, new market reforms began to be introduced and the standard of living increased, but first things first.
Economy of the post-war period
In the second half of the 1920s, Korea began to develop mineral deposits in the north of the country, which caused an increase in the population. This stopped after the end of World War II. Korea was then conditionally divided into two parts: the south went to the United States, and the north was under the rule of the USSR. This division provoked an imbalance of natural and human resources. Thus, a powerful industrial potential was concentrated in the north, and the main part of the labor force was concentrated in the south.
After the formation of the DPRK and the end (1950-1953), the economy of North Korea began to change. It was forbidden to practice entrepreneurial activity, and the card system came into use. It was impossible to trade grain crops in the markets, and the markets themselves were used extremely rarely.
In the 1970s, the authorities began to pursue a policy of economic modernization. New technologies were introduced into heavy industry. The country began to supply minerals and oil to the world market. In 1979, the DPRK was already able to cover its external debts. But in 1980 the country went into default.
Two decades of crisis
The North Korean economy has, in short, been a complete fiasco. Demand for products dropped significantly, and because of the oil crisis, the country was declared bankrupt. In 1986, the external debt to the allied countries amounted to over 3 billion dollars, and by 2000 the debt exceeded 11 billion. The bias of economic development towards heavy industry and military equipment, the isolation of the country and the lack of investment were the factors that hindered economic development.
To remedy the situation, in 1982 it was decided to create a new economy, the basis of which was to be the development Agriculture and infrastructure (especially power plants). After 2 years, a law on collective enterprises was adopted, which helped to attract foreign investment. 1991 was marked by the creation of a special economic zone. Albeit with difficulty, but investments flowed there.
Juche ideology
The Juche ideology had a special influence on the economic development of the state. This is a kind of combination of the concepts of Marxism-Leninism and Maoism. Its main provisions that influenced the economy were as follows:
- revolution is a way to achieve independence;
- to do nothing is to abandon the revolution;
- to protect the state, it is necessary to arm the whole people so that the country turns into a fortress;
- the correct view of the revolution comes from a feeling of boundless devotion to the leader.
In fact, this is what keeps the economy of North Korea. The main part of the resources is directed to the development of the army, and the remaining funds are barely enough to save the citizens from hunger. And in this state, no one will rebel.
Crisis of the 90s
After the Cold War, the USSR stopped supporting North Korea. The country's economy stopped developing and fell into decline. China stopped providing support to Korea, and, combined with natural disasters, this led to the fact that famine began in the country. According to experts, the famine caused the death of 600 thousand people. Another plan to establish a balance failed. Food shortages increased, an energy crisis erupted, resulting in the shutdown of many industrial enterprises.
Economy of the 21st century
When Kim Jong Il came to power, the country's economy "cheered up" a little. The government carried out new market reforms, and increased the amount of Chinese investment ($200 million in 2004). Due to the crisis of the 90s, semi-legal trade became widespread in the DPRK, but no matter how hard the authorities try, even today there are “black markets” and smuggling of goods in the country.
In 2009, an attempt was made to carry out financial reform to strengthen the planned economy, but as a result, the country's inflation rate skyrocketed, and some basic commodities became scarce.
At the time of 2011, the balance of payments of the DPRK finally began to show a figure with a plus sign; foreign trade has a positive effect on the state treasury. So what is the economy like in North Korea today?
Planned Economy
The fact that all resources are at the disposal of the government is called a command economy. North Korea is one of the socialist countries where everything belongs to the state. It solves the issues of production, import and export.
The command-administrative economy of North Korea is designed to regulate the amount of manufactured products and pricing policy. At the same time, the government makes decisions not based on the real needs of the population, but guided by planned indicators, which are presented in statistical reports. There is never an oversupply of goods in the country, since this is inexpedient and economically unprofitable, which the government cannot allow. But very often you can find a shortage of essential goods, in connection with this, illegal markets flourish, and with them corruption.
How is the treasury filled?
North Korea has only recently begun to emerge from the crisis, ¼ of the population is below the poverty line, and there is an acute shortage of food products. And if we compare the economy of North and South Korea, which competes with Japan in the production of humanoid robots, then the former is definitely lagging behind in development. Nevertheless, the state found ways to fill the treasury:
- export of minerals, weapons, textiles, agricultural products, coking coal, equipment, crops;
- oil refining industry;
- established trade relations with China (90% of trade turnover);
- taxation of private business: for each completed transaction, the entrepreneur pays the state 50% of the profit;
- creation of trade zones.
Kaesong - commercial and industrial park
Together with the Republic of Korea, a so-called industrial park was created, where 15 companies are located. More than 50,000 North Koreans work in this zone, their wage almost 2 times higher than in the territory of the native state. The industrial park is beneficial for both parties: finished products are exported to South Korea, while the North has a good opportunity to replenish the state treasury.
Dandong city
Relations with China are established in a similar way, only in this case the stronghold of trade is not the industrial zone, but the Chinese city of Dandong, where trade transactions are carried out. Now there are many North Korean trade missions open there. Not only organizations, but also individual representatives can sell goods.
Seafood is in high demand. There is a so-called fish mafia in Dandong: in order to sell seafood, you need to pay a fairly high tax, but even so you get a good profit. There are, of course, daredevils who import seafood illegally, but due to strict sanctions, there are fewer of them every year.
Today, North Korea is dependent on foreign trade, but there are several other interesting points in the country's economy, some of which are inseparable from politics.
Thus, there are 16 labor camps in the country, created on the principle of the Gulag. They perform two roles: punishing criminals and providing free labor. Since the principle of “punishment of three generations” exists in the country, some families spend their whole lives in these camps.
During the period of economic decline, insurance fraud flourished in the country, and at the international level, for which the government was sued more than once demanding the return of insurance payments.
In the late 1970s, it was canceled for foreign trade. In this regard, anyone could enter the international market, having previously registered with a special foreign trade company.
During the crisis, the main currency was food, it could be exchanged for anything.
The economy of North Korea may take the first place in the world in terms of the degree of closeness from the outside world.
There are still many gaps in the country's economy, citizens are trying to migrate at any opportunity, and cards that replace money have not yet gone out of use. It is almost impossible to get into the territory of the state, and all areas visible to tourists can be called exemplary and exemplary territories. The world is at a loss as to what is really going on in North Korea, but the country's economy is booming and perhaps in a decade, the DPRK will be on the same level of economic development as its closest neighbors.
For the 50,000 North Korean workers who worked in Kaesong, the zone's closure was a blow. Although conservative human rights activists have often referred to the Kaesong zone as a "hard labor camp", such claims are patently hypocritical. Wages in Kaesong are really low by the standards of the developed world: average salary there was $150 a month, and more than half of this amount was withdrawn to the state. However, $50-70 is not bad by the standards of North Korea, so the working zones had every reason to believe that they were extremely lucky. Now their luck has run out.
True, there is hope. There are persistent rumors in Kaesong that the empty factories will soon be handed over to North Korean private entrepreneurs who will try to set up production there using abandoned South Korean equipment.
Although the phrase "North Korean entrepreneur" may seem strange, in reality private business has existed (and even thrived) in the country of Juche for about two decades. There were times when the DPRK was an almost pure example of a total state economy, but those times are in the past. During the crisis and famine of 1996-1999, the state lost both the opportunity and the desire to fight the private economy, which began to grow slowly.
At first, North Korean entrepreneurs were engaged in small business: they traded in the markets, founded handicraft workshops for the production of consumer goods, and smuggled trade with China. Over time, quite large private enterprises began to appear in North Korea. In some cases, private investors began to take over state-owned enterprises that stopped working during the crisis years, in the mid and late 1990s.
North Korean stalls
At the same time, the attitude of the authorities to what was happening remained extremely contradictory. On the one hand, by 2000, private business had become an important element of the economy. It was he who played big role The fact is that the crisis was finally overcome, and from about 2002-2003 the DPRK economy began to grow again, although not too fast. On the other hand, the country's leadership under Kim Jong Il perceived private business as something fundamentally wrong or, at best, as a temporary phenomenon that had to be put up with in a crisis. Under Kim Jong Il, from time to time campaigns against private business were carried out, which, however, ended in nothing.
With the coming to power of Kim Jong-un in December 2011, the situation has changed. For all his temper and eccentricity, the new North Korean ruler has a very positive attitude towards private business, so after 2012 the North Korean authorities on the ground received an unequivocal instruction to no longer interfere in the affairs of private entrepreneurs and merchants if possible.
However, this does not change the fact that, from a formal point of view, private business remains completely illegal. Despite the fact that now in North Korea almost all public catering and retail, a significant part of intercity road transport, as well as a number of small and medium-sized food and light industry enterprises, it is strictly forbidden to mention this in the official press (and there is no other in the country).
Small workshops and stalls do without formalities, and larger private enterprises, such as restaurants, are formally registered as state property. At the same time, a significant part of what is happening at these enterprises, from a formal point of view, is a brazen violation of the law and theft of socialist property, so that not only the prosperity, but also the survival of entrepreneurs depends on the goodwill of local officials, which can be bought, and the current position of the highest guide that is not for sale.
Nevertheless, it was the closure of the Kaesong zone that aroused considerable hopes among entrepreneurs. As a result of the measures taken by Seoul, more than a hundred enterprises with first-class equipment by North Korean standards and well-trained personnel have become ownerless, and now North Korean businesses are actively working to gain access to suddenly appeared opportunities. Of course, the guilds will operate, as always, under a formal roof public institutions. There is no doubt that if he succeeds, the “closed” zone will continue to operate, perhaps with less efficiency than before, but perhaps with greater benefit to most North Koreans.
President Donald Trump met with North Korean leader Kim Jong-un yesterday US Secretary of State Mike Pompeo said last month that American companies will be able to invest in an isolated country if the summit is successful. Who will invest in North Korea?
There are big doubts about whether the terms of the agreement will be honored, but even if the meeting results in a breakthrough, experts say investors should be especially wary of North Korea. And if anyone is moving faster in this direction, it is most likely China.
"Potentially Profitable"
Securities in North Korea have some attractive features for foreign companies. It is located in the middle of Asian countries including China, South Korea and Japan.
“There are many potentially profitable and very interesting areas for investment in North Korea”, said Peter Ward, a researcher at Seoul National University who studies North Korea.
According to country experts, North Korea's population is poor but fairly well educated, and the cost of labor force much lower than its neighbors. Some analysts say it is a potential hub for electronics and textiles.
But these advantages pale in comparison to the many obstacles to foreign investors, especially the brutal Kim regime.
"Perspective major investments that the regime in North Korea will allow is unlikely, said Go Myung-hyun, a research fellow at the Asan Institute for Policy Studies, a think tank in Seoul. — The regime is deeply suspicious of the international market.”
China will lead
As North Korea's largest trading partner and a major sponsor of the regime, China could take the lead in investing in the country.
Researcher Peter Ward said North Korea looks like a natural candidate for the Belt and Road Initiative, a grandiose plan to invest hundreds of billions in roads, ports and railways from Asia to Africa. According to experts, the infrastructure in most of North Korea is in a dilapidated state.
“North Korea may be very reluctant to allow China to forcibly take possession of future “troubled assets,” Ward said.
Bad reputation
In the 1980s, Pyongyang defaulted on loans from European and Australian banks. More recently, companies that have tried to work with him have run into problems.
In the late 2000s, the Egyptian conglomerate Orascom was invited to create joint venture with the North Korean government to build the first cellular network.
For several years, the company faced difficulties, including the fact that the transfer of profits from North Korea and Pyongyang was not allowed. In its 2015 financial report, Orascom simply wrote that "control over the activities of the joint venture was lost." Few details have been made public about his fate. Orascom did not respond to a request for comment on this matter.
South Korean companies also struggled. In 1998, the Hyundai Group began operating a mountain resort for tourists in North Korea. The complex attracted 2 million visitors from South Korea for 10 years before a North Korean attendant killed a tourist, prompting the closure of the resort. The project has since been confiscated by Pyongyang.
"They've lost everything. Go Myung-hyun said referring to Hyundai. — The company no longer has access to North Korea."
Despite this experience, the Hyundai group has created target group to prepare for a potential return to the country. And Samsung Securities, the investment arm of another major South Korean conglomerate, said Thursday it is setting up a research team to analyze potential future investment in North Korea.
Prize catch?
The two Koreas also cooperated in Kaesong, a special economic zone where North Korean workers produced goods for South Korean companies. But Ward said many South Korean companies have agreed to operate in the zone on the North Korean side of the border because of guarantees and support from the government in Seoul.
On February 10, 2016, South Korea announced the cessation of work in the Kaesong Industrial Zone after North Korea tested a long-range missile.
Experts offer several reasons why the North Korean regime might scare away foreign investors.
Some say the authorities are concerned that the spread of market capitalism is destroying the power of the regime, or that companies may start a group fight with the government.
Others say North Korea's closed economy means officials don't know exactly what is considered acceptable practice for business partners.
« They think of themselves as winning in international markets, Ward said. — They don't seem to understand that alienating investors willy-nilly lead to a very bad reputation.».
