Monday, 27 July 2015

How Does North Korea Make Money?



For us in the West, North Korea is a rather mysterious country in many aspects. A combination of government secrecy (very few updates on the nation are publicly released), strict control over entrance into the nation by foreigners and Western dislike of the DPRK's authorities mean that we know very little for certain about the country.
One of the enigmas surrounding the nation lie in its economy. While its economy is pretty much in dire straits (its annual growth of 0.8% is deemed as stagnating, per capita income is estimated to be $1-2k per year), the country continues to maintain a huge military expenditure (as evidenced by the recent reported hydrogen bomb tests). The DPRK spends around $10bn, according to International observers, on its military- a quarter of the total national GDP, among the highest rates in the world. North Korea must be getting some reliable income to be able to maintain this spending, but where from? How does the DPRK's economy function with its doors of trade largely closed to today's globalised world?

1. (Narrow) International Trade
Textiles constitutes a significant part in the North Korean
economy, but is secondary to commodities.

North Korea exports roughly $2.7bn worth of materials every year, a notably large proportion of these exports being derived from primary industry. Mining in particular plays a massive role in keeping North Korean trade afloat, with coal and iron constituting over 46% of the nation's exports. Other products exported from the DPRK include clothing, molluscs (according to the OEC North Korea's 6th most valuable export, no kidding) and fur.

Nevertheless, it is evident that North Korea is heavily dependent upon its primary sector, on the commodities (coal, iron, etc) whose prices are constantly fluctuating. The impact of these fluctuations on North Korea is amplified by this dependence, meaning their economy would be far more damaged by a fall in coal prices, for example, than other nations whose economies are far more diverse. NK's exports have given them a tightrope to walk upon- as opposed to the kind of solid, wide platform most countries would ideally like to have.

But not only does North Korea's product lack diversity, but its list of trade partners does as well. The country's lack of extensive diplomatic ties with other nations has resulted in China receiving 84% of NK's exports, followed far behind by Indonesia, which receives just 2%. This is the same when you look at North Korea's imports. 84.5% of NK's imports come from China- India follows with just 5%.

So not only are North Korea extremely sensitive to global commodity prices, but also to the performance of China. Currently the Chinese economy is relatively stable, but could a catastrophe hit, North Korea would see a severe lack of supplies, one even more deadly than it is experiencing right now.

But it would be foolish to put this off as a long-term economic problem. Kevin Stahler from the Peterson Institute of Economics claims the country's lack of economic diversity is already hitting growth. "Just as it [North Korea] rode the resource boom to its apex in 2011, it is now the victim of a steady and steep decline in world prices."

2. Tourism
North Korea's state tourism is becoming more popular to
travellers from outside the region.

It's reputation in the West has written off to many the idea of ever travelling to North Korea, but it is indeed possible, and it's not even that complicated. You just need to have two guides prepared to accompany you on a pre-planned tour, which can be organised via a number of online tour operators. It may not be totally convenient ("It's not possible to travel independently in North Korea", according to tour operator Gill Leaning), but it is an opportunity available to those who wish to take it.

It's easy to travel to North Korea because the authorities there see tourism as a potential source for a great amount of income and economic activity. Their increased efforts particularly in the past few years have seen the number of visits to DPRK growing. For example, Leaning claims to have received a 400% increase in booking enquiries in 2012, largely thanks to the nation's 100 year anniversary and the government's heavy publicity of the occasion.

It is difficult to attain the precise figures for how much income tourism brings, but what is more certain is that, currently, the majority of the DPRK's 100,000 guests a year are Chinese. "About 80% of the tourists who come are from neighbouring countries," says Kim Sang Hak, a senior North Korean economist. "It's normal to develop tourism within your region... but we are also expanding to European countries as well.". In explaining his countries target to increase tourism to two million people a year by 2020, Hak affirms that "Tourism can produce a lot of profit relative to the investment required, so that's why our country is putting priority on it."

3. The Black Market

The North Korean-built 'African Renaissance
Monument' in Senegal.
While the North Korean economy does produce something, looking at figures such as the GDP per capita earlier mentioned, it is evidently not performing particularly well. It is widely believed that the DPRK has been and still is involved in some more questionable dealings to try to further boost its revenues. The government's sale of labour workers to Russia and China has been relatively well documented. While exporting labour itself is not something unusual, the taking of up to 70% of the workers' earnings as 'loyalty payments' by the North Korean government makes this dealing particularly shady. This exporting of workers not only brings North Korea revenue, but it brings revenue in the form of US Dollars, providing the government with a far safer, stable currency than its own Won.
North Korea also exports monuments and statues of national leaders to other countries. These can be seen throughout Africa, in countries such as Senegal (pictured), and the Mansudae Art Studio, the Pyongyang-based company responsible for most of these works, had even created one for Germany in 2005.

However 'shady' one might consider these deals to be, they are technically legal- and according to NPR, they brought in around $2bn in 2009. But there is a darker side to the North Korean economy, that involves drugs, counterfeit money, and weaponry.

According to the Wall Street Journal, in 2001 North Korea made somewhere between $500m and $1bn from illegal drug sales. The late 20th century saw growing opium exports from the DPRK, but more recently crystal meth has been growing in popularity, not just outside the country but internally, where "People with chronic disease take it until they're addicted," according to an NGO worker in an interview with journalist Isaac Fish. "They take it for things like cancer. This drug is their sole form of medication."

Counterfeiting money has also been a tactic used by the North Korean government, usually of the dollar in attempts to destabilise the American economy. Making the government up to $25m a year, the USA has actively moved to stop this, by introducing a new $100 bill in 2013 specifically designed to prevent further North Korean counterfeits.
Mohammad Lone Editor