Economical overview
North Korea has yet to be one of the world's
most centrally controlled economies with an oversized
heavy industry and inefficient agriculture. After
economic disintegration and natural disasters in the
1990s, the country descended into poverty and periods of
famine. Some clearing was reported in the first half of
the 2010s, but the sanctions from the outside world are
said to have hit the economy hard after that.
Foreign disaster relief has saved many lives, while
the state's shrinking resources have gone to the
military and to the corrupt political elite. The
leaders' immense luxury lives are suspected of being
financed by organized crime with drug trafficking, arms
smuggling and dollar forgery. Stelbent bureaucracy,
corruption, high foreign debt, international sanctions,
lack of professional skills and limited foreign and
domestic investment are obstacles to economic
development.
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Until the 1970s, North Korea was more industrialized
and had a higher income per inhabitant than South Korea.
Then it went fast. The problems appeared in the form of
energy shortages, obsolete factories and poorly
developed transport systems. North Korea became the
first communist country in the world to suspend payments
on its foreign debt.
The disintegration of the Soviet Union in 1991 became
a blow to the North Korean economy. The exchange trade
with the Eastern Bloc ceased and North Korea was forced
to pay its foreign currency imports. Thus, foreign trade
collapsed and acute energy shortages affected industry
and agriculture.
The crisis of the 1990s
Estimates of North Korea's economy are made more
difficult by the lack of reliable statistics, but in the
1990s GDP is estimated to have shrunk. The
economic disaster contributed to the mass violence when
the harvesters failed (see Modern History). North
Korea was forced to receive emergency relief from the
outside and initiate cautious reforms. Among other
things, foreign investment was allowed, and
constitutional amendments in 1998 gave some room for
private enterprise and market forces. The following
year, GDP should have grown by just over 6 per
cent, but from a bottom level.
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In the early 2000s, reforms were broadened. Some
groups got the right to trade in cash instead of ration
cards and some prices were released free. Markets and
private shops became alternatives to state sales, which
lost their subsidies.
But the supply did not respond to demand, which led
to inflation. Rice prices shot up, while more than
two-thirds of the population could only obtain basic
goods through ration cards. Many were unemployed
following the collapse of the heavy industry. The
situation worsened when foreign food aid declined as a
result of the conflict with the outside world over North
Korea's nuclear weapons program (see Foreign Policy
and Defense).
The government also tried to make it easier for
foreign companies to do business in the country. The US
dollar was officially banned but was increasingly used
unofficially. Nevertheless, the shortage of foreign
currency was acute. Corruption and black stock trading
increased.
Currency reform and popular dissatisfaction
At the end of 2009, the regime sought to stifle the
growing market economy and black trade and fight
inflation. A currency reform that made one hundred won
suddenly worth one won had catastrophic consequences
(see Modern history). The shortage of goods
increased sharply and inflation soared. Popular
dissatisfaction expressions soon forced the regime to
soften up the reform. Among other things, the limit on
how much currency was allowed to be exchanged was
raised.
However, the difficulties continued. Confrontation
with South Korea in 2010 led to the cessation of aid and
trade with the neighbor. A majority of North Koreans
were estimated to live from an increasingly widespread
black economy. Although the state of livelihood had
improved, famine constantly lurked around the corner for
a large proportion of the population.
North Korea has been heavily dependent on aid
shipments with food. In two decades from its inception
in 1995, the United Nations Food Program WFP shipped
more than four million tonnes of food to the country,
worth about $ 1.7 billion. Bilateral support has also
been important, mainly from China, the United States,
South Korea and Japan. However, increased political
tensions have led to reduced food supplies from all
sources.
According to estimates in South Korea, whose central
bank is considered to be the most reliable source of
economic statistics from North Korea, economic growth in
North Korea averaged 1.2 percent per year from 2000 to
2012.
The development under Kim Jong-Un
Under Kim Jong-Un's rule in the 2010s, the market
economy elements have been strengthened. Black food and
clothing trade has grown and there are hundreds of
officially permitted markets in the country. North
Koreans are also said to have started buying homes
privately instead of waiting for them to be allocated a
home by the state, according to researchers in South
Korea (South Korea's Institute for Reunification). At
the same time, the range of consumer goods is largely
the same as in the western world with cars, electric
bicycles, latest mobile phone models and more. More
recently, agriculture has also allowed the collective to
sell surplus from production privately. Agriculture
still accounts for about one fifth of the economy.
As in South Korea, strong family-run business
conglomerates play an important role in the economy.
These have a strong connection with the state, the party
or the military and thus receive various benefits.
The North Korean regime emphasizes that it is an
important goal to improve the living standards of the
North Koreans. It was mentioned, for example, in the
five-year plan for economic development that was
presented in May 2016. The plan also aims to achieve a
more balanced development and to invest in modern
technology.
During the second half of the 2010, the outside world
imposed increasingly severe financial sanctions on North
Korea (see Foreign Policy and Defense). China's
leaders long looked through the fingers of Chinese
companies engaged in trade and other economic exchanges
with North Koreans in violation of international
sanctions, but from 2016, China began to more closely
comply with UN sanctions on North Korea. In line with
the sanctions policy, smuggling and unofficial border
trade between the countries have also come to play an
increasingly important role for the North Korean
economy.
Penalties hit hard
North Korea's economy is said to have been severely
affected by the South Korean central bank's sanctions
against exports of coal and other minerals introduced by
the UN after the country conducted its fourth nuclear
test in September 2016. The North Korean economy entered
a recession with shrinking GDP in 2017.
Another setback for the economy was the closure of
the Kaesong industrial zone in 2016, which was started
in 2004 as a joint project with South Korea adjacent to
the demilitarized zone. Kaesong was closed after South
Korea withdrew from the cooperation and sent home its
workers as a result of North Korea's nuclear test.
At the beginning of 2018, Kim Jong-Un surprisingly
initiated a rapprochement with South Korea and the
United States, promising to stop nuclear and missile
testing while the regime decided to put all its energy
on economic development instead.
The severely neglected infrastructure in the country
is one of the main obstacles to building a modern
economy. The widespread corruption also impedes
development.
FACTS - FINANCE
Currency
North Korean won
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