North Korea Economy Facts

by ebizdir · Published January 30, 2023 · Updated February 22, 2023

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.

Abbreviationfinder.org: Check this abbreviation website to find three letter ISO codes for all countries in the world, including NK which represents the country of North Korea. Check findjobdescriptions to learn more about North Korea.

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.