Asia and Oceania

Korea, DPR (North Korea)
Last reviewed: 25 June 2009

Country information

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ECONOMY

Basic Economic Facts

GDP: US$40 billion (2008 est.)
GDP per head: US$1,700 (2008 est.)
GDP Real Growth: -2.3% (2008 est.)
GDP Composition: agriculture - 23.3%, industry – 43.1%, services – 33.6% (2002 est.)
Major Industries: Although DPRK's population is predominantly urbanised, agriculture still accounts for around one-quarter of economic activity. Dominance of heavy industry, including steel, cement and machinery, and mining has declined since the 1990s. Major industries are now believed to include military products, machine tools, electric power, chemicals, mining, metallurgy, textiles, food processing and tourism. Development of the IT sector has enjoyed high-level backing.
Major trading partners: China, South Korea, Thailand, and Russia.
Aid & development: The combination of a recurrent food production deficit, compounded by the withdrawal of Soviet and Chinese food aid and a succession of natural disasters in the mid-1990s prompted DPRK to request humanitarian aid from the UN in 1995. Following ten years of large-scale assistance from the World Food Programme (WFP), DPRK announced in August 2005 that from January 2006 it would no longer accept humanitarian aid, despite the widely held view that its humanitarian needs were serious and ongoing. The UNDP implemented limited development assistance in the DPRK untilit was forced to withdraw from the DPRK in March 2007 after questions were raised about its financial operations. The Nemeth Report, published on 1st June 2008, exonerated UNDP of wrongdoing, though it recommended some procedural changes, and the UNDP is now in the process of resuming its programme in DPRK.

The DPRK faces major economic challenges. Despite the early and successful establishment of a heavy industrial base after the Korean War, the effects of over-stretched resources and distortions from central planning became apparent in the 1970s. The DPRK entered international markets but was unable to achieve the necessary level of exports and subsequently ran a trade deficit. Unpaid debts led to a decline in foreign trade. The collapse of the Soviet Union, the break-up of the COMECON economic system, and the ending of cheap energy imports from the Communist Bloc worsened the situation. Agricultural crisis and economic collapse led ultimately to famine in the mid-1990s, during which 500,000-2 million people are estimated to have starved to death.

In July 2002, DPRK announced partial marketisation measures, allowing state-set prices for selected commodities to adjust near their market levels, while wages in priority sectors were boosted. In spring 2003 the authorities relaxed restrictions on farmers' markets, giving ordinary citizens limited freedom to buy and sell a range of food and manufactured goods. The thaw in North-South relations under South Korean Presidents Kim Dae-jung and Roh Moo-hyun saw the establishment of the Kaesong Industrial Zone, just north of the DMZ and only 50 kilometres from Seoul. The zone, run by the Hyundai Asan Corporation is a production and re-export platform for South Korean small and medium enterprises, employing several thousand North Koreans. A rail link connecting Seoul to the zone has been operating sporadically since December 2007. While the zone is a source of hard currency for the DPRK, the deterioration in inter-Korean relations since the election of President Lee Myung-bak in Seoul has led to frequent disruptions to cross-border transport links and expulsion of most South Korean staff. Pyongyang has now demanded wholesale renegotiation of rents and contracts for all businesses in Kaesong.

Such initiatives, while radical by the standards of traditional state planning, have failed to fundamentally alter DPRK's supply-demand imbalances, manifested in chronic inflation and persistent trade deficits. Meanwhile, the new importance of money in DPRK has created a more visible wealth divide between 'winners' and 'losers'.