North Korea’s Economic Prospect for 2008

North Korea’s total volume of external trade in the fiscal year 2007 is reported to be decreased even compared to that in the year 2006, when the country launched a nuclear test. It decreased even though efforts to solve North Korean nuclear problems have made some progress and the country’s economic environment has improved accordingly.

“North Korea’s economic environment which faced the worst possible crisis in the aftermath of the nuclear test has gradually improved as progress has been made in the North Korean nuclear negotiations and the relations between North and the U.S. has improved to a greater extent through dialogue in 2007,” said “Economic Prospect of North Korea in 2008.” The report was co-authored by Cho Myung Chul, director of the Center for Northeast Asian Economic Cooperation at the Korea Institute for International Economic Policy (KIEP) and Hong Ihk Pyo, senior researcher of the International Cooperation for Korean Unification at the KIEP.

“[However] Regardless of the progress in the nuclear issue, the total volume of foreign trade and amount of foreign investment in the fiscal year 2007 decreased to some extent compared to those in the previous year due to the continuing economic sanctions on North Korea imposed by the international community,” the report said. “It is estimated that the country’s total value of foreign trade decreased from 2.996 billion US dollars in 2006 to 2.7 billion in 2007.”

“North Korea mainly exports coal, sea products, minerals and steel, and imports grains, electronic devices, machinery, chemical products and energy resources such as oil and fuel. This shows that the country produces few high value-added products and its industry is still raw-material based,” the report added.

The report analyzed the trade trends of North Korea, and concluded that the country’s trade dependence on China would likely have reached a record high of 70 percent in 2007 from 56.7 percent in 2006 as its trade with China increased while trade with other nations decreased in 2007.

The country’s export to China rose again in three years because the export of coal and iron ore to China increased with the growing demand for energy resources in China’s Northeastern region and the growing investment by Chinese government in mining exploration in North Korea, the report said.

Meanwhile, the report showed that North Korea’s total volume of trade with Japan was merely 900 thousand US dollars worth in 2007, a decrease by 92.6 percent as compared to that in the previous year. “Since 2001, the country’s trade with Japan has continued to decrease as a result of political conflicts over the issues of abduction and nuclear programs,” the report said.

“Japan imposed full-scale economic sanctions on North Korea in 2006 and 2007 following North Korea’s missile and nuclear tests, and as a result, trade between two countries fell sharply,” the report said.

In addition, the country’s trade with Thailand fell by 42.4 percent and with EU by 53.2 percent after the nuclear test, the report said.

Regarding the country’s economic prospect for 2008, the report said, “As in the previous year, North Korea’s economy is to be influenced by factors such as the degree of progress in the Six Party Talks, the country’s political and diplomatic relations with concerned nations and economic sanctions of the international community.” The report also anticipated that the North Korea’s economy would be affected by the ambiguity of inter-Korean relations and the the new South Korean government’s policy towards North Korea which took office in February 2008.

“Considering the fact that inter-Korean economic cooperation has begun to occupy an important place in North Korea’s economy since 2000, North Korea needs to adjust its foreign trade policy in preparation for the possible deterioration of inter-Korean relations and the uncertain future of inter-Korean economic cooperation,” said the report.

For North Korea’s possible agenda for foreign economy policies in this year, the report listed the following.
▲ Removal of economic sanctions in accordance with the progress in the nuclear issue.
▲ Security of energy resources such as oil and cokes.
▲ Diversification of economic cooperation with foreign countries including increase in export and outsourcing of human resources, and Increase in foreign currency income
▲ Decrease of its trade dependence on China and Search for new partners for economic cooperation.

“If the inter-Korean relations deteriorate, North Korea might refuse to talk with South Korea while maintaining its communication with the U.S. as that was experienced under the Kim Young Sam administration in the mid 1990s. Or, it might decide to focus on cooperation with the private sectors [of South Korea] not with government,” the report added.