It is extremely difficult to find information on business conditions and changes in North Korea. According to countryaah, objectives are published while actual conditions are often foregone.
When the Korean Peninsula was divided after World War II, the best agricultural areas were included in South Korea, while just over 3/4 of the mineral resources and 2/3 of the heavy industry were in North Korea. From the mid-1950s and three decades onwards, North Korea had a positive economic development, probably with about 9 percent growth per year. Only in the latter part of the 1970s did GDP per capita in South Korea reach the same level as in North Korea. Subsequently, South Korea’s GDP per capita has far exceeded that of North Korea.
North Korea has always been a centrally planned state with self-sufficiency and self-reliance (juche) in focus. The state owns almost all companies and has a monopoly on almost all trade. Emphasis has been on heavy industry. In addition, the country has always had a very large and resource-intensive military sector, which still takes about 1/5 of the budget. The regime sees this sector as a driving force in the economy. But the army consists of 1/5 of all men aged 17-49 and that means a shortage of manpower in civil society.
After 1990, when the Soviet Union disbanded, North Korea’s situation deteriorated radically. Soviet financial assistance ceased and North Korea was forced to enter the international trade exchange dominated by capitalist countries in the West with completely different trade rules and product requirements. Problems in the business world became increasingly clear with energy shortages, technological backlog, lack of factory maintenance and inadequate investments. In addition, devastating floods in 1995-96. For the first time ever, North Korea turned to the UN and other international organizations and called for emergency relief. On average, GDP fell by 3.8 percent per year during the 1990-98 period and 1-2 million North Koreans died of starvation during those years.
In 1998, the concepts of privatization, profitability and economic stimulation were introduced. The leaders said they were eager to increase foreign trade, encourage foreign investment and adopt modern technology. The years 1999-2005 showed a positive development with a stabilization of agricultural and industrial production, inflow of foreign aid and a hint of liberalization. On a small scale, market reforms began to be noticed, reminiscent of what happened in China in the early 1980s, and a wage and price reform was implemented in 2002.
However, to increase production, mass mobilization, demanding speeches and campaigns are still mainly used, not economic driving springs. The state still determines all wages and most prices and production levels. Exceptions are operations in a number of state-approved markets and in a few special economic zones, mainly Kaesong.
In 2006-07, the economy again fell, especially in agriculture and light industry. The causes were partly abnormal weather, and partly the world’s reactions to North Korea’s nuclear weapons test in the form of trade restrictions and withdrawn development assistance.
Within the state leadership, there are now likely to be those who want to follow at least part of China’s development model, and those who do not want to allow market-oriented reforms that can undermine socialism and party control. The economic policies that are implemented therefore vary from year to year. But North Korea is still a planning economy and economically the most isolated of all countries.
The food situation has deteriorated further and the currency shortage limits food imports. In 2009, WFP (World Food Program) estimated that 1/3 of North Koreans suffered from malnutrition and hunger. The worst is in the old industrial areas in the northeast. North Korea faces the food shortage with tougher rationing and reiterates the requests for foreign aid in the form of crude oil and artificial fertilizers, rather than food.
Prior to the peninsula, North Korea was heavily dependent on agriculture in the south. After 1954, collectivization began in North Korea and in 1958 it was fully completed. Only 18 percent of the country’s area can be used. Up to the beginning of the 1990s, 90 percent of these belonged to about 3,800 collective farms. In addition, there were 180 state farms. Since then, there has been a transition from some collective farms to state farms.
Agriculture employs about 26 percent of the labor force and together with forestry and fishing accounts for 22 per cent of GDP. The best cultivation conditions are found on the plains in the west. Rice is grown on 53 percent of arable land, mainly on irrigated land. Other important crops are maize (33 percent of acreage) and potato (9 percent). In addition, wheat, soybeans, tobacco, cotton and hemp are grown. However, half of the country’s agricultural land is of poor quality and cannot be used for growing wet rice. In the north, the growing season is too short and chilly for rice cultivation. Potatoes are becoming an increasingly important crop, as they provide high calorie yield per unit area.
To cope with food self-sufficiency, North Korea has made major investments in agriculture. Rice cultivation is highly mechanized and a lot of artificial fertilizer has been used. The arable land has been expanded through the dredging of marshlands, embankment of marshland, terracing and new cultivation. In 1994, 70 percent of the arable land could be irrigated. But this infrastructure has subsequently been hit by flooding and neglect. Agriculture is also facing a growing shortage of artificial fertilizers, fuels and spare parts. The area yield is now less than in the 1980s and the population is growing faster than total food production. The repeated floods have led to a lack of growth and food shortages and, in addition, seriously degraded the quality of the fields. Livestock management (mainly cattle) occurs mainly on state farms. Farmers are now allowed to own larger plots (1,300 m)2) than before. There they can grow food that they can sell in the approved markets and also in an informal, prohibited market.
About 60 percent of North Korea’s area is wooded. High-quality forests (mainly coniferous forests) are found only in the inland areas of the north. In these mountain regions, however, it is difficult to access, and the forestry and forestry industries are poorly developed. In other areas, forests have been felled on slopes to increase arable land, which has led to increased erosion and thus soil degradation. Forest planting programs have had little success.
Almost 80 percent of the domestic harvesting goes to fuel and the remainder to sawmills. The shortage of domestic timber is offset by imports from the Russian Far East and Siberia.
The waters around the Korean Peninsula are fish-rich, especially in the Japanese Sea, where cold and warm ocean currents meet and create good conditions for a large and varied fish population. Fishing is conducted partly by the state and partly by cooperatives. Herring mainly catches herring, mackerel, cod, octopus, sardines and flatfish as well as shrimp and other seafood. However, fish plays only a minor role in the diet.
Large-scale deep-sea fishing began to develop in the 1970s and large fish farms began to be established in 1994. The annual catch of fish and shellfish in the early 1990s amounted to close to 1.8 million tonnes, some of which were exported. Thereafter, however, the catch decreased significantly, i.e. due to lack of fuel. Despite the increase in the 2000s, catches have not reached the previous level at all. The main fishing ports are Sinpo and Kimchaek as well as the deep-sea fishing bases Yanghwa and Hongwon, all on the east coast. In addition, there are fishing cooperatives in old fishing villages along both coasts.
The Korean Peninsula is mineral rich and 85 percent of all assets are in North Korea, mainly large deposits of iron ore, limestone, magnesite, coal and zinc. Iron ore is of great importance, both for the domestic industry and for exports. The iron ore mine in Musan, near the Chinese border in the north, is probably the largest open pit in Asia. Significant iron extraction also occurs in other parts of the country, for example in the southwest near Haeju. Graphite, copper, lead, zinc, molybdenum and gold are also mined and exported periodically. Internationally, the most important is the mining of magnesite that occurs in collaboration with a US company. Magnesite is used as refractory lining in steel furnaces, and North Korea is the second largest exporter of this mineral. Uranium mining can also occur in North Korea.
Mining decreased during the 1990s but has subsequently increased, accounting for 11.4 percent of North Korea’s GDP in 2007. Energy shortages and outdated equipment mean that the plants can only use part of their capacity. But North Korea’s mineral resources have become very interesting to China and South Korea, and companies from there are increasingly engaged in exploration as well as modernization and expansion of the mines in North Korea.
Since the 1970s, North Korea’s energy supply has increasingly been based on coal. International analysts estimate that coal in 2005 accounted for just over 85 percent of North Korean energy production, water energy for just over 5 percent, oil for just under 4.5 percent, and wood and waste for the rest. The country has had large assets on coal, but the deposits are becoming increasingly difficult to access. The quality is low and the mines are poorly mechanized. Coal production has stagnated while industry demand for energy is increasing. More and more coal is imported from China. Until 1990, North Korea imported cheap oil from the Soviet Union, but it ceased almost entirely after that. North Korea has no domestic oil extraction, but oil can be found at sea and cooperation is sought with foreign, mainly Chinese companies for the capital-demanding exploration. Oil is required for aviation and other motor traffic, but the lack of foreign currency limits the import of oil, as well as coal. In 2005, 68 per cent of the energy supply went to industry, while the transport sector accounted for only 2.5 percent.
In 2005, 57 percent of the electricity came from hydroelectric power stations, 39 percent from coal-fired power plants and only 4 percent from oil-fired power plants. North Korea has great water energy potential, but water supply varies considerably over the year, providing an uncertain supply of electricity. In remote areas, small hydropower plants are still being built to provide regional self-sufficiency with electricity. In 1999, an agreement was signed with South Korea on technical assistance to produce civilian kernels and two light-water reactors began to be built in Kumho on the east coast. But the operation was halted as early as 2003 because aid was linked to North Korea’s nuclear weapons program promises, which were not met. Nuclear weapons tests in 2006 and 2009 have meant that the power plant has not yet been completed. South Korea says it intends to sell the equipment to another country.
The energy problems of recent decades are reflected in the fact that in 2005 the industry consumed only 3/4 of the energy used in 1990. The energy shortage is becoming a major obstacle to the country’s economic development. Since 2005, there has been a grid connection with South Korea to secure energy supply to the export-oriented industry in Kaesong.
The mining and manufacturing industry, including construction and energy production, accounted for 48 percent of GDP in 2017. The corresponding figure for the manufacturing industry alone was 20 percent. North Korea has always prioritized heavy industry. It includes partly the armor industry, and the manufacture of capital goods for other industries, such as agricultural machinery, plant equipment and generators, and of transport equipment such as locomotives, vessels and trucks.
Heavy industry accounts for about 65 percent of the manufacturing value of the manufacturing industry. Nearly half of the country’s steel production takes place in the iron and steel center Kimchaek in the northeast, 100 km from the largest iron mine. The lack of coke and worn equipment means that the entire capacity of the steel mills cannot be utilized and production is not enough to meet the domestic need for iron and steel. Similar problems are likely to limit the operation of the metal smelters.
Another important industry is the heavy chemical and petrochemical industry, which mainly produces fertilizers, but also ethylene, synthetic fibers and plastics. Chemical weapons can also be manufactured. In addition, the cement industry is of great importance. All these industries have been hit hard by the lack of energy, spare parts and modern equipment. This also applies to a large extent to the machinery industry, which is mainly located in the metropolitan area and in Hungnam and Wonsan on the east coast.
Since 2002, the state has gradually reduced its support for old unproductive companies. Subsidies have increasingly been replaced with bonus payments related to productivity. But the lack of both means of production as well as educated manpower and business leaders with financial education makes it very difficult to modernize and streamline operations. In the past decade, manufacturing of consumer goods has become increasingly important, and cheap clothing is now exported to Japan, the United States and Europe. The wages in North Korea correspond to a very small proportion of the South Korean and only half of the Chinese. Foreign companies are therefore interested in starting joint ventures in North Korea. The country’s management has long been positive about such cooperation because it sees it as a way to get capital and new technology and in addition to get a competitive export of t. ex. electronic goods.
In 2004, a special industrial zone, KIZ, began to be developed in Kaesong near the demilitarized zone in the southwest. The project is funded with funds from South Korea and the area is intended for foreign, mainly South Korean companies in light industry who receive special liberal production conditions there. Exports from there will pull in hard currency to North Korea. However, many difficult practical problems have arisen, and the North Korean Nuclear Weapons Program has also hampered cooperation.
North Korea’s economic policy, with its strong emphasis on self-sufficiency, has meant that foreign trade has been small. The important thing is to import the raw materials needed to meet the production targets in the economic plans. The role of exports is to provide money for imports.
Foreign trade accounted for only 16 percent of GDP in 2007, which can be compared to 75 percent in South Korea. Importance and importance of imports is now difficult to assess, as much of it is primarily development assistance and periodically also disaster relief. For many years, there has been an imbalance in foreign trade, and in 2006 import costs were more than twice the export revenues.
Traditionally, exports have mainly come from mines, smelters and heavy machinery industries. In recent years, however, the composition of commodities in exports has widened and a growing proportion comes from light industry, e.g. textiles. Almost 1/10 now consists of minerals.
Until 1990, more than half the foreign trade with the Soviet Union was conducted, but the Soviet dissolution radically changed this pattern of trade. Instead, since the 1990s, China has become the most important trading partner. At the same time, China’s investments in North Korea are also increasing. To top it all, North Korea imports coal and other energy raw materials from China, but also food, primarily in the form of aid.
During the 2000s, South Korea has become North Korea’s second most important trading partner, and that trade has also increased substantially. In that case, North Korea exports raw materials and machinery. Most of the imports from South Korea can be characterized as aid (food, fertilizers), not ordinary trade. In 2005, Japan was in third place as an export destination and in fifth place in terms of imports. Subsequently, this trade decreased as Japan responded to the North Korean nuclear weapons tests.
North Korea’s regime has begun to open the country to a small number of tourism groups. They are taken care of by state guides, have strictly limited mobility and may only visit the capital and a few mountain areas. The tourists come mainly from South Korea.