The Take

How is the North Korean economy growing through sanctions?26/07/17

Talk of the isolated Democratic People’s Republic of Korea (DPRK, ‘North Korea’) has dominated the media over the past few weeks amid escalating North-South tensions as well as ongoing missile tests in the North. The United Nations, European Union and USA are constantly threatening a variety of sanctions over the country in an attempt to both cripple the North Korean economy and prevent the nation from full-scale implementation of nuclear weaponry, but it would appear the country presses forward regardless.

Unfortunately for many of the world’s influential powers, sanctions are doing very little to stymie their economy. North Korean leader Kim Jong-un still pursues regular missile tests, and estimates over the last few years have put the North Korean economic growth at anywhere from 1-5% for 2016, higher than many developed nations.

So how is the North Korean economy able to remain steady, even grow, amid its political isolation and harsh economic sanctions?

The answers are numerous, for example, certain sanctions are not targeted to the overall economy but to specific items of luxury enjoyed by the inner circle of the Kim Regime, in an attempt to destabilise support. Sanctions are also specifically targeted towards anything that might be used for the advancement of nuclear weapons or missiles.

These sanctions are not likely to impact the economy of the nation as a whole, and are instead efforts to prevent advancement in missile technology and cause problems among the Kim Regime.

Another factor behind the relative economic growth of North Korea is that China continues to diverge from general global agreements on how to best deal with the temperamental nation. China does not enjoy having a large American military base in South Korea, and some believe China considers the North to act as a buffer between the two. Additionally, the Chinese government follows the idea that if North Korea is backed into a corner and becomes desperate, they are more likely to act aggressively. The collapse of North Korea, or a war between North and South, would lead to a massive refugee crisis pouring into China, as well as the loss of countless lives, China believes it best to try to avoid any escalating tactics. For this reason, despite technically having trade sanctions on the nation, China is believed to trade with North Korea for about 90% of its imports and exports.

The final major factor which keeps the regime going is its black and grey economies. The North Korean government itself engages in a massive drug trade, manufacturing drugs such as methamphetamine and exporting it worldwide, with some evidence suggesting they partner with large crime syndicates in order to send several billion dollars’ worth of drugs out every year. This has led to huge drug addiction problems in the country. North Korea also sells labour, weapons, counterfeit goods and other black market goods, and launders money into hard foreign currency through restaurants and other businesses in China and Japan. This is necessary because the North Korean Wan is essentially worthless even in North Korea.

The ‘grey economy’ is the surge of technically illegal private markets where North Korean citizens trade goods, and is believed to be one of the only ways most citizens are able to obtain enough food, and for them to obtain ‘luxury’ goods from China to make their lives more comfortable.

It is notoriously difficult to give an accurate estimation into the size and success of the North Korean economy. The majority of the nation’s official exports are coal, while it imports small goods and food. The official GDP has been estimated at around $16Bn USD, which compared to its neighbour in the south is only a fraction. Unofficially the figure is likely higher once you account for the significant black market trade and illegal private activity, such as farmers markets.

One of the biggest self-inflicted caps on the economy is the enormous spending on state military. On the one hand, this helps provide employment and security, however the government is spending upwards of 20% revenue on military alone, leaving little else to spend on infrastructure, food, fresh water and other areas that could dramatically improve the standard of living in the nation. Additionally, the country is not well-suited to traditional agriculture so food security is a major issue for the isolated nation. Lastly, energy is widely unavailable across North Korea, leaving many areas experiencing intermittent or minimal power throughout the year.

Ultimately, sanctions are seemingly ineffective against both the regime and the economy. The nation is growing naturally and over time may continue to experience less restrictions on private enterprise. In the long term, under a less oppressive leader, it may be possible that the nation, and its people, will find themselves in a better position. For the time being, however, it would seem escalation between the USA, North, and South, are inevitably going to rise.

Nate is the Publications Director at QUTEFS. If you are interested in writing an article for The Take, contact publications@qutefs.org