There is more to North Korea than just ballistic missile tests

There is more to North Korea than just ballistic missile tests
by: Candice Chong Xianli

Sanctions on the Democratic People’s Republic of Korea (DPRK) are commonplace. Since 2006, the United Nations Security Council (UNSC) has imposed 10 rounds of sanctions on North Korea, to condemn its development of nuclear weapons and ballistic missile technology. [1] The DPRK’s mining industry is a part of the economy that has suffered the most from international isolation, but it is the industry that seems to be the key to resolving many of North Korea’s pressing economic problems.

 

North Korea, a locked treasure chest
Dr. Rüdiger Frank, an economist and internationally renowned expert on North Korea and East Asia, believes that the current state of the North Korean economy is the result of “the usual forces operating in an unusual environment”. [2] 

 

The Hermit Kingdom is endowed with a large supply of natural resources but it lacks foreign investment and investment capital to capitalize on those resources. Estimated Foreign Direct Investment (FDI) inflows fell from $119 million in 2011 to $93 million in 2016. This is a considerably small amount as compared to South Korea’s average FDI inflow of $9379 million within the same time period. [3]

 

There are more than 360 types of natural resources in the country. To put the numbers into perspective, the DPRK is among the world’s top 10 countries in terms of natural resources. [4]

 

Major Natural Resources in the DPRK
Source: Korea Mining Improvement Corporation Report (ROK), 2004

 

The mining industry is a vital part of North Korea’s economy and minerals are the most important export commodities. Mining and manufacturing contributed to 32.7% of North Korea’s GDP in 2015 [5], with China as the largest importer of mineral products produced in North Korea. [6]

 

Output of Major Metallic Ores in the DPRK
Source: Korea Mining Improvement Corporation Report, 2008

 

However, the potential is far from being realized. As seen from the table above, the output of major metallic ores in the DPRK as of 2006 was below production quantities of 1990. This suggests largely untapped potential of minerals for the development of the North Korean national economy.

 

Furthermore, production of minerals is highly volatile, as seen in the graph below. Poor conditions in the country, such as a lack of electric power, resulted in the average operation rates of all existing mining facilities of below 30% of capacity. This is by cause of worsening infrastructure of the mining facilities. [7]

North Korea’s Minerals Production from 2009 to 2015
Source: www.ceicdata.com Federal Ministry of Science, Research and Economy

 

The sanctions are working
Keynes posits that it is the lack of aggregate demand and not the lack of resources that caused economic problems,[8] and Andre Gunder Frank (1969) pointed out that the problems faced by developing countries stem from foreign countries, rather than domestically. [9] The North Korean regime has used a similar approach to explain the economic adversity in their country – the embargo policy caused a shortage of consumer goods, and external threats to national sovereignty justified excessive government expenditure on unproductive military goods. Even though North Korea is well endowed with minerals, demand does not meet supply as aggregate demand is curbed by harsh sanctions imposed by the international community on the pariah state.

 

But Kim Jong Un has other priorities…
The enigmatic leader, who has sensed threats to national sovereignty, directed a large share of the GDP to the military sector at the expense of overall economic performance. [10] Even though mineral industry’s production is constrained, it is still able to fund the country’s military sector expenses. This is the reason why sanctions in 2016 – UNSC Resolution 2270 [11] and Resolution 2321 [12] in March and November respectively – targeted the mineral industry.

 

Other viable options to tame the North
Amid internal condemnation – sanctions that successfully crippled the North Korean economy – the US administration is still willing to negotiate with North Korea. US Secretary of state Rex Tillerson emphasized that diplomatic options remained “viable and open”. [13]

 

Tightening sanctions on North Korea might force it to retaliate, like Japan did in 1941 after Washington’s oil embargo to punish Japanese expansion into Asia, and that led to World War II. [14]

 

Perhaps, providing the notorious state with aid will serve to strengthen domestic demand and will in turn contribute to overall development regardless of who the primary beneficiaries would be. [15]

 

In doing so, North Korea will be able to exploit its endowment of natural resources and experience economic growth. This would lay the foundations for solving the country’s economic problems and, ideally, open the country up to a diplomatic and capitalistic world.

 

By opening up the economy to the world, North Korea will be able to take steps to reintegrate into the international community and have vested interests, which will reduce the need for a nuclear arsenal to protect its national security.

 

References:

  1. Ben Westcott and Joyce Tseng, C. (2017). Timeline: North Korea nuclear tests versus United Nations sanctions. [online] CNN. Available at: http://edition.cnn.com/2017/01/20/asia/north-korea-nuclear-sanctions-timeline/index.html [Accessed 3 Dec. 2017].
  2. Park, H., Damron, R. and Polk, J. (2012). North Korea demystified. Amherst, New York: Cambria Press, p.38.
  3. Investment and the Digital Economy. (2017). World Investment Report. [online] United Nations, p.237. Available at: http://unctad.org/en/PublicationsLibrary/wir2017_en.pdf [Accessed 8 Dec. 2017].
  4. Yoon, E. (2011). Status and Future of the North Korean Minerals Sector. [online] p.6. Available at: http://nautilus.org/wp-content/uploads/2011/12/DPRK-Minerals-Sector-YOON.pdf.
  5. The Bank of Korea (2016). Gross Domestic Product Estimates for North Korea in 2015. [online] Available at: http://www.nkeconwatch.com/nk-uploads/GDP_of_North_Korea_in_2015_ff.pdf [Accessed 7 Dec. 2017].
  6. The DONG-A ILBO (2016). Wanxiang is largest importer of N.K. minerals: Radio Free Asia. [online] Available at: http://english.donga.com/Home/3/all/26/755518/1 [Accessed 3 Dec. 2017].
  7. Yoon, E. (2011). Status and Future of the North Korean Minerals Sector. [online] Available at: http://nautilus.org/wp-content/uploads/2011/12/DPRK-Minerals-Sector-YOON.pdf.
  8. Frank, R. (2007). Can Economic Theory Demystify North Korea. [online] 5(1), p.8. Available at: http://apjjf.org/-R%C3%BCdiger-Frank/2341/article.html.
  9. Gunder Frank, A. (1966). The Development of Underdevelopment. Monthly Review, 18(4), p.17.
  10. Shi, L. (2012). The Mineral Industry of North Korea. 2012 Minerals Yearbook. [online] Virgina: United States Geological Survey. Available at: http://www.nkeconwatch.com/nk-uploads/myb3-2012-kn.pdf [Accessed 8 Dec. 2017].
  11. United Nations. (2016). Security Council Imposes Fresh Sanctions on Democratic People’s Republic of Korea, Unanimously Adopting Resolution 2270 (2016) | Meetings Coverage and Press Releases. [online] Available at: https://www.un.org/press/en/2016/sc12267.doc.htm [Accessed 8 Dec. 2017].
  12. United Nations. (2016). Security Council Strengthens Sanctions on Democratic Republic of Korea, Unanimously Adopting Resolution 2321 (2016) | Meetings Coverage and Press Releases. [online] Available at: https://www.un.org/press/en/2016/sc12603.doc.htm [Accessed 8 Dec. 2017].
  13. Channel News Asia (2017). North Korea fires intercontinental ballistic missile Read more at http://www.channelnewsasia.com/news/asiapacific/north-korea-fires-intercontinental-ballistic-missile-9449588. [online] Available at: http://www.channelnewsasia.com/news/asiapacific/north-korea-fires-intercontinental-ballistic-missile-9449588 [Accessed 4 Dec. 2017].
  14. What if Sanctions Brought North Korea to the Brink? “Well, in 1941…”. (2017).
  15. Frank, R. (2007). Can Economic Theory Demystify North Korea. [online] 5(1), p.12. Available at: http://apjjf.org/-R%C3%BCdiger-Frank/2341/article.html