Is North Korea’s economy coming out of the cold?
Landmark Trump-Kim summit creates the possibility of economic revival for North Korea, but significant obstacles remain.
Seoul, South Korea – In the face of the landmark summit between North Korean leader Kim Jong-un and US President Donald Trump, the whole world seems obsessed with watching the wall-to-wall coverage of the on-again off-again summit scheduled for June 12 in Singapore. Not so, for North Korea.
Instead, economic development projects are dominating the headlines of Pyongyang’s tightly controlled state-run media outlets.
Recently completed railways and the on-going construction of a large tourist zone in the country’s eastern coastal city of Wonsan have been getting the spotlight.
One of toughest issues of the negotiations, and one of Pyongyang’s main goals, would be the lifting of a multitude of international sanctions mainly designed to stifle North Korea‘s economy.
This would be in exchange for a complete, verifiable, and irreversible dismantlement of the North’s cherished decades-long nuclear programme.
Nuclear weapons might be able to guarantee the regime’s security from the US for a short period of time, but they do not help meet people’s growing expectations of economic livelihood, said Yang Moo-jin, a professor at the University of North Korean Studies in Seoul.
“Chairman Kim has been making his move to address a very urgent issue of improving the residents’ livelihood and developing the economy,” Yang added.
In fact, Kim has been gradually shifting the country’s strategic focus from the military to the economy since he inherited power from his late father Kim Jong Il in 2011.
In 2013, he replaced his father’s flagship policy of Military First with the now-scrapped Dual Policy of simultaneously seeking economic and nuclear weapons development, and recently dropped the emphasis on nuclear proliferation from the country’s strategy.
At a key meeting in Pyongyang in April, the ruling Workers’ Party vowed to “concentrate all efforts on building a powerful socialist economy” through “the mobilisation of all human and material resources”, according to a report by the official Korean Central News Agency (KCNA).
Kim does not have much time left in producing tangible economic achievements, as he previously laid out during the first ruling Party Congress convened in more than three decades; an ambitious five-year strategy for the state economic development that will end in 2020.
Such a drive for the economy seems to have borne fruit to some extent, despite international sanctions.
Under Kim’s leadership, North Korea’s GDP has been projected to have expanded (albeit at a low rate) every year with the exception of 2015, according to the latest estimates released by the central Bank of Korea in the South, which tracks North Korea’s economic activities.
With rapprochement and peace on the horizon, potentially clearing geopolitical risks and uncertainties, big players are now looking into potential economic dividends.
Of course, many of the scenarios on economic projects involving North Korea are largely contingent upon the outcome of the Singapore summit, more specifically, the North’s pledge for denuclearisation and the subsequent lifting of sanctions.
South Korea sees a potential opening up in the North as another growth engine.
Many experts here point out the most distinctive assets of North Korea is its vast amount of mineral resources, including iron and magnesite.
Since North Korea does not disclose the details of its natural resources, it is difficult to come up with an estimate of potential value.
However, one estimate by the Korea Resources Corporation in the South puts it at more than $3 trillion .
In addition, North Korea is known to have a big reserve of rare earth metals, essential materials in producing digital devices such as smartphones.
In contrast, while South Korea is the fifth largest consumer of minerals in the world, the country is poorly endowed with natural resources and has to rely on 90 percent of the mineral resources it consumes from foreign imports.
An affordable and relatively well-educated workforce in the North is another factor attracting South Korean manufacturing companies, many of whom have relocated their factories overseas.
In addition, geographic proximity and the same language spoken on both sides of the border helps to bring down additional costs.
The joint inter-Korean Kaesong Industrial Complex was the last vestige of inter-Korean economic cooperation, located just north of the border.
Before it shut down in early 2016 in the wake of missile and nuclear tests, an average monthly wage paid to a North Korean worker was $169.
A minimum wage worker in the South earns nearly 10 times that, at about $1,470 a month, working a 40-hour week.
Tourism is an industry that Kim has keenly pushed to develop, although it might sound odd for many outsiders.
Kim built a Masikryong Ski Resort in the eastern city of Wonsan immediately after he came into power, and is now concentrating resources, including army soldiers, into constructing a huge tourism complex along the coast with an aim to finish by April next year.
A soaring number of South Koreans are spending their holidays overseas, surpassing the 26 million mark last year.
Even if a fraction of those people cross the border and visit historically famous places in the North, it would easily become a multi-billion dollar business.
However, there is a mountain to climb. South Korea has halted all inter-Korean tourism projects since a South Korean tourist was shot and killed in 2008 by a North Korean guard in a scenic mountain resort, just north of the border on the east coast.
More than 3,000 South Koreans crossed the border to visit the mountain in 2007.
Seoul has demanded Pyongyang make an apology and provide safety measures, a set of conditions not yet met by the North.
South Korea hopes to reconnect railways between two Koreas, and ultimately connect to the Trans Siberian Railways.
The two Koreas made some nascent progress in the 2000s, before their relations began to sour in 2008.
Severed by the inter-Korean border, South Korea is a de facto island nation. Currently, South Korea, the sixth largest exporter in the world, relies heavily on sea shipping for a bulk of its trade.
Shipping freight from South Korea’s port city of Busan to Berlin via railway would halve the current shipping time of 35-40 days via sea.
In order for this to materialise, a major overhaul and modernisation of the North’s old railway systems are needed.
During the landmark inter-Korean summit in April, Kim made a rare admission of his country’s inferiority, when South Korean President Moon Jae-in, an avid hiker, expressed his wish to travel to the highest mountain in the North.
According to Moon’s spokesperson, Kim said he was concerned about transportation inconveniences in contrast to South Korea’s high-speed train.
Two leaders agreed to adopt “practical steps towards the connection and modernisation of the railways and roads”.
With most of the land already developed in the South, major infrastructure projects would be a boon to construction companies.
Relationship with Russia
Russian President Vladimir Putin, eager to develop Russia’s Far East, has repeatedly pushed for trilateral economic projects involving two Koreas and his country, even during the heightened tensions in previous years.
As the peace mood has blossomed, Putin wasted no time in rekindling the moribund projects, including connecting railways and building a gas pipeline between Russia and the South via the North.
Putin once again raised the prospect during the phone call with Moon, two days after the April 27 inter-Korean summit.
Last week, he sent his top diplomat, Sergey Lavrov, to Pyongyang, pointing out the need for a revived push for trilateral economic projects.
A $100bn deal between Seoul and Moscow reached in 2008, to supply annually 7.5 million tonnes of Russian natural gas starting in 2015 via a pipeline to be built via North Korea, was placed on hold in the wake of souring inter-Korean relations.
The project was considered to be a win-win for both countries, as resource-rich Russia can secure an important consumer and resource-strapped South Korea can bring down its import price.
Putin has invited Kim to a major Russia-held economic forum to take place in Vladivostok in September. Key leaders in the region, including President Xi Jinping of China and Prime Minister Shinzo Abe of Japan, are likely to attend as well.
China hopes to give yet another impetus to its drive to develop the country’s laggard northeastern provinces that border with North Korea.
Despite its rosy economic blueprint, the provinces have been plagued with high unemployment and a string of scandals, including falsified GDP figures.
An exodus of labour force to wealthier provinces and geopolitical uncertainties amid a string of missile and nuclear tests across the border have made it more difficult for the region to turn things around.
The latest rounds of UN Security Council resolutions have restricted the import of North Korean labour and much of the trade with North Korea.
Despite the North’s potential, experts warn challenges also lie ahead.
For all-round economic development, infrastructure projects – such as the construction of roads, railways and power plants for electricity – are needed.
A realistic question would be how to fund them, when any infrastructure project would cost an enormous amount of money and take a long time before yielding profit.
President Trump clearly stated the US would not provide money when his country is 13,000km away, stressing that South Korea, China and Japan would provide the financial backing.
The South Korean government has earmarked roughly $1bn for an inter-Korean economic cooperation fund.
A move by the government to secure a bigger budget will likely entail a heated social and political debate in a country already struggling with expanding social welfare programmes.
“If private investments are made, then positive achievements could be made. My concern is whether the private sector would actively participate in investments,” Shin Se-don, an economics professor at Sookmyung Women’s University, told Al Jazeera.
Even if private companies raise funds and build infrastructure first, they need to be able to recover the cost at a later stage .
“The question is whether North Korea is capable of paying back, and whether North Korea is willing to pay back,” Shin added, pointing out the North’s track record.
He said there could be a way around – suggesting one scenario in which governments in the region provide guarantees and private banks provide loans to the private sector.
That arrangement would be a lot harder for Pyongyang to default on, said Shin.