With all the excitement from the Trump-Kim Summit in Singapore this month, we wanted to take a deeper look at North Korea’s current economy in anticipation of a potential “How to Invest in North Korea” post later on. To be clear, we think it is extremely early and much too optimistic to think that North Korea will be opening up its economy any time soon. Even if they do, they have a history of reneging on deals and taking two steps backwards for every step forward (more on that below).
Instead of repeating the same points that anyone can find in a Wikipedia article, here are five interesting facts that we came across while doing our own research.
1. Nobody Knows How Large North Korea’s Economy Is (But It’s Small)
The North Korean government stopped publishing statistics in the 1960s, and the famously insular country has not made it easy for outsiders to determine the state of anything in the country. One of the better references for estimating the size of the North Korean economy is an annual report by South Korea’s central bank, the Bank of Korea.
They estimate that in 2016, North Korea’s GNI was 36.4 trillion KRW (~$32b USD), and that their GNI per capita was 1.461 million KRW (~$1290 USD). Given the relatively small contributions of foreign companies to North Korea, GNI in this case is roughly equivalent to GDP. This would rank North Korea as one of the poorer countries in the world, but still ahead of many of the poorest countries in Africa.
2. Services Make Up The Largest Proportion of the Economy
We fully expected North Korea’s economy to be dominated by agriculture, military related manufacturing (heavy industry), and mining, and those take up a large part of the economy at 21.7%, 13.7%, and 12.6% of the total. However, according to that same BoK report, 31.1% of North Korea’s GDP is derived from services.
This is because (unsurprisingly) the government is the biggest contributor to the economy, at 22.4% of the whole. However, it seems that for a centrally controlled economy like North Korea, there is not much more it can do to add to the bureaucracy, so government services have one of the slowest growth rates in the economy. Mining and electricity generation grew at much higher rates in 2016.
3. The Black Market Is Alive and Well In North Korea
North Korea has its own currency, but it is pegged at an artificially strong rate and subject to government manipulation, such as the failed revaluation in 2009. As a result, even official stores in North Korea use the black market rate for the currency. US dollars and Chinese yuan are both accepted as well, with change even given in foreign currencies.
Kim Jong Un has silently approved of grey market trading and the proliferation of black market stores by not implementing any official decrees against the practice. This was a good article on the state of the black market in 2015.
4. The Hermit Kingdom Has a Telecom Industry
Despite being secluded from the rest of the world, North Korea actually has a telecom industry and local North Koreans have 3G access to the local intranet. Koryolink is the main telecom company in North Korea, and started in 2008 as a joint venture between Orascom in Egypt and a national SOE. Although they almost shut down last year as sanctions increased, they allegedly have almost 3 million customers on their networks. However, Koryolink is very likely going to be fully nationalized in the future and no further investment from Orascom is expected.
North Korea also has a broadband internet company called Star Joint Venture Co which is another JV between Thailand-based Loxley Pacific and a national SOE. The internet is very restricted to most North Koreans, and a 2016 study revealed that they had only 28 websites facing the broad Internet. The list has shrunk since then, and a current list of North Korean websites can be found here. The restrictions do not apply so much to the upper echelons of the government – it is assumed that Kim Jong Un has no such restrictions and even has a Steam gaming account.
5. The Drug Trade Is A Natural Fit For North Korea
Given all the sanctions on normal industry, and the dire need for foreign hard currency, the drug trade is a natural fit for North Korea and all indications are that it has broken bad. Meth seems to be the drug of choice both for the local population and as an export, with all levels of the government involved in driving this unofficial industry forward. Most of the drugs it produces are distributed in Asia, with China and Southeast Asia a focus. Drugs are transported through ports and also through official embassies.
In addition to illegal drugs, North Korea also produces large quantities of counterfeit pharmaceuticals, such as fake viagra. The same distribution methods are used, and there have also been reports of private entrepreneurs entering the drug trade as well, all in the pursuit of foreign currency.
