• General features
• Key indicators
• Outlook

Because of the secretive nature of North Korea's Stalinist regime, reliable statistics are difficult to obtain.?The following figures are estimates.

OUTLOOK:

Background

No other country in the world can rival North Korea for the strictness of its central control of the economy.

Agriculture, which was collectivized between 1954 and 1958, accounts for 30% of North Korea's GDP and employs 36% of its 9.6m labour force. Today, some 90% of cultivated land is controlled by co-operative farms.

The industrial sector (which accounts for 42% of GDP) was developed by the Japanese, who annexed Korea in 1910 and controlled it until the end of WWII. Japan's concentration on heavy industry was continued after 1945 by the North Koreans, and this caused the economy to fall behind those of the Asian neighbours which specialized in electronics and computers. Almost all manufactured goods are produced by state industries.

Services account for the remaining 28% of GDP.

North Korea is well endowed with natural resources - especially coal, which is used to generate almost 35% of the country's electricity. Other natural resources include lead, iron ore, copper, tungsten, graphite, and gold. Hydropower makes a significant contribution to meeting North Korea's energy needs. Over 60% of the country's landmass is forested, providing a resource which has yet to be satisfactorily exploited.

The collapse of the USSR has had a devastating effect on North Korea's economy because of the close ties that existed with the Soviet bloc. Between 1991 and 1999, North Korea's total output steadily fell and has probably dropped by 50% in all, until 1999 saw GDP growth of 1%. Other factors contributing to the decline were a shortage of energy, out-of-date plant and equipment, poor maintenance, and a lack of new investment.

A further drain on the economy is the fact that North Korea devotes an estimated quarter to a third of GDP to military spending, although official figures suggest the proportion is lower.?Pyongyang Finance Minister Mun Il-bong told the North Supreme People Assembly in March 2003 that 15.4% of the budget for the year would go to defence, up from 14.9% in 2002. No total value was given for the budget.

A lack of arable land and an acute shortage of fertilizer have contributed to a considerable shortfall in grain production. As a result, the UN estimated in 1997 that 2m citizens of North Korea were threatened with famine. And a delegation of the US Congress estimated in 1998 that between 300,000 and 800,000 North Koreans had died of starvation in each of the previous three years.

The Bank of Korea in Seoul reported in 2002 that despite three years of nominal GDP growth, the North's economy was not viable without substantial external aid.?In 2001 the South's GNI was some 27 times that of the North, and per-capita income was 13 times smaller than in the South.

The South's Unification Ministry said in July that the number of North Korean firms and factories which reported meeting their output targets in the January-June period fell 36% year-on-year. The sluggish performance was blamed on a series of holidays in the first half of the year, including the 29 April-15 July Arirang festival and political holidays celebrating the birthdays of leader Kim Jong-il and his father Kim Il-sung.

Reform

In July 2002 Pyongyang slashed the value of its currency by 98.6%, introduced competition and performance-related salaries, scrapped official ration coupons, and raised the prices of goods to market values in order to eliminate black-market trading. The price of rice rose by a factor of 50 in July alone, although salaries did not rise as dramatically.

South Korea central bank reported soon afterwards that "chronic supply shortages" had forced the North to take "the first step towards adopting a market economy", although Pyongyang has insisted the reforms are within the framework of a centrally planned economy. According to reports in April 2003, Pyongyang is allowing "farmers markets" to distribute industrial goods. Choi Hong-gyu, a senior official in the North State Planning Committee, said the North would still "implement aggressive management policies so that markets could function as places to meet social demands".

Kim Jong-il is thought to have studied reform in China (he led a delegation inspecting China factories in 2001), and is thought to want to secure assistance from North Korea neighbours - Russia included - before following a similar course.?Copying similar moves by China in 1994, North Korea devalued the won last year and abandoned a convertible version of its currency used in deals with foreigners.

In September Pyongyang initiated a new policy allowing foreign investors to take more than a 50% stake in joint ventures. The South Korea Trade-Investment Promotion Agency (KOTRA) quoted the North Vice Trade Minister Kim Yong-sul as having said: "In the case of joint ventures, foreign companies could take only up to 50% of the stake in the past, but now there is no problem if the stake goes above that level."

North Korea has also recently announced the issuance of 10-year "People Life Bonds", presumably to make up a budget deficit and to control inflation. The official media said on 31 March 2003 the bonds were aimed at meeting "the great demand for funds necessary for the building of a powerful nation on the basis of the Korean people noble patriotism and their awareness as citizens". Analysts have suggested that the bonds will probably be used in lieu of wages or other payments by the government...

Find more facts about North Korea at the AsiaInt page.