Monday, 16 January 2012

North Korea economy


North Korea economy: The budget offers no hard numbers, yet again
May 25
– As usual, the main formal
business at the annual meeting on April 7th of the Supreme
People’s Assembly (SPA), North Korea’s rubber-stamp legislature,
was to hear economic and budget reports for 2010, and to approve
the budget for 2011. This was as opaque as ever, with a complete
absence of hard numbers. All that was given were a few
percentages, which–even if true–cannot be interpreted without a
baseline.
Until 2002 aggregate totals were published for public revenue and
expenditure, from which it was possible to calculate some
sectoral figures. However, this ceased from 2003, possibly
because it was difficult or embarrassing to deal with the
devaluation that had accompanied partial reform measures in July
2002. Even with such basic data withheld, North Korea will
neither attract serious foreign investment nor be eligible to
join the World Bank or the IMF. South Korean sources attempt to
fill in the blanks, apparently based on a single real figure
heard some years ago in a radio broadcast. The South’s Ministry
of Unification has put the North’s overall budget for 2011 at
Won567bn, which it equated to US$5.7bn–barely 2% of the South’s
budget of US$268bn for the year.
North Korea’s finance minister, Pak Su-gil, reported that in 2010
revenues were 7.7% higher than in 2009, and also 1.3% above their
planned level. Spending rose by 8.2% year on year and hit 99.9%
of the intended figure. By sector, light industry and agriculture
received allocations 10.9% and 9.4% larger, respectively, than in
2009. Science and technology increased by 8.1%, while
“implementation of the popular policies” (presumably social
services, perhaps including health and education, which were not
otherwise mentioned) received 6% more. Being less than the
average increase, this implies its share of total spending has
fallen.
In a particularly obscure phrase, Pak Su-gil added (as reported
by the KCNA) that spending on “the pilot domains of national
economy, basic industrial domains and capital construction last
year went up 8% and 12.9% respectively over [2009].” What look
like three terms here are presumably two: “the pilot domains of
national economy” are the same as “basic industrial domains”. In
North Korean parlance these sectors are the metal, power and coal
industries, and railway transport.
Confusingly, but in line with tradition, defence spending was
given on a different basis: as a proportion of total expenditure,
at 15.8%. This figure hardly varies from year to year–it is the
same for 2011, which would imply a 8.9% rise in defence spending.
Many observers suspect this is an understatement, with much
military spending hidden under other headings. In January South
Korea’s state-run Korea Institute of Defence Analyses (KIDA)
claimed that the North’s actual military spending in 2009 was
US$8.8bn, or 15 times the official figure of US$570m and
equivalent to one-third of its total gross national income. (The
KIDA figures are compiled on a different basis to that used by
the unification ministry.) Even this higher figure is less than
the South’s military expenditure.
The Northern finance minister’s projections for 2011 were also
obscure. Revenue is slated to increase by 7.5% year on year.
Again switching between different sorts of percentages, Pak
Su-gil said that 83.9% of the total will come from central
finances and 16.1% from local budgets. By sector, the bulk of
revenue–some 78.5%–will derive from transaction taxes and state
enterprise profits. Among lesser sources, “the profits of
co-operative organisations, the fixed-asset depreciation, the
income from real estate rent and social insurance are expected to
swell 3.8%, 1.4%, 0.7% and 0.4% respectively” compared with the
previous year.
The balance of planned spending by sector in 2011 differs
significantly from 2010, although again Pak Su-gil did not point
this out. Overall expenditure is set to rise by 8.9% year on
year. Light industry will get 12.9% more than in 2010 and “a huge
budgetary disbursement will be made for local industry, too”.
Agriculture will receive a 9% increase, and “funds needed for
farming will be provided on a priority basis”. Yet “pilot domains
and basic industries”, essentially comprising heavy industries,
are to get 13.5% more than in 2010. This is despite the fact
that, according to a prominent newspaper editorial earlier in the
year highlighting policy, light industry was supposed to be the
core priority this year.
As in 2010, the largest increase of all, of 15.1%, will be
provided to capital construction. Science and technology will get
10.1% more, to help reach the goals of a five-year plan for state
scientific and technological development, due to end in 2012. No
details of this plan are known; North Korea has announced none of
its economic plans publicly since the last seven-year plan ended
in 1993 with a rare admission that planned targets had not been
met.
In general, the finance minister urged “all domains and units of
the national economy to give full play to the mental power of the
producer masses, economise manpower, materials and funds and cut
down as much as possible non-productive expenditure and thus
carry out the monthly and quarterly plans for budgetary revenue
without fail”. The latter phrase hints at the existence of more
detailed figures, undisclosed publicly. The emphasis on
economising could also suggest tight fiscal constraints–as well
as an appeal to the Communist state’s philosophy of juche, or
self-reliance.
A speech to the legislature by the premier, Choe Yong-rim,
provided little extra background to the budget. Past premier
reports have sometimes given useful detail, if only
descriptively. This time the KCNA reported the premier in barely
100 words. His claims of “signal advances” and “big successes” in
2010 were greeted with scepticism by most external observers.
-0- May/25/2011
North Korea economy: The UN launches an emergency food programme
– On April 29th the UN
Children’s Fund (UNICEF) and the World Food Programme (WFP)
announced a one-year US$200m emergency plan. The scheme aims to
feed people affected by crop losses and a particularly bitter winter. It is unclear how this will be financed. UNICEF hadearlier reported that, having sought US$10m for its work in NorthKorea in 2010, it received only US$ 2m. Undaunted, it has launched a US$20m appeal to fund work in five provinces with the worst malnutrition rates, targeting 165,000 pregnant or breast-feeding women and 400,000 young children as the most vulnerable.The WFP seeks to provide 297,000 tonnes of grain plus 137,000 tonnes of fortified foods. This follows a month-long Rapid Food Security Assessment Mission conducted in February-March 2011 by the same agencies, together with the UN Food and Agriculture Organisation (FAO). The report, which was published in March, warned of the high risk of a food crisis. The state ration system, which provides barely more than one-half the average daily calorific requirement, is due to run out of food in May. In the lean season (May-July) over 6m people, or one-quarter of the population, may need food assistance.
The mission declared that in 2010/11 (November-October)
production of staple foods is likely to reach 4.3m tonnes–some
232,000 tonnes below the estimate made by an earlier mission in
late 2010, owing to the severity of the winter. It noted that the
amount of potato seed in winter storage that has been damaged is
higher than normal, and 2011 spring production will likely be 60%
of the planned level. Meanwhile, production of pickled vegetables
(kimchi) was affected by the heavy rains in August-September
2010. The mission concluded that North Korea would need to import
1.1m tonnes of cereal, but that officials plan to import only
200,000 tonnes at present.
Others are sceptical, for reasons that–despite official
denials–are hard to separate from the wider political stalemate
on the peninsula. The US is said to be mulling over assistance,
despite North Korea’s nuclear obstinacy. The main obstacle is
South Korea, whose hardline government summarily scrapped food
aid in 2008, even before the Northern attacks in 2010. The South
professes to doubt how bad the North’s situation really is,
claiming variously that it holds large grain stockpiles in case
of war, or wants to build up supplies so as to celebrate the
centenary of its founder Kim Il-sung next year with a show of
generosity by his son.
The FAO’s concerns are animal as well as human. On March 24th,
after a joint mission to North Korea with the World Organisation
for Animal Health (OIE), it said that vaccines and other
materials worth US$1m were urgently needed to help to combat
foot-and-mouth disease, which has struck eight out of 13
provinces. This is a modest sum compared with the disaster in
South Korea–a likely source of the North’s epidemic–where since
November 3.5m cattle and pigs have been culled, with losses of
US$2.6bn. Although the worst is now thought to be over, both
Koreas were still reporting fresh outbreaks in April.
The FAO added that North Korea’s veterinary services need
modernising, especially biosecurity measures and improving
laboratory infrastructure and capacity. It tallied the country’s
total livestock population at 577,000 cattle, 2.2m pigs and 3.5m
goats. The latter are an important source of dairy products,
while cattle, besides dairy use, are “a key source of draft
power”. The latter comment highlights how farming, once
mechanised, has regressed since access to cheap oil ended with
the collapse of the former Soviet Union. Meat is now a rarity in
North Koreans’ diets, reserved only for special occasions.
-0- May/25/2011
North Korea economy: Trade with China and South Korea rose in 2010
The Korea International
Trade Association (KITA), a private-sector body based in the
South Korean capital, Seoul, in March published a comparison of
North Korea’s aggregate trade in 2010 with China and South Korea.
The North’s two main trading partners together make up at least
80% of the country’s total trade.
Unsurprisingly, given inter-Korean tensions in 2010, China pulled
ahead both in relative and absolute terms. Its trade with North
Korea in 2010 totalled US$3.5bn, representing a year-on-year
increase of 32%. Less expectedly, inter-Korean trade rose too,
albeit by a slower 14%, to a record US$1.9bn.
South Korea supposedly barred trade with the North in May 2010
after the Cheonan sinking, but it exempted the Kaesong Industrial
Complex (KIC), a zone in the North in which many Southern
companies operate. Exchanges involving the KIC (mainly raw
materials and equipment going in, and finished goods coming out)
soared by 53.4% from 2009, to US$1.4bn. Non-KIC inter-Korean
trade did, however, fall by 54%, to US$117.8m.
As an organization of South Korean exporters, KITA is concerned
about competition with China for the Northern market. The South
had previously been the North’s main export market, and in 2007
inter-Korean trade reached 91% of the Sion-North Korean total.
However, since 2008, when the conservative Lee Myung-bak became
South Korea’s president, the proportion has slipped, falling to
55% of Sion-North Korean trade in 2010.
KITA’s data are backed up by figures from World Trade Search
(WTS), a Japan-based firm which tracks North Korea’s trade.
According to its statistics, North Korea’s US$3.46bn total trade
with China in 2010 was, as ever, unbalanced. Imports from China
reached US$2.3bn, compared with exports to that country of just
US$1.2bn. However, exports accelerated from just US$341m in the
first half of the year to US$840m in the second. Imports showed a
similar but less marked trend, expanding from US$939m in
JanuaryJune to US$1.3bn in JulyDecember. This probably reflects a
sharp pick-up in commodity prices in 2010, which may have
affected the value of Northern imports of oil and its exports of
iron ore and coal. WTS figures show that North Korea exported
goods worth US$1bn to the South in 2010, against imports of
US$866m.
Chinese government data indicate that the North’s trade with
China continues to expand massively. China’s imports from North
Korea in the first quarter of 2011, at US$401.5m, were over three
times the level in the year-earlier period (US$126.2m). The rise
appears largely owing to soaring coal exports, although iron ore
exports were also substantially higher. China’s exports to the
North were also up by 59.3% year on year in the period, to
US$571.2m.

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