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North Korean leader Kim Jong-un speaks at a nationwide meeting on the country’s anti-epidemic campaign on Aug. 10, where he declared victory over COVID-19, in this photo provided by the state-run Korea Central News Agency. (KCNA/Yonhap)

The price of sugar in North Korea has multiplied by a factor of 8.3 between 2017 and late June of this year, from 5,201 won to 43,000 won per kilogram. During the same time period, the price of flour grew 3.7 times in the country as well, from 5,029 won to 18,700 won per kilogram.

Sugar and flour are two of the main food products North Korea imports from other countries. The extent to which their prices jumped in North Korea exceeds what might be observed in South Korea today due to high inflation. What could have happened in North Korea in the past five years to occasion such a surge in prices?

On Monday, the Bank of Korea published a report titled “North Korea’s Economy in the Past Five Years and Its Future Outlook,” which pointed to how the country’s economic environment changed during the time period. In a nutshell, the report argued that North Korea’s economy has entered yet another period of crisis after the 2000s, when its economy grew, following the 1990s, when the country experienced an economic crisis and a famine, also known as the Arduous March. North Korea’s gross domestic product (GDP) fell by 2.4% on average every year from 2017 to 2021 and is estimated to have dropped by a total of 11.4% during this time period.

What prompted the crisis in North Korea were economic sanctions against the country as well as border closures due to COVID-19.

Intensive sanctions against the country, which the international community implemented in earnest in 2017 following Pyongyang’s fourth nuclear test in January 2016, directly impacted the mining industry and the heavy chemical industry there, which had spearheaded North Korea’s economic growth. This was because North Korea could no longer export minerals, its main source of foreign currency, nor import capital goods such as machine equipment for production.

North Korea’s mining industry, which grew by 2% every year from 2012 to 2016 following Kim Jong-un’s rise to power, recorded a minus growth rate of -10.1% on average every year from 2017 to 2019. Because of this, North Korea’s real GDP, which grew by 1.2% on average every year from 2012 to 2016, recorded minus growths of -3.5% in 2017 and -4.1% in 2018.

Dramatic economic slowdowns continued afterward as well.

When COVID-19 was detected in Wuhan, China, in January of 2020, North Korea immediately banned Chinese individuals from entering the country, even going so far as to suspend freight train operations between Sinuiju and Dandong that September. Border closures led to reduced imports of raw materials and intermediate goods from China as well as movement control within North Korea, constricting light industries such as apparel production in addition to service industries like restaurants, accommodations and wholesale and retail.

In other words, even industries that had been shoring up the North Korean economy became precarious.

Having grown by 0.4% in 2019, the North Korean economy shrank by 4.5% and 0.1% in 2020 and 2021, respectively. North Korea’s nominal GDP was tallied at 35.9 trillion South Korean won last year, only one-fifty-eighth that of South Korea (2.0717 quadrillion won). North Korea’s foreign trade volume for last year only amounted to US$710 million, a record low since 1955. Imports such as sugar and flour started to skyrocket in price around this time period.

As North Korea became more isolated, inexplicable phenomena were recorded as well.

The North Korean won-to-dollar exchange rate remained at around 8,000 won per dollar from 2013 to the third quarter of 2020, all during the rule of Kim Jong-un, plummeting to the 4,000 won range from August to December of last year. Despite the ongoing economic crisis in North Korea, the North Korean won’s value relative to the dollar somehow increased.

Cho Tae-hyoung, the deputy director general of the central bank’s Economic Research Institute, explained, “The North Korean won has strengthened relatively speaking due to border closures which caused imports to drop sharply, which in turn caused demand for foreign currencies to significantly decline, and North Korean authorities implementing measures to suppress the use of foreign currencies.”

North Korea’s response to its economic crisis markedly changed after the North Korea-US Hanoi summit in September 2019 fell through. Having successfully launched the Hwasong-14, an intercontinental ballistic missile, in November 2017, and thus having gained confidence in its ability to advance its nuclear weapons, North Korea sought to improve its foreign relations during its negotiation with the US, offering partial denuclearization in exchange for the partial lifting of sanctions. When the attempt came to naught, North Korea turned its back to the outside world and declared that it would overcome its crisis through its own resources and independently developed technology.

The new Cold War that has surfaced in the international community due to the war in Ukraine may either serve as an opportunity or a threat for the North Korean economy, the report asserted. North Korea may reap the benefits of being on the same side as China or Russia, or its long-term growth potential may be hindered as it relies more and more on China.

Cho said, “In order for it to break through its current crisis, North Korea should foster an investment environment friendly towards foreign capital so that it can accumulate sufficient capital and urgently needs to break free from the shackles of low productivity by making groundbreaking changes to its economic system.”

He added, “North Korea needs to implement bold reforms tantamount to a systemic transformation, open its doors, and radically improve its foreign relations.”

By Park Jong-o, staff reporter

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