How does North Korea generate hard currency?
Watching the majestic pictures of the North Korean military parade, one would naturally ponder: where did they get the money for the luxury Mercedes limos? They certainly did not build them by themselves, and as the extended S-class armored limousine costs around $1.000.000, the closed economy had to export to the “outside world”. So, where does North Korea obtain the “hard currency” and what does it use it for?
North Korea is estimated to be the 113th export economy in the world with $4.15B of exports in 2015, which is comparable to Bosnia and Herzegovina, Namibia or San Marino. The main trading partner is China which accounts for 75.4% of exports. Even though China wants to end the North Korean nuclear program, and thus not importing from it would make sense, it does want the country to remain stable, as an economic crisis would mean severe migration to China. Other trading partners are mainly developing countries, as the European Union, the U.S., Japan and South Korea imposed severe sanctions in the form of trade limitations, thus the limos could not come directly from Germany.
The biggest source of cash for North Korea comes from the sales of coal to China. As for 2015, coal accounted for about 30% of all the exports, however, China as the main buyer said it will limit the imports as it wants to put a halt on the North Korean nuclear program. However, the communist regime and traders still have plenty of opportunities to sell the coal around restrictions. Also, the communist regime saved money from the sales of coal in times of high commodity prices, and is believed to have money stored in several Chinese banks. It is also believed that North Korea is trying to access other global banks to store its funds. The stored money is perceived as a leverage over the country as any global power can impose sanctions to banks that comply with Kim Jong Un.
The second largest exporting goods are arms and missiles. As the regime is investing an estimated 25% of the GDP into its’ army, it has developed certain technical acumen, which has, along the cheap labor, made it concurrent in the military business. The main product are ballistic missiles, which the regime uses for provocations that have made the latter headlines, and got Kim Jong Un famous. The missiles are mainly sold to developing countries, but as they were sold along technical equipment to build them, and as the buyers are at peace, the income from those is declining. The same as for missiles, the country has developed economies of learning when building arms and arms factories. There are several factories in Africa that were built, and are now ran by North Korea with reliance on the country’s technical knowledge and spare parts.
Another thing the country gained expertise in, not surprisingly, is building statutes. The regime’s propaganda requires lots of “glorious” statues of its’ founding fathers and role model citizens, and the factory producing those statues, employing 4000 workers, delivers its’ products mainly to African regimes, however, some statues can be found even in Germany.
Other products from North Korea are mainly concurrent because of the cheap and experienced labor. The textiles from the region situated next to the border with China are sold under the label “Made in China”, but it actually costs 30% less to produce them, so many of those products found their way to the European shelves.
Furthermore, North Korea produces a large amount of drugs. As for domestic use, they tend to copy the products from western pharmaceutical companies, and their products find their way to the internet. As for illicit drugs, the production of those is closely inspected by chemists and is not enforced, thus making its drugs surprisingly “good” and pure.
There is a thing at which North Korea is the best in the world; making fake banknotes. As for drugs, the country used its’ best engineers, and imported the machinery, paper and ink, to make the best reproductions of the $100 bill. Those counterfeit banknotes are actually so good, that the U.S. government had to introduce a new $100 bill in 2013.
One of the most significant sources of income is foreign labor. The basic business model is sending the workers abroad and holding leverage over them by keeping their families under control in the country. Those workers are mainly situated is China and Russia, however, they were also found in the Middle East, Africa, or even Europe. Those workers are estimated to receive less than 10% of what they earn. They are generally physical laborers, working long hours just to see their families survive. A similar concept of work is used in typical North Korean restaurants scattered around Asia, those restaurants are owned by the state, and the revenues from them go directly to the government of North Korea.
North Korea really developed some interesting, “capitalistic”, ways to exploit its political advantages to generate added value, even though the list of products may seem long, the country’s GDP amounts to 2.2% of the South Korean GDP, and the latter only has twice as much inhabitants. Unlike other world leaders, Kim Jong Un has little regard for education, health care or safety of its citizens, and spends the cash generated by exports mainly for military purposes, and political faithfulness of the regimes’ political elites.
WRITTEN BY JAN ERIK PERSOLJA FOR BESA
PLEASE DIRECT ANY INQUIRY TO AS.BESA@UNIBOCCONI.IT