In his opening speech to the congress of the North Korea Workers’ Party, Kim Jong-un admitted that his economic policies have largely failed. He said that his five-year economic plan had failed to achieve its goals “in almost all areas to a great extent”, adding “we should further promote and expand the successes and victories that we’ve achieved through our painstaking efforts but prevent us from having the painful lessons again”. 2020 was a tough year for the country, and it’s likely the president’s announcement could lead to a shift in economy policy. But what exactly went wrong, and what might change as a result?
2020 was the latest and one of the hardest years for the North Korean economy. One of the wettest rainy seasons in years devastated crops, and Typhoon Bavi struck in August. The country closed its borders as a result of the Covid-19 pandemic (despite claiming it has suffered no cases whatsoever), meaning aid groups were unable to help respond to these disasters. The border closures and the suspension of international flights put further strain on the economy, particularly with an almost 80% fall in trade with China, its major economic lifeline. It has also suffered as a result of US-led international sanctions, after the president led an unusually aggressive run of nuclear and missile tests in 2016 and 2017.
It is believed that North Korea’s GDP shrank by 8.5% in 2020, according to a projection by Fitch Solutions
As a result of all these issues, it is believed that North Korea’s GDP shrank by 8.5% in 2020, according to a projection by Fitch Solutions. Song Jaeguk, an analyst at the IBK Economic Research Institute in Seoul, estimated a contraction of 9.3% over the same period. Even the best-case scenario would see the economy smaller than it was when Kim took over the country in 2011, with a pledge to improve people’s living standards. It is estimated the country’s GDP has fallen to around $16 billion.
What happens with sanctions will weigh on Kim’s mind. Koh Yu-hwan, president of the government-funded Korea Institute for National Unification think tank in Seoul, said: “North Korea may have calculated that the sanctions regime will last for a while. It is finding problems internally to speed up the economic recovery, things North Korea can do during the sanctions regime.” The leadership will likely be holding off until the advent of the Biden administration – it has suggested there may be further negotiations, and potential secretary of state Antony Blinken has backed a settlement with North Korea that would see it roll backs its nuclear program in return for rewards.
With the expectation that the Biden administration will push a tougher line on denuclearisation, how North Korea responds could alter the damage caused by sanctions. Leif-Eric Easley, associate professor of international studies at Ewha University in Seoul, said: “What optimists are looking for is a willingness to engage in diplomacy with the incoming Biden administration, mention of economic development opportunities, including with South Korea, and any openness to humanitarian cooperation during the pandemic. Pessimists expect the Kim regime will emphasise military strength, self-reliant socialism, and an ongoing crackdown on subversive elements.”
Kim has called for a new five-year plan, and ordered reviews of the present status of North Korea’s metal, chemical, electric and other key industries
Sanctions and the natural disasters have made improving living conditions significantly harder. According to reports by South Korea’s spy agency, after a sharp drop in external trade, North Korea experienced a fourfold increase of imported foodstuffs like sugar and seasoning, and its factory operation rate dropped to its lowest level since Kim took power because of a shortage of raw materials. Last year, he indicated that purges of cadres could be underway – he lashed out against officials for “careless budgeting” in July, but it appears that the shortage of building materials explained the delay to construction work far more than mismanagement.
Kim has called for a new five-year plan, and ordered reviews of the present status of North Korea’s metal, chemical, electric and other key industries, setting unspecified tasks for future development. Measures that are being considered for regaining economic development include a re-opening of borders, a return to some small-scale market liberalisation reforms and further resort development, but these are all dependent on the state of the pandemic. But these are all small-fry moves – reviving trade with China (or, potentially, South Korea) and easing nuclear tensions with the US are the obvious big steps that would get money pouring back into the country.
The president may attempt to restart the economy internally, but it will likely have to have an eye on the external if it wants to stimulate the economy. It won’t want to abandon its nuclear armaments, but it could potentially suggest a delay into order to secure a deal with other countries. This announcement was a surprise, but avoiding further surprises may be North Korea’s best bet – as Hong Soon-jick, a North Korea researcher at Seoul National University Asia Centre, said: “As long as it keeps away from something provocative to draw attention, its chance of getting some economic help from outside might just improve.”