Introduction

Notwithstanding the progress made in certain areas including growth in external trade and construction activities, North Korea‘s real economy and industry failed to improve in 2019 from the previous year due to the cumulative effects from economic sanctions.

The strict sanctions enforced throughout the year were felt throughout the economy, and set the future course. The impact on the real sector and industry, however, differed somewhat from 2018. As the import ban on metal and machinery stretches past the two-year mark, production conditions in these industries have deteriorated, consequently dampening large-scale facilities investments and adversely affecting the supply of equipment and parts to other industrial sectors including mining. This implies that North Korea’s industry is continuing to suffer from a qualitative deterioration due to the export restrictions. Meanwhile, compared to the 88% and 33% decline in the export to and import from China in 2018, respectively, 2019 saw a year-on-year growth of 11% and 16% during the January-November period. The slight increase in exports is insignificant given the large drop in the absolute volume, but the growth in imports is deemed to have had a meaningful impact on the real economy and industry. The import growth in 2019 was mainly driven by intermediate goods such as textiles and chemicals, plastic, and food products. This suggests that North Korea maintained production in the light industry (e.g. textile and apparel, food processing, etc.) which is heavily dependent on the import of raw materials. Specifically, despite the persistent qualitative decline in North Korea’s industry due to the import ban on core materials and machinery, the import growth in raw materials enabled production in certain industries to continue, or even increase in some cases.

At the same time, industries and sectors that were little affected by the sanctions may have grown compared to the previous year. While hydropower generation dropped due to lower levels of precipitation, that of thermal power gained on the increased capacity, maintenance and renovation of thermal power plants and a growing supply of coal. As such, it is expected that total power generation increased by a small margin. When compared to the previous year, construction activities recorded considerable growth, spurred by large construction projects including power plants and tourist complexes. And as the commercial and transportation sectors continued to contract due to the economic sanctions, the accommodation and food services industry was able to grow on the back of the increase in the number of foreign tourists, especially those from China.

In all, the adverse effects of sanctions remained similar to the previous year. Despite the further decline in the manufacturing industry – especially machinery – there was a slight increase in external trade due to the growth in imports. In addition, the improvements made in certain industries including agriculture, electricity, construction and tourism eased the decline in North Korea’s real sector and industry in 2019, resulting in a smaller negative growth compared to the previous year.

* This article is part of 2019 The DPRK Economic Outlook

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