North Korea's high growth thanks to 'improved economic management system'

Information from North Korea shows that Kim Jong-un continues to implement a radical economic reform program. Therefore, the growth of this embargoed economy in 2017 reached 3.9%.

Improve economic management system

Local newspapers do not talk about it, instead of the phrase "economic reform" they write about "improving the economic management system". However, even official documents clearly show that the situation in North Korea is changing rapidly.

North Korean leader Kim Jong-un.

In an essay published in the Russian newspaper "Izvestia", famous North Korea expert Andrei Lankov commented that North Korea has completed the first stage of economic reforms initiated by Kim Jong-un in 2013.

After the promulgation of the New Economic Management Measures on June 28 (referred to as Measure 28-6), almost the entire agricultural sector of this country is operating under the family contract principle. Accordingly, the state allocates a piece of land to a "production unit" for stable and long-term use. The household using the land must provide the state with 10% to 35% of the crop. The remaining part can be freely sold by farmers on the market.

Since 2015, North Korea has begun to apply this principle to other areas of the economy. The new “State Enterprise Law” and its guiding documents no longer mention central planning, and “planning” in practice means a natural income tax equivalent to one-third of the productive capacity of the enterprise.

Now all enterprises make their own development plans and only inform the competent authorities about their programs. Products produced within the framework of the "plan" are sold to the state at very low prices, the rest can be sold freely on the market.

With the proceeds, usually in dollars or yuan, businesses can buy raw materials, develop production facilities and pay employees.

The new law, Lankov notes, de facto legalizes a scheme that has existed for many years, when private investors established and managed production facilities operating under the guise of state-owned enterprises. This means that a new class of entrepreneurs can be confident in the future.

Moreover, North Korea is seeing the first results of its economic reforms: the 2016 harvest brought the highest results in North Korean history. And for the first time since 1999, GDP, despite all external obstacles, reached a record 3.9%.

Impact of the embargo

However, the new sanctions significantly restrict North Korea’s foreign trade and could weaken its growth trend. According to South Korean experts, the ban on North Korean mineral imports could cause the country’s GDP to shrink by 2.5%, which would be the largest decline since 1998.

According to South Korea's intelligence agency, the North Korean economy could shrink another 5% in 2018, completely erasing the development achievements of recent years.

Students perform at the Juche Tower in Pyongyang. Photo: Internet

These calculations are based on the view that North Korea can develop only with external assistance in the form of oil shipments or foreign supplies of equipment and goods in exchange for exports of minerals, seafood, and textiles.

However, no one knows exactly how dependent North Korea is on foreign trade, with some estimates putting it at less than 20%. In addition, North Korea has been under sanctions for many years and has learned to exploit some loopholes in the sanctions.

Although its economy has recovered significantly in recent years, North Korea remains one of the poorest countries in the world. However, this is to their advantage, because North Korea has great opportunities for growth.

It has been shown that, thanks to simple changes in management, North Korea can achieve quite good results. Whether they will continue to develop at this rate, no one knows. But, all things considered, Pyongyang has enough internal reserves to continue developing for a long time.

According to Sputnik