Geopolitics

Pyongyang Potential: Could North Korea's Economy Take Off?

With its mineral resources and cheap labor, the country has significant potential for growth, but economic openness could undermine its dictatorship.

A worker at the Kangso Mineral Water Factory that is shown to foreigners to display its modernized industries
Yann Rousseau

SEOUL — Last month, Ian Bennett hosted a start-up workshop in Pyongyang. Several times a year, the computer scientist travels to North Korea to run training seminars organized by the Singaporean NGO, Choson Exchange. The workshops feature foreign professionals introducing North Korean workers to marketing skills, economic analysis and sales techniques.

"There is a strong entrepreneurial spirit," says Bennett. "Many people who seek to develop these new skills have experienced famine in the 1990s, and now know they can't rely any longer on the state alone. Those who have not tried to fend for themselves in the past often die."

In an attempt to convince Kim Jong-un to quickly give up Pyongyang's nuclear arsenal, the US and South Korean officials like to point out the opportunities for growth and the examples of how Chinese or Vietnamese openness led to booming economies.

North Korea, after a relaxation of international sanctions, could wind up benefiting from development aid and private foreign investments to restore its obsolete infrastructure, its medieval agriculture, its mines and even to activate its tourist sector. "We could reconnect the South and the North ..., establish a community that will bring prosperity to both Koreas," said South Korean President Moon Jae-in.

In April, during his first major summit with Kim Jong-un, the South Korean leader also gave the young dictator a USB key containing a development plan for the entire peninsula.

With supporting clips and graphics, it proposes the establishment of at least three economic corridors linking the two nations and resurrecting several industries in the North. Reconstruction of the North Korean rail network would, for example, allow South Korean companies to have a new route to distribute their products elsewhere in Asia and Europe while offering Pyongyang an opportunity to open up its mineral resources.

Foreign companies have denounced the predatory ways of the regime and the absence of any stable legal framework.

According to the Seoul-based North Korea Resources Institute, North Korea has significant reserves of at least 200 minerals and metals. Behind China, North Korea is home to the second largest deposit of magnesite on the planet, but also huge reserves of tungsten ore, graphite and molybdenum. Its bedrock could also hide several rare minerals sought by tech giants. But due to lack of suitable technologies, modern transport networks and electricity, the country remains unable to exploit these resources.

Should some Chinese, or especially South Korean companies, such as Lotte or KT, have already expressed interest in these mines, agricultural regions or cheap labor North Korea, they would have no choice but to deploy very slowly within the country, which is unable to suddenly reinvent itself as a new Vietnam.

North Korean factory worker using a mobile phone that blocks access to the World Wide Web — Photo: Andreas Landwehr/DPA/ZUMA

The few foreign companies that have invested in the country during previous periods of appeasement of sanctions have denounced the predatory ways of the regime and the absence of any stable legal framework. The Chinese Xiyang Group lost tens of millions of dollars in an iron ore joint venture with a North Korean state-owned company, while the Egyptian firm Orascom, which built the first North Korean mobile phone network, said they were unable to get their full payment from the country.

To attract foreign investment, Pyongyang will need to radically reform its political and economic organization, which would prove to be a potentially dangerous next step for the Kim's regime, having been built against this very "imperialist capitalism" bogeyman. "There is a limit to the pace of economic reform," says Bennett, "to be able to also ensure political stability."

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Economy

European Debt? The First Question For Merkel's Successor

Across southern Europe, all eyes are on the German elections, as they hope a change of government might bring about reforms to the EU Stability Pact.

Angela Merkel at a campaign event of CDU party, Stralsund, Sep 2021

Tobias Kaiser, Virginia Kirst, Martina Meister


-Analysis-

BERLIN — Finance Minister Olaf Scholz (SPD) is the front-runner, according to recent polls, to become Germany's next chancellor. Little wonder then that he's attracting attention not just within the country, but from neighbors across Europe who are watching and listening to his every word.

That was certainly the case this past weekend in Brdo, Slovenia, where the minister met with his European counterparts. And of particular interest for those in attendance is where Scholz stands on the issue of debt-rule reform for the eurozone, a subject that is expected to be hotly debated among EU members in the coming months.

France, which holds its own elections early next year, has already made its position clear. "When it comes to the Stability and Growth Pact, we need new rules," said Bruno Le Maire, France's minister of the economy and finance, at the meeting in Slovenia. "We need simpler rules that take the economic reality into account. That is what France will be arguing for in the coming weeks."

The economic reality for eurozone countries is an average national debt of 100% of GDP. Only Luxemburg is currently meeting the two central requirements of the Maastricht Treaty: That national debt must be less than 60% of GDP and the deficit should be no more than 3%. For the moment, these rules have been set aside due to the coronavirus crisis, but next year national leaders must decide how to go forward and whether the rules should be reinstated in 2023.

Europe's north-south divide lives on

The debate looks set to be intense. Fiscally conservative countries, above all Austria and the Netherlands, are against relaxing the rules as they recently made very clear in a joint position paper on the subject. In contrast, southern European countries that are dealing with high levels of national debt believe that now is the moment to relax the rules.

Those governments are calling for countries to be given more freedom over their levels of national debt so that the economy, which is recovering remarkably quickly thanks to coronavirus spending and the European Central Bank's relaxation of its fiscal policy, can continue to grow.

Despite its clear stance on the issue, Paris hasn't yet gone on the offensive.

The rules must be "adapted to fit the new reality," said Spanish Finance Minister Nadia Calviño in Brdo. She says the eurozone needs "new rules that work." Her Belgian counterpart agreed. The national debts in both countries currently stand at over 100% of GDP. The same is true of France, Italy, Portugal, Greece and Cyprus.

Officials there will be keeping a close eye on the German elections — and the subsequent coalition negotiations. Along with France, Germany still sets the tone in the EU, and Berlin's stance on the brewing conflict will depend largely on what the coalition government looks like.

A key question is which party Germany's next finance minister comes from. In their election campaign, the Greens have called for the debt rules to be revised so that in the future they support rather than hinder public investment. The FDP, however, wants to reinstate the Maastricht Treaty rules exactly as they were and ensure they are more strictly enforced than before.

This demand is unlikely to gain traction at the EU level because too many countries would still be breaking the rules for years to come. There is already a consensus that they should be reformed; what is still at stake is how far these reforms should go.

Mario Draghi on stage in Bologna

Prime Minister Mario Draghi at an event in Bologna, Italy — Photo: Brancolini/ROPI/ZUMA

Time for Draghi to step up?

Despite its clear stance on the issue, Paris hasn't yet gone on the offensive. That having been said, starting in January, France will take over the presidency of the EU Council for a period that will coincide with its presidential election campaign. And it's likely that Macron's main rival, right-wing populist Marine Le Pen, will put the reforms front and center, especially since she has long argued against Germany and in favor of more freedom.

Rome is putting its faith in the negotiating skills of Prime Minister Mario Draghi, a former head of the European Central Bank. Draghi is a respected EU finance expert at the debating table and can be of great service to Italy precisely at a moment when Merkel's departure may see Germany represented by a politician with less experience at these kinds of drawn-out summits, where discussions go on long into the night.

The Stability and Growth pact may survive unscathed.

Regardless of how heated the debates turn out to be, the Stability and Growth Pact may well survive the conflict unscathed, as its symbolic value may make revising the agreement itself practically impossible. Instead, the aim will be to rewrite the rules that govern how the Pact should be interpreted: regulations, in other words, about how the deficit and national debt should be calculated.

One possible change would be to allow future borrowing for environmental investments to be discounted. France is not alone in calling for that. European Commissioner for Economy Paolo Gentiloni has also added his voice.

The European Commission is assuming that the debate may drag on for some time. The rules — set aside during the pandemic — are supposed to come into force again at the start of 2023.

The Commission is already preparing for the possibility that they could be reactivated without any reforms. They are investigating how the flexibility that has already been built into the debt laws could be used to ensure that a large swathe of eurozone countries don't automatically find themselves contravening them, representatives explained.

The Commission will present its recommendations for reforms, which will serve as a basis for the countries' negotiations, in December. By that point, the results of the German elections will be known, as well as possibly the coalition negotiations. And we might have a clearer idea of how intense the fight over Europe's debt rules could become — and whether the hopes of the southern countries could become reality.

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