The performance of the North Korean economy is a mystery unlike that of any other country worldwide. The country publishes no economic statistics on a regular basis, and does not allow foreign scholars to inspect the capacity and output of industry. As a result, those who wish to get some (limited) grasp on what is happening inside the North must rely on official state pronouncements, accounts from visitors/foreign residents in the country, and South Korean media organizations with sources inside the country.
A trade shock?
From mirror North Korean trade statistics created from customs data, the first two months of the year appeared to be largely normal. Chinese customs data did not show a noticeable change in exports from China to North Korea, but the data was not disaggregated by month, so it is unclear whether there was February’s trade was noticeably down. There is also the problem that mirror statistics do not capture North Korea’s service trade (some of which clearly has been significantly impacted by the coronavirus crisis), and much of its exports that are now seemingly smuggled.
Reports of state-backed smugglers going into quarantine were carried by the South Korean media outlet Daily NK, which has sources in North Korea. North Korean sources also indicate that over 10,000 North Koreans were at some point quarantined by the regime because of fears that they had the virus. These fears have led the North Korean government largely to close its borders in a set of measures that are well detailed elsewhere.
Even though official trade statistics do not indicate as such, other sources of data do hint at economic hardships induced by the coronavirus situation in China has significantly impacted North Korea. One of the weaknesses of Chinese trade data is that it omits transfers of oil to the North, because this commodity is subject strict limits under UN Security Council sanctions. There is, however, an alternative measure of fuel supply inside North Korea: Daily NK market data, which includes prices for petrol and diesel.
North Korea is a poor country, but it still is highly dependent on petrol and diesel to fuel trucks for road haulage, fuel tractors on farms that have them, to fuel electricity generators (in a country with an unreliable grid), and for a range of other vital social functions. Fuel price rises are concerning for the North Korean government, but also are liable to inflict pain on many parts of the North Korean economy, and on the North Korean people generally.
Nominal price rises may not mean much, but when measured in real terms (i.e. adjusted for the exchange rate), it is clear that fuel prices have risen inside North Korea since the coronavirus broke out in China.
For most of the last two years, diesel has been generally been around 40% more expensive in Pyongyang than it has been in the continental United States. Though this is by no means a perfect measure of relative affordability, it does tell us what kind of a range fuel has generally traded at. As of February, diesel cost over double what it would cost on average in the United States, and retail pump prices have since fallen across the world but not in North Korea.
This is a clear sign of the coronavirus pandemic impacting North Korean fuel supply chains that had been left largely undisrupted over the past two years, in spite of sanctions that specifically targeted them. But virus may also be impacting the domestic economy, though the effects are far from easy to gauge.
A domestic economic shock?
North Korea is a food insecure country. Although Kim Jong Un reported in January that the country had its best ever harvest, one has to make some rather courageous assumptions to take such assertions at face value. Nonetheless, food prices were stable, with rice trading at lower prices relative to international benchmarks and corn on a steady downward trajectory for much of the last two years. The coronavirus has led to a spike in North Korean rice prices, though the increase still means that North Korean rice is sold within a range that is normal for the standards of the past two years, and the same is true of corn. It should be noted, however, that this price data is for Pyongyang, Sinuiju, and Hyesan, and internal supply chains to other parts of the country may have been impacted as a result of quarantine measures.
Further, while quarantine measures taken up until now inside North Korea appear to have been less far reaching than what has occurred in Europe, the government’s quarantine actions and the fear that the pandemic creates probably has had an impact on North Korea’s service sector. As with many other parts of the world, service sector firms in the country have been hit by a fall in demand from customers who tend to avoid public baths, barber shops and the like for fear of getting infected.
Private business people play an important role in the funding and management of many North Korean service firms, and this is liable to hit many of them hard. While the long-term effect may be less severe than is feared in other parts of the world because of the lack of a society-wide lockdown (as yet), these developments are liable to hurt many actors in the North Korean private sector.
Markets in the country are generally believed to have been hurt by sanctions, as workers in the tradable goods sector have seen take-home pay reduced due to sanctions or even seen their enterprises close for want of foreign customers. The coronavirus crisis could make the situation yet worse, though it is unclear just how much worse things could get.
It would appear that, at least for the time being, the North Korean government does not plan to impose general lockdown. This may limit the impact that the virus has on the non-tradable goods sector, aside from the hit created by rising import prices (some food, fuel, spare parts, other inputs).
The trade situation is also liable to improve as China’s economy normalizes with the end of the multi-month lockdown in mainland China. If this happens, it will become evident in North Korean market data before too long.
Although the coronavirus appears to have had some negative effects on the North Korean economy, it would not appear right now that these effects are so bad as what sanctions have done in the past. It remains to be seen whether this will change in the coming months.