Doing business & staying in touch

The Democratic People's Republic of Korea has a Soviet-style command economy based on heavy industry. The country has rich mineral deposits, including most of the major base metals, as well as gold, silver and tungsten. Since the main industrial infrastructure was developed in the 1950s, development resources have gradually shifted to light industry and latterly concentrated on automation and modernisation.

A serious loss of trade with the former Soviet Union precipitated Korea (Dem Rep)'s economic decline during the 1990s. Estimated at 4% per annum, this contraction was compounded by a series of serious floods. Although most evidence is anecdotal (in the absence of detailed official information) it is clear that the North Korean people have recently suffered severe shortages and, in some areas, starvation.

The North Koreans have yet to adopt political or economic reforms on the scale seen in China, the Russian Federation and Eastern Europe. China is the most likely model, but so far Korea (Dem Rep) has gone no further than devaluing the Won (a largely artificial measure since the Won is not convertible) and cutting the subsidies on some basic goods.

Pyongyang has pinned its hopes on an improvement of relations with the South. There is US$300 million of trade between the two countries, conducted at present through intermediaries. In August 2003, an economic and trade agreement was signed under which South Korean companies manufacture products in the North (where labour costs are much lower). The major obstacle is political: Washington is still hostile to Korea (Dem Rep)'s nuclear ambitions.