Outlook for 2011-12

The outlook is grim for North Korea and its leader, Kim Jong-il. Kim Jong-il's health is fragile, and there is thus a strong probability of a change of leadership in the forecast period. Kim Jong-il's third son, Kim Jong-eun, has been officially presented as his father's heir-apparent. But he is young, and it is thus likely that there will be an interregnum under the leadership of Kim Jong-il's brother-in-law, Jang Song­taek, which could prove unstable. The impoverishment of most of the population may spark popular unrest, and disaffection could spread to the regime's core supporters. There will be a US-led effort to force the North to abandon its pursuit of nuclear-weapons capability, but success will be elusive. The government will try to increase light industrial and agricultural output, but any increases are not likely to be big. A surge in Chinese foreign investment looks increasingly possible in the next two years, which would boost growth. Investment will also be boosted by preparations for the centennial celebrations of the birth of North Korea's founder, Kim Il-sung, in 2012.

The political scene

In November 2010 North Korea shelled an island that is under South Korean control, Yeonpyeong, killing four people. The US and South Korea escalated their naval exercises in response, but China only appeared to draw closer to the North, partly owing to fears of increased US interference in the region. Unconfirmed reports in the South Korean media suggest that public executions rose in the North in 2010, and that political purges are taking place.

Economic policy

A joint New Year editorial that was printed in North Korea's main newspapers shed little light on economic policy, but a new ten-year State Strategy Plan for Economic Development was announced in January (albeit without detail). A planning law that was published in 2010 appeared to reassert central control compared with similar regulations passed earlier in the decade.

The domestic economy

Reports from non-governmental organisations that are active in North Korea suggest that food price inflation has remained high.

Foreign trade and payments

Kim Jong-il held a landmark meeting with Naguib Sawiris, executive chairman of an Egyptian firm, Orascom Telecom, one of the North's biggest foreign investors, which may presage a new push to attract foreign investment. Work has begun on a new US$258m bridge over the Yalu river from Dandong in China to Sinuiju in North Korea. Other Chinese investments in mining and infrastructure also look set to make headway in the near future.