Country Report North Korea February 2011

Outlook for 2011-12: External sector

The legacy of juche (self-reliance) thinking will remain, despite increased levels of trade in the forecast period. North Korea's foreign-exchange earnings will continue to be dominated by exports from the Kaesong Industrial Complex (KIC, a zone in the North in which many Southern companies operate) and sales of ores and minerals to China. Illegal sales of arms will bring in further funds, but probably less than each of the former two sources, at US$200m-500m. Exports to China should continue to grow in 2011-12, but those from the KIC may stagnate as investors in the zone move to reduce their exposure to the volatility of inter-Korean relations. North Korea's imports, of which petroleum products form the main component, may be limited by a growing shortage of foreign exchange. However, given the large drop in imports of oil products in 2009, further large falls are unlikely. Beset by sanctions and the costs of a hypertrophied military, North Korea has only one real source of foreign investment: China. Such investment in the North is already forthcoming on a modest scale, for example in mining, a new bridge across the Yalu river, which is located on the North Korean-Chinese border, and projects to upgrade facilities at a north-eastern port, in Rajin.

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