Current affairs

He who resists, wins?

The efficacy of economic sanctions in North Korea

Thursday, 5 de October, 2017

By Martí Pachamé, a lecturer on the Master in Financial Management and MBA at EAE Business School

First and foremost, it must be stated that the Asian country is a great unknown entity for the whole world, except perhaps for China.

China is the country’s main political and economic ally. 54% of North Korean exports go to the People’s Republic while its second most important customer, as strange as it may seem, is Algeria, accounting for 30% of its exports. Neighbouring South Korea is the destination of the remaining 16% of the country’s exports. As you can see, diversification does not seem to be a key feature of the North Korean export market. In total, the country’s exports amount to 3.834 billion US dollars, which is a similar level to Mozambique or the nearest comparable level in Europe, San Marino.

The country’s imports are also low. In 2015 (there is great difficulty to get hold of reliable figures), total imports amounted to 3.4 billion dollars, with the main imports being oils and radio broadcast equipment. Their main suppliers are China (76.3%) and the Republic of Congo (5.5%), according to data from 2015.

1n 2016, however, strong economic growth was recorded in the North Korea economy, with a rate of 3.9%. This figure is even more impressive if we take into account the various sanctions applied by the UN. The new restrictions imposed by the UN in August this year focus on imports of coal and seafood, with the objective of reducing these imports by a third.

A few days ago, in an unusual move, China announced that it would restrict the supply of oil to Korea. The other important supplier is Mexico. The Chinese gesture represents a significant change in its foreign policy and demonstrates the unrest that the country is experiencing due to the belligerent tone that the Pyongyang government has been taking recently. An armed conflict in this precarious part of the world would have serious consequences for South Korea, the worst affected by the escalating hostilities, Japan and China itself.

There is no official explanation of the minimal success of the sanctions imposed since 2016 in response to a series of nuclear weapon tests, which remain in place today. One hypothesis that has been put forward is that the country has created thousands of bogus companies that would gradually be revealed as such as the sanctions are applied. As such, they are making a mockery of the restrictions and, this would explain how a country that, between 1995 and 1997, suffered a famine in which, according to CNN, 10% of the total population or around 2 million people starved to death (the official version estimates 220.000), is now in a position to carry out a nuclear program that South Korea estimates must have cost between 1 and 3 billion dollars (a US Virginia submarine with the capacity to launch ballistic missiles costs around 2. 5 billion dollars).

The one thing that everybody seems sure to know about this small Asian country is its proven capacity to resist and persevere under extremely precarious conditions. Time will tell if that in itself is enough.

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