DPRK GDP GROWS 3.7 PERCENT IN 2008 ACCORDING TO BOK

UNCLAS SEOUL 001119 SENSITIVE SIPDIS STATE FOR EAP, NP, EAP/K AND EEB/IFD/OMA PASS USTR FOR CUTLER AND TRICK TREASURE FOR A/ISA/MALLOY E.O. 12958: N/A TAGS: ECON ETRD EAGR ENRG PREL KS KN SUBJECT: DPRK GDP GROWS 3.7 PERCENT IN 2008 ACCORDING TO BOK ESTIMATE ¶1. (U) This cable is sensitive but unclassified and not/not intended for internet distribution. ¶2. (SBU) Summary: The Bank of Korea (BOK),South Korea's Central Bank recently released its annual estimate of GDP growth of the DPRK. The estimate, the methodology of which is the subject of considerable debate among ROK economists, portrays DPRK GDP as rebounding from the negative performance of 2006 and 2007 with growth of 3.7 percent in 2008. The BOK attributes this growth to improved crop yields due to favorable weather conditions and expanded trade with China. Factory operations in the DPRK improved slightly because of increased production of coal and electricity. End summary. ¶3. (SBU) DPRK Economic Growth -- 1998-2008: DPRK Real Economic Growth -------------- (Unit: Percent) '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 --- --- --- --- --- --- --- --- --- --- --- (1.1) 6.2 1.3 3.7 1.2 1.8 2.2 3.8 (1.1)(2.3) 3.7 Note: Figures in parenthesis indicate negative growth. ¶4. (SBU) The DPRK's GDP grew by 3.7 percent in 2008 (up from 2007's depressed level),according to the Bank of Korea, which recently released its annual estimate on the DPRK economy. This growth was the result of an increase in grain output which drove an 8.2 percent expansion of production in the DPRK's fisheries and agricultural sectors. The DPRK's overall mining output rose 2.3 percent due to increased extraction of coal, iron ore, and magnesite. Improvements in light and heavy industries led to a 2.6 percent rise in the DPRK's industrial output. Production of food, beverages, cigarettes, apparel, and footwear increased slightly in 2008. Heavy industries such as those associated with the production of steel, chemicals, alloys, and machinery grew 3.3 percent. Electricity production grew by 6.1 percent, a significant rise that can be attributed to the opening of newly refurbished hydraulic and thermal power plants. Construction reversed recent trends and rose by 1.1 percent in 2008, reflecting a number of beautification projects in Pyongyang and the refurbishment of power plants. The service sector recorded growth of only 0.7 percent. Following the shooting of a ROK tourist and the subsequent closing of the Mount Geumgang tourist resort in July of 2008, business at DPRK restaurants and hotels has been sluggish. The wholesale and transportation sectors, however, remained active due to the increase in grain and mineral output. ¶5. (SBU) DPRK Economic Growth by Industry: DPRK Economic Growth by Industry -------------- (Unit: Real Prices, Percent) 2006 2007 2008 -------------- -------------- Agriculture & (2.6) (9.4) 8.2 Fisheries Mining & Industry 0.9 0.7 2.5 Mining 1.9 0.4 2.3 Manufacturing 0.4 0.8 2.5 (Light Industry) (0.6) (1.7) 1.3 (Heavy Ind. & 1.1 2.3 3.3 Chemical) Electricity, Gas 2.7 4.8 6.1 & Water Supply Construction (11.5) (1.5) 1.1 Services 1.1 1.7 0.7 (Government) 0.8 1.8 0.3 (Others) 1.8 1.5 1.7 -------------- -------------- GDP (1.1) (2.3) 3.7 Note: Figures in parenthesis indicate negative growth. ¶6. (SBU) Primary North Korean industries such as agriculture, mining, and manufacturing all slightly expanded their share of total output in 2008 in real term ROK market prices. However, this expansion obscures the fact that some portions of the construction, electricity, gas and water, and service sectors contracted, e.g. tourism. Output from mining and manufacturing accounted for the largest share of the DPRK's overall economic activity; surpassing services, the sector that composed the largest portion of the economy in 2007. This can be attributed to an increase in the production of iron ore, coal, garments, and footwear. The DPRK's output of coal surpassed that of South Korea. In the construction sector, little progress was made in infrastructure outside the aforementioned energy plant refurbishment. ¶7. (SBU) The DPRK's GDP by Sector: DPRK's Industrial Structure -------------- (Unit: Nominal Prices, Share in Percentage) 2006 2007 2008 -------------- -------------- Agriculture and 23.3 21.2 21.6 Fisheries Mining and Industry 29.6 31.3 34.6 Mining 10.2 11.4 12.1 Manufacturing 19.5 20.0 22.5 (Light Industry) 6.7 6.5 6.7 (Heavy Ind. and 12.8 13.5 15.8 Chemical) Electricity, Gas 4.5 4.6 3.4 and Water Supply Construction 9.0 8.8 8.3 Services 33.6 34.1 32.2 (Government) 23.7 24.0 22.8 (Others) 9.8 10.1 9.4 -------------- -------------- GDP 100.0 100.0 100.0 Note: Industrial structure composition figures are calculated in ROK nominal prices. ¶8. (SBU) Huge DPRK-ROK Economic Gap Narrows Slightly: Increased DPRK growth and a slowing of economic growth in South Korea (2.2 percent) narrowed the economic gap between the two Koreas. The DPRK's nominal gross national income (GNI - including total output and foreign-earned income) rose 10.2 percent in 2008 to 27.3 trillion KRW (USD 24.8 billion),an amount equivalent to a mere 2.6 percent of South Korea's GNI. On a per capita basis, South Korea's GNI was 18 times larger than that of North Korea. ¶9. (SBU) Increased trade played a role in stimulating the economy and narrowing the GDP gap. The DPRK's external trade in 2008 is estimated to be USD 5.64 billion, with imports (USD 3.62 billion) 79 percent larger than exports (USD 2.02 billion). Between 2007 and 2008, DPRK trade rose 19 percent, the highest increase in trade since 1990. The DPRK's trade with China rose to USD 2.78 billion in 2008, a 41 percent increase. Since 1990, China has remained the DPRK's largest trading partner and has increased its share of the country's total trade; making the DPRK increasingly dependent on China. In 2008, trade with China accounted for 49.3 percent of the DPRK's total trade, up from 42 percent in 2007. However, trade with the ROK accounted for only 32 percent of the DPRK's total trade, down from 38 percent in 2007. This decline in inter-Korean trade is primarily due to the recent cooling of inter-Korean relations. ¶10. (SBU) Comparison of DPRK and ROK Economies: 2008 North/South Economic Comparison -------------- Unit North (A) South (B) B/A -------------- -------------- -------------- --- Population 1,000 23,398 48,607 2.1 Economic Growth Percent 3.7 2.2 -- Nominal GNI Trillion (KRW) 27.3 1,031 37.7 GNI/Capita Million (KRW) 1.17 21.2 18.1 External Trade Overall Trade USD Billion 5.64 857.3 152.0 (Exports) " 2.02 422.0 209.0 (Imports) " 3.62 435.3 120.2 Exchange Rate DPRK Won/USD 130 1,102.6 -- KRW/USD Energy Industry (Coal Production) Mil. Ton 25.1 2.5 0.1 (Power Generation Mil. kwh 7.5 72.5 9.7 Capacity) (Power Generation Bil. kwh 25.5 422.4 16.6 Output) (Crude Oil Imports)Mil. bbl 3.88 865 223.0 Agriculture & Fishery Output Grain Mil. ton 4.3 5.5 1.3 (Rice) " 1.86 4.84 2.6 Fishery " 0.83 3.36 4.1 Mineral Production Iron Ore Mil. ton 5.32 0.33 0.1 Non-ferrous Metal " 0.094 0.23 2.5 Industrial Goods Output Auto 10K cars 0.47 382.7 814.3 Crude Steel Mil. ton 1.28 53.3 41.7 Cement " 6.42 51.7 8.1 Fertilizer " 0.48 3.2 6.7 Synthetic Fiber " 0.03 1.33 44.3 Infrastructure Rail Length Km 5,242 3,381 0.6 Road Length Km 25,802 104,236 4.0 Unloading Capacity 10K ton 3,700 75,862 20.5 Shipping Tonnage " 86 1,471 17.1 -------------- -------------- Source: Bank of Korea (BOK) Note: DPRK exchange rate denotes North Korea's official exchange rate against the US dollar. Note: Due to the limited availability of raw data, the DPRK's nominal GNI and GNI per capita were both based on the exchange rate between the ROK won and the US dollar as well as value added ratios and nominal prices. Note: DPRK external trade includes inter-Korean trade. ¶11. (SBU) Comment: The BOK has been estimating the DPRK's GDP since 1991 and its numbers are based on data collected by the National Intelligence Service and other relevant agencies. The difficulty of obtaining production and price data for the DPRK economy has led the BOK to utilize a mixed basis for the estimates starting with the System of National Accounts. The DPRK's estimated GDP is based on current South Korean market prices, value-added ratios, and exchange rates. These estimates are used to evaluate the DPRK's economy and to aid in policy-making decisions. The BOK, however, stresses that its estimates should not be used to compare the DPRK's economy to the economies of other nations. Many South Korean economists argue that the BOK's estimates are inflated, but almost all agree that they are accurate with respect to the direction of GDP and provide useful time series data. End comment. STEPHENS