North Korea’s financial secrets exposed
lovemoney staff
02 January 2018
The money flowing in and out of North Korea
It's cut itself off from the rest of the world and the trade that North Korea does do with foreign territories has now largely been severed as a result of sanctions. Despite this, the reclusive county's elite still manage to enjoy lives full of luxuries, many of them originating from abroad, and the country's leader Kim Jong-un is able to fund a huge military programme. So where does all this money come from? We uncover the cash flowing into and out of North Korea.
Annual salaries are pitiful
One thing is for sure, the general public in North Korea are not being richly rewarded. The Democratic People's Republic of Korea, to give it its official name, isn't one to publish its annual average earnings, but according to an estimate based on 2013 figures, the average annual salary in the communist nation is thought to be between $1,000 (£747) and $2,000 (£1,495). Those across the border in South Korea in comparison earn on average $27,600 (£20,639), according to WorldData.info.
GDP in the billions
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The best way to measure a country's economic success is via its gross domestic product (GDP), which is the total value of goods and services a country produces in a set period of time. North Korea doesn't make its economic data public, but data obtained by South Korea's central bank put it at $28.5 billion (£21.3 billion) for 2016. This is still a tiny percentage of South Korea's GDP, which the World Bank reported as $1.4 trillion (£1 trillion) for 2016.
GDP grows despite sanctions
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North Korea's GDP might not be huge compared to that of more open developed nations, but what's surprising is that it grew to a 17-year-high in 2016. This suggests the international sanctions imposed to try and damage its ballistic missile and nuclear weapons production has had minimal impact. According to South Korea's central bank, North Korea's GDP rose by 3.9% year on year, largely driving by growth in its mining and energy sectors.
Exports grow too
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According to South Korea's central bank, North Korea's exports also rose in 2016 by 4.6% to $2.82 billion (£2.11 billion). This figure does not include trade with South Korea and is largely a result of foreign sales of processed fishery goods, compressed coal dust briquettes, clothing, silver and wooden items.
China is North Korea's biggest trading partner
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North Korea does just over 80% of its trade with neighbouring China. According to the Massachusetts Institute of Technology's Observatory of Economic Complexity in 2015 it exported $2.34 billion (£1.75 billion) of goods to China. The report claimed the other main export countries for North Korea are: India, which took 3.5% of its exports; Pakistan, which took 1.5%; Burkina Faso, which took 1.2%; and Saudi Arabia, which took 0.89%.
Goods come into North Korea too
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China is also North Korea's largest goods supplier. According to the Massachusetts Institute of Technology's Observatory of Economic Complexity, 85% of North Korea's imports came from China in 2015. The import value of Chinese goods amounted to $2.95 billion (£2.2 billion). Other major importers to North Korea include: India, with imports valued at around $108 million (£80.5 million); Russia with $78.2 million (£58.3 million); and Thailand, with $73.8 million (£55 million).
UN sanctions tighten
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The latest estimated export and import figures for North Korea, however, do not cover the most recent sanctions imposed by the United Nations (UN). In December 2017 the UN capped the supply, sale or transfer of all refined petroleum products, including diesel and kerosene, to 500,000 barrels for 2018. This would ban nearly 90% of these goods from entering the country. The UN resolution also introduced a ban on a long list of other North Korean exports.
China halts coal imports
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In February 2017 China also announced that it would be ending all coal imports from North Korea for the year in a bid to comply with UN sanctions. This will have been a huge blow to the regime as its coal sales to China were bringing in a vital supply of foreign currency.
Sanction effects worsened by drought
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The Food and Agricultural Organization of the United Nations warned in July 2017 that a drought threatened North Korea's food supplies. With most of the country’s population critically dependent on agriculture for their livelihoods, the possibility of famine, combined with tighter sanctions, will likely hit the most vulnerable sections of the population the hardest.
Kim Jong-un's life of luxury
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While North Korean's citizens suffer from the totalitarian regime's harsh policies, sanctions and extreme weather conditions, their leader Kim Jong-un continues to issue threats to the outside world and to test weapons. He has declared that the latest UN steps are an "act of war" and despite his people's plight, he and his elite inner circle are reportedly still enjoying a lavish lifestyle.
Private planes, yachts and automobiles
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Kim Jong-un travels by private jet that can land and take off from the airstrips that he's had built within the grounds of his various palatial residences. He is also said to own a 200-foot luxury Princess yacht with a Fendi-designed interior worth around $8 million (£5.97 million), drive around in Mercedes-Benz cars, and even enjoy holidays on an exclusive private island.
The best food and wine
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While the general population exist on a subsistence diet, the country's elite enjoys the very best in food and wine. Despite the sanctions, in 2015 Kim Jong-un is said to have managed to import $314,000 (£235,000) of spirits, $151,000 (£113,000) of fine wines and Champagne, $75,700, (£56,500) of German beer and $89,630 (£66,882) of cheese into the country.
Gifts galore for the elite
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Kim Jong-un's wife Ri Sol-ju is always said to be kitted out with designer handbags, with Dior and Chanel thought to be her favourite brands. He also treats his friends and those in his elite governing circle well too. Over 150 of his high-ranking officials reportedly all drive around in top of the range Mercedes-Benz cars, which would likely have cost the dictator around $12 million (£8.96 million).
Luxury goods are for sale
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It's not just Kim's homes that are full to the brim with luxury. There are said to be two well-stocked luxury department stores in North Korea's capital Pyongyang too. The cash-only stores serving the ruling elite reportedly sell designer items such as a Montblanc watch worth over $4,000 (£2,984). These stores are also thought to provide a revenue stream for the regime.
Billions found for the military
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North Korea manages to find an estimated $10 billion (£7.46 billion) to fund its military regime. In comparison, the USA has a defence budget of about 80 times this at $824.6 billion (£614.8 billion). Nevertheless, the North Korean military salary bill will also be a fraction of America's. And while defence spending makes up 3.3% of America's GDP, experts believe it makes up about 22% of North Korea's GDP.
The Third Floor
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According to North Korea Leadership Watch, a well-regarded site that monitors North Korea’s leadership, there are three bureaus in North Korea known as Office 35, Office 38 and Office 39 and collectively as the Third Floor, which run intelligence operations, legally and illegally source foreign currency for the party and core elites and manage some of the party’s and Kim Jong-un's family’s money. It is alleged that weapons and drug trafficking are among its illicit operations.
Corruption is rife
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Transparency International, the global coalition against corruption, ranks North Korea as the third most corrupt country in the world in its 2016 Corruption Perceptions Index. South Sudan came second and Somalia first. With permission being required for nearly every human move in North Korea, bribery is said to be commonplace between government officials and citizens.
North Korea is stocking up on cryptocurrencies
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For a regime that has cut itself off from the world and whose few trading links are being drastically hit by sanctions, Bitcoins are thought to offer another ideal income stream. The regime has been suspected of being involved in hacking before and now the rumour is that it is stealing the digital currency Bitcoin and other so-called cryptocurrencies, according to the Financial Security Institute, which is backed by the South Korean government. It may also be legally buying the currency, which is not controlled by governments or banks and is hard to trace so is a perfect investment and income stream for North Korea.
Hacking is allegedly big business in North Korea
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It's not just cryptocurrencies that are being hacked. North Korea is alleged to be behind many international hacking attacks in a bid to find new revenue streams to replace those cut off by sanctions, with the US administration claiming it was behind the WannaCry ransomware attack of 2017. While most of the general population are denied internet access and some even a mobile phone, a technical elite are believed to be trained to net millions from cyber crime. While North Korea's military threats are worrying, if its capacity for cyber warfare is true then this is also deeply concerning.
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