How is it possible for North Korea to finance its ballistic missile programme and nuclear tests

North Korea is doing more and more nuclear tests and is launching missile after missile, even if not all of them are successful. Despite the fact that the United Nations (UN) keeps imposing economic sanctions, Phenian shows no sign of backing down, and it even threatens to sink the American carrier Carl Vinson, located near the Korean Peninsula.

Which leads to one question: How can North Korean finance its vast arming programme?

North Korea’s economy, under that of Bulgaria or Croatia

To answer this question, we must see exactly how does North Korea’s economy stand and what exactly does it produce. According to CIA Factbook, the Gross Domestic Product of the country is estimated at around $28bn and, when adjusted to purchase parity power, it reaches $40bn.

By comparison, Bulgaria had a GDP of $48,9bn in 2015, almost as much as Croatia, where this indicator reached $48,7bn. Serbia’s GDP is a bit lower, reaching $36,5bn, according to the World Bank.

On the other hand, South Korea is Asia’s fourth largest economy, with a GDP estimated at $1.378bn, making North Korea’s economy be only 2,9% of South Korea’s economy.

China, the main source of money

North Korea’s entire population is of around 25 million people, out of which the labour force totals 14 million people. A percentage of 37% of the labour force works in agriculture, yet despite this, the country does not produce food for the whole population, so the people experienced several periods of famine in the past 20 years. The agriculture produces 25,1% of the whole GDP.

Industry has most of the economy in the totalitarian state, with a share of 40,9% from the GDP, while services occupy 33,9%. The two amass together 63% of the labour force.

Taxes represent around 11,4% of the GDP, with Phenian’s budgetary revenue annually reaching around $3,2bn, while expenses reach $3,3bn.

Besides taxes, the main source of money is represented by the exports. These reached $4,152bn in 2015, which means that every year, $4,15bn in strong currency enter the country.

The profit is obviously not at the same level, because expenses with raw materials and salaries have to be subtracted from this money.

On the other hand, imports are even higher, with $4,819bn per year. At the same time, the country’s external debt is around $5bn.

North Korea’s main commercial partner is China, to which 75,8% of exports and 76,4% of imports are directed. 5,5% of imports come from Congo.

Coal, giant statues and weapons

North Korea mainly exports natural resources, especially coal, iron ore, limestone, copper, zinc, lead, gold and other precious metals. A US report from 2014 showed that 68 American companies bought gold from North Korea’s central bank, with these including the giants HP and IBM.

North Korea also exports coal evaluated at $400mn every year, with the main destination being China, its principal ally.

A more unusual sector of business is the giant statues export. North Korea has been exporting in 18 African countries, including Senegal, Namibia, Botswana or Congo. Since 2000, Phenian has had an annual revenue of around $160mn from building monuments in Africa. The statue in Senegal alone, the biggest in Africa, standing at 49 meters tall, costs $27mn.

Weapons are one of Phenian’s main sources of exports, especially since North Korea has one of the world’s largest armies, with 700,000 soldiers in the regular army, besides other 4,5 million reservists and paramilitary troops.

Many North Korean state companies that operate in Africa as construction companies actually make weapon traffic that Phenian sells to various factions or other dictators.

For example, last year Egypt intercepted an oceanic ship from North Korea that was transporting 30,000 grenade launchers and other weapons. In 2009, South Africa intercepted a North Korean ship with weapons that was heading towards Congo.

CNBC also writes that Phenian built weapon factories in the Democratic republic of the Congo, Ethiopia, Madagascar and Uganda and several military sites in Namibia. The North Korean police also made training courses for security forces in Benin, Nigeria, Mozambique and Zimbabwe. At the same time, it sold production lines for manufacturing ballistic missiles to Libya and Egypt.

Another category of exports is represented by agricultural and fishing products, just like Romania’s Ceaușescu was doing in the ’80s, with exports by starving the population.

Metallurgic products and textiles are also exported, with imports including mainly oil, charred coal, industrial equipments and cereals. China supplies almost everything.

“State slaves”

Besides the forced labour of political factioneers or those transferred in specialized camps inside North Korea, the totalitarian regime uses something else: forced labour of North Koreans in other friend countries.

Therefore, women that were sent to work abroad by the state can be found both in China and Russia. Dozens of thousands of women, as well as men sent to work in constructions, can be found in Russia. In total, around 90,000 North Koreans work in 40 countries around the world, out of which 25,000 in Russia alone.

State ”slavery” brings dictator Kim Jong-un $2bn every year, with some of the money later invested in the army, and another part leading to a true real estate ”boom” in Phenian.

The 90,000 ”state slaves” cannot run away, even if they are in foreign countries, due to the potential consequences their families might suffer back home. Their salaries are deposited in accounts controlled by the North Korean governments on the basis of bilateral agreements with the respective countries and so-called ”voluntary donations” from the respective workers.

Pirated medication

Counterfeit medication is another source of revenue for the North Korean regime. According to Atlantic Council, this is an important source of illegal revenue. For example, the country exports counterfeit Viagra pills.

Printing fake dollar banknotes is also include din the counterfeit category. Nevertheless, they were so poorly made that they ended up back on North Korea’s black market. Because of this, the government does not accept payments in banknotes of $100, but only in some of $50.

Online thefts

Speaking of money, North Korea has also been having important earnings from online thefts. Experts realized that robbing the central bank in Bangladesh by $81mn was made by the Phenian regime, according to CNBC. This was the first robbery on a central bank made using the Swift system. The latter manages all inter-bank transfers on a global level. North Korea hackers managed to hijack $81mn, but the total of illegally sent money orders was of $1bn. The rest of the transactions were blocked, though.

Another situation was the theft of around $88,000 in South Korea that were kept in Bitcoin.

The press in Great Britain wrote about a home in London that was owned by Korea National Insurance Corporation (KNIC), the state insurer in North Korea, and through which funds of 33 million pounds per year were directed towards Kim Jong-un’s regime. In 2014, KNIC has assets of 113 million pounds. The company is currently suffering sanctions because it is linked to “Office 39”, which is nothing else but the office through which the communist party in Phenian engages in illegal operations on a global level. Another one, called “Office 38“, obtains personal funds and luxury items for the North Korean elite.

Tourism

Another source of revenue for Kim Jong-un’s dictatorship is tourism, more specifically, the tourists that visit North Korea.

Reuters recently wrote that the 121 journalists that went to Phenian in order to celebrate 105 years since the birth of the state founder Kim Il Sung paid a tax of $2,500 each, the equivalent of five years of work from a resident in the isolated state.

These were paid in cash, at the official exchange rate of 100 North Korean won per dollar, even though the black market has an exchange rate of $8,400 won for a dollar. Overall, North Korea received over $300,000 from journalists’ visits, taking into account daily expenses, visas, flights or hotels.

Seven nights in a hotel in Phenian cost $784, a reasonable price compared to many other Asian capitals, and a Beijing – Phenian flight with Air Koryo, the national North Korean carrier, costs $522, double the price of a Beijing – Seoul flight.

China has the “oil weapon”

Nevertheless, China has a “weapon” that can almost instantly reduce North Korea’s military and nuclear activities.

It is a potential oil embargo, since North Korea relies on the fuel and oil imports from China. The news of a potential embargo of China as a result of an agreement between Xi Jinping and Donald Trump lead to an 83% increase in the price of gasoline in Phenian, a few days ago.

In February, six American senators suggested that North Korean banks’ access to Chinese banks should be banned. Moreover, banks in China were supposedly included on a list of financial sanctions if they continued doing business with their North Korean counterparts.

Except that China opposes tougher sanctions against North Korea for fear that the collapse of the dictatorship would lead to an influx of millions of refugees in north-eastern China, with Manchuria being a poor region anyway, when compared to the rest of the country.