Over three years of Economic Reform that became internationally transparent in July 2002 have generally not been the focus of most media attention. It can be stated that economic reforms began soon after the sudden break up of the former Soviet Union took place in 1989, when North Korea needed to adjust to losing its barter trading partners.
The early experiment with market economy took place soon after in the Tumen River area, where the Rajin-Sonbong Economic Trade Zone was established in 1994. The Greater Tumen area has recently been re-vitalised by the Changchun Investor Forum from 2-4 September 2005.
The need for economic reform and the preparation of the people for the adjustment from state controlled to market measures came at the turn of the century as people were preparing for the new century.
Steady market measures improving the investment climate and international diplomacy all went hand in hand from 1999. In the first half of 2000 a total of 45 countries established diplomatic relations, bringing the number of countries with diplomatic relations with the DPRK to 163.
North Korea continued experimenting with special zones by establishing the Kaesong Industrial Park, and this continues to develop considerable momentum with over 150 South Korean companies established in this area on the north side of the De-Militarised Zone (DMZ).
Mainland China and South Korea are the biggest trade partners of North Korea, with trade with China going up 38% to $1.02 billion in 2003, and trade with South Korea going up 12% to $724 million in 2003 since the start of the experiment.
The potential of the Kaesong Industrial Complex
If the Kaesong Industrial Complex goes ahead as planned, by the year 2008, the DPRK will earn the equivalent of US$7.754 billion, and even as much as US$12.5 billion in annual profit from it, according to a study done by Hong Soon-jik, a researcher at the Hyundai Research Institute.
The study drew a likely expenses diagram based on 1,200 ROK won to the US dollar, which led to an average expense of US$110 per worker; US$204,000 per pyong (3.3 square meters) of factory buildings US$164,000 per pyong for dwellings, and US$0.4 for railway operation per kilometer transporting one 20-foot container (also under the assumption that the usage rate of the inter-Korean Kyongui Railway reaches 70 percent.
Based on the above standards, Hong discovered that when the northern side completes the first-stage construction of the 3.3 million sq m site in Kaesong City by the end of next year, it will make a profit of US$670 million in total through personnel expenses (US$16 million); sales of raw materials (US$37 million); formation of complex sites (US$125 million); formation of infrastructure (US$52 million); and construction of factory buildings (US$425 million). By the end of 2004, when the second-stage construction is completed, the northern side will earn US$2.259 billion in profit from personnel expenses (US$80.4 million); sales of raw materials (US$259 million); railway operation (US$54 million); formation of infrastructure (US$575 million); and construction of factory buildings (US$1.275 billion). By the year 2008, when the third-stage construction reaches its completion bringing the complex to 13.2 million sq m, the DPRK will earn US$4.01 billion in profit from personnel expenses (US$255 million); sales of raw materials (US$939 million); railway operation (US$290 million); formation of infrastructure (US$766 million) and construction of factory buildings (1.7 billion).
Once the Kaesong Complex normalizes its operations, the DPRK will gain US$810 million in total through sales of raw materials (US$494 million); railway operation (US$181 million); and an extra US$40 million as a usage fee for telecommunication facilities and industrial water.
The general cumulative effect will provide jobs for 540,000 workers and earnings of US$58 billion from exports, according to Hong.
Meanwhile, the ROK will gain from the DPRK’s relatively low labor costs to the tune of US$3.21 billion upon the completion of the first-stage construction; US$12.37 billion upon completion of the second-