VZCZCXYZ0000
RR RUEHWEB

DE RUEHUL #1119/01 1960636
ZNR UUUUU ZZH
R 150636Z JUL 09
FM AMEMBASSY SEOUL
TO RUEHC/SECSTATE WASHDC 5018
RUCNKOR/KOREA COLLECTIVE
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

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