Will closing Kaesong Hurt North Korea?
Just about everything reported on TV, in print and on the Net says that “cash strapped” North Korea is being seriously hurt economically by closing the Kaesong special economic zone it shares with South Korea.
Economically speaking, the pundits say they only shoot themselves in the foot. Is this true?
The Kaesong Industrial Zone, located on the North’s side of the border, employs 53,000 North Koreans. It has grown to generate $90 million per year in wages that is paid directly to the North Korean government.
There are 123 South Korean businesses with manufacturing facilities there. They have invested $845 million into the venture. It was opened in December of 2004.
On April 8th, the North shutdown operations at Kaesong. An official KCNA news release said:
- “The DPRK will withdraw all its employees from the zone”
- “It will temporarily suspend the operations in the zone and examine the issue of whether it will allow its existence or close it”
Effect on North Korea’s Economy
Speculation runs rampant why North Korea would commit such a suicidal move when its citizens are all but starving.
According to the CIA, North Korea’s GDP has been $40 billion (in 2011 U.S. dollars) for each of the last 3 years. It is unchanged even though the Kaesong agreement has about tripled the revenues it brings to the North over the last several years.
The only way that is possible is if the impact it has on the DPRK’s economy is negligible.
Sure enough, Kaesong is only 0.225% of North Korea’s total estimated GDP.
53,000 workers and $90 million sounds like a lot, but even in a backward country like North Korea it is hardly noticeable.
For North Korea, propaganda tactics often garner more negotiating advantage than reality. Kaesong’s propaganda value is worth far more than a measly 0.225% of its GDP.
North Korea uses a tried and true formula. Threaten this or that and you can weasel things out of foreign governments, especially China and the United States. DPRK already struck a deal with the Chinese for economic cooperation on the northern border. It can live without Kaesong.
Which goes back to the above picture and this question…
Since when can a poor, backward country afford high-heeled shoes for its women soldiers?