North Korea’s Six Trillion Dollar Question (Page 2 of 2)

From the South Korean perspective, however, the Chinese are buying up a resource that belongs to the Korean people at far less than it is worth. South Korea’s mines are largely depleted and it would greatly benefit from access to the North’s mineral sector, particularly the rare earth metals. As an editorial in the Korea Times recently noted, the “near subordination [by China] is also economically disadvantageous [to North Korea], as seen by reports that China has already preempted nearly half of North Korea’s mineral resources worth $6 trillion, which should have gone to South Korea.” There were several inter-Korean mineral development projects during the Kim Dae-Jung and Roh Moo-hyun governments, but those projects died with the collapse of the sunshine policy and subsequent implosion of inter-Korean relations. As Kim Shin-jong, President of KORES, the Korea Resources Corporation, has noted, “We invested a lot of money, and now we cannot even find out the present status [of those projects].” To those in the ROK with an eye on the North Korean mineral market, China is making off with a Korean asset while the two Koreas bicker.

Other companies have attempted to enter the North Korean mineral market, often at their own peril. Mineral development is generally a multi-generational undertaking. Companies invest with a plan to develop a site, work it for many years, and then close down operations. This means that companies looking to invest in the North Korean mineral sector are wagering that the North Korean state will remain committed to that investment for the lifetime of the project, something that is far from certain given North Korea’s historical ambivalence toward foreign investments. There is also a risk that companies that partner with North Korea will find themselves subject to UN or state-level sanctions. One of the three companies sanctioned by the UN in May 2012, for instance, was Green Pine Associated Corporation, which, among other things, was involved in mineral development projects.

North Korea has a track record of demanding to renegotiate a contract repeatedly as it suits the regime. Although it may not be typical, the recent experience of the Xiyang Group shows that not even Chinese firms are immune from this treatment. The Xiyang Group’s experience also demonstrates the level of corruption and intimidation that an investor could possibly encounter when doing business with North Korea.

Investors will also have to deal with little to no transparency in the joint mineral development operation. In most cases investors will be working through North Korean intermediaries and access to the site will be limited. This raises concerns over the treatment of labor. North Korea is known to use prison labor from re-education camps in its mineral development operations. Just as Unocal was sued for human rights abuses related to its operations in Burma, a company investing in the North could be vulnerable to a lawsuit over the use of forced labor in North Korea.

Finally, if a company should invest in North Korean mining, it should expect to have to fund major infrastructure upgrades to make that development possible. Roads or rail tracks have to be rebuilt, diesel generations have to be imported to power mines, transport equipment needs to be provided, and the mines may have to be rehabilitated. Additionally, in the case of rare earth metals, as Marcus Noland notes, these elements will have to be shipped abroad to be processed, since North Korea lacks the equipment to do so. Although the North built a processing plant for these metals many years ago, energy shortages have prevented it from operating.

Although companies may find the North Korean mineral sector too risky to invest in, NGOs and aid organizations may take this as an opportunity for engagement. Sustainable development of the mineral sector and environmentally safe mining techniques are training opportunities to build scientific and technical collaboration with North Korea and lay the groundwork for positive outcomes in the future. Furthermore, training can play a role in acclimating the North Koreans to the expectations that foreign investors will have.

All of this is to say that unless North Korea addresses it governance issues, there is unlikely to be a rush of foreign investment into its mineral sector. Furthermore, unless it reforms its economy, the benefit of these projects is not likely to go to the North Korean population and be used to develop the state. It is not the availability of resources that determines a country’s prosperity; it is its ability to effectively leverage those resources in the international marketplace that is essential for economic success.

Short of this sort of opening, it is likely that the North Korean economy will continue to stagnate, and North Korea will sell the few resources it can extract at a discount to the Chinese for foreign currency. In short, unless it reforms its economy, North Korea will sell off its most prized asset on the cheap in an attempt to tread water and avoid reforming its economic and political system.

As it is now, North Korea is sacrificing an opportunity to build a stronger and more prosperous future for immediate access to foreign currency.

Scott Thomas Bruce is the Project Manager for the Partnership for Nuclear Security at CRDF Global and an Associate at the Nautilus Institute and the East-West Center. He also is an analyst at Sino-NK.

Comments
16

[...] North Korea The Korean Peninsula during the Japanese Empire was richer in resources than mainland Japan. That hasn't changed. . . [...]

[...] labor regulations, greatly reduced transportation costs, and most importantly, trillions of dollars worth of mining potential. But this leaves China in an interesting predicament. Due to sanctions, it is [...]

[...] rogue state is sitting on an estimated $6 trillion worth of minerals. These are mostly rare earths, elements that go into high-tech products and are coveted [...]

[...] rogue state is sitting on an estimated $6 trillion worth of minerals. These are mostly rare earths, elements that go into high-tech products and are [...]

Chris
January 21, 2013 at 09:17

I absolutely beg differ

Jothiratnam
October 21, 2012 at 21:34

Oh, there're precious resources involved? Did someone just change the music, is that a different tune playing now? Will we see N. Korea no longer demonised now that there's something more valuable than intangibles like human rights and such on the table now? Will it suddenly become like Apartheid-era South Africa which many states were scrambling to engage in profitably, I mean 'constructively'?

delinquint
September 20, 2012 at 04:16

china for years and years has been buying up all the scrap metal's from everyone they are also a rich country everything from iron to oil but the choose to buy scrap rather than mine thier own . which is truely a good plan to use others scrap rather than your own . then when one day no one else has anything left they will be the only player and thier ore's and oil will be worth expinentialy more than it is to moine it now and cheeper to get from others as well .

Gamer888
September 2, 2012 at 22:48

Maybe…but the regime's policies regarding foreign investment is too rigid..they crave for such investments but once there, they remain pretty inflexible and companies cannot just work properly. Some of money goes to the elites rather than fuel industries, salaries….North Korea is among the top 3 most corrupted states in the world. US sanctions has little to do….the main issue is the nature of the regime. North Korea is seated on a gold mine with its natural ressources but prefer to open it to chinese companies rather than western ones…I wonder how good are chinese ethics in North Korea. 

kalendjay
September 1, 2012 at 09:47

Oh yeah? It was reported during the war in Vietnam that they had tungsten, still a valuable alloy element. There is also iron, coal, and tropical timber. South Vietnam racked up surpluses in the 60's thanks to cotton, and would have been on the way to creating a Taiwan-like economy if the Vietnamization of the war continued (until aid was cut off, ARVN won every engagement with the North). DRVN would have been a shriveled husk compared to its southern neighbor, and US would not have been so keen to play up China as the trade opportunity of the century. As it happens, South Korea has been and remains a better trade opportunity and partner than China in the equivalent time frame, since the latter is showing systemic economic problems that were unthinkable only 5 years ago.
 
So I wish you bloggers would stop blathering abut China and the CIA in unintelligible English! 

Cam
September 1, 2012 at 06:59

 
Were with the Chinese assistance, the Vietnamese defeated various chinese dynasties of Han, Song, Yuan, Ming, Quin, even with the current CCP in 1979? You are a bunch of ignorant indeed. Go back and learn your own history book.

Rye
August 31, 2012 at 18:01

@Cam
Don't call Korean losers when you Viet produce nothing but fish sauce. Without China support  during the Vietnam War, Vietnam will never unified–think the North would win the war with their bamboo spears and  2-inch-manhood??? Don't be ungrateful and bigot bunch. Today Vietnam's economy is disarray and the CIA is in full swing for regime change, Vietnam war 2 is in the making!!!

Oldertimer
August 31, 2012 at 08:30

Don’t you think the US sanctions on North Korea have anything to do with that country’s state of dereliction and impoverishment?

August 31, 2012 at 02:19

[...] estimated value of North Korea’s rare earth minerals, according to the South Korean Government. Given North Korea’s limited capacity in the mining sector, it remains uncertain whether North [...]

Cam
August 30, 2012 at 12:09

Both North and South Korea are real losers. They are watching helplessly while the Chinese are sucking NKorea dry.

Mark Thomason
August 30, 2012 at 07:25

The North Koreans would object to the idea it must be developed by foreign money.  If they would divert some of their own resources from the military, they'd be right about that.

applesauce
August 30, 2012 at 00:47

there's supposedly a lot of mineral wealth in Afghanistan too, but you know, probably wont bring benefits to anyone for the foreseeable future just like north korea.

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