Rare
earths bankroll North Korea's
future By Leonid Petrov
Those who travel to North Korea regularly
might have noticed that the last couple of years
have brought significant improvement in the
country's economic situation. Newly built
high-rise apartments, modern cars on the roads and
improved infrastructure come as a surprise to
visitors. It begs the question, where does
Pyongyang get the money from?
The
ambitious rocket and nuclear programs, which North
Korea continues to pursue despite international
condemnation, are expensive and harmful to its
economy. International sanctions continue to bite
the Democratic People's Republic of Korea's
foreign trade and investment prospects. Regular
floods and
droughts, animal
epidemics and other natural disasters hit the
fragile economy even harder.
According to
expert estimations, the DPRK should have ceased to
exist in the mid-1990s, after the Communist Bloc
collapsed and Kim Il-Sung died. But North Korea
has fully recovered after the famine and even
shows steady signs of economic growth.
Foreign critics looked everywhere with
hope to unravel the mystery. After 2008, the
stalled inter-Korean cooperation left North Korea
without South Korean financial assistance. Western
humanitarian aid has also been exhausted or
reduced to a number of goods with little market
value. Although the volume of North Korea's
foreign trade is negligible, the domestic economic
situation continues to improve. Pyongyang is
routinely suspected of violating international
sanctions by trading arms, smuggling drugs,
counterfeiting US dollars and other crimes.
These activities would be expected to
refill the impoverished state with badly needed
foreign exchange. However, anti-proliferation
operations and bank account arrests have never
disclosed anything criminal nor did they manage to
answer the main question: where does the money
come from?
In fact, North Korea is sitting
on the goldmine. The northern side of the Korean
peninsula is well known for its rocky terrain,
with 85% of the country composed of mountains. It
hosts sizeable deposits of more than 200 different
minerals, of which deposits of coal, iron ore,
magnesite, gold ore, zinc ore, copper ore,
limestone, molybdenum, and graphite are the
largest and have the potential for the development
of large-scale mines.
After China, North
Korea's magnesite reserves are the second-largest
in the world, and its tungsten deposits are almost
the world's sixth-largest. Still the value of all
these resources pales in comparison to prospects
that promise the exploration and export of rare
earth metals.
Rare earth metals are a
group of 17 elements found in the earth's crust.
They are essential in the manufacture of high-tech
products and in green technologies, such as wind
turbines, solar panels or hybrid cars.
Known as "the vitamins of high-tech
industries," REMs are minerals necessary for
making everything that we use on a daily basis,
such as smartphones, flat-screen TVs, and notebook
computers. Some rare earth metals, such as cerium
and neodymium, are crucial elements in
semiconductors, cars, computers and other advanced
technological areas. Other types of REMs can be
used to build tanks and airplanes, missiles and
lasers.
South Korea estimates the total
value of the North's mineral deposits at more than
US$6 trillion. Not surprisingly, despite high
political and security tensions, Seoul is showing
a growing interest in developing REMs together
with Pyongyang.
In 2011, after receiving
permission from the Ministry of Unification,
officials from the Korea Resources Corp visited
North Korea twice to study the condition of a
graphite mine. Together with their counterparts
from the DPRK's National Economic Cooperation
Federation they had working-level talks at the
Kaesong Industrial Complex on jointly digging up
REMs in North Korea. An analysis of samples
obtained in North Korea showed that the type of
rare earth metals could be useful in the
manufacture of liquid crystal display (LCD) panels
and optical lenses.
The joint report also
revealed that there are large deposits of
high-grade REMs in the western and eastern parts
of North Korea, where prospecting work and mining
have already begun. It also reported that a number
of the rare earth elements are being studied in
scientific institutes, while some of the research
findings have already been introduced in economic
sectors. The North built a REM reprocessing plant
in Hamhung in the 1990s but has been unable to put
the plant into full operation due to power and
supply bottlenecks.
Rare earth minerals
are becoming increasingly expensive, as China, the
world's largest rare earth supplier, puts limits
on its output and exports. In February, China's
exports of rare earth metals exceeded the price of
$1 million per ton, a nearly 900% increase in
prices from the preceding year.
China,
which controls more than 95% of global production
of rare earth metals, has an estimated 55 million
tons in REM deposits. North Korea has up to 20
million tons of REM deposits but does not have the
technology to explore its reserves or to produce
goods for the high-tech industry. Nevertheless, in
2009 the DPRK's exports of rare metals to China
stood at $16 million, and as long as someone
invests, exports will continue to expand.
This growing rise in REM prices and strong
demand gives the young leader Kim Jong-Un a good
chance to improve the economic standing of North
Korea without actually reforming its economy.
Following the Gulf States' and Russian
example of catching the wind of rising oil prices
in their sails, Pyongyang is likely to follow
suit, becoming rich and powerful through the
exploration and sale of natural resources. The
export of rare earth metals will replenish the
state coffers; stimulate the loyalty of the elites
to Kim Jong-Un's autocratic rule; and secure the
growth of consumption among the ordinary people.
Relations with South Korea, China and
Japan are also likely to improve due to the large
scale cooperation on exploring, processing and
utilizing REMs - the mineral of the 21st century.
Pyongyang needs international assistance
through joint projects to explore its mineral
resources, and mainly its rare metal and rare
earth minerals. North Korean and Chinese teams
have been cooperating to explore mineral resources
in the DPRK for many decades. Seoul has recently
expressed interest in working with Pyongyang on
mining projects and technological innovations.
Perhaps, Japan and Taiwan, which look for
alternative REM supplies for their micro-processor
and other cutting edge industries, might also
decide to contribute to the development of this
economically promising venture.
Paradoxically, the promise of Kim Jong-Il
might soon come true and North Korea may become a
"rich and prosperous state" - rich in natural
resources and empowered by nuclear technologies.
In that case, North Korea might not even need to
go through a painful and potentially destabilizing
economic reform.
Although the political
regime will remain dictatorial, the idea of
unification with the South by war or absorption
will soon become meaningless. The purges of
political elites and the mass starving of ordinary
people in North Korea will cease. Gradually the
level of prosperity in the two halves of the
divided Korea will start equalizing, opening more
opportunities for greater exchange and
cooperation.
Leonid A Petrov PhD
is a lecturer in Korean studies at the School of
Languages and Cultures, Faculty of Arts and Social
Sciences, University of Sydney.
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