It's all about the money for North Korea

The Kaesong Industrial Complex (KIC) is as good a bellwether of diplomatic relations on the peninsula, and shows how desperate Pyongyang is for cash.

During the tense diplomatic row on the Korean Peninsula in April, a seriously worrying event pushed the argument closer to the edge.

In a moment of theatre replete with podium-bashing North Korean belligerency, Pyongyang decided that closing the Kaesong Industrial Complex would be an appropriate escalation to teach the South a lesson

Once the North Koreans realised their standard rhetorical efforts and military posturing about sending ballistic, nuclear-tipped missiles onto the United States had failed to achieve whatever goals they aimed for, the important joint venture on the border of both Koreas was abruptly shut down.

And at the time, reopening the facility looked highly unlikely.

The Kaesong Industrial Complex (KIC) - funded by South Korea and built in the North Korean city of Kaesong - was established in 2004 as an emblem of goodwill between the North and South.

The complex is certainly important for economic cooperation, but its real purpose for any observing international officials is as a good bellwether of diplomatic relations on the peninsula.

The centrality of a few factories

This is why shutting the industrial park down earlier this year was considered such a dire move in the game for influence. Kaesong employs  more than 53,000 North Koreans in manufacturing and industrial roles and is run almost exclusively by South Korean managers and businesses.

The complex provides cheap labour for the South Koreans as North Korean workers churn out textiles and processed foods from 123 different companies. The facility is the only one of its kind.

While the North Koreans apparently decided closing the complex down served their short term interests, they understood it could not be inactive for long before they suffered fiscally.

There is talk now of reopening the KIC, not necessarily to mend diplomatic relations with the South, but because the complex provided NZ$102 million in wages for the North’s regime last year.  

The two Koreas reached a preliminary agreement last week to open the complex after six tedious rounds of negotiations, and only after the South Koreans almost shut down the complex permanently in protest over the dragging talks.

Placing something of a dampener on the agreement however is that there is no precise date set for the resumption of operations and Seoul is sceptical about the deal.

Rather than a success in negotiations, reopening the KIC instead points more to North Korea’s struggle for hard currency than anything else. Pyongyang has tried to open other industrial parks in the past but always encountered issues in attracting foreign investors.

No investor really wants to inherit the unpredictability of relying on a temperamental regime prone to stopping industrial operations on a belligerent whim.

Pyongyang probably understands this shortcoming - and that in the long term it will be detrimental - but it fits with the regime’s personality to keep the international community guessing about its next move.

The KIC will probably remain the only economic access to capitalistic enterprises for the North in at least the foreseeable future, because Pyongyang still has a semblance of control over the status of the complex.

North Korea’s desperate need for currency

But underlying the success of negotiations is the harsh fact that North Korea relies on foreign aid and enterprises such as the KIC for survival. North Korea has few options of generating foreign capital, largely because it has hermetically sealed itself off from the developed world with controversial weapons programs.

The regime is cripplingly sanctioned because of its stance on human rights, the constant ballistic missile threats to surrounding nations, and their dangerous nuclear armament. Close to 2.4 million people need regular food assistance according to United Nations figures because of these state programs.

Reopening the KIC should help the North Koreans to restart the flow of foreign currency, even though most of the wages end up in regime coffers rather than directly with the cheap labour force.

International aid has dried up over the last few years in response to Pyongyang’s controversial nuclear program but the UN is watching closely and will not let the horror of the mid-1990s famine occur again.

To assist the present humanitarian situation in the country, the United Nations issued a call mid August to raise NZ$125 million in emergency aid for the impoverished country. This is on top of the NZ$192 million already earmarked for food, health, and sanitation programs.

North Korea’s cooperation in talking with the South has clearly made some progress, but it is important not to assume the reopening of the Kaesong Industrial Complex indicates any changes in Pyongyang’s views about their nuclear program.

For the North, it is all about the money.

Nathan Smith has studied international relations and conflict at Massey University. He blogs at INTELL and Analysis