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Koreas challenged by `prosperity gap'

"The North Koreans don't know the external world."

Cheong Seong-chang, expert on North Korea at the Sejong Institute

South Korea dreams of forging an economic community with North Korea, using trade and investment to foster closer ties and help smooth the way toward eventual unification of the divided peninsula.

The impoverished North, for its part, has visions far less grand, coveting basics like energy, fertilizer and light industrial equipment, things taken for granted in the wealthy South.

The huge prosperity gap that separates ethnic kin divided for decades stands as one of the most sobering challenges as the leaders of the two countries gear up for a summit meeting this week, the first in seven years.

South Korea, where sleek Hyundais cruise Seoul's boulevards and top-flight corporations like Samsung Electronics Co seize global market share, has a nearly US$900 billion economy, the world's 12th-largest.

Across the demilitarized zone dividing the two countries, North Korea's economy was estimated at just US$25.6 billion last year, less than 3 percent of South Korea's -- or about the size of Seoul's defense budget this year.

"North Korea is short of everything," said Nam Sung-wook, a professor at Korea University in Seoul. On a recent visit to Pyong-yang, Nam said he saw passengers get out to give a push to their stalled tram, which sported a sign boasting, "Our country is best."

The Koreas, divided by ideology and the legacy of the 1950 to 1953 Korean War, have in the past decade established limited commercial ties, driven by a steady deterioration in the North's economy and the South's desire to forestall a potentially messy and expensive collapse of its neighbor.

Links were given a shot in the arm by a landmark 2000 summit, when then South Korean president Kim Dae-jung flew to Pyongyang and was warmly greeted on the airport tarmac by North Korean strongman Kim Jong-il.

Capitalist managers from the South now supervise communist workers at the Kaesong Industrial Complex, a factory enclave just over the border in North Korea. South Korean tourists take buses overland to a scenic mountain resort in the North.

Trade, though still small, has tripled since 2000 to US$1.35 billion at the end of last year, according to the Korea International Trade Association.

South Korean President Roh Moo-hyun, who plans to travel by car to Pyongyang tomorrow for a three-day meeting with Kim, called for the two sides to discuss the establishment of an economic community in a speech in August.

South Korean officials, however, have been vague on specifics. Roh -- who will take along his ministers for finance and economy as well as agriculture and forestry -- plans to visit sites in the North with an economic focus, including Kaesong.

Nam said about the only concrete economic results he expects from the summit are agreements for a fertilizer factory and a power plant for the energy-deficient North.

Pyongyang is unlikely to agree to any major opening as it fears South Korean investment will have "a negative effect on the North Korean economy and regime system," he said.

Cheong Seong-chang, an expert on North Korea at the Sejong Institute, a security think tank near Seoul, says the North suffers from a significant knowledge gap when it comes to business.

"The North Koreans don't know the external world," Cheong said. "They want to make money, but they don't have the knowledge to produce competitive products."

North Korea has been carefully experimenting with reforms since 2002, lifting some price and wage controls and introducing free markets for food and consumer items, apparently influenced by the experience of communist brethren China and Vietnam.

Analysts and visitors to the North report the reforms have resulted in the emergence of a modest middle class in Pyong-yang, where living standards are highest and citizens can even enjoy amusements like bowling.

But the ongoing fragility of the North's hand-to-mouth economy was hammered home in August when the heaviest rainfall in 40 years and subsequent flooding left hundreds dead or missing and about 100,000 homeless.

The natural disaster destroyed more than 11 percent of the North's crops and damaged infrastructure and industrial facilities.

No matter how aggressively South Korea pushes for closer economic and business ties, Pyongyang is seen as likely to continue moving at its own pace.

"The North's preference for step-by-step progress with tangible profits is not in complete harmony with the South's mid-to-long-term vision for economic cooperation," Lim Eul-chul, a research professor at South Korea's Kyungnam University, wrote in an article posted on the Web site of the Nautilus Institute, a San Francisco-based think tank.

Colin McAskill, a British investor who has agreed to purchase Daedong Credit Bank Ltd, the only foreign majority-owned and fully foreign-managed bank in North Korea, is bullish on the country's potential, citing in particular its richness in natural resources.

"The summit's going to be very beneficial and would basically lay the groundwork for the opening up of the North Korean economy," he said.
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