World Economy

Moscow and Pyongyang: From Disdain to Partnership?

Moscow and Pyongyang: From Disdain to Partnership?Moscow and Pyongyang: From Disdain to Partnership?

A few weeks ago, the Foreign Ministry of the Democratic People’s Republic of Korea (DPRK) said that Moscow and Pyongyang planned to “deepen political, economic and military contacts and exchanges” this year. The two governments have recently launched new economic projects and partnerships to expand bilateral and regional transportation and investment.

Last year, more senior North Korean leaders visited Russia than any other country. In the coming months, Russian President Vladimir Putin could become the first foreign leader to meet with Kim Jong-un, the leader of the DPRK, who Russia says has accepted Putin’s invitation to visit Moscow in May, The Diplomat reported.

In February 2014, Kim Yong-nam, chairman of the Presidium of the DPRK’s Supreme People’s Assembly, attended the opening of the Olympic Games in Sochi. The following month, the Russian minister of Development for the Far East, Alexander Galushka, visited North Korea with Rustam Minnihanov, the president of the Russian Republic of Tatarstan.

From April 28-30, Deputy Prime Minister Yuri Trutnev, also the presidential envoy for the Far Eastern Federal District, spent three days in North Korea along with the governors of Russia’s far eastern provinces of Amursky, Khabarovsky and Primorsky. In September and October, Foreign Minister Ri Su-yong spent ten days in Moscow and in Russia’s Far East negotiating various economic deals, with a focus on the agricultural sector.

Both governments have discussed plans to reconstruct North Korea’s railroad network and connect it to Russia’s, build a natural gas pipeline and electricity power lines through the Korean Peninsula, and develop North Korea’s potentially extensive mineral riches.

Moscow’s ability to pursue its goals is constrained by its limited influence in the Koreas and the rest of East Asia.

The DPRK has many minerals and other natural resources, but what Russian entrepreneurs most value about North Korea is its pivotal location between Russia and East Asia. They want to make the DPRK a transit country for Russian energy and economic exports to South Korea and other Asia-Pacific countries. Russian planners aspire to construct energy pipelines between Russia and South Korea across North Korean territory.

They have also discussed building a trans-Korean railroad and linking it with Russia’s Trans-Siberian rail system. If realized, the new rail line would allow the shipment of goods between Europe and Korea to proceed three times faster than through the Suez Canal. Russians have also sought to use the DPRK’s ice free ports which, unlike Vladivostok, are accessible year-round.

To jump-start these projects, in the first half of 2014 the Russian parliament and president approved the 2012 agreement to write off 90 percent of the DPRK’s $10.94 billion Soviet-era debt (valued as of September 2012). Russia agreed to allow North Korea to repay the remaining $1.09 billion in semiannual installments over the next twenty years, and use these payments to fund bilateral economic infrastructure projects.

  Railway, Energy Projects

Moreover, the Russian-DPRK joint venture to develop the Rajin port has so far completed the modernization of a pier and built a 34-mile railway connecting the facility to the Russian border. This project to develop a transshipment center for northeast Asia continues to attract interest among South Korean businesses, with the South Korean government even granting a waiver from the economic sanctions that were adopted after the 2010 provocations.

Moreover, Russian energy officials and firms are evaluating various plans to transmit electricity from the Russian Far East to North or South Korea. The Russian and DPRK governments are pondering a megaproject in which Russia would spend $25 billion over 20 years to modernize North Korea’s dilapidated 3,000-km rail network in return for privileged access to North Korea’s mineral resources, whose value might exceed that cost by several orders of magnitude.

The DPRK is especially eager to acquire new Russian warplanes to replace its aging Soviet-era planes. To circumvent the western sanctions imposed on both their economies, which make it difficult for them to use western currencies and financial institutions, the Russian and DPRK governments agreed to use rubles for some transactions, thus facilitating the realization of their declared objective of raising two-way trade to $1 billion by 2020.

The first ruble-based transaction occurred with agreements reached during the October 2014 meeting of the Russia-DPRK intergovernmental committee on commercial-economic relations..

Actually realizing all of these plans will remain a challenge. According to the latest data, Russia-DPRK trade remains low, with the first three quarters of 2014 seeing a slight decline compared to the first nine months in 2013. In contrast, North Korea’s trade dependence on China has reached record levels, with more than 90 percent of DPRK exports going to China in 2013.

The volume of DPRK trade and investment with China is many times greater than with Russia. These figures are unlikely to change any time soon given the greater degree of compatibility between the Chinese and North Korean economies and the deep-rooted and long-standing PRC ties with North Korean economic activities.