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North Korea's economy gets shot in arm from Russia arms deal

North Korea has  made at least 10 arms transfers to Russia since last August, Seoul intelligence officials say

North Korea has made at least 10 arms transfers to Russia since last August, Seoul intelligence officials say

North Korea, the world's most isolated state, is this year expected to return to economic growth for the first time since before the pandemic, as weapons deliveries to sustain Russia's invasion of Ukraine boost state coffers.

Since August, North Korea has made 10 weapons transfers of an estimated one million shells in Russia, according to South Korea's National Intelligence Service. Other reports suggest Pyongyang has also delivered ballistic missiles to Russia's military, citing US satellite images.

Both Pyongyang and Moscow have denied the transfers have taken place.

The secret deal between North Korean President Kim Jong Un and his Russian counterpart Vladimir Putin is likely to further boost the North's tiny, centrally planned economy, which South Korea's central bank said was worth just $24.5 billion (€22.6 billion) in 2022.

Russia deal could offset COVID, sanctions impact

Not only did COVID-19 lockdowns decimate already-anemic growth, contracting by 4.5% in 2020, but international sanctions levied in 2016 over Pyongyang's nuclear program had earlier hurt its main export of coal to China. The two crises exacerbated severe hardship in a country where 60% of the population lives below the poverty line.

"The economy has been on the decline for the past five years. So the weapons deal with Russia will help a return to positive growth of around 1% in 2024," Anwita Basu, Head of Europe, Country Risk at Fitch Solutions, told DW.

Basu said her forecast was a guesstimate as Pyongyang doesn't report economic data. Instead, most statistics are gleaned from South Korea's central bank and North Korea's trading partners.

Last year, North Korea's trade with China — by far its largest partner — recovered to pre-pandemic levels of $2.3 billion, according to Beijing, having dropped dramatically between 2016 and 2018 after sanctions were imposed.

Describing the ammunition transfer as a "mega deal" for Pyongyang, Basu said it was clearly an "act of desperation" on the part of Russia, which is increasingly isolated globally due to the decision to invade its neighbor.

A report published in October by the Royal United Services Institute (RUSI), the world's oldest defense and security think tank, said Pyongyang's decision to deliver munitions to Russia "underscores the grave threat that North Korea poses to international security." It warned the deal would have "profound consequences for the war in Ukraine and security dynamics in East Asia."

Defense sector an engine of growth

North Korea's defense sector is one of the country's largest employers, with an estimated two million workers out of a population of 26 million. The sector makes a significant contribution to the economy, along with agriculture.

Originally just a supplier to its own military, North Korea has found a few key overseas customers for its weapons and ammunition — mostly former Soviet countries or those in sub-Saharan Africa. Most of the parts are imported from other heavily sanctioned countries, including China and Iran.

"North Korea has wanted two things for a while now: one is legitimacy as a nation, which it doesn't have because the Korean War (1950-3) hasn't ended. The second is a sustainable defense sector and military, which is capable of defending its sovereignty," Basu said, adding that the Russia deal helps to reinforce both.

Despite the importance of the defense sector, Basu is skeptical that ordinary North Koreans will benefit from the Russian weapons deal. The country has, for many years, been heavily reliant on foreign aid to feed its population and many people suffer from malnutrition and other health issues.

"It's likely they [ordinary citizens] won't gain much because North Korea remains an autocratic state with a lot of corruption," she said. "At the same time, the additional income to the defense sector will improve the North's external financing ability — so access to food and technology imports could become easier."

The state is expected to profit to the tune of at least $1 billion from the sale of artillery shells to Russia, Bloomberg News reported this week, while ballistic missiles ordered by Moscow usually cost several million dollars.

Basu questioned how much of the deal was in cash or part of a barter arrangement for advanced Russian military capabilities and economic aid.

Munitions deal could lead to closer alliance

The Fitch Solutions economist also noted how North Korea, alongside Russia, is renowned for its advanced cyberattack capabilities, with the state training up thousands of hackers.

"So that could be another kind of area for the two sides to work together in the future," Basu said.

In a sign that both countries are seeking to further boost ties, Putin "expressed his willingness to visit [North Korea] in the near future, the North's state news agency KCNA reported last week. It would be his first visit to Pyongyang in more than two decades. Putin and Kim held bilateral talks in Russia's Far East in September.

The economic benefits, however, could be shortlived if a diplomatic solution is found this year to the Ukraine war, or if China, which is a major ally to Pyongyang, weakens its support for both North Korea and Russia.

Edited by: Ashutosh Pandey