During Japan's colonial administration of Korea from 1910 until 1945, industrial and infrastructure development efforts were largely concentrated in the relatively under-populated and resource-rich northern portion of the country. As a result, following Japan's defeat in 1945, the division of the Korean Peninsula left around 65% of the heavy industrial facilities and infrastructure in the North but the majority of the population in the agrarian South.
Both North and South Korea suffered widespread destruction during the Korean War but in the period immediately following the armistice, the DPRK was able to mobilise its labour force and exploit its natural resources - particularly its substantial mineral reserves and hydropower - to achieve rapid economic development. It was assisted by large amounts of aid from other communist countries, particularly the Soviet Union and China, which helped the DPRK resurrect and develop heavy industry and mining, although at the expense of agriculture and light manufacturing. Western studies confirm that through mass economic mobilisation based on a series of economic development plans beginning in 1954, the DPRK was able to achieve very rapid rates of growth - averaging 12% per annum - that far exceeded the ROK's until the late 1960s. North Korea is the world's most centrally planned economy. Agricultural land is collectivized, state-owned industry produces nearly all manufactured goods, and heavy and military industries have long been developed at the expense of light and consumer industries. Total economic output has fallen steadily since 1991 -— perhaps by as much as one-half -— when the country's economic ties to the Soviet Union and Eastern Bloc collapsed. The slide has also been fueled by serious energy shortages, aging industrial facilities, and a lack of maintenance and new investment. North Korea's self-reliant development strategy assigned top priority to developing heavy industry, with parallel development in agriculture and light industry. This policy was achieved mainly by giving heavy industry preferential allocation of state investment funds. More than 50 percent of state investment went to the industrial sector during the 1954-76 period (47.6 percent, 51.3 percent, 57.0 percent, and 49.0 percent, respectively, during the Three-Year Plan, Five-Year Plan, First Seven-Year Plan, and Six-Year Plan). As a result, gross industrial output grew rapidly. During the early 1970s, North Korea, probably noting the more rapid economic development of the South, attempted a large-scale modernization program through the importation of Western technology. In an attempt to reduce its reliance on Soviet economic aid, the DPRK began a large-scale modernisation program based on importing technology and capital, principally for the further development of the heavy industrial sectors of the economy. The DPRK was not, however, able to operate the plant properly or produce goods of sufficient quality to export.Unable to finance its debt through exports that shrank steadily after the worldwide recession stemming from the oil crisis of the 1970s, the DPRK became the first communist country to default on its loans from free market countries. In 1979, North Korea was able to renegotiate much of its international debt, but in 1980 it defaulted on all of its loans except those from Japan. By the end of 1986, the North's hard-currency debt had reached more than $4 billion. It also owed nearly $2 billion to communist creditors. The Japanese also declared the North in default. By 1993, North Korea's debt was estimated at $10 billion.
Largely because of these debt problems but also because of a prolonged drought and mismanagement, North Korea's industrial growth slowed and per capita GNP fell below that of the South. By the end of 1979, per capita GNP in the North was about one-third of that in the South. The causes for this relatively poor performance are complex, but a major factor is the disproportionately large percentage of GNP (possibly as much as 25%) that the North devotes to the military.
Although the production of consumer goods was given more emphasis in the 1970s and 1980s, most economic resources continue to be devoted to the production of minerals, metals, and heavy machinery. In fact, most industry is located around the major mining and machinery manufacturing centers that form the focal points of the transportation and communications networks. At the start of the 1990s, the country had a variety of relatively well developed industries, and in per capita production of some industrial items was comparable to those of many middle-income countries.The economy depends to a considerable degree on the extraction of its many mineral resources for fuels, industrial raw materials, and metal processing as well as for exports. Anthracite coal, with estimated reserves of 1.8 billion tons, is the most abundant of the country's mineral resources. It is produced in large quantity for both domestic consumption and export. With estimated reserves of 400 million tons, iron ore continues to be important for domestic industry and is a major source of foreign exchange. North Korea possesses the largest and some of the best quality magnesite deposits in the world--an estimated 490 million tons. The mining of magnesite is important for the domestic industrial ceramics industry and for exports. Building materials, such as the cement used in almost every construction project, are manufactured in large as well as smallscale local industrial plants.
The Third Seven-Year Economic Plan (1987-93) was abandoned when the Soviet Union and Eastern Europe collapsed in the early 1990s and for the first time, the DPRK admitted the Plan's failure, but emphasised that this was temporary. To compensate for the setback, Pyongyang launched another Three-year Plan in 1994 which again placed emphasis on agriculture, light industry and foreign trade but this ended without result after barely six months. Since Kim Il-Sung's death in July 1994, the DPRK has not announced any new economic plans.
The DPRK cannot afford to import enough of the essential goods needed for its economy to function, most importantly coking coal for steel production and oil for transportation. The resultant energy shortages have compounded the problems facing the country's industrial base and transport system, especially given the economy's heavy reliance on energy-intensive industries such as chemical production and heavy machine building.
North Korea set up smelters in the east and west to produce lead (production capacity: 90,000 tons), zinc (300,000 tons) and copper (90,000 tons). Bukchang aluminum factory that began operations in March, 1985 under the technical support of the Soviet Union, has an annual production capacity of 20,000 tons.
As the self-reliance policy was emphasized, the chemical industry is the key element of coal chemical industry developed during the era of Japanese occupation, based on domestic resources and technology. The petrochemical industry was initiated in the late 1970s and now possesses an annual oil refinery capacity of only 3.5 mil tons. Only 4 kinds of petrochemical products like acrylics are manufactured for the moment. 2.8 Vinylon factory and Soonchun Vinylon factory produce 60,000 tons and 50,000 tons respectively. But due to shortage of electric power and coal and to obsolete small-scale facilities, productivity is low.
The French-built Ch'ngnyn Integrated Chemical Works in the Anju District north of P'yongyang is the first petrochemical complex designed to produce ethylene, polyethylene, acrylonitrite, and urea. The nearby refinery at Unggi supplies the necessary crude petroleum. The Eight February Synthetic Fiber Integrated Plant, a large-scale complex, produces chemical fibers and has an annual capacity of 50,000 tons. A synthetic fiber complex in Sunch'n, the country's largest, began operation in 1989 after completing its first stage of construction. When all stages are completed, production capacity is expected to reach 100,000 tons of synthetic fiber, 1 million tons of calcium carbide, 750,000 tons of methanol, 900,000 tons of nitrogen fertilizers, 250,000 tons of caustic soda, 250,000 tons of vinyl chloride, and 400,000 tons of soda ash per year.Fertilizer in North Korea is produced by synthesizing ammonia by methods now considered outdated, at 14 factories like Heungnam Fertilizer factory. Since most factories were built before the '60s, operation rate has been low due to aging machinery, and a shortage of energy and raw materials like injunggwang and anthracite coal. Fertilizer factories in North Korea mainly produce nitrogen and phosphorous fertilizer. They cannot produce potassium fertilizer and compound fertilizer, which has to be imported from Russia and China. Human waste and animal manure is used widely. Alternative fertilizers like humus soil collected from coal mine ash and soot collected from factories (burned ash fertilizer) are also widely employed. Since 1995, microbe fertilizer production technology has been introduced.
The machine tool sector has been developed intensely according to the policy of parallel development of the economy and national defense. Now Heechun, Gusung, Chungjin, Mankyungdae machine tool factories possess an annual production capacity of 3.5 mil. units. Since the 1960s, ordinary machine tool imitation production has been carried out under the support of former Soviet Union and Eastern Europe. Therefore, most ordinary machine tools are produced domestically.
Automobile design and production is virtually all imitation. Seungri automobile, Pyongyang railless tram car, and Chungjin bus factories possess a total annual production capacity of over 30,000 units of freight cars, passenger cars, buses, etc. Unable to develop new products, however, they are restricted to imitation of old Soviet and East-European automobiles.
Various types of railroad cars are produced at Kim Jong Tae Locomotives, Wonsan Railway Cars, and Chungjin railway factories. Nakwon and Bukjung Machine factory and Pyongyang Construction Machine factory produce construction machines like excavators, bulldozers (300 hp) and cranes (100 tons).
There are over 10 shipyards in North Korea in Nampo, Wonsan, and Chungjin. Because they lack proper docking facilities, they presently can build only less than 20,000 DWT-level vessels. Because designing methods is iadequate, ships are built on the basic model of 14,000, 20,000 DWT grade cargo vessels and 3,750 DWT fishing vessels. Few ships are exported.
The electronics industry in North Korea is rudimentary at best compared with other nations. Development efforts began in the 1980s. Now Pyongyang Integrated Circuit Factory and Electronics Engineering Research Institute produce basic semiconductor elements and small-scale IC chips. Electric home appliances like TVs and radios incorporate imported components, but goods requiring advanced technology cannot be produced.
Though North Korea has tried to develop its own computer manufacturing technology since the 1960s, only the most rudimentary computers are produced due to shortage of technical manpower and to the primitive semiconductor-related electronics industry. Since the 1980s, research institutes like Science Research Institute have imported key components like CPUs and ICs and succeeded in assembling 8-bit grade computers. Currently, the Pyongyang computer assembly factory possesses an annual production capacity of more than 30,000 units of computers. Pyongyang program center and Chosun computer center develop or utilize more than 30 kinds of software such as Korean Front End Processor for Window 95, Chosun word processing program, (Tangun) and Korean Word processor (Changdock).
Light manufacturing has not kept pace with heavy industry. Since the 1970s, the leadership has begun to admit openly the backwardness of consumer goods in terms of quality and variety. The government's stress on providing adequate consumer goods continues into the early 1990s, but is not backed by any real efforts to divert state investment funds from heavy industrial projects. In his 1992 New Year's address, Kim Il Sung stressed achieving the people's long cherished desire that "all people might equally eat rice and meat soup regularly, wear silk clothes, and live in a house with a tiled roof." However, this was preceded by his exhortation that the most important and urgent tasks for 1992 were increasing the production of electricity and coal, and developing rail transport. The textile industry, the most important light industrial sector, utilizes primarily locally produced synthetics and petrochemically based fibers, as well as cotton and silk. P'yongyang, the site of the P'yongyang Integrated Textile Mill, is the country's textile capital, but Siniju and Sariwn have been gaining in importance. During the Second Seven-Year Plan (1978-84), output of textile fabrics increased by 78 percent registered an annual growth rate of 8.6 percent, and, according to official claims, achieved the 1984 target of 800 million meters. However, foreign estimates placed textile output in 1990 at only 670 million meters. During the Second Seven-Year Plan, knitted goods, particularly those using domestically produced acrylic fibers, were emphasized. Efforts to expand the production capacity of knitwear continued in the Third Seven-Year Plan (1987- 93). By modernizing existing equipment and installing new spinning and weaving machines, the government planned to increase the annual output of textiles to 1.5 billion meters by 1993. The Third Seven-Year Plan emphasized synthetic fiber production based on indigenous technology using coal and limestone, and on the production of chemical fiber based on petrochemistry. The government has called for accelerating the expansion projects at both the Siniju and Ch'ngjin chemical fiber complexes. Vinylon textile (100,000 tons) made from "Anthracite coal + limestone", and viscous textile made from timber and reed occupy an 88% share of total production capacity. On the other hand, because Vinylon is hard to dye and shrinks after washing, and viscous textile generates poisonous gas and waste water during its processing, they are treated as inferior to those of advanced countries. The planned annual output target for chemical fibers in the Third Seven-Year Plan is 225,000 tons while the output for synthetic resin and plasticizer is targeted at 500,000 tons. Foreign estimates placed the output of chemical fibers in 1990 at 177,000 tons.The paper manufacturing industry comprises over 10 factories like Anju Jaeji, Gilju Pulp and Howryung Paper factory, established in the 1950s and 60s. But due to shortage of timber, reed and corn, straw is used to make low grade paper.
Since the early 1960s, local industry has been the major supplier of consumer goods and foodstuffs. With the introduction of the August Third People's Consumer Goods Production Movement, in effect since 1984, the government's policy of developing small- and medium-scale local industrial plants simultaneously with large-scale, centrally controlled light industrial plants continues into the 1990s.