Reuniting North Korea and South Korea could cost trillions of dollars
President Donald Trump's historic summit with North Korean leader Kim Jong Un in Singapore on Tuesday, following on the heels of the two Korean leaders meeting a little over two months ago, has raised the question of whether North Korea and South Korea would ever reunite.
Analysts say unifying North and South Korea could cost a trillion dollars under the best of circumstances and take several decades. The final price tag would also depend largely on what the catalyst for reunification is.
Some analyses put the cost of reunification at far more -- closer to $3 trillion. Experts argue that much of the cost surrounding any scenario for Korean unification would depend on whether the countries decided to converge gradually or if a chaotic event occurs. If the reform were carefully planned and followed by a peaceful union, it would be far less expensive than if North Korea's economy collapsed or a war broke out, requiring massive reconstruction costs.
South Korea's annual economic output is around $2 trillion -- that's 50 times North Korea's estimated $40 billion. South Korea, with about 50 million people, constitutes the world's fifth-largest export economy. The country is a powerhouse in advanced manufacturing sectors like automobiles and mobile phones -- think Hyundai and Samsung. On the other hand, North Korea, with around 25 million people, is one of the world's most closed economies with a state-planned, mainly agriculture-based system that has limped along for years, decimated by sanctions aimed at stopping the regime's nuclear ambitions and human rights violations. Decades of spending on defense at the expense of investments in infrastructure and other industries has also harmed growth. China accounts for 90 percent of its total trade volume.
North Korea has a strategic advantage for attracting capital -- its location. President Trump nodded to the country's potential for future economic opening in a press conference after his meeting with Kim Jong Un, citing North Korea's coastline as a way to attract real estate development. "As an example, they have great beaches. You see that whenever they're exploding their cannons into the ocean, right?," Trump said during the the briefing with reporters. "I said, 'Boy, look at that place, wouldn't that make a great condo?' And I explained it, I said, 'Instead of doing that, you could have the best hotels in the world right there.'"
"Think of it from a real estate perspective. You have South Korea. You have China and they own the land in the middle. How bad is that, right? It's great. But I told him, I said, 'you may not want to do what's there. You may want to do a smaller version of it and that could be,'" Trump added.
Sitting smack dab between major economies South Korea and China could make North Korea a desirable place for new roads and rails to facilitate trade, and even private real estate investment if the country opens itself to foreign investors and pursues more market-oriented policies. Betting on a boon if relations with its neighbors improve, Chinese property speculators are already buying up real estate along the North Korean border and driving up prices, Reuters reported last month.
Another positive for North Korea -- its young people. The median age of a North Korean is 34, versus about 42 for a South Korean. For an economy like South Korea, which will need to offset the costs of an aging society, an influx of young workers looking to transform their lives if unification comes to pass is an advantage. That said, many of these potential workers have been cut off from modern society by a brutal police state; they would need the education and training to function in an advanced economy.
Didn't Germany do this successfully a couple of decades ago? Yes, but consider that East Germany was in much better shape to rejoin a market economy than North Korea. "The GDP per capita is $33,200 in South Korea and $1,800 in the North," William Parker, COO of the EastWest Institute, told CBS MoneyWatch. "If you compare those numbers to West and East Germany, it's a completely different ballgame -- the [per capita GDP] ratio there was estimated between 7 or 10 to 1 as opposed to 40 to 1 in the case of South and North Korea."
Unification hinges on North Korea committing to denuclearization, and if the region isn't stable it will be difficult to achieve. "When you are talking about reunification, you are talking about decades," Parker said. "Start improving their economy through capitalism and start improving their life through a democracy of some sort. And then you start looking at unification, and I think it's a natural progression of how capitalism happens."