[Outlook]Resources in the North

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[Outlook]Resources in the North

Recently, oil prices reached $100 a barrel and the price of raw materials such as iron, nickel and zinc also surged. So countries are competing more fiercely than ever to secure natural resources.
Last year, the United States and China invested $140 billion and $18 billion respectively in developing natural resources overseas, even though they have huge amounts of natural resources in their homelands. The volume of the investment is huge, particularly when we know that Korea invested $4 billion in the same period.
Meanwhile, other countries are endeavoring to prevent their natural resources from being drained. Russia and Central and South American countries have nationalized their energy industries. India imposes high tariffs on exports of minerals, and the Vietnamese government is increasing control over energy industries. Countries around the world are doing their best to win the battle over natural resources.
As Korea has poor natural resources, it imports 90 percent of the minerals that it needs. Automobiles are one of the major export items for our country, but we must import the iron, nickel, zinc, molybdenum and magnesium required to make the end product.
When it is impossible to be self-sufficient with those minerals, it is best to find the most effective way to get them. We can develop natural resources in Southeast Asia or Africa, but we need to look at North Korea first. To find natural resources in North Korea is the most competitive way, considering labor costs, quality of labor and distribution costs.
As is widely known, abundant natural resources are deposited in North Korea, and their potential value is 2,300 trillion won ($2.3 trillion), which is 24 times higher than South Korea’s. Magnesite is the raw material needed by the steel industry, and South Korea imports 100 percent of what it needs. North Korea has 3.5 billion tons of magnesite underground, the world’s largest deposit, in fact.
North Korea also has enormous deposits of iron ore, so if the South imports half of its demand from the North, it will have enough for 60 years. Because of the nuclear power plant building boom, uranium prices have skyrocketed 10 times over the past four years. But North Korea has so much uranium that the amount easily available there reaches 4 million tons. That nearly equals worldwide deposits combined.
But there is a problem. The rights to explore natural resources in North Korea are being handed over to China, both openly and secretly. In 2005, Kirin Province of China signed a contract with North Korea to explore the Musan iron ore mine, and a Chinese company has won the right to explore the Yongdung mine. Last year, a state company in China earned the right to run the Hyesan copper mine on the condition that China share half the profits with North Korea. These mines are the largest ones for iron ore, coal and copper in North Korea.
China is pushing for a project to explore a molybdenum mine near Pyongyang and a joint exploration project for an oil field in the Yellow Sea.
This trend is expected to persist at a faster speed. While South Korea considers political factors, such as North Korea’s nuclear issue and the economic feasibility of mining in North Korea, China has dominated the country’s valuable mines.
We need to prepare a short-term and a long-term blueprint for joint exploration of natural resources in North Korea, and the public and private sectors in our country must implement the plan together. Because North Korea has poor infrastructure, transportation costs are high and the quality of some minerals, such as iron ore, might not be satisfactory. But the value of the resources still outweighs the difficulties we might have in getting them.
During the financial crisis, we sold our rights to explore uranium and copper mines overseas at very low cost. We should learn from this.
In this sense, it is good, although belated, that South Korea agreed to explore natural resources in North Korea, and recently the South sent a research team to a special mining zone in Tanchon in the North.
However, there are many obstacles to overcome. For instance, infrastructure, such as roads, ports and power plants, must be established to explore and transport resources in North Korea. Institutions for investment in North Korea, such as a guarantee for investment and liquidation, must be prepared. The new South Korean administration needs to think about how to change its North Korea policy.
We should not forget that despite these difficulties, not only China but also England, the United States, Germany and Singapore are keenly interested in exploring underground resources in North Korea. It is good to minimize risks but it is worrisome if we make a decision too late.

*The writer is executive managing director of the Korea Chamber of Commerce and Industry. Translation by the JoongAng Daily staff.

by Lee Hyun-seok
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