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28 Jun, 2018 07:16

Rebuilding North Korea's economy would cost $63bn, but South Korea would benefit – Citi

Rebuilding North Korea's economy would cost $63bn, but South Korea would benefit – Citi

Boosting the sanctioned economy of North Korea would not be easy or cheap, but there are geopolitical benefits for South Korea, according to research by Citibank analysts.

Citi estimated that $63.1 billion would be needed to rebuild transportation and infrastructure. Among the costs is an estimated $24.1 billion - needed for 28 railroad projects, $22.8 billion would be required for 33 road projects and 16 power plant projects would cost around $10 billion. The immediate building costs would require an estimated $11.6 billion.

“If the recent summits lead to the opening up of the North Korean economy, we estimate that it would need $63.1 billion in the long term to rebuild its transportation and infrastructure sectors — railroads, roads, airports, sea ports, power plants, mines, oil refineries, and gas pipelines,” Citi analysts led by Jin-Wook Kim said in the study released on Tuesday.

The Korean peninsula was split in two in the aftermath of World War II when Japan’s 35-year rule over the nation ended. A civil war between the North and South that came after has solidified the division. This year has seen a thaw in relations between Seoul and Pyongyang.

South Korea has invited Russia to talks with the North on building a gas pipeline, railroad infrastructure and other projects which could link Russia’s Far East with the Korean peninsula. South Korea would benefit from rebuilding North Korea’s infrastructure, but the profit would be not monetary, but more of a geopolitical nature, Citi said.

“If the more immediate projects (of $11.6 billion) are implemented within a year and South Korean companies take a 60 percent share, we estimate South Korea’s economic growth would improve by only 0.07 percentage points.

“However, a more significant outcome would be a boost in confidence from a sharp reduction in the geopolitical risk premium, rather than the actual dollar value of the additional spending itself,” analysts noted.

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