North Korean Economy Watch

According to Reuters:

South Africa’s arms control body has authorised an arms exhibit for North Korea and the possible sale of weapons to Iran, Syria and Libya which should be investigated, the main opposition party said on Tuesday.

The Democratic Alliance said a number of “dodgy” deals had “slipped through the cracks” when South Africa’s National Conventional Arms Control Committee (NCACC) last met in 2008.

David Maynier, a Democratic Alliance MP and shadow defence minister, said the NCACC had authorised a marketing permit for a South African-based company in the past three years to demonstrate and exhibit military support equipment for North Korea.

“The military support equipment was radar warning receivers used on antennae for submarines,” he told Reuters. Maynier declined to name the company but said it had exhibited the equipment “within the last three years”.

The NCACC was set up in 1995 to ensure arms trade and transfer policies conformed to internationally-accepted practices.

Maynier urged South African Justice Minister Jeff Radebe, the new head of the NCACC, to urgently investigate the alleged arms transactions with North Korea and other states.

Neither Radebe’s spokesman nor the official government spokesman were immediately available for comment.

Read the full article below:
South Africa arms body allows North Korea exhibit
Reuters
8/5/2009

According to Yohap:

South Korea authorized state funding for 10 North Korea aid organizations Monday, resuming humanitarian operations that had been frozen since the North conducted nuclear and rocket tests.

But the rare softening move toward Pyongyang drew mixed reactions among aid organizations in Seoul, as 3.57 billion won (US$2.92 million) worth of funding will go to less than a quarter of 47 applicants. Some called the selection “arbitrary” and vowed to boycott it.

“The government selected projects that are aimed at helping disadvantaged groups like toddlers and infants, mothers and the disabled on grounds that they contribute to the people’s livelihoods, their urgency and effects,” the Unification Ministry said in a statement.

The funding shrank considerably from last year, when the ministry spent more than 10 billion won for 40 aid groups. Spending cuts in other North Korea projects were also evident, as South Korea executed only 2.8 percent of its yearly budget for economic and humanitarian aid to North Korea during the first half of this year, or 42.42 billion won out of 1.5 trillion won. Seoul officials cite international sanctions over North Korea’s nuclear and missile activity and the protracted stalemate in inter-Korean relations as reasons for the hardening aid policy.

An umbrella group of 56 Seoul-based aid organizations, the Korea NGO Council for Cooperation with North Korea, called an emergency meeting and vowed not to accept the funding unless its selection criteria is fully explained. Secretive selection only fuels internal rifts and rivalry, it said.

“This decision will only drive our aid projects, which continued cooperatively for nearly 10 years, to division and competition. I wonder if this arbitrary selection is a way of taming non-governmental organizations,” Park Hyun-seok from Rose Club Korea, a Christian group focused on medical aid, said in an emergency meeting between aid groups. Rose Club lost its bid for funding.

But signs of a rift emerged among the aid organizations, as some cited the urgency of their stalled missions in the North. Kang Young-shik of the Korean Sharing Movement, which emerged as one of the major beneficiaries with 540 million won in funding, said his organization will accept the money, as the umbrella organization has no binding force over its members.

“It is for each organization to decide. And we believe this fund should be released if there isn’t more expected anytime soon,” Kang said.

In a unanimous call, the aid groups urged the government to lift a ban on humanitarian aid shipments and to stop monitoring trips to North Korea, actions put in place after the North’s nuclear test in May. The restrictions have prevented not only aid from state coffers, but also private donations, from reaching North Koreans.

Sue Kinsler, a Korean-American and head of the Lighthouse Foundation, which helps orphans and the disabled in the North, said the living conditions there have notably deteriorated, with bread factories running short of flour and children wearing the same clothes her organization sent last year.

“We also wanted to bring underwear and some clothes for the children, but we were told those items are not allowed,” Kinsler, who visited North Korea last week with 18 tons of flour, soybeans, sugar and vegetable oil, said. “I saw with my eyes they are experiencing serious food shortages in the midst of the international sanctions.”

Kim Nam-sik, director general of the ministry’s Inter-Korean Exchanges and Cooperation Bureau who attended the aid groups’ meeting, said the government will consider expanding humanitarian aid and cross-border visits, but its efforts are limited by larger international circumstances. While U.N. financial and other sanctions are in place to curb the communist state’s nuclear and missile activity, the government cannot go against the international trend, he said.

Here is a previous post on South Korean aid to the DPRK this year.

Trade between the Koreas has also floundered this year.

Read the full artilce here:
Selective gov’t funding for N. Korea aid groups causes division, discontent
Yonhap
Kim Hyun
8/3/2009

According to KBS Global (h/t Rokdrop):

Pakistani media have reported on the local North Korean embassy’s alleged involvement in smuggling and illegal exchange of foreign currency.

The Karachi-based Daily Sharafat Karachi said local intelligence authorities reported to Pakistan’s Foreign Ministry that some of North Korean’s embassies and legations abroad were involved in smuggling and illegal foreign exchange transactions.

The intelligence report claimed Pyongyang’s embassy and its economy and trade mission conspired with local smugglers to illegally import liquor and other items from various locations including Dubai.

It said containers disguised as diplomatic pouches for the contraband items and that local customs agents were also involved.

The Pakistani foreign minister has called on the Karachi customs and the intelligence agency for a thorough investigation into the matter.

North Korea’s embassies self-finance their operations on revenues earned in their host countries.  They receive little-to-zero operating funds from Pyongyang.  This incentive structure is interesting from an economic perspective.  Sometimes it generates interesting results like this.  Unfortunately it also generates outcomes like this.  End the end, some diplomats just do not make good businessmen.

Of course, if Pakistan has erected trade and currency laws that make life difficult for honest business persons, which would not surprise me since it ranks just ahead of Yemen in economic freedom, the North Koreans might actually be doing the people of Pakistan a favor by bringing some competition into the market.

Nearly two weeks ago, the UN Security Council sanctioned five North Korean organizations. One of them was the Hyoksin Trading Corporation.  I believe they even have a web page here.

Today, the US imposed financial sanctions on this company.  According to the The Associated Press  (Via the Washington Post):

The Obama administration on Thursday imposed financial sanctions on a North Korean firm accused of involvement in the country’s missile programs.

The Treasury Department’s action covers Korea Hyoksin Trading Corp. It means any bank accounts or other financial assets found in the United States that belong to the company must be frozen. Americans also are prohibited from doing business with the firm.

It is the latest move by the United States to keep pressure on Pyongyang, whose nuclear ambitions have ratcheted up global tensions.

The department alleges that Korea Hyoksin Trading is owned or controlled by another North Korean firm, Korea Ryonbong General Corp., which the United States says is involved in the development of weapons of mass destruction. Korea Ryonbong supports Pyongyang’s sales of military-related items, the department said.

Read the full story here:
US tightens financial noose on North Korea
The Associated Press
Jeannine Aversa
7/30/2009

According to the Choson Ilbo:

A Chinese investment company developing a copper mine in North Korea with a North Korean company sanctioned by the UN Security Council has reportedly called an abrupt halt to the project.

An industry source in China said the investment firm sent a letter to NHI Shenyang Mining Machinery, the company it had commissioned to build facilities for the mine in Hyesan, North Korea, telling it to stop construction. An estimated 400,000 tons of copper are deposited there.

The Chinese firm had signed an agreement with (North) Korea Mining Development Trading Corporation (KOMID) [NKeconWatch: a.k.a. Korea Mining Development Corporation) to develop the mine in November 2006. But the North Korean partner was blacklisted by the UN Security Council after North Korea carried out its latest nuclear test.

The industry source said, “When Chinese Vice President Xi Jinping visited Pyongyang in June last year, he pledged full support for the development of the Hyesan copper mine so that it could become a model for investment by Chinese business in North Korea. This prompted NHI to hurry construction so that production could start in September this year.”

But he added the Chinese government apparently persuaded the investment firm to stop the project as Beijing takes part in the UN sanctions. “Otherwise, it’s unusual for a project to be stopped at this late stage,” he said. The investment firm reportedly gave NHI no reason for the cancellation.

Looking at Hyesan on Google Earth, this appears to be the only large-scale minig operation in Hyesan.

Read the full article below:
N.Korea Mining Project Buckles Under UN Sanctions
Choson Ilbo
7/31/2009

According to the Associated Press (via San Fancisco Examiner):

Chinese customs authorities have seized a stash of vanadium, a strategic metal used to strengthen steel, hidden in fruit boxes on a truck bound for North Korea, an official said Tuesday.

Vanadium has defense and nuclear applications — alloys with vanadium are used in missile casings — but it was not clear what the stash would be used for.

The seizure comes as the United States has been rallying international support for strict enforcement of a new U.N. resolution adopted to punish North Korea for its nuclear test on May 25. The sanctions seek to deprive the North of financing and material for its weapons program, and allows inspections of suspect cargo in ports and on the high seas.

The metal was found during a routine check of vehicles at the China-North Korea border on Monday, said a duty officer at the customs department of Dandong city in northeastern Liaoning province.

The officer, who would only give his surname, Chang, said the stash was worth about 200,000 yuan ($29,300).

He refused to provide further details, but the Dandong News Web site posted a photograph of border agents inspecting the seizure, contained in 68 bottles in cardboard boxes. The stash weighed 154 pounds (70 kilograms). The metal appeared to be in granular form.

Read the full story here:
China seizes steel-hardening metal hidden in truck bound for North Korea
Associated Press
Gillian Wong
7/28/2009

Fox News
George Russell
7/27/2009

Is North Korea’s dictatorial regime quietly profiting from U.N. emergency food supplies delivered to its starving people, even as the regime squeezes those deliveries down to a trickle?

Documents produced by the World Food Program, the U.N.’s flagship relief agency, outlining its current emergency operations in the insular communist state, raise a number of touchy questions about the financing and logistics of the effort, which was originally intended to feed some 6.2 million of North Korea’s most vulnerable people, but which is currently providing limited rations only to 1.33 million.

The $500 million program was meant to run from September, 1, 2008 to November 31, 2009, to deliver nearly 630,000 tons of food aid to North Korea at a time when it is suffering from severe flood damage and fertilizer shortages that have led to local food price increases.

Currently, WFP says that only $75.4 million worth of food aid has been delivered under the emergency program, as international donors have recoiled at the Kim Jong Il regime’s recent nuclear detonation and provocative missile launchings toward Japan and Hawaii.

WFP emergency relief program documents obtained by FOX News show that from the outset the food agency planned to pay extraordinarily high transportation costs for sending relief supplies to North Korea from around the world–about a dollar for every two dollar’s worth of food aid shipped into the country under the program.

Moreover, enormous sums were involved: $130,334,172 for “external transport” of 629,938 tons of grain and other food relief supplies for the overall program. (The food supplies themselves are projected to cost $297,396,729.)

For comparative purposes, the “external” shipping costs planned by WFP for the aid program average about $206.90 per metric ton of food aid .

Those rates were described as “absolutely ridiculous” by an expert on bulk shipping consulted by FOX News, even for sending goods by international shipping carriers to the remote region that includes North Korea. Another international grain expert consulted by FOX News described them as “way out of line” with past and present international shipping rates for bulk grain and other basic food commodities.

What WFP has not revealed in its documentation until questioned by FOX News, however, is that a substantial, but unspecified, amount of that money is intended to move the emergency aid from China to its final North Korean destination via shipping firms owned by the Kim Jong Il government.

Nowhere in the WFP program documents, which appeared on WFP’s public website only after Fox News began raising questions about them, is there any mention of the North Korean shipping involvement.

Even though WFP has not revealed how much of the $130-plus million in planned “external transport” money Kim Jong Il’s shipping firms are in line to receive, an analysis of the current costs involved in getting such supplies to their second-last destination reveal that the amount slated to pay for the last leg of the journey to North Korea could be huge.

A WFP spokesman blamed the overall high cost on “ the remote geographical location of [North Korea] from place of procurement (normally Black Seas, South Africa and South America).”

All WFP food aid, he added, was first shipped to the northern Chinese port of Dalian, before moving on to the North Korean port of Nampo.

But the spokesman then added that high costs were also due to “the lack of competition of transporters for transshipment” between Dalian and Nampo.

In fact, shipments to and from Dalian, China, one of the major centers of China’s huge export sector, are commonplace and hardly expensive by international standards. Data kept by the U.S. Department of Agriculture, for example, shows that grain shipments from Brazil to China between April and June of this year have varied from $32.50 to $42 per metric ton.

Moreover, those international shipping rates have been on a precipitous downward slide since June, 2008-three months before the WFP aid program began. Even allowing for higher rates from the Black Sea and South Africa, international shipping experts told FOX News that the rates would come nowhere near $206 per ton-especially as there is currently a surplus of international shipping capacity.

The same, however, apparently can’t be said of transport between Dalian and Nampo-a distance of 210 nautical miles.

There, the WFP spokesman said, WFP relies entirely on “feeder vessels belonging to the [North Korean] government.”

Asked late last week by FOX News to provide specifics of the rates charged by North Korean vessels for carrying international food aid home, the WFP spokesman did not provide an answer before this article was published.

However much the Kim Jong Il regime charges for bringing food to its people, it is not the only money that WFP provides to Kim for humanitarian assistance.

The WFP documents show that the government was to receive an additional projected $5,039,504 as a transport fuel subsidy if the relief program gets back into full swing. The “fuel reimbursement levy” amounts to $8 per ton of aid delivered, and according to the WFP spokesman, is normally not provided to countries that receive food aid-they are expected to chip in for this cost on their own–except under a waiver that North Korea has been granted.

So far, the Kim regime’s National Coordinating Committee, a subsidiary of the Ministry of Foreign Affairs, has received $1.16 million under this waiver since September 2008, with the promise of an additional $361,400 to come. The WFP spokesman emphasized that the money was not paid in hard currency.

The same apparently applies to $4,409,566 intended by WFP to enhance a “capacity building strategy of government counterparts” envisaged in the relief plan. According to the WFP spokesman, this means management training and information systems upgrades for the Kim government to handle the new food aid. WFP is also paying for warehouses and equipment to handle the aid. So far, the regime has only $103,200 of the projected total, with another $155,000 committed.

Amid all the fuzzy math of the WFP relief program, there is a final quirk: the inexplicably high transportation costs work to the benefit not only of the Kim regime, but also to the benefit of WFP.

As a matter of standard practice, WFP charges a standard 7% management fee against “direct operational costs” of such relief efforts to support its worldwide operations, over and above the costs it incurs in the specific relief exercise. These, in WFP-speak, are known as the organization’s “indirect support costs.”

Based on direct operational costs in North Korea of $445,033,971-including the $133.3 million in “external transport” costs– WFP expected to reap $32,948,811 as its 7% share of “indirect support costs.”

Its 7% “indirect support” levy on the extraordinary $130.3 million transport bill would amount to about $9.1 million.

Ethiopian Review
Mehret Tesfaye
7/23/2009

A medical team of Democratic Peoples Republic of Korea (DPRK) has arrived here on Tuesday to provide voluntary medical service for two years in Ethiopia, the Ministry of Health said.

Public Relations Directorate office of the Ministry told ENA on Wednesday that the 27 member medical team arrived here as per the agreement of Ethiopia and the DPRK to cooperate in the health sector.

State minister of health, Dr. Kebede Worku, welcomed the team upon its arrival at the Addis Ababa Bole International Airport.

The office said 11 of the team members will be deployed to Oromia State while 10 to Tigray state and the remaining six to South Ethiopia Peoples’ State.

Another voluntary medical team comprising four members will also arrive here in the near future.

Dr. Kebede said the historical relation between the two countries is being strengthened.

On Thursday the UNSC adopted a travel ban on five North Koreans, an asset freeze on five DPRK organizations (and the five individuals), and banned the export of graphite and para-aramid fiber to the DPRK.  Below are the details:

UNSC Sanctions effective: July 16, 2009.

Officials named:
1. Ri Je-son, director at North Korea’s General Bureau of Atomic Energy (GBAE)
2. Hwang Sok-hwa, director at North Korea’s General Bureau of Atomic Energy (GBAE)
3. Yun Ho-jin, director of Namchongang  Trading Corp.
4. Ri Hong-sop, former director of North Korea’s Yongbyon nuclear research center
5. Han Yu-ro, director of Korea Ryongaksan General Trading Corp.

Organizations named:
1. General Bureau of Atomic Energy (GBAE)-DPRK weapons agency
2. Namchongang Trading Corp-alleged to have procured Japanese vacuum pumps and aluminum tubes used to enrich uranium.
3. Hong Kong Electronics-transferred millions of dollars to Tanchon Commercial Bank and Korea Mining Development Trading Corp., both subject to sanctions by Security Council agreement in April.
4. Korea Hyoksin Trading Corp
5. Korean Tangun Trading Corp-primarily responsible for the procurement of commodities and technologies to support” North Korea’s defense research and development program

Further Notes:
1. The North Korean’s actually have a web page for the Hyoksin Trading Corp.

2. Here is a previous post summarizing most of the sanctioning activites this year.

Read more below:
U.N. council sanctions North Korea entities, officials
Reuters (via Washngton Post)
Patrick Worsnip
7/17/2009

North Korea Officials Sanctioned by UN for Travel, Nuke Program
Bloomberg
Bill Varner
7/17/2009

According to Yonhap:

A South Korean automaker operating in North Korea said Wednesday it has posted its first net profit and remitted part of it home, the first southbound money transfer by an inter-Korean venture.

Pyeonghwa Motors Corp. made a net profit of US$700,000 for the fiscal year ending in February and sent $500,000 to its headquarters in Seoul via a bank account in Hong Kong, its spokesman Roh Byoung-chun said.

The automaker began production in 2002 as a joint venture between North Korea and the Unification Church of South Korean Rev. Moon Sun-myung, who was born in the North. Its plant in Pyongyang produces sedans and small buses with some 340 employees, and its customers are mostly local businesses.

Roh said it took a while for North Korea to approve the remittance, which was made through a South Korean lender, Woori Bank, in Hong Kong in late May.

“For North Korea, $500,000 is a large sum of money. It is not used to the capitalist idea of making investments and retrieving profits. We believe they pondered deeply before giving approval,” he said.

Pyeonghwa sold 652 units last year, while North Korea took $200,000 for its 30 percent share in the venture, he said. The company says profits are picking up, with this year’s sales already surpassing 740.

North Korea’s own automaker, Sungri Motor, was established in 1958 and mostly produces cargo trucks.

Pyeonghwa’s production is not influenced by political tensions or South Korea’s ban on cross-border shipments, he said, as raw materials and parts are imported from Europe and China. The ban was enforced after North’s rocket launch in April, with the exception of goods going to a joint industrial complex in the North’s border town of Kaesong, where 109 South Korean small firms operate.

“The remittance is symbolic. They are having a hard time in Kaesong, and many went bankrupt in Mount Kumgang (the North Korean tourist resort),” Roh said. “We hope this can bring hope to people doing business in North Korea that anyone can go there and can bring back profits.”

Officials from the South Korean Unification Ministry said inbound money transfers from North Korea are not restricted, although outbound remittances are strictly monitored and prohibited in some cases. It is the first time a South Korean company has sent profits from sales in North Korea, they said. Other businesses investing in North Korea, including those operating in the Kaesong park, sell their goods in South Korea and elsewhere.

South Korea has put three North Korean firms, including a bank, on its blacklist under a U.N. resolution that bans financial transactions with North Korean entities suspected of aiding the country’s nuclear and missile development.

Read the full artilce below:
S. Korean automaker in Pyongyang sends first business profit home
Yonhap
Kim Hyun
7/15/2009

According to the Wall Street Journal:

The Pyeonghwa spokesman didn’t disclose revenue figures but said last year’s vehicle sales were just over twice the 2007 level. The company has already sold more cars this year, 742, and expects to sell more than 1,500 for the full year, the spokesman said.

The performance is the culmination of an 18-year effort that began when church founder Rev. Moon Sun-myung met North Korea’s then-ruler Kim Il Sung in Pyongyang to propose several business ventures. In 1999, the church spent $55 million to build the auto factory in the port city of Nampo, on North Korea’s west coast. The Unification Church, based in South Korea, has a number of investments in tourism, construction and trade.

Since completing the factory in 2002, Pyeonghwa has imported partially built cars, in a form called knockdown kits, from manufacturers such as Italy’s Fiat SpA and China’s Brilliance Automotive Holdings Ltd.

Pyeonghwa completes the cars and puts its own nameplate and brand names on them. In 2003, its first full year of operation, the company sold 316 cars.

North Korea’s government is a partner in the company and took about 30% of the profit.

When it first started production, the company touted North Korean dictator Kim Jong Il’s role in naming several cars. One sport-utility vehicle, built from the design of Fiat’s Doblo model, was named by Mr. Kim as the Ppeokkugi, or Cuckoo.

Pyeonghwa, like other companies that do business in North Korea, faced enormous difficulty moving its money out of the country. Many Chinese businesses resort to buying commodities in North Korea with their profits, then exporting them to China to be sold for Chinese currency.

The motor company worked from February to May to move its money from North Korea, seeking permission from the North’s central bank, the spokesman said.

Read the full article below:
Pyeonghwa Sells in North Korea
Wall Street Journal
Sungha Park
7/16/2009

Read other Pyonghwa stories here.

Here is the location of Pyonghwa’s factory near Nampo.