North Korean Economy Watch

It is getting harder to know specific information about the DPRK’s mobile phone network…such as how many subscribers have signed up or how revenues/profits are doing.

In December 2011 Orascom Telecom finalized a demerger and the KoryoLink portfolio (the DPRK’s 3G mobile phone network) was transferred to a new holding company, Orascom Telecom Media and Technology Holding S.A.E. (OTMT).

According to the Orascom Q1 2012 shareholder report (p15):

Under the terms of the VimpelCom transaction, VimpelCom, Weather II and OTH agreed on a demerger plan (the Demerger”) pursuant to which the Company‟s investments in certain telecom, media and technology assets (the “SpinOff Assets”), which were not intended to form part of the VimpelCom business going forward, would be transferred to a new company, Orascom Telecom Media and Technology Holding S.A.E. (“OTMT”). The Demerger was performed in accordance with the guidelines of the Egyptian Financial Supervisory Authority and in particular decree no. 124 of 2010 and was completed in December 2011. The split of OTH shares by the way of the Demerger resulted in OTH shareholders holding the same percentage interest in OTMT as they held in the Company. The Demerger plan was initially approved in a shareholders meeting dated 14 April 2011 and subsequently on 23 October 2011. Approval from the Egyptian Financial Supervisory Authority was received in December 2011.

As a result of the Demerger, during November and December 2011, ownership of the following Spin-Off Assets was  transferred from the Company to OTMT:

[…]

75% ownership in CHEO Technology Joint Venture Company, together with all other assets and businesses located in
North Korea;

95% ownership in Orabank NK;

[…]

Other than the reference above, the Q1 report does not mention KoryoLink or even the DPRK. As you would expect, KoryoLink is not mentioned in Orascom’s Q2 2012 Shareholder Report either.

OTMT (the new holding company) has a web page, however it contains remarkably little information. Here is what it has to say about KoryoLink:

Koryolink

A joint venture between OTH [Orascom Telecom Holdings] and the state-owned KPTC [Korea Post and Telecommunications Company] and included as part of the assets held by OTMT following the demerger. OTMT holds, a 75% stake in [Cheo Technology Joint Venture Company] with KPTC. The company is North Korea’s only 3G Mobile operator. By June 2011, Koryolink’s network covered more than 75% of North Korea’s population (estimated at 24.5 million).

Being the first company of its kind and scale in North Korea, koryolink established many precedents; a first of its kind call center to provide customer service; a launch announcement in major newspapers and on radio despite almost non-existent marketing and advertising industries; and the implementation of a koryolink advertising billboard, the first of its kind in Pyongyang.

KPTC is the “Korea Post and Telecommunications Company” which is nominally controlled by the DPRK’s Ministry of Post and Telecommunications.

This OTMT page shows five financial reports for the year, however, only one of them is in English (an audit by Deloitte in June 2012). All the other reports are in Arabic. The audit report includes aggregate financial information from “CHEO Technology (KoryoLink)”; however, it does not contain any detailed company information. Hopefully this will change in the future.

The OTMT web page does not mention OraBank at all.  According to this organization chart, however, it appears to be held by a separate holding company under the OTMT umbrella, the Oracap Holding Co./Oracap Far East Ltd.  I have not been able to find out much more than that.

Additional information welcome.

According to the Daily NK:

An agreement has been reached that sees the minimum monthly wage for North Korean workers in the Kaesong Industrial Complex rise by 5% to a little over $67.

According to information released by the Ministry of Unification today, the wage increase was negotiated by the Kaesong Industrial Complex Management Committee and the North Korean ‘Central Special Economic Zone Development Bureau’.

In accordance with the agreement, which will remain in force until the end of July next year, the wages of workers will rise from $63.80 to $67.05 per month.

Kaesong Industrial Complex regulations stipulate that wages may not rise by more than 5% per annum, and since 2007 they have risen by exactly that amount year-on-year.

At the end of May this year, there were 123 South Korean companies operating in the zone, employing a total of 51,452 North Korean staff.

According to the Ministry of Unification, when all payments and bonuses are taken into account, the average wage per North Korean worker in the complex was $110 per month in 2011, a figure that has risen to $130 in the first half of this year.

There has long been controversy over the fact that the North Korean authorities take a percentage of the wages of Kaesong Industrial Complex workers in taxes. However, even taking this into account, such workers are known to be better off than the vast majority of average North Koreans.

The only edit I would make to this story is to change the phrase “percentage of the wages of Kaesong Industrial Complex workers in taxes” in the above paragraph to “nearly all of the workers’  monetary income in taxes”.

See Yonhap coverage here.

Read the full story here:
Kaesong Monthly Wages Rise by 5%
Daily NK
Park Seong Guk
2012-8-6

Institute for Far Eastern Studies (IFES)
2012-7-27

The Beijing branch of the Joint Venture and Investment Committee of North Korea (JVIC), called the Choson Investment Office, announced on July 18 of various preferential conditions to foreign investors and employment conditions on its website.

The Choson Investment Office opened its doors this year and is the only overseas branch of the JVIC, in charge not only of securing foreign capital but cultural and science and technology exchanges and cooperation.

The website posted an article titled, “Problems Investors Face,” which provided useful information for foreign investors in a question and answer format.

In the article, the employment conditions for workers were included. The minimum monthly wage for workers in North Korea was set at 30 euros or about 42,000 KRW. In addition, foreign companies must pay 7 euros to each employee separately as social insurance. Overtime pay also needs to be paid and at the event of work related injuries or illness, the company is responsible for handling the situation with its board of directors.

In comparison, the minimum monthly wage for North Korean employees in the Kaesong Industrial Complex (KIC) is 110 USD or about 125,000 KRW.

As for preferential tax policies, foreign-capital companies that are not joint venture are exempt from certain taxes including tariffs on exports and resource tax for the development of mines.

North Korea will bear the land use tax, which is 1 euro per square meter, and China and other foreign investors will have no restriction for mining the underground resources.

The income tax rate for the foreign capital companies was specified at 25 percent and business tax between 2 to 10 percent will be collected from transportation, power, commerce, trade, finance, insurance, tourism, advertisement, hotel and entertainment industries.

Power is the main concern for most foreign companies and it will be provided at 0.053 euro per 1,000 kilowatt. The DPRK’s central trade guiding organ will oversee the setting of prices of goods while the trademark rights will belong to the company.

The DPRK’s Joint Venture and Investment Committee was expanded and reorganized in July 2010 from Joint Venture and Investment Bureau, with main activities centered around Hwanggumpyong Island and Rajin-Sonbong development.

The main agents for foreign currency earnings are the cabinet, military, JVIC, and Daepung International Investment Group*. Most of the trading companies are affiliated with one of the four groups.

In March, JVIC announced through the KCNA that “As the investment environment is favorably changing, joint venture and investment contracts are increasing. Investment interests from large companies are rising especially in our abundant rare-earth and underground resources as well as building railroads, roads, and power plants.”

*IFES and Choson Exchange previously discussed the merger of JVIC and “Daephung”

According to Yonhap:

A South Korean company in the inter-Korean industrial zone in North Korea paid about $7,000 in corporate income tax to the North last year, the Unification Ministry said Wednesday.

It was the first time a South Korean company has paid a tax to North Korea since 2004 when the two Koreas opened the complex in the North’s border city of Kaesong to boost cross-border economic cooperation.

South Korean companies in Kaesong are subject to a 10 percent to 14 percent corporate income tax, but their taxes are exempted for five years after first generating profits, and are reduced by 50 percent for the ensuing three years, according to the ministry, which handles inter-Korean affairs.

The company and three others also paid about $153,000 in corporate income taxes to the North’s authorities this year for their profits in fiscal year 2011.

The development indicates that some South Korean companies have begun to make money for their operations in the industrial complex that marries South Korean capital and technology with cheap labor from the North.

The complex is now home to more than 120 South Korean small and medium-sized companies, which produce clothes, utensils, watches and other goods.

Last year, the production of the industrial complex reached an all-time high of US$400 million. The complex has produced $1.65 billion worth of goods since 2004.

A ministry official said more South Korean companies are expected to pay corporate income taxes to the North next year. He did not give details on how many South Korean companies make money in Kaesong.

Read the full story here:
S. Korean company in Kaesong paid first corporate tax to N. Korea
Yonhap
2012-7-11

Andrei Lankov highlights in a recent Asia Times article some observations (qualitative data) that indicates the DPRK has seen significant growth in recent years. He is careful to qualify his observations with caveats that the level of growth in the country as a whole (as opposed to Pyongyang) remain more difficult to determine.

More expensive shops stocking luxury goods are becoming more numerous as well. Gone are the days when a bottle of cheap Chinese shampoo was seen as a great luxury; one can easily now buy Chanel in a Pyongyang boutique; and, of course, department stores offer a discount to those who spend more than one million won on a shopping spree. One million won is roughly equivalent to US$250 – not a fortune by the Western standards but still a significant amount of money in a country where the average monthly income is close $25.

The abundance of mobile phones is much talked about. Indeed, North Korea’s mobile network, launched as recently as late 2008, has more than one million subscribers. It is often overlooked that the old good landline phones also proliferated in the recent decade. A phone at home ceased to be seen as a sign of luxury and privilege, as was the case for decades. Rather, it has become the norm – at least, in Pyongyang and other large cities.

The capital remains badly lit in night, but compared with the norm of some five or 10 years ago, the situation has improved much. The electricity supply has become far more reliable, and in late hours most of the houses have lights switched on.

Of course, this affluence is relative and should not be overestimated: many people in Pyongyang still see a slice pork or meat soup as a rare delicacy. The new posh restaurants and expensive shops are frequented by the emerging moneyed elite, which includes both officials and black/grey market operators (in some cases one would have great difficulty to distinguish between these two groups). In a sense, Pyongyang’s prosperity also reflects the steadily growing divide between the rich and poor that has become a typical feature of North Korea of the past two decades.

Nonetheless, those foreign observers who have spent decades in and out of Pyongyang are almost unanimous in their appraisal of the current situation: Pyongyang residents have never had it so good. It seems that life in Pyongyang has not merely returned to pre-crisis 1980s standards but has surpassed it.

And how can we explain these developments? Lankov offers three theories:

The first seems to be the growth of private economic activity. Estimates vary, but most experts agree that the average North Korean family gets well over half its income from a variety of private economic activities.

…
The second reason is the gradual adjustment of what is left of the state-controlled economy. Nowadays, North Korean industrial managers do not sit by helplessly when they cannot get spare parts or fuel from the state – as was often the case in the 1990s. Instead, they try to find what they need, often getting the necessary supplies from the private market.

…
The third reason is, of course, Chinese economic assistance and investment.

Read the full story here:
North Korea’s pools of prosperity
Asia Times
Andrei Lankov
2012-7-7

Pictured above: A KCNA image of the factory and the view from Google Earth (39.043378°, 125.728149°)

According to KCNA (2012-6-25):

Pyongyang, June 25 (KCNA) — The Printing Factory of Tongbaek Printing Joint Venture Company [동백인쇄합영공장] under the Foreign Languages Publishing House was commissioned with due ceremony on Monday.

The factory was jointly established by the Foreign Languages Publishing House of the DPRK and the Oriental Yongli Hong Kong Int’l Investment Co., Ltd. and Jiangsu Zhongcai Printing Co., Ltd. of China. The factory will produce and sell varieties of printed materials and trade marks.

Attending the ceremony were Ri Kwang Gun, chairman of the Commission for Joint Venture and Investment, officials concerned and employees of the factory, Huang Junjie, vice mayor of Danyang City, Jiangsu Province of China, personages of the two Chinese companies, Wu Shiguang, councilor in charge of culture, and officials of the Chinese embassy here.

Choe Kyong Guk, director and editor-in-chief of the Foreign Languages Publishing House, addressing the ceremony, said that technicians and builders of the two countries built the factory in a short span of time.

He expressed belief that the factory would make a positive contribution to meeting the interests of the peoples of the two countries.

Jiao Xiaoping, manager of the Tongbaek Printing Joint Venture Company, in a congratulatory speech referred to the process of the construction of the factory, stressing the need to operate the company well.

At the end of the ceremony, the participants planted trees and looked round the production processes.

A reception was given on the same day.

UPDATE 1 (2012-6-18): According to Yonhap:

South Korean firms and China’s Jilin Province agreed to engage in joint venture projects worth 3.9 trillion won (US$3.4 billion), a local business organization said Monday.

Under the memorandum of understanding reached in Seoul, 48 South Korean companies and 48 Chinese regional government agencies and businesses will form partnerships to move forward on various business projects, the Korea Chamber of Commerce and Industry (KCCI) said.

The two sides will engage in such areas as agriculture, construction, energy, distribution and tourism, South Korea’s largest private economic organization said.

Lotte Group, the Korea Software Enterprise Association and HS Machinery Co. have expressed interest in business tie-ups with Jilin, which is located in northwestern China and includes Yanbian Korean Autonomous Prefecture. The province also borders North Korea to the south.

The KCCI said Jilin is one of China’ main heavy industrial hubs with average annual growth in the past three years reaching 13 percent. Such growth promises considerable business opportunities for South Korean companies wanting to diversify into emerging markets.

ORIGINAL POST (2012-5-3): According to China Daily:

The Chinese government announced Wednesday that it has approved the establishment of an international cooperative demonstration zone in Northeast China’s Jilin province to boost cross-border cooperation in the region.

In a document posted on the central government’s official website, the State Council said the zone is expected to expand investment cooperation in northeast Asian regions.

Located in the port city of Hunchun, the demonstration zone will cover 90 square km and include an international industrial cooperation zone, a border trade cooperation zone and economic cooperation zones — one between China and the Democratic People’s Republic of Korea (DPRK) and another between China and Russia, it said.

The demonstration zone will focus on the development of local manufacturing and processing industries, including those for auto parts, agricultural and animal products, seafood, new materials, medicines, textiles and garments, the document said.

The Tumen River in Hunchun straddles the borders of China, Russia and the DPRK. In 1992, China, Russia, the DPRK, the Republic of Korea (ROK) and Mongolia launched a joint development project in the Tumen River area, a move made to strengthen regional cooperation in the area.

The State Council has called for more efforts to boost the construction of Sino-DPRK and Sino-Russia international transit corridors and promote cross-border economic cooperation between China and the two countries.

More supporting policies, including fiscal and taxation support, will be implemented to encourage the development of new energy, new material equipment manufacturing and other projects in the demonstration zone, according to the State Council.

The construction of the demonstration zone will also make border regions more open to the outside and strengthen the social and economic development of local areas, the document said.

And according to the Daily NK:

The authorities in China’s Jilin Province are investing billions of Yuan in multiple projects along the Sino-North Korean border. The construction is concentrated in areas adjacent to major North Korean border towns in the mountainous region, giving it the hypothetical potential to provide massive opportunities for future Sino-North Korean economic growth.

According to Jilin Shinmun and other local media outlets, the high-speed train, which will allow travel from Hunchun to Changchun in two hours at speeds of up to 250kph, is under construction at a predicted cost of 37.7 billion Yuan.

Jilin Province is also planning a “five border region highway” in its 12th Five-Year Plan from 2011 to 2015. The Changchun to Hunchun leg is already open, while legs from Changchun to Huyinan, Songjangheo to Changbai, Changchun to Mt. Baekdu to Yanji, Changchun to Linjiang and Changchun to Jibian are under construction with the typical degree of Chinese speed. Among these locations, Changbai, Linjiang and Jibian all face major North Korean towns (Hyesan (Yangkang Province), Chungkang (Jagang Province) and Manpo (Jagang Province).

The province is also putting weight behind railway construction travelling towards North Korea; from Nanpin to nearby Musan (in North Hamkyung Province), Kayisan to Sambong (in North Hamkyung Province) and Changbai to Hyesan.

When all the construction is complete, there will be a bridgehead connecting the Tumen to the Yalu and linking all North Korea’s major cities with the Chinese economic miracle. If trade and cooperation between the two countries grows more active than it is now, the newly built highways and railways will form the core pathway for commercial distribution.

However, there are also major concerns with the plan. First and foremost, defection will become more difficult when the new developments are complete. The regions where highways and railways are now appearing have long been major defection routes or hiding places for new defectors.

In particular, a warning device installed by Jilin police in border villages, while an improvement in terms of public security, can also be used to report North Korean defectors to the authorities. The device, known as the ‘BF-01’, has been installed in 6,000 homes along the border at a cost of 5 million Yuan, connecting them with public security offices in an emergency. When pressed, names, addresses and the sound from the scene is transmitted to the local police station, border guards and neighbors.

“Regardless of whether North Korea conducts a nuclear test, it seems that North Korea and China are developing the northeastern region,” Shin Jong Ho, a research fellow with the Center for Northeastern Asian & Inter-Korean Affairs, part of the Gyeonggi Research Institute, commented. “In the future, if cooperation between North Korea and China gets better then these transportation routes will be very useful.”

Read the full stories here:
China approves int’l border cooperation zone
China Daily (Xinhua)
2012-4-25

Border Region Getting Huge Boost
Daily NK
Park Seong Guk
2012-5-3

The Hankyoreh has published an interesting about a inter-Korean economic project in Dandong, China.

According to the article:

Taking its name from the traditional song “Arirang,” Ari Sports was established in Nov. 2011 with a 500 million won investment from the city of Incheon and 23 workers from North Korea. It is managed not by a North or South Korean organization, but by China’s Yunnan Xiguang Trade.

…

The football sneaker and sports clothing production plant was originally planned for Pyongyang’s Sadong District. Efforts began in 2008, and the building was nearly complete when the May 24 measures were passed in 2010 and it had to be abandoned. The factory in Dandong is a temporary structure erected in its stead.

Inter-Korean Athletic Exchange Association standing committee chair Kim Gyeong-seong said, “It’s frustrating not to be able to use the good land and facilities we had in Pyongyang.”

“I hope we are soon able to produce and sell soccer shoes and clothes in Pyongyang,” Kim added.

Song said, “Things are difficult right now between North and South Korea, but if we all work together we can overcome it.”

He added that the company was a “small but meaningful project taking place at a time when economic cooperation has been shut off.”

The company has received orders for three thousand pairs of soccer shoes as of May. It currently plans to produce and sell two to three thousand pairs a month. To achieve this, it is organizing a football contest for working people nationwide at the first Incheon Peace Cup event to commemorate the June 15 Summit on June 16 and 17.

I have never heard of this project and I have been unable locate any other articles on the factory. Despite its relative obscurity, however, the North Korean workers know how to deal with the foreign press (they stay on message):

On June 9, the company was visited by around fifty participants in the Incheon-Dandong-Hankyoreh West Sea Cooperation Forum, including Incheon Mayor Song Young-gil and Hankyoreh Foundation for Reunification and Culture chairperson and former Unification Minister Im Dong-won. Located in a farming village on the outskirts of Dandong in China’s Liaoning Province, Ari Sports has 1,600 square meters of floor space on a plot of land also measuring 1,600 square meters.

North Korean workers expressed their frustration with the inability of economic cooperation projects to move forward due to the state of inter-Korean relations. Workers Kwon Ok-kyong, Kim Kum-ju, and Kim Myong-hwa said they wished production and sales could proceed smoothly.

When asked about working at the company, Cho Sang-yon said, “Well, it’s not as good as working in my home country.”

Pak Hyok-nam said, “I’d like to see bigger economic cooperation projects between North and South.”

I have been unable to learn anything else at all about this project.  If you are able to find company logos, web page, photos, or even factory locations on Google Earth, please let me know.

Read the full story here:
Factory in China continues producing soccer shoes in spite of frosty relations
Hankyoreh
Kim Kyu-won
2012-6-11

According to the Hankyoreh:

South Korean businesses have suffered losses of up to ten trillion won (US$8.3 billion) from the cutbacks in inter-Korean economic cooperation under the Lee Myung-bak administration, figures show.

The losses taken by South Korean firms are fives times the 1.8 trillion won (US$1.7 billion) North Korea’s estimated losses. The results show an unintended effect of Seoul’s May 24 sanctions, which were meant to punish North Korea economically for the shooting death of a tourist at the Mt. Kumkang resort, the sinking of the Cheonan warship, and the shelling of Yeonpyeong Island. North Korea has offset these losses with increased cooperation with China.

Read more below…

(more…)

The Joongang Ilbo reports some recent statistics from, the Kaesong Industrial Zone and some trade statistics between the two Koreas and China.

Inter-Korean and China trade (Joongang Ilbo):

Exactly two years ago, on May 24, 2010, in the aftermath of the deadly sinking of the Cheonan warship, the Lee Myung-bak administration imposed sanctions against North Korea that forbade all inter-Korean trade and South Korean investments in the North.

[…]

Statistics from the Korea International Trade Association show that the volume of inter-Korea trade in 2011 dropped by 10.4 percent, falling to about $1.7 billion from $1.9 billion in 2010. The Kaesong Industrial Complex, which was exempted from the sanctions, accounted for most of the inter-Korean trade.

In contrast, the volume of trade between North Korea and China surged by 62.4 percent in 2011, from $3.4 billion in 2010 to $5.6 billion.

“After stopping trade with South Korea, factories in Pyongyang and Nampo cities turned to Chinese companies and now work for them,” a South Korean businessman said on condition of anonymity. “It took so much time and money for us to teach North Korean employees and now Chinese companies enjoy the fruits of our labor.”

The North Korean government responded to the South Korean sanctions:

As talks between the two authorities have been halted, North Korea has unilaterally decided to raise taxes on income and management of the complex.

In fact, the North Korean regime earns significant money from the complex. South Korean firms pay the North Korean government an average of $126.4 per month for each North Korean worker. The government then distributes 5,000 won of North Korean currency and some food coupons to each employee per month. This wage is desirable compared to other worker payments in the North.

Analysts calculate that the regime is holding at least $50 million from the $77.8 million of the North Korean employees’ annual income.

At current black market rates, there are appx 4,450 DPRK won to for US$1.

The article notes, however, that the Kaesong Industrial Zone continues to grow:

Located only three kilometers away from the Military Demarcation Line, the inter-Korean complex has 123 South Korean companies and about 51,000 North Korean employees.

…

Currently, the South Korean government is implementing a scheme to build more roads and infrastructure for South Koreans crossing the border to commute to the complex (see here and here).

“Although Kim Yong-chol, former head of the policy planning office of the North’s powerful National Defense Commission, who has exerted a huge influence on operating the Kaesong complex, repeatedly threatened to shut down the complex since the May 24 sanctions, he’s recently been more cooperative, saying ‘Let’s make it better,’” a high-ranking government source told the JoongAng Ilbo.

Unlike the frosty inter-Korean relations, the sales performance of the joint industrial complex is positive. For the past three years, 55 South Korean firms additionally moved into the complex and the annual output value surpassed $400 million in 2011, jumping from $180 million in 2007.

Last year’s volume is 30 times that of the $14.91 million in 2005, when the complex made its first yearly outputs. The total output value since 2005 has accumulated to $1.5 billion.

[…]

Currently, roughly 160,000 people are living in Kaesong city and approximately one out of three are working in the complex

The article also reports on additional DPRK-China projects that are not necessarily a result of higher barriers to commerce between the two Koreas (dredging, mining, labor mobility, and SEZs):

“A Chinese firm based in Yanji is now implementing a 60-kilometer-long (37-mile) dredging project in the Tumen river bed,” a government-affiliated research official said.

“It’s not simple dredging work, but a plan to mine the iron ore buried nearby.”

“In the river bed, about 30 percent of the sand contains iron ore,” the official said.

The regime also exports their labor forces to their closest ally.

“Most of the local people left for South Korea to get a decent job and the average wage for a Chinese worker is increasing,” a Chinese factory manager in Yanji said. “So we are planning to hire North Korean workers instead.”

Pyongyang and Beijing are also focusing on developing the two special economic zones, Rason and Hwanggumpyong in northeastern North Korea.

When Chen Deming, the Minister of the Chinese Ministry of Commerce of China, and South Korean Trade Minister Park Tae-ho had a bilateral meeting on May 2 to start negotiations on the Korea-China free trade deal, they included a provision stating the two countries will allow preferential tariffs on goods produced in designated zones.

“Hwanggumpyong is like a Kaesong Industrial Complex to China,” a South Korean authority said. “The Hwanggumpyong zone has the same function as Kaesong, composed of China’s capital and technology and North Korea’s land and labor forces.”

In the Rason Economic Zone, China has finished construction paving the 53-kilometer-long road connecting the Rason zone and a local tax office in Wonjong-ri, a North Korean village close to China.

The Chinese government also arranged a harbor near the Rason area, constructing a pier that can accept a three million-ton ship and building a bus route between an express bus terminal in China and the zone.

“If China uses the Rason harbor, they can save $10 per metric ton,” Jo Bong-hyeon, a senior official at the Industrial Bank of Korea, said. “It’s really good business for China, enough to invest money on building infrastructure in the zone.”

Read the full story here:
Kaesong complex running well despite sanctions
JoongAng Ilbo
2012-05-23