North Korean Economy Watch

By Michael Rank

Independent British energy company Aminex PLC has withdrawn from North Korea, citing ‘”the volatile and unpredictable politics of the area”, just two years after signing a deal covering a 50,000 sq km area off the country’s east coast.

Aminex said it was “in the best interests of shareholders for the Company to withdraw from the Korean exploration programme and not participate in seismic acquisition. This decision will allow Aminex to focus on growing its African portfolio.”

The company first signed an agreement for co-operation in oil and gas with the North Korean government in 2004, but this failed to make progress. In 2010 it introduced a new foreign partner, Singapore-based Chosun Energy Pte Ltd, which provided finance for the initial stages and a regional base in Singapore. Aminex said at the time that “despite challenging international politics,” it had “succeeded in maintaining strong relations with the Korean authorities”, resulting in the production sharing contract signed in May 2010.

But industry sources said Stuard Detmer, who was made Aminex CEO last September, was less enthusiastic about North Korea than his predecessor Brian Hall, who remains executive chairman, and this had contributed to the company’s decision to pull out of the DPRK.

Aminex’s main focus is now on Tanzania, where in February it made the first gas discovery in the onshore Ruvuma basin, having also disposed of an oilfield in Texas.

Aminex said in 2010 that the agreement “involves reprocessing and reinterpretation of old seismic data plus acquisition of new marine seismic data during an initial period. Licence holder] Korex believes that the East Sea has great potential for significant discoveries of oil and gas, while recognising the political challenges in the region and the need to ensure that any international sanctions are strictly observed.”

See previous posts about Aminex here.

Click image above to see KCNA video of interview with Yun Yong-sok, vice department director of DPRK Joint Venture Investment Committee

According to KCNA (2012-3-23):

The Democratic People’s Republic of Korea is willing to further improve its environment for foreign investment, Yun Yong Sok, a vice department director of the DPRK Committee for Investment and Joint Venture, told KCNA.

He said:

The nation’s economy is gaining momentum, with many industrial establishments and power stations being built across the country.

It is a consistent policy of the DPRK Government to enhance economic cooperation with other countries, while beefing up its self-reliant national economy.

In December last year, the government amended investment-related laws, including the DPRK Law and Regulations on Foreign Investment, laws on joint venture and joint collaboration and the Law on Foreign-funded Businesses and Foreigners’ Tax Payment, in step with the nation’s developing economy and international practices.

It enacted the law on economic zone on Hwanggumphyong and Wihwa islets in the River Amnok and revised and supplemented the law on the Rason economic and trade zone.

The joint development and management in the two economic zones takes on a new way of cooperation. Now it has been under way in a creditable way, driven by the active efforts of both sides of the DPRK and China.

Contracts on joint venture and joint collaboration have been on increase with the investment environment changing for the better.

Rare earth abundant in the country and infrastructure projects lure foreign investment in the DPRK.

The committee will pay deep attention to ensuring the interests of foreign investors, while invigorating the exchange and cooperation with governments, investors and businesses.

In other news, KCNA has adopted the American colloquialism “beefing up”.

According to Business Week:

Gaeseong, which is within sight of South Korean and U.S. guard posts along the Demilitarized Zone, was developed as a joint special economic zone in 2005 and now employs about 50,000 North Koreans, according to the Unification Ministry in Seoul.

More than 120 South Korean companies, including Daewha Fuel, underwear maker Good People Co. and watchmaker Romanson Co. (026040) paid the North Korean government about $60 million to $70 million last year to cover labor costs for workers, said Park Soo Jin, the deputy spokeswoman at the Unification Ministry. Authorities in Pyongyang then paid the employees in local currency and vouchers, she said.

Trade Minister Bark Tae Ho said on March 14 that he will try to persuade the U.S. and European Union to recognize products made in Gaeseong as South Korean.

Singapore Tariffs
The EU and South Korea have agreed to establish a committee this year to examine the issue, Tomasz Kozlowski, ambassador for the EU delegation in Seoul, said in an e-mailed statement. Aaron Tarver, a spokesman at the U.S. Embassy, said in an e-mail that the trade pact does not include any products from North Korea, including those from Gaeseong, without commenting further.

Singapore has reduced tariffs covering more than 4,000 products from Gaeseong under its bilateral trade pact with South Korea, said Lee Sang Mok, Deputy Director at Korea Customs Service. Some products are also covered by agreements with the 10-member Association of Southeast Asian Nations, India, Peru and the European Free Trade Association consisting of Switzerland, Iceland, Liechtenstein and Norway, Lee said via e- mail and telephone.

The value of output from Gaeseong jumped from $14.9 million in its first year to $402 million in 2011, according to the Unification Ministry. During the past seven years, its production totaled $1.5 billion. That compares with $40 billion for North Korea’s annual gross domestic product, according to the CIA World Factbook.

“The U.S. seems to want more progress in North Korean nuclear and human rights issues before including Gaeseong in FTA,” IBK’s Cho said.

…

Yoo of Daewha Fuel Pump said he plans to spend 1 billion won ($885,000) this year to boost capacity in Gaeseong by 50 percent and forecasts sales to jump to 65 billion won this year from 45 billion won in 2011. His company, which also makes parts in plants in South Korea, supplies automakers including Hyundai Motor Co., Honda Motor Co. and Nissan Motor Co., he said.

The minimum monthly base salary paid by companies at Gaeseong is about $64, according to the Unification Ministry’s Park. Yoo, who was speaking at Incheon near Seoul, estimated labor costs would be 20 times higher in South Korea and three times higher in China.

“The security issue is of course a big risk but every business has a risk,” Yoo said. “Gaeseong has survived all the clashes and threats, including the sinking of a warship and the shelling of a South Korean island”.

Read the full story here:
North Korea’s Gaeseong Pushed for Inclusion in FTA
Business Week
Eunkyung Seo and Sangwon Yoon
2012-3-22

Pictured above: (L) The location of the new Haedonghwa Center under construction in Pyongyang (Google Earth), and (R) a representation of the building’s exterior

The Korea Pyongyang Haedanghwa Foodstuff Company (조선평양해당화식품회사는)  has launched a new web page  on the Naenara portal providing content in English, Korean, and Chinese.

This new web site hosts pages of information not just on the company, its subsidiaries, its employees, and its products, but also on Korean food, culture and health. Among the more interesting claims made on the page:

Our service workers come from normal families, and they are not ones grown in the special environment or conditions.

The web page also provides addresses and maps of the subsidiary restaurants and factories in China and the DPRK.

Using information from the web page I was able to locate the position of the Haedanghwa Center (pictured at the top of this post).  It is obviously still under construction.  The lot on which the center is being built has been empty for the last dozen years and lies directly across the Taedong River from the new construction on Mansudae Street.

According to Yonhap:

North Korea has established an investment insurance firm recently in what is believed to be an effort to attract more foreign investment by reducing risks stemming from uncertainties in the communist nation, a source said Sunday.

The North’s firm is expected to purchase reinsurance from an international company, the source said. The system is similar to an insurance measure that South Korea’s government has been operating to compensate its businesspeople for lost investment in the North.

It marks the first time Pyongyang has introduced such an insurance system for foreign investors.

“For foreign investors, this could ease concerns about investment loss risks stemming from uncertainties of North Korea,” said the source familiar with economic affairs in the communist nation. The source said, however, that it is questionable how effective the measure will be in drawing outside investment.

North Korea has long sought to attract foreign investment to revive its broken economy, but with little success because investors stayed away from one of the most closed nations, which is under international sanctions over its pursuit of nuclear and weapons of mass destruction.

The source also said that the word, “reform,” has been used among North Korean bureaucrats, and that this could signal that Pyongyang may announce a set of bold economic reform measures around April’s commemoration of the 100th birthday of late North Korean founder Kim Il-sung.

“Reform” has been considered a taboo word in the North, along with the term, “openness,” because Pyongyang has rejected international calls for it to reform and open up to the outside world as part of a U.S.-led attempt to topple the autocratic regime.

Should Pyongyang take any economic reform measures, they would mark the first such steps since new leader Kim Jong-un took over the isolated nation after his late father Kim Jong-il died of a heart attack in December.

Read the full story here:
N. Korea sets up insurance firm to attract more foreign investment
Yonhap
2012-3-11

According to Yonhap:

The Unification Ministry said Tuesday it will allow South Korean companies to bring new equipment into their factories at a joint industrial complex in North Korea in an easing of sanctions on the communist nation.

Seoul has banned the establishment of new factories or expanding investment in the industrial complex under economic sanctions slapped on the North in May 2010 in response to its torpedoing of the South Korean warship Cheonan in the Yellow Sea that killed 46 men aboard.

The ministry’s decision, effective from this week, is a follow-up measure after a group of eight ruling and opposition lawmakers last month visited the border city of Kaesong to meet with South Korean company officials and help work out problems with operating factories there.

More than 50,000 North Koreans work for 123 South Korean firms operating in the industrial zone to produce clothes, utensils, watches and other goods. The project serves as a key legitimate cash cow for the impoverished communist country.

According to a survey conducted by the ministry of the 123 firms after the parliamentary delegation’s visit, 15 firms wanted to move 803 pieces of equipment worth 4 billion won (US$3.5 million) out of the complex.

Thirty-two companies had plans to remodel the current factories or facilities, the survey showed.

The ministry is also considering expanding bus routes for North Korean workers to help employers hire more workers living farther away from the complex, officials noted.

Read the full story here:
Seoul eases limits on factories, equipment in Kaesong complex
Yonhap
2012-3-6

UPDATE 1 (2012-2-21): According to the Korea Times, this store is now providing people with a legal window to exchange local for hard currency:

North Korea is apparently allowing foreign currency to be exchanged at unofficial, black market rates at a newly-renovated department store in Pyongyang, according to a diplomatic source who recently visited the country, Tuesday.

The source said people could exchange euros, dollars and yuan at kiosks at Kwangbok Area Supermarket, which recently opened after refurbishment and is said to resemble department stores in the South. The North has long kept the value of its local currency artificially high.

Euros were being exchanged at the rate of one euro for 4,420 North Korean won, while the official rate is around 130 won per euro, the source said.

“They are exchanging hard currency at a rate that seems to be an unofficial rate,” the source told The Korea Times. “People can also shop at the department store using foreign currency by taking their receipts to the booths.”

…

The source added that the exchange rates were written on a board inside the kiosks.

ORIGINAL POST (2012-1-6): See the original post below.

Pictured Above: (L) The original facade of the “Kwangbok Department Store (광복백화점)”. (R) The new facade of the “Kwangbok Area Supermarket (광복지구상업중심)”

Here is KCNA coverage of the opening of the facility (Posted to YouTube):

Astute observers will notice the American beer, Pabst Blue Ribbon, featured prominently in the beer section.

Here is coverage of the opening in KCNA (2012-1-5):

Pyongyang, January 5 (KCNA) — The Kwangbok Area Supermarket was opened with due ceremony on Thursday.

All business service at the supermarket built as a commercial service center has been put on IT and digital basis. Customers can buy varieties of goods according to their taste and requirements in the sales rooms on each floor stacked with household appliances, electronic products, foodstuff, fibre, sundries and others.

Present there were officials concerned, officials of the Korea Taesong General Trading Corporation, officials and employees of the Kwangbok Area Supermarket, members of the Feihaimengxin Trading (Beijing) Co. Ltd. staying in the DPRK and the Chinese embassy here.

O Ryong Il, general president of the Corporation, said in his speech that the work to build the supermarket was successfully completed under the energetic leadership of leader Kim Jong Iland the dear respected Kim Jong Un and the positive efforts of the peoples of the two countries.

He expressed belief that the supermarket would help towards improving the people’s living standard and promoting the well-being of the two peoples through better service and management.

Xue Rifei, executive managing director of the Feihaimengxin Trading (Beijing) Co. Ltd., said in his speech that Kim Jong Il and Kim Jong Un gave field guidance to the supermarket on December 15, 2011 and named it the Kwangbok Area Supermarket.

He expressed the expectation that an effort will be made to reenergize the supermarket to win high appreciation for its best management, service and credit.

The Korea Taesong General Trading Corporation is a sanctioned organization, and according to the US Treasury, it is a “key node” in the illicit activity of Office 39. According to NK Leadership Watch:

One of the participants at the opening ceremony was Jon Il Chun (Chon Il-chun), deputy director of the Korean Workers’ Party’s Finance and Accounting Department and section chief of Office #39.  Mr. Jon accompanied Kim Jong Il on a visit to the Kwangpok store in mid-December 2011, which was KJI’s last reported public appearance before his death.

On a more casual note, the supermarket marks a point of administrative departure from the way department stores are typically managed in socialist countries. The Kwangbok Department Store (the former name) was one of Pyongyang’s premier formal retail outlets. For decades it operated in the same way as other socialist department stores: customers ended up standing in three lines before they were able to collect their merchandise (one line to order, another line to pay, and another line to pick up). The new Kwangbok Supermarket has adopted a market-style check out line. Though unnoticed by foreigners, this is the first such check out line I have seen in a North Korean department store.

This point was also highlighted in AP coverage:

A separate story in KCNA notes that the shop will sell both foreign and domestic goods:

The supermarket is supplied with home and foreign-made products which are in demand in the country.

Although I have not acquired data specific to this store, I believe it is reasonable (even rational) to assume that if the supermarket sells imported goods it will charge had currency for them. This opinion is based on the following assumptions: 1. The Chinese investors will not accept North Korean won under any circumstances. 2. The goal of Office 39 is to acquire hard currency for the Kim family. 3. North Korean retail outlets frequently post prices in multiple currencies so I don’t see any reason why it would be different here. Today a plurality of North Koreans can easily acquire foreign exchange.

Here is my working assumption of the business model: Chinese partner acquires merchandise and imports it to the DPRK. Sales in hard currency go towards allowing the Chinese supplier to recover its costs. Chinese partner either earns a profit from a markup it charges Kwangbok or it divides the profit with Office 39 along some agreed percentage.

If Chinese profits are earned from a cost-plus markup that it charges Kwangbop, then the partnership is closer to an exclusive supplier deal rather than a true joint equity deal. The North Koreans could cheat on this deal by finding cheaper suppliers and decreasing its purchases from the Chinese partner. If after-sales profits are split between the Chinese and Office 39, then both partners will need auditors on hand to make sure the books are accurate. The Chinese partner will also need a good relationship with the Chinese embassy if it runs into problems with the DPRK managers should they unilaterally change the terms of the contract (the split).

A Chinese firm reportedly tried to invest in the Pyongyang Department Store No. 1 several years ago. Not much seemed to happen, but maybe there is some more info here.

According to the Donga Ilbo:

The South Korean government will allow companies operating in the Kaesong industrial complex in North Korea to bring new facilities or build plants there. Against this background, regulations banning new investment in the complex under a sanction against North Korea, which made May 24 last year, will be massively eased.

Park Soo-jin, vice spokeswoman of the Unification Ministry in Seoul, said Wednesday, “We will ease sanctions on North Korea imposed May 24 last year to support the operations of plants operating (in the Kaesong complex), including allowing the entry of necessary facilities and construction of warehouses.” “We will also actively examine working-level talks with Pyongyang to resolve the issue of supply of North Korean workers. We are willing to negotiate with the North on building dormitories and tackling passage, customs and telecommunications matters and personal safety.” The ministry is also mulling putting artificial grass on a soccer field within the complex to improve living conditions of South Korean staff.

The latest decision is a follow-up measure after members of the special parliamentary committee for inter-Korean relations development and the National Assembly`s Foreign Affairs, Trade and Unification Committee visited the Kaesong complex Friday and urged the resolution of difficulties facing companies operating there. Having offered Tuesday working-level talks to Pyongyang for family reunions, Seoul apparently hopes to expand amicable relations through this deregulation.

The Unification Ministry said last year`s sanctions will remain in force since expansion of large-scale investments will still be banned, including new corporate advances into the complex and plant construction. The latest measure, however, is still a big step forward because until now, Seoul had approved just facility entry into the complex for repair purposes, while going forward, additional facilities could be allowed for production activities. Plant construction was initially allowed for seven companies, which had been suspended due to last year’s sanctions.

Certain projects are already in place, including the construction of fire stations and emergency medical facilities, as well as repair of roads for commuting by North Korean workers. The South Korean ban on visiting North Korea excluding the Kaesong complex and Mount Kumgang area, which was effected last year, was also eased following approval of trips to North Korea for social and cultural exchanges, including the recovery of Kaesong Manwol pavilion.

Read the full story here:
Seoul to partially lift restrictions on biz complex in N. Korea
Donga Ilbo
2012-2-16

UPDATE 2 (2012-4-12): North Korea and China attracting investors for Rajin Port development (IFES):

China is currently actively recruiting investors to build additional wharfs in Rajin Port.

China’s Dandong City Industrial and Information Association (丹东市信息协会) announced that it is seeking investments for the construction of tanker wharf under 10,000 ton and affiliated facilities. This organization has received 45 year usage rights from the Rason City People’s Committee and stated that it needed 330 million CNY (52 million USD) to cover the construction cost. According to the association, the investment is attractive because of its geographic location, reduced transit time and costs, and tax-free benefits, for which a special permit was obtained from the North Korean authorities granting trade goods coming from Jilin Province at the Hunchun Port to be allowed entry tax-free. In addition, cargo will be permitted to be sent from Rajin Port to other ports in China.

Meanwhile, North Korea is also planning to build a new port in the Rajin-Sonbong area with a state-of-the-art container distribution capacity. According to the “Rajin New Port Development Plan,” Rajin port development will undergo major transformation as an international hub port, similar to Busan Harbor, unlike the previous small-scale renovations of Piers 1, 2, and 3. This new port is expected to be built across from the current Rajin Port.

Rajin Port development was initially considered as a remodeling project to update the existing wharfs. In 2003, China began to implement construction of Piers 1, 2, and 3. However, the piers began to deteriorate and for the lack of railway and road infrastructure in the area, it delayed the transportation and distribution and could not perform its full function. As a solution, in 2008, North Korea transferred the usage right of Pier 1 to China and Pier 3 to Russia. At that time, Pier 1 was developed to primarily transport chemical fertilizers but it was recently updated as a transportation dock for coal. Russia, in addition to the port, also carried out a modernization project of the Rajin-Hassan railway system to improve the transport of containers.

The new port development plan as suggested by North Korea indicates Jian Group of China as the responsible party for developing the new port into a container port. However, considering that North Korea’s industry does not call for container ports, it is more likely that North Korea is expanding the port to make it a hub port to ship cargo to China, Russia, and Europe. Considering Rajin Port’s geographical advantage, it is likely that North Korea is striving to make it into an international hub port that connects the Pacific with Northeast Asia.

China’s recent advertisement of investment is also considered to be linked with the new port development in Rajin Port.

UPDATE 1 (2012-3-1): Accoridng to Stratfor, the Chinese have denied they plan to make this investment.

The Chinese Foreign Ministry denied allegations made in a Feb. 16 South Korean media report regarding its agreement with North Korea to jointly develop the Rajin-Sonbong Special Economic Zone (SEZ), a port area in northeast North Korea commonly referred to as the Rason Special Economic Zone.

According to the Yonhap news agency, Beijing agreed in late 2011 to invest about 19 billion yuan ($3 billion) into Rason, for which it would receive the lease of three piers for 50 years. Under the agreement, Beijing would also build an airfield, a thermal power plant and a 55-kilometer (34-mile) railway track connecting Rason to Tumen, China. The Chinese Foreign Ministry claimed that the specific details of the report are untrue and that China and North Korea had agreed only in principle to develop the zone.

China has long exerted its economic influence in North Korea and has an interest in the strategically important Rason Special Economic Zone. Chinese involvement in Rason dates back to the 1990s, though Beijing increased its involvement considerably in 2005 when it secured the rights to one of the port’s piers. Beijing has been particularly involved over the past few years. While the details of the deal remain unknown, it is clear that Beijing has arranged to help Pyongyang develop Rason, possibly by connecting the remote port to northwest China. Such a development would revitalize the zone — to the benefit of both countries.

ORIGINAL POST (2012-2-15): China has committed to infrastructure projects in Rason. According to Yonhap:

China has secured the rights to build three new piers in a special economic zone in North Korea’s northeast and use them for 50 years, sources said Wednesday.

China will also build an airfield and a thermal power plant in the special economic zone known as Rason, as well as a 55-kilometer railway track between China’s northeastern city of Tumen and Rason.

North Korea and China reached an agreement late last year to build infrastructure in Rason with Chinese investment of about US$3 billion, according to the sources in Seoul and Beijing.

The Daily NK offers some more data:

China has agreed to dig out dock 4 at Rasun to make it possible for 70,000 ton vessels to dock and to construct a runway long enough to accommodate passenger and cargo aircraft within the SEZ; the railroad is due to be complete by 2020, while the development of dock 5 and 6 will follow that of dock 4, Yonhap sources claim.

This agreement was reportedly signed quietly by North Korea’s Joint Ventures Committee and the Chinese government shortly before Kim Jong Il’s death.

The North Koreans have sought the construction of an airport and expansion of the port  for some time.

KITC published the image above in 1995 (Source here).  If you look carefully on the right side of the picture you will see the site of a proposed airport.

Above is a more recent map of Rason published by the DPRK. In the middle of the above map you can see a small airplane which represents the desired location of a future airfield. It is in the same location as shown on the KITC map.

Here is the approximate location on Google Earth (42.397884°, 130.592084°):

If you look at the left side of the KITC photo you can also see that there are many piers, however today there are only three.  I suspect that the new piers will be constructed south of the current piers and will look something like this:

The railway and power plant projects are intereting as well.  There is already a thermal power plant in Sonbong, so I expect that the Chinese are simply renovating it so that it generates more power or is simply more reliable (Google Earth:  42.327275°, 130.382585°):

At a presentation at the Korea Economic Institute in Washington, DC, Andray Abrahamian reported that increased electricity supplies for the Rason Zone could come from China.

As for the Tumen (China) – Rason railway line…this already exists as well.  The DPRK’s Hambuk Line (함북선) runs from Chongjin to Namyang (border with Tumen) to Rason:

The Tumen to Rason leg of this railway line, however, is approximately 156km (according to Google Earth) and likely runs pretty slowly.  The proposed new Chinese-built Tumen-Rason line is intended to be just 1/3 the distance!

Additional Information:

1. The Russians built a railway line from their border to the Rajin Port. Learn more here.

2. The Chinese and Russians have already rented two of Rajin’s three ports.

Read the full stories here:
China secures right to use 3 piers to be built on N. Korean port for 50 years
Yonhap
2012-2-15

China Reportedly Grabs 3 Docks and More
Daily NK
2012-2-15

UPDATE 1 (2012-2-13): Thanks Dr. Seliger we now have some photos of the interior of the newly opened Viennese Coffee Restaurant:

And if you don’t feel like coffee, they have more “traditional” drinks on offer:

The sign on the front door reads “Helmut Sachers Kaffee,” but the menu shows another name: Ryongwang Coffee Shop (련광). Perhaps this is the name of the Korean Join-Venture company, but I cannot find any additional information on it.

A reader notes the following:

Helmut Sacher is an Austrian coffee roaster (web page here). It is probably that Ryon’gwang buys beans from Sacher, and/or Sacher owns part of the joint company.

ORIGINAL POST (2011-12-4):

Pictured above (Google Maps): Korean Central History Museum on Kim Il-sung Square–site of the new coffee house.

According to a German reader:

A report published [2011-11-24] in the German Daily “Frankfurter Rundschau” reports on the opening of a “Viennese Coffe House” right on Kim Il Sung Square inside the Museum of Korean History (the one wih the “trumpet soldier”).

In brief: Austrian enterpreneur Helmut Sachers has opened this new Vienna style cofee house in October after training Korean service- and bakery staff. It says that it mainly serves the foreign community in Pyongyang, but alo an increasing number of Koreans appear to be able to pay EUR 2, the equivalent of 5000 Won, for a cup of cappucino.

Then reference is made to two older pizza-places and a a Swiss coffe house …. and various duty free shops serving the international community and wealthy North Koreans… which is contrasted with the children and young soldiers exercising on Kim Il Sung Square, who show indications of malnurishment.

You can read a PDF of the German article here. If a reader has the ability and inclination to provide an English-language copy of this article, I would appreciate it.

UPDATE: Thanks to Mr. Knoll I have a full English translation of the article:

Whipped Cream in Pyongyang

The heart of the North Korean capital Pyongyang now boasts a Viennese coffee house – a sign that the isolation of the country is showing cracks.

By Bernhard Bartsch

A cappuccino is not political, in most places in the world. But the milk foam coffee now being served on Pyongyang´s Kim Il Sung Square has an unmistakably political flavor – and some customers think that´s why it tastes so good. Right next to the parade ground in the heart of the North Korean capital, a Viennese café has opened its doors in late October – a sign the isolation of the arch-communist regime is slowly showing cracks.

The Austrian operator could hardly have asked for a more iconic building: the Museum of Korean History, a Stalinist representative structure, on its roof, a 10 m (30 ft) tall soldier is sounding the charge. Inside, you get a crash course in the history of the Korean revolution, and you´ll be served “Viennese coffee with whipped cream”, but only after passing through a door inconspicuously marked “café” in Korean. Only then the yellow coffeepot-shaped emblem marked “Helmut Sachers Kaffee” becomes visible.

“We have thirty to fourty customers per day” the young waitress says. “Most of them are diplomats or other foreigners living here”. She wears a black pantsuit, and like most North Koreans, she is rather tight-lipped when talking to foreigners. A couple sitting at one of the eleven tables is examining the room, a peculiar mix of Austrian gemuetlichkeit and North Korean drabness. Two fans with gaudily-colored lamps are hanging from the ceiling, there´s wood paneling to half height, pink blinds cover the windows. A large flat screen TV is showing Austrian scenery, waltz is being played as background music.

Payment in hard currency

Expensive coffeemakers can be seen behind the bar, a vitrine shows a variety of cakes: apple tart, cherry streusel, poppyseed-walnut-vanilla. They won´t win any prizes in Vienna, they might in Pyongyang, though. The coffee, the dishes, even the sugar packs are imported from Austria. A cappuccino is two euros, you pay in hard currency. The Koreans prefer euros, Chinese yuan, even US dollars, over their own currency. Two euros are worth about 5,000 Korean won on the black market. That´s about a month´s salary for the average North Korean, not counting food and clothing rations.

The man the café is named after is living in Oeynhausen, near Vienna. “We seem to have a monopoly on exotic export markets” explains Helmut Sachers, owner of a long-standing family-owned coffee-roasting establishment, now doing business in 25 countries. “There´s a Café Sachers in the Mongolian capital Ulan Bator, too”. The cafés, however, are not operated by Sachers himself, but by importers. The one in Pyongyang was the brainchild of Vienna entrepreneur Helmut Brammen. “In 2009 he told me he´s doing business in very unusual destinations”, Sachers says. The negotiations went on for two years, before Sachers and Brammen flew to Pyongyang in March, accompanied by an Austrian baker to train staff. They met very eager men and women, Sachers says. The North Koreans soaked up Austrian coffee culture like a sponge.
The fact that a Viennese coffee house can open its doors in Pyongyang shows that behind the rigid façade things are in a state of flux, a European diplomat says. “Ordinary North Koreans won´t come here, of course, but the elites know what life is like outside the country, and they want a part of it to enjoy at home.

Communist Pizza

The Viennese café is not the first international establishment in the city. A member of the Italian Communist Party opened a pizzeria in 2009, the second in Pyongyang, but the first that is partly owned by foreigners. Adra, an aid organization run by Swiss Adventists, opened a Swiss café a few years ago, serving cheese fondue to North Koreans. There are also several stores selling exclusive imported goods. At the “Pyongyang Shop”, where the clientele consists of embassy staff and members of international aid groups, Italian pasta, German jam, Swiss chocolate, and a large selection of wine and whisky are available.
“Those with money can buy almost anything they want in North Korea” the diplomat says. “It is remarkable that more and more customers are North Koreans.” Despite the egalitarian rhetoric in the Communist country, the real-life wealth disparities are much more blatant than in capitalist countries.

The scene outside the Viennese café on Kim Il Sung Square is no exception. Schoolchildren are rehearsing in the cold for the celebrations planned for April 2012, the 100th birthday of the country´s founder. A gigantic mass gymnastics show involving hundreds of thousands of participants is supposed to strengthen unity among the Korean people. By command, children turn cartwheels and do flic-flacs, a student band plays military marches. On the other side of the street, an army unit doing construction work has pitched its tents. Clothing has been left to dry on bushes, there are lines of cabbage leaves to be pickled by the unit´s chef, to make kimchi, the national dish.

Almost all of the young soldiers are stunted – a result of the famine in the 1990s that killed millions of North Koreans and left many survivors with permanent health problems. “The food situation is still very bad, but a catastrophe as in those days seems unimaginable today”, says a Western aid worker, who is almost a regular at Helmut Sachers`s. “The country is opening up, and this is irreversible.