North Korean Economy Watch

On this page, I will keep a list of DPRK statutes and summaries:

1. Foreign Investment Law
2. Free Economic and Trade Zone Law
3. Equity Joint Venture Law
4. Contractual Joint Venture Law
5. Foreign Enterprises Law
6. Taxation of Foreign Invested Enterprises
7. Relevant Labor Laws
8. Leasing Land 
9. Dispute Resolution
10. Domestic Sales Tax Regulations
11. Manufacturing & Export Operations
12. External Economic Arbitration Law
13. Commercial Joint Venture Law
14. Constitutions (x2)
15. Customs Law
16. Law on Economic Plans
17. Fisheries Law
18. Foreigners in FEZs
19. Intellectual Property

Click “read the rest of this entry” below to see summaries and statute text.

(more…)

Andrei Lankov writes in the Korea Times that South Korea’s threats to reduce tourism levels to Kaesong, as well as support for the Kaesong Industrial Zone, are misguided.  His reasoning is as follows:

North Korea is a very peculiar society, where the elite are almost entirely free from the pressures experienced by those below them. When sanctions are applied to such a regime, they seldom have a direct bearing on the elite and their lifestyle.

Sanctions usually work in an indirect way, by punishing the population which then might either rebel against the government or vote it out of power. Neither rebellion nor elections are possible in North Korea (well, elections are happening there, as everybody knows, with the approval rate of the government candidates standing at a world record high of 100 percent). As a result of sanctions the populace will die without protesting, while the elite will survive and stay in control, even if for a while they will have ride their beloved Mercedes limousines less frequently.

The only way to bring changes to North Korea is to create forces which will be able to challenge the government. This might lead to a revolution, but one cannot completely rule out that the regime will start giving in if sufficiently pressed from within.

In addition to Lankov’s point above, sanctions can perversely benefit those in power who control and profit from black market activity (at higher prices).   Additionally, politically sophisticated leaders exploit the consequences of foreign-imposed sanctions to restrict domestic freedoms and political opposition. 

Bossuyt (Adverse Consequences of Economic Sanctions) shows even the most optimistic accounts of sanctions point to only a third having partial success.  Others find a mere 2% success rate among authoritarian regimes.  So sanctions have a poor track record of inducing positive policy changes, particularly in North Korea. 

So why are the Kaesong and Kumgang projects worthwhile?  Though not all that economical, Lankov argues that these aid projects create alternate channels for information to permeate the hearts and minds of the isolated North Korean people, and that shattering the North’s monopoly on information is key to promoting change within the DPRK:

…in order to facilitate North Korea’s transformation, more truth about the outside world needs to be imported. The survival of the North Korean regime now critically depends on a few important myths, and each myth is patently false and hence very vulnerable.

When the North Korean propaganda-mongers are talking to the North Korean public, they have to hide how poor their country actually is, and they also have to lie about the great respect Kim and his regime enjoys worldwide, especially in South Korea. An increase in contact with the outside world is the best way to undermine these falsities.

…

The inconvenient truth regarding South Korea’s huge economic advantage will start to surface soon. It will probably take more time before it will dawn on the North Koreans that their Seoul guests are not exactly full of love and respect for the Pyongyang dynasty, either.

There is plenty of journalistic evidence that many North Koreans already know the South is “rich”—although they might not have any idea what that actually means. Still, of all the Hyundai projects in the DPRK, I believe the Kaesong Industrial Zone is probably the most helpful for the South in the long term.  None of Hyundai’s other projects do all that much to improve the human capital of the DPRK people, and when things eventually change, it is important for the RoK to have a population of constituents in the DPRK who have some job and management skills and familiarity with the South’s culture to ease the transition.

Comments welcome.

Read the full article here:
Sanctions Harden Lives of Ordinary North Koreans
Korea Times
Andrei Lankov
8/20/2008

Although the article did not offer much new or probing analysis, there were a few data points that I thought it was important to highlight: 

Despite its isolation and prisonlike feel, the Kaesong Industrial Park is booming with construction. The park’s operator, a South Korean developer, Hyundai Asan, hopes to expand it into a minicity over the next 12 years, with high-rise apartments and hotels, an artificial lake and three golf courses.

By that time, the company hopes there will be about 2,000 factories here employing 350,000 North Koreans and producing $20 billion worth of goods a year.

That compares with a manufacturing output of only $366 million in the first half of this year, according to South Korea’s unification ministry.

In the six months through June, the flow of goods in and out of the industrial park accounted for 42 percent of the $881 million in trade between the two Koreas, the ministry said.

and

[…] 72 smaller South Korean companies have already built factories here, looking to tap the North’s supply of low-cost, Korean-speaking labor. So far, only one foreign company has come [–German auto parts maker Prettl Group is building a factory. Two Chinese companies will begin operations soon[, b]ut most companies here continue to be smaller South Korean firms, producing low-tech goods, from frying pans to running shoes, largely for domestic consumption.] (NKeconWatch combined two different paragraphs here)

The piecemeal brand of change is seen in the experiences of SJ Tech, a South Korean maker of car and cellphone parts that built a $4 million factory here four years ago. The company’s first North Korean employees had never even seen a keyboard, much less a computer, said Yoo Chang-geun, SJ Tech’s president. SJ Tech has spent so much time teaching them things like machinery operation and management concepts that Mr. Yoo jokingly calls his factory “North Korea’s first business school.”

But the North Koreans were eager learners, sketching keyboards on paper to teach themselves typing. Now, SJ Tech’s 430 North Korean employees have learned enough to run the factory without South Korean supervisors.

In a telling sign, they have also changed their haircuts to look more like their South Korean colleagues.

Andrei Lankov seems optimistic on the project’s political goals, stating “When North and South Koreans can interact on a daily basis, it is a chance for the North Koreans to see with their eyes that their own propaganda doesn’t make sense.”

A few described how the South Korean-run industrial park was improving lives by paying its workers the equivalent of about $60 a month, three times the average salary in the rest of Kaesong. […]

The South Korean government, which spent more than $150 million subsidizing the park, provides low-interest loans and insurance to companies to offset the risks of investing in the unstable and still hostile North.

Mr. Yoo of SJ Tech said his North Korean employees’ monthly salaries of $75, in contrast to the $2,000 he pays South Koreans, made investing in North Korea entirely worthwhile, despite any risks.

The article seems to take worker compensation claims at face value, but in reality Kaesong workers do not take home their allotted wages.  The DPRK government keeps most of them in taxes and administrative fees.  However, other non-monetary benefits make the jobs highly envied among North Korean workers.  Rumor has it that North Korean workers pay hefty bribes to get these jobs. 

Read the full article here:
Big Dreams for North Korean Industrial Park
New York Times
Martin Fackler
8/20/2008

The most authoritative map of North Korea on Google Earth
Download it here

This map covers North Korea’s agriculture, aviation, cultural locations, markets, manufacturing facilities, railroad, energy infrastructure, politics, sports venues, military establishments, religious facilities, leisure destinations, and national parks. It is continually expanding and undergoing revisions. This is the eleventh version.

Additions include: Mt. Paegun’s Ryonghung Temple and resort homes, Pyongyang’s Chongryu Restaurant, Swiss Development Agency (former UNDP office), Iranian Embassy, White Tiger Art Studio, KITC Store, Kumgangsan Store, Pyongyang Fried Chicken Restaurant, Kilju’s Pulp Factory (Paper), Kim Chaek Steel Mill, Chongjin Munitions Factory, Poogin Coal Mine, Ryongwun-ri cooperative farm, Thonggun Pavilion (Uiju), Chinju Temple (Yongbyon), Kim il Sung Revolutionary Museum (Pyongsong), Hamhung Zoo, Rajin electrified perimeter fence, Pyongsong market (North Korea’s largest), Sakju Recreation Center, Hoeryong Maternity Hospital, Sariwon Suwon reservoir (alleged site of US massacre), Sinpyong Resting Place, 700 Ridges Pavilion, Academy of Science, Hamhung Museum of the Revolutionary Activities of Comrade Kim Il Sung, South Hamgyong House of Culture, Hamhung Royal Villa, Pork Chop Hill, and Pyongyang’s Olympic torch route. Additional thanks go to Martyn Williams for expanding the electricity grid, particularly in Samjiyon, and various others who have contributed time improving this project since its launch.

Disclaimer: I cannot vouch for the authenticity of many locations since I have not seen or been to them, but great efforts have been made to check for authenticity. These efforts include pouring over books, maps, conducting interviews, and keeping up with other peoples’ discoveries. In many cases, I have posted sources, though not for all. This is a thorough compilation of lots of material, but I will leave it up to the reader to make up their own minds as to what they see. I cannot catch everything and I welcome contributions.  Additionally, this file is getting large and may take some time to load.

North Korean Cigarette Production: Chinese Cigarettes Disappear
Daily NK
Moon Sung Hwee
8/12/2008

The market share of North Korean cigarette manufacturers has been increasing because North Korean cigarette factories have turned their gaze on domestic low-priced brands instead of counterfeit products.

A source from North Korea explained on the 8th that “There are lately dozens of cigarette brands which are being produced in North Korea, from low-priced ones to expensive ones made for high officials. Now, we rarely see people looking for foreign-made cigarettes in the markets.”

He added that “We can see 500 won per pack cigarettes and also cheap brands, like 300 won cigarettes which are made by individuals. When compared to rice prices, cigarette prices have sharply declined, as well as their quality having advanced when compared to the pack price.”

According to the statistics of the Korean International Trade Association, since 2000 imports of Chinese cigarettes have increased every year and in 2003, reached a maximum of 9.4 million dollars.

The source continued, “Competition to obtain Chinese cigarettes among Cigarette smugglers was keen, but now, consumers of North Korean cigarettes are increasing in number and the productivity of manufacturers is increasing as well. Therefore, individuals who produced cigarettes at home took a heavy blow to their business.”

North Korean cigarette makers converted from counterfeit to private development

Since the early 1990s, North Korea has felt keenly the necessity of earning foreign currency after suffering the aftereffects of the collapse of socialism in Eastern Europe. Accordingly, North Korean authorities have had an interest in producing and trading drugs and counterfeit cigarettes that need a low initial investment and quickly convert into money. Since 1992, North Korea has mass produced imitations of Mild Seven, Crown, 555, Dunhill and other international brands.

When suffering the “March of Tribulation” in the late 1990s, middle managers started taking an interest in counterfeit cigarette markets, which had been occupied by the authorities. In Nampo, Pyongsung, Pyongyang and other big cities, with the appearance of counterfeit cigarettes made by individuals, competition between the national cigarette traders and private manufacturers in the jangmadang started. Workers of cigarette factories kept secretly packing papers of the counterfeit cigarettes and sold them to the private manufacturers.

The North Korean authorities eventually took measures to punish the private manufacturers, to confiscate their products and search the workers’ bodies one by one.

However, after printers were allowed to be used in some factories related to IT departments of universities in 2002, managers of printers being in collusion with private manufacturers started printing the packing papers of cigarettes.

Production of tobacco leaves privately, manufacturing of cigarettes by the factory

After the start of the 2000s, North Korean authorities turned their gaze on domestic demand for cigarettes. The biggest North Korean cigarette factory is Ryongsung Cigarette Factory, where most counterfeit cigarettes made by North Korea were produced. As sales increased since 1997, the No. 39 Department of the Workers’ Party, which operates, accumulates and manages Kim Jong Il’s slush funds, has been directly operating the factory. The top quality counterfeit cigarette in North Korea, CRAVEN “A,” so called “Cat cigarette” by North Koreans, are produced in the factory.

The past price of CRAVEN “A” was much more expensive than Chinese cigarettes, such as Hongmei, BAT, Zhangbaishan and Tianping, being equivalent to two kilograms of rice. However, among cadres and the wealthy they were excessively popular. At the time, Chinese brands of cigarette in North Korea were generally valued at around the price of one kilogram of rice.

With profits increasing since 2003, North Korean authorities have tried to increase production by re-opening ruined factories that had closed their doors for lack of resources during the March of Tribulation.

In 2002, “Rasun” and “Sunbong,” which were produced in cooperation with Chinese entrepreneurs, came out in the Rajin-Sunbong area at a lower price than Chinese cigarettes.

Competition between factories to produce high quality and tasty cigarette toughens

Meanwhile, some of private manufacturers who went under in the competition have disappeared from the cigarette market or been merged with big factories.

There is no reason for being poor if North Korea works like it produces cigarettes

The source said that “These days, affiliates with cigarette factories buy dried tobacco leaves from individuals.”

According to the source, on seeing the high quality of cigarettes, people currently say, “That’s the reason why we should open and reform our market and system. If we produce other goods like we produce cigarettes, we won’t have any reason for being poor anymore.”

The Ryongsung Cigarette Factory in Pyongyang produces “Pyongyang,” “Geunseol (construction),” “Hyunmoo (a kind of mythological animal),” “GGoolbeul (Honey Bee),” “MT. Daesung,” “Dongyang (the Orient),” “Saseum (Deer),” and “Galmaegi (Sea Gull)” and the Sungcheon Cigarette Factory produces “Haedangwha (Sweetbrier),” “Yonggwangro (Furnace),” “Deungdae (Lighthouse),” and “Manbyungcho (a name of a herb).”

Koksan Factory in Hoiryeong produces cigarettes for soldiers; “Baeseung (ever-victorious),” “Ildangbaek (a match for a hundred),” “Chobyung (Sentry),” and “Poongnyon (a fruitful year).”

Interview Blog, Germany
(click here for all their North Korea-related interviews)

“Phoenix Commercial Ventures Ltd is a venture capital company that offers investors business and investment opportunities in the DPRK” – Interview with Ken Frost (CFO of Phoenix)

Klaus-Martin Meyer: Mr. Frost, you are member of the Board of Phoenix Commercial Ventures Ltd, a company that offers investors business and investment opportunities in the Democratic People’s Republic of Korea (DPRK) otherwise known as North Korea. Would you mind introducing yourself and your company as well to our readers?

Ken Frost: Phoenix Commercial Ventures Ltd is a venture capital company that offers investors business and investment opportunities in the DPRK, enabling them to take advantage of the economic reforms that are taking place there.

Phoenix is owned and run by four experienced professionals, who are based in London, Paris and the DPRK. The Board has between them many years of international business experience, and an invaluable network of well placed contacts. Phoenix offers a unique service, by being able to offer direct access to the DPRK.

Phoenix Commercial Ventures Ltd specialises in project finance in the DPRK. As is well known, the business environment is difficult, and the company targets very specific investment projects; these are small enough to manage and have the capacity to generate foreign currency, either through export or import substitution.

Phoenix Commercial Ventures Ltd maintains an office in Pyongyang, almost the only European company to do so, and operates with the following specific aims:

• Identify commercially viable investment projects in the DPRK, on a case by case basis
• Identify reliable local partners for all forms of business in the DPRK, either trade or investment
• Seek overseas investment sources for such projects
• Minimise the risk in such projects, by taking responsibility for supervision of the local set-up procedures and management of the projects

The Board of Phoenix Commercial Ventures Ltd consists of nationals of the UK, France and the DPRK. The European flavour is enhanced by the fact that most of the counterparties and suppliers in the various projects are also European, and the DPRK government views Phoenix Commercial Ventures as a prime conduit for European business and investment in the DPRK.

One of the directors of Phoenix Commercial Ventures is also General Manager and CEO of the Daedong Credit Bank, the only western-invested foreign bank in the DPRK. Based in Pyongyang, this is a 70-30 joint venture between a UK financial management company based in Hong Kong and the Korea Daesong Bank, one of the main DPRK banks.

Phoenix Commercial Ventures is unique in having this connection with a reliable, locally based financial institution. The synergy benefits include a wider exposure to local business contacts in differing fields; as well as an additional degree of control, made possible by the fact that the various joint venture projects have to maintain their accounts with the bank.

We have a number of projects within DPRK, including two 50/50 joint ventures:

– Hana Electronics JVC, a consumer electronics company now ranked as one of the top three best performing joint ventures in DPRK, as assessed by the Ministry of Finance.

– Sinji JVC, whose main areas of operations are retail, software and bonded processing.

Full details about our company can be found on our website www.pcvltd.com

I am the CFO of Phoenix and am a chartered accountant with over twenty years international experience of FMCG industries, consumer electronics, rough diamond distribution and the Internet. I have worked in KPMG, Philips Electronics, De Beers and run my own Internet company. I am also a Scholar on Gerson Lehrman Group Councils.

In November 2007 I reached the finals of Accountant of the Year held by the Association of International Accountants at the President’s Awards Dinner 2007. This award is designed to recognise organisations’ accountancy stars.

In January 2007 I was awarded, based on recommendations from fellow members of the ICAEW, a New Year’s Honour by AccountingWeb. The award was for my services to the accountancy profession in opposing the merger of the ICAEW with other accountancy bodies.

In November 2006 I was awarded an honorary fellowship of the Institute of Professional Financial Managers (IPFM), for my services to the accountancy profession.

In January 2006 Accountancy Age placed me on their Financial Power List for 2006. I was 11th on their list of the top 50 of “The Ones To Watch”. The list identified the “most influential names to look out for” in the world of finance for 2006.

Klaus-Martin Meyer: We read on your website “offers investors business and investment opportunities in the Democratic People’s Republic of Korea (DPRK), enabling them to take advantage of the economic reforms that are taking place there.” Can you tell us what kind of opportunities this could be?

Ken Frost:There are three main areas of investment opportunities open to investors, which we can facilitate within the DPRK:

1 Small scale investments ($500K or less) yielding good levels of return (20% or more).

These investment opportunities are in local production (consumer goods, bonded processing, software etc) for domestic market consumption and export. These utilise the advantages that DPRK has over all the other countries in the region namely:

– 99% literacy
– skilled/disciplined/hard working workforce
– well educated workforce, many speak a good level of English
– lowest wage rates in the region

Phoenix has a number of opportunities that it can offer investors in this area; eg bonded processing, consumer manufacturing, clothing manufacturing and software development.

2 Natural resources

DPRK has proven abundant natural resources worth several trillion dollars; eg coal, gold, copper, titanium, lead, zinc, nephelite, nickel, magnesia, graphite etc.

The investment required would be of a higher order than the small scale investments above, $1M plus. The money would be used to bring existing mines back to production, by pumping out flood water and renewing worn out capital equipment.

Phoenix has, via its working relationship with CPEEC, a number or opportunities in the natural resource sector that it can offer genuine investors.

3 Infrastructure development

Clearly investment in infrastructure is the costliest form of investment. However, given the dilapidated state of the roads, railways, ports, electricity grid etc it is necessary if the economy is to be revived.

DPRK also has a keen interest in infrastructure development focussed on green/renewable energy areas.

Phoenix has on it books a profitable renewable energy project that would suit a serious, well financed and experienced green energy investor.

The DPRK is the final economic frontier and is a “green field” site. Its primary advantages are:

– Location (physical position between Russia, South Korea, China and in AP)
– Location (historical, all the major players now want to move forward)
– Location (resources, it has abundant rich resources both mineral and human capital – high literacy, well educated etc)

Klaus-Martin Meyer: What are the main differences between your company and a conventional venture capital company that is investing for example in internet our biotech companies?

Ken Frost: Companies such as those you mention are industry-specific, whereas ours is location-specific. Our company is relevant to people who might want to invest in the DPRK.  We work in the DPRK and have a physical presence in the DPRK, other “conventional” venture capital companies do not.

Klaus-Martin Meyer: Are there any differences to other investment companies?

Ken Frost: We apply the same principles to potential investments as any other professional investment company, we look at:

– the risk
– the returns
– the quality of the local management
– the quality of the business plan
– the size of investment
– the share offered for that investment etc

We also pay very close attention to corporate governance issues such as; financial reporting, management structure and ethics etc. We have a code of conduct which can be seen on our website.

Phoenix Commercial Ventures Ltd is committed to being a responsible corporate citizen and to the pursuit of a sustainable future, both economic and social.

Phoenix Commercial Ventures Ltd adheres to three fundamental ethical principles:

– Integrity
– Competence
– Courtesy

To this end Phoenix Commercial Ventures Ltd has developed a Code of Conduct, which sets out to ensure that these principles are followed in its operations. The Code of Conduct governs Phoenix’s business decisions and actions. The Code applies equally to corporate actions, and to the behaviour of individual employees when conducting business on behalf of Phoenix.

We work very hard with our local management teams and business partners to ensure that international standards re reporting, corporate governance and ethics are understood and followed.

Klaus-Martin Meyer: What are your plans for the company’s future? How do you see Phoenix Commercial Ventures in five years time?

We see the coming period for Phoenix as that of being continued growth.

In our view there will be a major upswing in economic relations between the DPRK and other countries over the coming months/years. Phoenix Commercial Ventures is uniquely placed to take advantage of, and to respond to, that upswing.

We are one of the very few organisations to have made successful joint ventures in the DPRK. We are also one of the very few organisations to have people with many years’ experience, and cultural sensitivity, actually on the ground in Pyongyang. You cannot run a business by email!

Brendan Carr over at Korea Law Blog dug up some information on law firms operating in the DPRK.  All the information he posts is worth reading, but here are some highlights:

[T]he prospect of working as a foreign lawyer in Pyongyang has been on my list since I’ve been a lawyer.

Michael Hay, a foreign legal consultant in Seoul since 1990, actually did this—striking out from “Big Four” firm Bae, Kim, & Lee in 2001 [domain lapsed] to focus on being a full-time North Korea consultant. He established KoreaStrategic Inc. as a consultancy (its domain lapsed in June 2006, though), then with a splash announced the formation of Hay, Kalb & Associates as the first foreign/North Korean joint venture law firm in Pyongyang. The Hay, Kalb website, too, disappeared sometime in 2005, and I lost touch with Mike Hay around the same time. I remain curious to know about his adventure up North; I’m sure it’s been fascinating. However, he was always extremely tight-lipped about what he was doing there. Other than that he was focusing on North Korea “full-time, all the time” it was hard to get any specifics out of him.

There are two other law firms advertising their services and office presence in North Korea: Italy’s Birindelli e Associati (now Chiomenti after being acquired) and Singapore’s Kelvin Chia Partnership. 

But today I found that the International Financial Law Review’s IFLR Legalwire, to which I hadn’t previously subscribed, recently (May 2008) reported on Birindelli partner Sara Marchetta’s experiences in Pyongyang. It’s fascinating stuff, published in two parts—go read Part 1 and Part 2. The article gave the impression that Hay, Kalb was still trading, which is promising, but Marchetta says that Birindelli kept no expatriate lawyer there year-round, because there were only four or five clients a year needing legal services, mostly in resource-extraction and processing ventures.

From Marchetta’s interview, I thought the following observations were worth noting:

Obtaining copies of laws: 

The first issue is looking for legal resources  – the law- as it is extremely complicated to get them.  Even if you are a law firm and have people who are well-connected, its still a very long process to get a copy of a law.  Even if the law has already been enacted and should be public, you still need special permission.  If the law has not yet officially been translated into English, then you need to obtain special permission to get it and translate it.

The second thing is that the intended implementation of the law in a western sense does not exist.  Especially when you go out of Pyongyang and Kaesong [North Korea’s special economic zone], everything is pretty much left up to political decision: whether you can stay here or there, what you do and cannot do…

Just to give you an example: in terms of a corporate tax, you go to a place, make an investment and you pay a corporate tax even if you don’t profit.  It’s sort of a tax for being there.  Corporate tax ends up being interpreted as a presence tax , which is paid independently of whether you make profits or not.  In a few cases, we did find this type of interpretation, which is obviously extremely bizarre.    So it is really a matter of general legal culture – which is totally lacking – and education of the administrative middle to low levels.

Does [this environment] hinder getting things done?  Yes and no. Yes in the sense that getting a deal done takes more time because you do not have all of the information available at the beginning.  No in the sense that once there is the intention of getting the deal done, there is a lot of facilitation from the bureaucratic and governmental point of view.  If they say yes, its basically yes and it will happen.

How big is your office in Pyongyang:

It is currently staffed with two people.  We have no expatriates.  It is a joint venture as we are there in cooperation with a DPRK government entity called the Korean Justice Committee [KJC].  It is equivalent to the Chinese Ministry of Justice.

Are your lawyers at the office North Koreans?

Yes, they are North Korean lawyers. One of them is a pure lawyer, the other one is more someone who is well-connected in the government and has also PR and English capabilities.  One side has the legal knowledge, and on the other side, fluent in English that they use to work with foreigners.

Does your JV status with the KJC give you an advantage over foreign firms?

As a matter of fact, from an operational point of view: yes.  From the client’s point of view, I don’t know.  I have no idea.  I don’t think this is something that is hindering the expansion of our client base in Pyongyang, but I am not sure if it enhancing it.

What types of clients do you serve?

We serve companies looking at setting up a presence in the DPRK.  These are large companies that deal with natural resources, like mining or consumer goods, and most of them have already a presence in China.

What are teh key sectors of Work?

Well we deal with mining projects.  This means that yo go there, you test the product and if it’s okay then you give the technology to be extracted in a proper way.  You do part of the processing of the mineral and export it.  This is one deal.  On the other side, before advising on an investment we advise our clients on precessing contracts.  Obviously this can be done not just for mining, but for shoes, clothes, and any other product that can be exported.  The deal structure is basically these two.

Looking forward, is there enough going on to fairly classify the DPRK as an “emerging market”?

Not in terms of a domestic market.  I don’t think that the domestic market is going to develop very much, but the DPRK is a good place for processing contracts.  I mean, you send raw materials and they send back the finished product.  There is also a strong market for natural resources and low-to-medium technology projects.  There, you can produce basic chemicals, basic pharmaceutical products and some consumer goods.  The Chinese are doing clothing here, doing shoes, and a lot of other things.

Do you predict enough work growth to expand?

Not for the time being for a number of reasons.  One, we do not see an increase in DPRK-related work.  We have two, three, four, maximum five clients a year and that’s basically it.  So this is the main reason.  Then you have always the political issue.  It’s always there.  The political wind is really swinging a lot and it changes by the season and is very much affected by the situation of the six-party talks.  So for the time being, we are looking at what is happening and we are doing what we can do, but we do not have plans to enlarge our presence in the DPRK for the time being.

“North Korean Market Vendors: The Rise of Grassroots Capitalists in a Post-Stalinist Society”
Andrei Lankov and Kim Seok-hyang
Pacific Affairs, Vol. 81 Iss.1 
(subscription required)

Abstract:
The article deals with the social changes that have taken place in North Korea [from 1994-2002], when the collapse of the centrally planned economy led to the growth of private commercial activity.  This activity remains technically illegal, but the relevant bans and restrictions have rarely been enforced due to endemic corruption and disorganization of the state bureaucracy.  The article is largely based on in-depth interviews with North Korean black market operators [who have defected to South Korea].  It traces their origins, the type and scale of their business, and changes in their mode of operation.

The article demonstrates that the “second economy” came to dominate North Korean economic life by the late 1990s, since authorities’ attempts to limit its scale were largely ineffective.  The growth of the “second economy” produced new grassroots capitalists who sometimes came from underpriveledged social groups, but more typically represented people with good official connections.  It is also remarkable that foreign connections (usually with China) played a major role: to a large extent, merchandise sold at the North Korean markets either came from overseas or was exported overseas eventually, and in many cases the merchants’ initial capital was also provided by relatives residing overseas.

Some highlights:
1. Changsa is the North Korean word for “dealings in the marketplace.” Tonju is the word for money changers/lenders meaning “master of money”. 
2. Public Distribution System (PDS) rations were cut for the first time in 1973.
3. The DPRK system restricted market activity primarily through three mechanisms: limited size of family farming plots, inminban surveillance system, and travel permits.
4. Before the arduous march, North Koreans were not inclined to resort to market trade.  These transactions were seen as ethically suspect.  Once the famine hit, people took up market trading remarkably quickly.
5. Before the arduous march, bribery was rare, even though patronage and indirect forms of corruption were rampant.  Mid-level bureaucrats had to vie for preferred access to poor-quality consumer goods, better schools, and study trips abroad.
6. At the height of the arduous march (1997), production was at 46% of capacity.
7.  North Korean traders seldom if ever have to deal with the protection racket.  When asked directly, respondents did not mention threats from mobsters as one of their security concerns (I wonder if this is still the case).
8. Pyongsong market is reputed to be the largest in the country.  It is just outside Pyongyang, making it accessible to citizens inside the capital as well as those who cannot get permits to enter the city (Pictured below with Google Earth coordinates).

From the BBC:

A North Korean worker was killed and four others were injured in an accident in the Kaesong industrial complex in North Korea, Southern officials said.

It happened when a steel frame collapsed at a factory owned by a South Korean company, Pyeongan, on Wednesday.

An investigation into the cause of the accident is reportedly under way.

Two of the four injured are in critical condition, a spokesman for South Korea’s Unification Ministry said, according to Associated Press.

They are all being treated in a hospital in the zone.

Read the full story here:
N Korea worker killed in Kaesong
BBC
7/17/2008

Netherlands Centrum voor Handelsbevordering
27 September – 4 October 2008  
View the information flyer with more information here: it-tour_dprk.pdf

For the past decades, the Democratic People’s Republic of Korea (DPRK) also known as North-Korea has been one of the most isolated countries in the world. Until recently, foreign companies could hardly enter this country. Inspired by the economic successes of its neighbouring country China, North-Korea has since a few years opened its doors for foreign enterprises. The DPRK established several free trade zones to attract foreign investors. In 2002 North Korea started to experiment with the Kaesong Industrial Region, near the South-Korean border. Moreover, other areas were designated as Special Administrative Regions, such as Sinŭiju near the border with China.
 
Currently, China and South-Korea are the most important trade partners of North-Korea; their mutual trade is growing fast. Also for European companies there are many opportunities to trade with North-Korea. During the recent seminar: ‘Doing Business with North-Korea’ (The Hague, 30 May) the representative from North-Korea highlighted that there are business opportunities in several fields, including Textile Industry, Shipbuilding, Agro Business, Logistics and Information Technology.

DPRK finds itself at the beginning of a new era of openness. In North-Korea there is a need for many foreign products and investments. The Chamber of Commerce Amsterdam, GPI Consultancy and the Netherlands Council for Trade Promotion are organizing an economic mission to investigate the business opportunities for foreign companies in this country. This unique economic mission to North-Korea will take place from 27 September to 4 October 2008. Our partner in North-Korea is the Pyongyang Chamber of Commerce. Mr. Renze Hasper, Member of the Board of the Chamber of Commerce Amsterdam, will be the mission leader of this economic mission. 
 
The program includes individual matchmaking, company visits, network receptions and dinners. Furthermore, a visit is being planned tot the Kaesong Industrial Region.

GPI Consultancy is responsable for the IT-program of the mission. As an example, the program for the IT-delegates has been attached; they will visit firms in Pyongyang in the field of software development, animation, cartoons, computer games and BPO (Business Process Outsourcing). Similar matchmaking visits will be arranged for delegates from other business sectors.
  
The mission is open for participants from other countries as well.
If you are interested in joining this trade mission, please contact:

Paul Tjia
GPI Consultancy
P.O. Box 26151,
3002 ED Rotterdam,
The Netherlands
E-mail: paul@gpic.nl
tel: +31-10-4254172 
fax: +31-10-4254317
Website: www.gpic.nl