North Korean Economy Watch

Pictured Above (Google Earth): The approximate borders of the Sinuiju Special Economic Zone.

According to Yonhap:

North Korea has joined hands with a Hong Kong-based company to develop the country’s northwestern border city of Sinuiju into a special economic zone, a North Korean official said.

Sinuiju, which borders China’s Dandong city, has drawn much attention from foreign investors for its geographical advantage as North Korea’s western gateway to China, Ri Chol-sok, the vice chairman of North Korea’s economic development committee, said in an interview in the March issue of Kumsugangsan magazine, a North Korean government mouthpiece.

“Now a joint development company has been established for the development of (Sinuiju) and is striving to win back lost opportunities,” said the North Korean official.

Hong Kong-based conglomerate Great China International Investment Groups Ltd. reportedly signed the deal with North Korea.

North Korea is also making efforts to lure foreign investment to other special economic zones, including one in the Rason area in the northern tip of the country, according to Ri.

The foreign company already has deep ties with the North, having joined the country’s project launched in January to renovate the eastern part of the capital Pyongyang.

The Institute for Far Eastern Studies (IFES) reported the following:

It has been reported that North Korea has established relations with a Hong Kong-based company with the goals of developing Sinuiju, a city bordering China in the northwest region of North Pyongan Province, into a special economic zone (SEZ). Vice Chairman of North Korea’s Committee for Economic Development Ri Chol Sok emphasized the nation’s efforts to attract foreign investors to the Sinuiju economic zone in an interview in the March issue of Kumsugangsan, a North Korean government magazine.

Vice Chairman Ri specifically mentioned that, in the past, Sinuiju garnered praise and attention from foreign investors due to its geographically advantageous location along the western border. Ri also announced the establishment of the Sinuiju-Great China joint venture development company, which plans to draw further interest and investment from abroad.

It is reported that the Sinuiju-Great China joint venture development company was created alongside a Hong Kong-based finance conglomerate known as Great China International Investment Groups, Ltd. (“Great China Groups”). Great China Groups has recently shown great interest in investing in North Korea and recently began the construction of East Pyongyang Commercial Street this past January.

Recent reports from other foreign media outlets have shown that Great China Groups had intentions to invest in the development of the Sinuiju region for some time, but Vice Chairman Ri’s announcement marks the first time that North Korean state media has officially recognized their joint development plans.

Meanwhile, the North Korean foreign publicity website Naenara announced that development of an additional economic development zone (EDZ) in North Pyongan Province along the Amnok (Yalu) River began on January 27 of this year. The Amnok (Yalu) River economic development zone will extend 6.6 square kilometers, with construction taking place in Ryongun-ri and continuing up to the Guri and Ojok Islands, where the North Korean border meets the city of Dandong and the Hu Mountain in China’s Liaoning Province.

North Korea plans to draw in tourists visiting China’s Hu Mountain to Ojok Island, where an “international services station” will offer food, entertainment, and tourist attractions. There are also plans to develop a modern agricultural sciences research complex on Guri Island that will specialize in flower and vegetable production.

North Korea specifically pushed for this location for the development of the Amnok (Yalu) River economic development zone — which will operate autonomously in Pyongan — due to its border location with China. In addition to its desirable geographical location, convenient transportation between the two nations will likely attract more attention from Chinese foreign investors, giving the Amnok (Yalu) River EDZ a higher chance of success compared to other economic development zones.

Investments reaching upwards of 240 million USD (approx. 260.3 billion KRW) make the Amnok River EDZ the largest in scale among the 13 total development areas.  In terms of actual size, however, the largest economic development zone in North Korea is the Shinpyong tourist development zone (8.1km²), located in North Hwanghae province.

Apart from the EDZs in the North Pyongan region of Sinuiju, the central government has announced their plans to push forward with two other special economic zones. The Hwanggeumpyong and Wihwa Islands SEZ was announced in June 2010, and in November of last year, plans were revealed to develop an additional special economic zone in the Sinuiju region.

All the economic development zones are listed here. Some people say there are 13 of them. Some people say 14 because they consider the Sinuiju Special Economic Zone an economic development zone. I am in the 14 camp. There have also been at least three other zones proposed that did not make the final list. 

The Sinuiju Special Economic Zone was announced on 2013-11-21 (the same day as the other 13 EDZs were announced–though in a different article).

Besides the Sinuiju Special Economic Zone, the only other EDZ to have reportedly made any progress is the  North Hamgyong Provincial Onsong Island Tourist Development Zone.

Read the full story here:
N. Korean, Hong Kong firms to develop border city of Sinuiju
Yonhap
2014-3-12

Institute for Far Eastern Studies (IFES)
2014-3-7

North Korea has been showing increased efforts in attracting economic investment from overseas Koreans. In particular, recent foreign media outlets run by overseas Koreans are showing increased emphasis on economic cooperation with North Korea.

In the March issue of the monthly magazine Joguk (Homeland) published by the General Association of Korean Residents in Japan (a pro-North Korea association), featured an interview with Park Kyung Jin, the director of Economic Cooperation Office for Overseas Koreans.

In the interview, Director Park described the plans for the organization: “We are diligently working to create an environment where overseas Koreans can successfully do business with North Korea.” He also emphasized that they are continually working to protect the rights and provide special legal treatment for overseas Koreans.

On February 24, US-based pro-North Korean website Minjoktongsin (Minjok Thongsin) introduced Kim Ji Hyuk and Ri Hak Song, department heads of the (DPRK) State Economic Development Commission in an article, “Where Is the North Korean Economy Heading?”

In the article, the officials stressed that North Korea is actively looking to foster economic experts and said, “We welcome the participation of experts, businesses, and organizations of overseas Koreans who wish to invest in North Korea.”

In addition, in order to increase economic cooperation with overseas Koreans, the commission introduced future plans of easing the travel process to and from North Korea including visa and other entry requirements.

North Korea is subject to international sanctions that limit its trade with most of the world and appears to be turning to overseas Koreans to overcome the country’s economic crisis. Rather than reaching out to other foreigners, North Korea is likely to be reaching out to overseas Koreans who share a common language and ethnicity, with relatively easier access.

Since the establishment of the Joint Venture Act in 1984, North Korea has worked extensively with the General Association of Korean Residents in Japan and with ethnic Koreans living in China. Since the launch of the Kim Jong Un regime, economic development zones (EDZs) are being set up across the country and ties with overseas Koreans are likely to be strengthened in efforts to further attract foreign investments into North Korea.

UPDATE 4 (2014-2-18): Western tourists are still visiting the restaurant (meaning it has a contract with KITC). The restaurant still has the sign “Rakwon Chicken Specialty Restaurant”, though it is a different color than the original. See tourist video here and here.

UPDATE 3 (2014-2-17): The Hakyoreh updates us on the fate of the inter-Korean chicken restaurant:

In 2005, Choi made his first trip to North Korea to inquire about chicken imports. Soon he had changed plans: he would open his own restaurant there selling South Korean-style chicken. Acquaintances tried to talk him out of it, but he was determined. “I went to Pyongyang and I could see there was money in it,” he recalled. And with economic cooperation between South and North at an all time high, he didn’t see much of a political risk either.

He went back and forth to Pyongyang a few times looking for partners. Finally, in June 2007, he opened up the Rakwon Chicken Restaurant, selling South Korean-style chicken on Puksae Road in the Kaesonmun neighborhood of Moranbong District. His North Korean partner provided the building and staff; Choi was responsible for the interiors, ingredients, recipes, and management system. He reached a deal where he took 70% of profits with a total investment of 500 million won (US$470,000). The opening drew a lot of media attention at the time, with write-ups in the South Korean press and foreign outlets like the Washington Post and Japan’s NHK.

Early on, he did strong business selling at fairly steep prices – the equivalent of US$11.30 for a single bird. His clientele came mainly from the city’s upper class and Chinese visitors. Sales of 100 million won (US$94,000) a year looked to be in sight. “My plan was to open up 100 restaurants in the North,” Choi said.

But in 2008, less than a year after he opened the restaurant, Lee Myung-bak took office as South Korean President. Lee’s administration put a stop to the previous decade’s policies of engagement and cooperation with North Korea, opting for sanctions and containment instead.

“There was a promise between the two sides, and I never thought that would be rejected completely,”Choi said. “Suddenly, that was the reality.”

Bit by bit, exchange ground to a halt. A March 2008 shipment of ingredients through Nampo turned out to be Choi’s last interaction. He had not yet received a single share of revenue.

Then came the announcement of the so-called “May 24 measures” in 2010. Following the sinking of the ROKS Cheonan warship the preceding March, Seoul had called a complete halt to all exchange and economic cooperation with North Korea.

“All the May 24 measures did was drive it home,” Choi insisted. “Most of the economic cooperation had been choked off long before that.”

For the next four years, Choi wasn’t able to set foot in North Korea. Without his support, the restaurant lost its chicken focus and began selling ordinary cuisine. Choi’s other business began to suffer too.
“I’d put my house and buildings up as collateral to borrow the 500 million won to invest in the North,” he said. “Then, to top it all off, there was the US financial crisis. Things began to go downhill rapidly in South Korea, and my business started to fall apart.”

UPDATE 2 (2009-1-1): The BBC offers an update of the new chicken restaurant:

The governments may not be on the best of terms but a South Korean businessman seems to have found a way to North Koreans’ hearts: their stomachs.

Choi Won-ho, the owner of a fried chicken chain, was told he was doomed to fail when he opened his first branch in the impoverished North last year.

But encouraged by his progress so far, he is already preparing to open another one.

Mr Choi runs a fast food franchise in South Korea with a total of 70 stores.

He opened one more last year – no real challenge you might think – except this extension to his fried chicken empire is in the heart of one of the most secretive and business-unfriendly places on the planet.

But Mr Choi says the citizens of Pyongyang have been queuing in front of his shop which is taking around $1,000 a day.

He is now preparing to meet North Korean officials in January to finalise the approval for a second outlet.

His customers are almost certainly all members of North Korea’s elite, a country in which the World Food Programme says up to 9m people will face urgent food shortages this winter.

Relations between the two Korea’s have been at a low since the conservative government of President Lee Myung-bak came to power in the South in February.

North Korea has severed official contacts, stopped all cross-border tourism and restricted entry to a joint industrial zone built with southern money.

But despite the chill, Mr Choi’s fried chicken venture seems to be sizzling.

Read the full story here:
South Korea Chicken Success in NK
BBC
John Sudworth
2009-1-1

UPDATE 1 (2008-11-1): The restaurant is set to open in February 2008. According to Yonhap:

An inter-Korean joint-venture chicken franchise will open its first store in Pyongyang early next month, the head of the franchise’s South Korean partner said Friday.

The store set to open in early February will provide a food delivery service using motorbikes for the first time in the communist country, Choi Won-ho, president of the South Korean company said.

No North Korean restaurants offer food delivery service now, according to defectors from North Korea.

Fried, grilled and steamed chicken dishes as well as draft beer are available for delivery, he said, adding the food will be prepared in the North Korean style.

“I recently received a photo of the store’s interior design from our North Korean business partner, Rakwon General Trading Corporation, along with the offer to open the first store before the 66th birthday of North Korean leader Kim Jong-il,” Choi told Yonhap News Agency by phone. “After opening, I will use radio and newspaper ads to promote the business.”

Kim’s birthday, which falls on Feb. 16, is the most festive holiday in the North.

The North Korean company will provide land, some 20 low-cost workers, chicken, and draft beer. The early-stage investment, equipment, cook and spicy chicken will come from the South Korean chicken franchise called “Matdaero Chondak,” Choi said.

The first “Rakwon” chicken restaurant in Pyongyang will have the capacity of seating about 200 people, he added.

The businessman said he will visit North Korea next week to discuss the opening of the store.

“I hope the business will thrive enough so that we can open store No. 10 in Pyongyang,” he added.

Read the full story here:
Inter-Korean joint venture chicken franchise to open first store in Pyongyang
Yonhap
1/11/2008

ORIGINAL POST (2007-11-3): A South Korean entrepreneur is investing in a new fried chicken restaurant in Pyongyang:

According to Reuters:

A South Korean businessman plans to begin a fried chicken delivery service in the North Korean capital, with the first foreign-run restaurant in a country that struggles to feed its own people.

Choi Won-ho, head of a fried chicken franchiser that has about 70 restaurants across South Korea, said Friday he is opening a 50-table restaurant in Pyongyang on Nov. 15. It will also deliver chicken and draft beer to homes.

“I have wanted to be the world’s best chicken brand,” Choi told The Associated Press in a telephone interview.

“But I thought it makes no sense to conquer the world without sharing food with our compatriots. That’s why I went there first,” he said. “I plan to get into the Chinese market via Pyongyang.”

He laughed off concerns his venture may be too risky in the impoverished and isolated country of 23 million, where the elite citizens of the capital are much better off than others.

“I don’t think that I’m going to lose money at all,” he said.

It will be the first foreign-run restaurant in North Korea, according South Korea’s Unification Ministry.

Choi, 48, who has been in the fried chicken business for 15 years, said he hired an ethnic Korean Chinese as the main cook for the Pyongyang outlet and taught him all his cooking know-how. About 20 North Koreans will also work at the restaurant and five scooters will be used for deliveries, he said.

Choi said he invested about 500 million won (US$551,339, ?382,264) in the joint venture with a North Korean trading firm that will take 30 percent of the profits from the business.

North Korea is one of the poorest countries in the world and has relied on foreign food aid to feed the population for more than a decade since natural disasters and mismanagement devastated its economy.

Relations between the two Koreas have improved significantly since their first-ever summit in 2000, spurring a series of exchange projects between the Cold War rivals that fought the 1950-53 Korean War. That conflict ended in a truce, not a peace treaty, leaving the two sides still technically at war.

According to the Joong Ang Ilbo:

South Koreans are making two very different attempts to improve the culinary life of impoverished North Koreans.

First, a South Korean fried chicken franchise will open the only foreign-run restaurant in North Korea, targeting family dining on special occasions.

Second, the labor union of a South Korean conglomerate has built a plant in Pyongyang to provide cheap corn noodles to northerners who suffer from food shortages.

Choi Won-ho, who runs Matdaero, a 70-store fried chicken franchise in the South, said yesterday he would open a restaurant in a joint venture with a North Korean state-run trading company, near the Arch of Triumph in central Pyongyang on Nov. 15.

The restaurant will both receive walk-in customers and deliver chicken and draft beer to homes. Such places are common in South Korea, but it will be the first chicken joint of its kind in North Korea.

Choi has invested 500 million won ($551,000) in the restaurant’s cooking facilities, interior decoration and delivery scooters. He will split the profit 70-30 with the North Korean firm.

Choi, 48, who has been a chicken entrepreneur for 15 years, said there should be sufficient demand despite North Korea being one of the world’s poorest countries, because he plans to offer lower prices to locals.

“I will charge about $3 for a whole chicken for North Koreans and at least $12, the same price as in South Korea, for tourists from the South and other countries,” Choi said yesterday by phone. “One whole chicken will be enough for a four-member family, so the price of $3 will not be too burdensome for special occasions.”

The store will hire about 20 North Koreans to take telephone orders, fry the birds and make home deliveries. It will have seating for 50.

Separately, the labor union of Hyundai Motor Company, Korea’s top automaker, said in a statement that it has completed an 1,800-square-meter corn-noodle plant in Pyongyang. The plant can produce two tons of corn noodles a day, it said.

Hyundai Motor’s 44,000 unionized workers agreed in August to help a South Korean humanitarian group build the noodle factory. Workers donated about 12,000 won each, 500 million won in total, for the facility.

“The plant will be a great help to relieve the food problems of North Koreans,” Chang Kyu-ho, a spokesman for the labor union, said. “Corn is a staple food for North Koreans.”

Read the full stories here:
Fried chicken franchise goes North
Joong Ang Daily
Moon So-young
11/3/2007

S Korean businessman to debut fried chicken at first foreign-run restaurant in North Korea
Reuters (Via DPRK Studies)
Jaesoon Chang
11/3/2007

Kim Chol-jin, the deputy chief of North Korea’s National Committee for Economic Development, is seen with North Korea head-of-state Kim Jong-un in Pyonyang’s water park (top left) and at the Masik Pass ski resort (top right). A Shanghai businessman uploaded the two lower pictures showing Kim meeting Chinese businessmen onto his blog in January 2012. (Yonhap)

According to the Korea Herald:

Kim Chol-jin is the newest influential economic policymaker in North Korea said analysts, after television images recently showed the bureaucrat accompanying head of state Kim Jong-un on multiple inspection rounds.

The North Korean Central News Agency broadcast images of Kim Chol-jin, the deputy chief of the National Committee for Economic Development, shadowing the North Korean leader to economically symbolic sites such as the Masik Pass ski resort last December. The ski resort opened last year as part of efforts to boost foreign tourism in the reclusive country.

“That deputy seat is actually closer to that of a minister here in the South,” said Ahn Chan-il, the head of the World North Korea Research Center. “He will likely have clout on North Korea’s economic policies.”

North Korea analysts expect Kim Chol-jin to spearhead much of the North’s recent economic plans to earn cash through foreign investment.

But the latest television images showing Kim Chol-jin do not include his immediate boss, the chief of the National Committee for Economic Development, implying that he is the de facto executive and his boss a mere figurehead, according to sources.

The deputy committee chief is an experienced trade official. He served at the North’s Ministry of Foreign Trade and at government agencies facilitating Chinese investment. Sources say he has extensive business connections in China and experience trading with South Korea in the mid-2000s.

Kim, along with Park Bong-ju [Pak Pong-ju], the Premier of North Korea and Roh Du-chol [Ro Tu-chol], head of the National Planning Commission, are expected to be the key members of North Korea’s economic policy team. North Korea experts consider Park and Roh to be market-orient reformists although one analyst voiced caution.

“Yes, (there) are changes on the margins, but they’re more for maintaining the current (political) system,” said Daniel Pinkston, the Deputy Project Director of the International Crisis Group’s North East Asia office.

The North’s economic development committee is the communist country’s key macroeconomic decision-making body. The committee oversees special economic zones, which lower taxes for foreign companies willing to invest there. Russia and China have been the main bidders.

Read the full story here:
New economic czar emerges in N. Korea
Korea Herald
Jeong Hunny
2014-2-3

When Jang Song-thaek was purged, the North Korean prosecutors provided a laundry list of offenses committed against the nation. Among his crimes, Jang was specifically criticized for his management of assets in the Rason Economic and Trade Zone. The public accusation stated, “Jang made no scruple of committing such act of treachery in May last as selling off the land of the Rason economic and trade zone to a foreign country for a period of five decades under the pretext of paying those debts.”

The unnamed “foreign country” in the quote is obviously China, and the subtext of the quote implies that Rason contracts signed under Jang’s protection are in danger of being violated as the North Koreans reorganize the allocation of rents among key leadership organizations. This has to be unnerving to the Chinese business partners that signed these contracts and have been investing in the zone. In a best-case scenario for the investors, the reorganization of patronage would simply mean that they are just making payments to different organizations, but otherwise, business is pretty much unchanged. However, if the North Koreans are taking the drastic step of invalidating contracts and confiscating property, then we would expect to see a significant slow down in development of the zone in the future.

Following news of Jang’s purge, initial reports indicated that both DPRK and Chinese members of the Rason Management Committee had departed the SEZ and that most activities have come to a complete halt. But there are not enough reports to firmly conclude this is the case. Now New Focus has published information on some of the changes taking place in the Rason SEZ. The usual caveats apply:

The Kim Il-sung villa in Rajin-Sonbong is no longer available for hire, according to a reliable source in the area. The de-listing happened in the course of a Ministry of State Security (MSS) surveillance operation in North Korea’s Rajin-Sonbong special economic zone.

The operation was instigated under orders from the Organisation and Guidance Department (OGD) of the Workers’ Party, as it tightens its grip on the zone in the aftermath of Jang Song-thaek’s purge and execution. Nevertheless, the operation is being conducted in a relatively discreet manner so as not to startle Chinese businessmen in the zone.

The talk among senior DPRK cadres is that although Rajin-Sonbong’s Party Secretary, Party Committee Chair and MSS Supervisor are Jang Song-thaek’s associates, they are being left alone for the time being because of their close personal relations with Chinese investors; but that following the Supreme People’s Assembly elections in March, they will be replaced.

Nevertheless, the highest ranking female cadre in Rajin-Sonbong, the Tourism Director, was taken away. This prompted rumours that she was Jang Song-thaek’s lover, but her circumstances make this very unlikely.

The International Club in Rajin-Sonbong closed after the purge of Jang Song-thaek and the coming and going of Chinese businessmen has also decreased. The Kim Il-sung holiday villa in Rajin-Sonbong, which had been rented by HK investing company Emperor Group, has now been confiscated.

This villa is a 70s construction built as a getaway for Kim Il-sung and was a prized landmark in Rajin-Sonbong, with even a commemorative monument to mark the villa’s location. When the Emperor Group set up a casino in the area, they asked for permission to hire the villa for its VIP guests. At first, the Rajin-Sonbong Party Committee refused because it was considered a sacred landmark related to Kim Il-sung.

The person who secured the deal for the Emperor Group was an ethnic Korean Chinese named Ri Bong-hui, director of a fuel oil company. He donated US$1 million as a brokerage fee and the rental permit was granted. Rumours have now been spread that this fee had gone personally to Jang Song-thaek.

Existing land lease agreements in the Rajin-Sonbong special economic zone have also been affected. These originally stipulated that at US$20 / m2, plots of land could be leased for 20-50 years, depending on their location. The agreements have now been invalidated on the grounds that the details had been mismanaged by Jang Song-thaek.

Further, personnel tax and operating tax have been re-calculated and a request has been made by Party authorities in Rajin-Sonbong for the appropriate payments to be made in yearly groupings. As the Rajin-Sonbong authorities have asked for ten years back payment, many small investors from China are complaining about their losses.

The fact that the new rulings are being applied only to smaller companies is said to be exacerbating their disgruntlement. Chinese firms making larger investments are currently exempt, but some are still worried that the new measures might be applied to the bigger investors in a second phase of rulings.

According to the Hankyoreh:

The latest issue of the quarterly publication of North Korea’s Social Science Institute – published on Nov. 15, 2013, and viewed on Jan. 19 – included an article titled, “Major Issues Pertaining to Making the North Korean Economy Stronger by Establishing and Expanding Economic Development Zones.”

According to the North Korean article, there are five important tasks that must be accomplished if the new Zones are to be successful.

1. building infrastructure such as roads and railroads

2. enacting laws for the special economic zones that take into account the profit of the government and of investors

3. providing benefits for foreign investors

4. operating and managing projects in a way that is suitable to the characteristics of the zones

5. creating the right political and military environment

Read more here:
N. Korea connects politics and military to economic development
Hankyoreh
Choi Hyun-june
2014-1-20

According to a recent article in Yonhap, the DPRK has established a new body to facilitate investments from overseas Koreans.

According to the article:

North Korea has established a government agency to facilitate investments in the communist nation by overseas Koreans, with its services to get into full swing by January, an official was quoted Sunday as saying.

Pyongyang established the “economic cooperation office for overseas Koreans” in August to provide support and guidance for investments from Koreans living overseas, the agency’s chief, Pak Kyong-jin, said in an interview with Minjoktongsin, a pro-North Korean website operated by a U.S.-based Korean.

The agency’s establishment is part of efforts to rebuild the economy, Pak said.

“An increasing number of overseas Koreans have been visiting the North to discuss investment issues. We have established the agency to handle these issues exclusively,” he was quoted as saying, adding that the agency will begin operation in earnest in January.

Pak said he would advise potential investors to focus on construction and light industries for the time being, rather than resources development projects that require massive amounts of capital.

I have been unable to locate any articles about this organization in KCNA or Naenara.

The DPRK also has the State Economic Development Commissio/Association for managing special economic zones/economic development zones (except for Hwanggumphyong, Rason, Kumgang, and Kaesong which have their own management committees), and the Joint Venture Investment Company for managing joint venture investments outside of the SEZs (presumably from non-Koreans). There is also a little known group called the Peach Economic Development Group which was recently announced. Their specific jurisdiction is unknown.

It is unclear what relationship (if any) this new organization has with these other offices.

You can read the full article here:
N. Korea establishes agency handling investments from overseas Koreans
Yonhap
2013-12-29

UPDATE: I got the official exchange rate wrong in the initial post. I have corrected it.

ORIGINAL POST: A couple of weeks ago news came out that Orascom was holding off further investment in the DPRK until it was able to repatriate some of its profits. A few days later Orascom issued a press release denying this and asserting that they are looking for new investment opportunities in the DPRK.

This correction raises questions about just how significant Orascom’s profits in the DPRK are. Information on the growth of KoryoLink has been scarce since it was spun off into a subsidiary company (it no longer appears in Orascom shareholder reports). Martyn Williams did us all a favor, however, and found the Jan-Sept 2013 audit for Orascom Telecom Media and Technology Holding (OTMT), the company now holding the KoryoLink portfolio.

I have uploaded the audit to this site, and you can download it here (PDF). It contains the consolidated financial reports for OTMT, including KoryoLink.

The audit is posted as an image PDF (so the text is not searchable or easily copied into blog posts), but I offer some key data below. The caveat to keep in mind is that all of the USD$ calculations appear to be determined by converting DPRK Won (KPW) at the official rate (appx 100KPW/1US$ and 130KPW/1 Euro). This may be the appropriate accounting standard to employ, but needless to say, this radically overstates the market value of the firm’s position since the current black market rate of the won is approximately 8,000KPW/1US$:

US$422 million is $42.2 billion North Korean Won (converted at the official rate). Converted back to US$ at the black market, the total is just US$5,275,000.

OTMT EBITDA (Earnings before income tax, depreciation, amortization) for the period Jan-Sept 2013 are listed as USD$178,962,000. This is just  US$2,237,025 million at the black market rate.

Capital expenditure from Jan – Sept 2013 is listed as USD$40,931, 000 (Appx $665,128 at black market rate).

KoryoLink’s tax exempt status ended on Dec 15, 2013.

The audit specifically addresses the difficulties of operating in North Korea’s official financial sector:

Some additional documents from June of this year can be found here and here. I am not an accountant and already have enough on my plate, so if there are any researchers out there that want to take a crack at this stuff, please do.

According to the Associated Press:

North Korea allowed about 30 foreign government officials, central bankers and diplomats to tour the industrial complex in Kaesong. The foreigners were in Seoul, South Korea, for a conference of the Group of 20 countries.

…

“This is an authoritarian regime with a very nasty way of punishing anybody … who is against the regime,” said Paola Subacchi, director of international economics research at Chatham House, an independent policy institute based in London. “There’s no transparency, no accountability, nothing that could make an international investor happy and willing to invest.”

But Subacchi said the complex’s expansion might bring positive changes to North Korea because it would provide jobs and help feed North Korean workers and their families.

Hong Yang-ho, South Korean chairman of the committee that oversees management of the park, estimated the complex would create jobs for about 120,000 North Korean workers if it is fully occupied with factories. About 40 percent of the complex is currently being used.

The industrial park combines South Korean capital and technology with cheap North Korean labor. Currently around 53,000 North Koreans are working in the complex at some 120 companies. North Korea is estimated to have received $80 million in workers’ salaries in 2012, an average of $127 a month per person, paid in U.S. dollars, according to South Korea’s Unification Ministry.

The invitation to visit Kaesong was the first concrete step that the two Koreas have taken toward opening the complex to overseas investors since they agreed to restart the park in September.

Operations had been halted in April when North Korea withdrew its workers amid tension over its threats of nuclear war. The complex reopened after North Korea toned down its rhetoric and began pursuing diplomacy with South Korea.

The two Koreas also agreed to work toward attracting overseas investment and discuss other ways to improve business, including better communication and allowing people and goods to move more freely to and from Kaesong.

…

Domenico Lombardi, a think tank director, said he would not build a factory in Kaesong if he were a businessman because of the risks and high uncertainty.

But he said it was a positive sign that North Korea was eager to show the park to foreigners.

“This is the first step of what a more open North Korea would be one day,” said Lombardi, director of the Global Economy program at the Center for International Governance Innovation, based in Ontario, Canada.

The next challenge for North Korea will be “making their own economy more accessible to foreign investors,” Lombardi said.

Read the full story here:
Inter-Korean Factory Park Tough Sell to Outsiders
Associated Press
Youkyung Lee
2013-12-19

Following Jang’s purge, there has been speculation about what exactly will happen to economic relations between China and the DPRK and with ongoing efforts to introduce economic reform measures in the DPRK. According to the People’s Daily (China):

The execution of the uncle of Pyongyang’s top leader may temporarily affect some cooperation projects with China, but economic ties between the neighbors will remain stable in the long run, analysts say.

The Democratic People’s Republic of Korea’s official news agency KCNA reported on Friday that Jang Song-thaek, uncle of supreme leader Kim Jong-un, was executed on Thursday for being a traitor.

Jang was in charge of economic affairs and cooperation with China.

“Following Jang’s execution, the DPRK is likely to review cooperation projects with China,” said Gao Haorong, an expert on DPRK studies at the Xinhua Center for World Affairs Studies, a think tank under Xinhua News Agency.

Jang led delegations to China for negotiations on economic projects, including Hwanggumpyong Island, a special economic zone near Dandong in Liaoning province.

Chen Qi, a professor in international affairs at Tsinghua University, said that after Jang’s execution, China and the DPRK may need some time to rebuild connections to continue cooperation on such projects and to further their economic cooperation.

But Wang Junsheng, a researcher in East Asian studies at the Chinese Academy of Social Sciences, said the impact will be short-term and limited.

“Pyongyang needs China to support its economic development, and this offers opportunities for Chinese companies, so both sides want to advance ties,” Wang said.

“Both countries have the will to consolidate their relations, given frequent high-level visits,” he said.

The latest such exchange saw Chinese Assistant Foreign Minister Zhang Kunsheng meet a visiting delegate from the DPRK’s Foreign Ministry on Friday.

At a news briefing on Friday, Chinese Foreign Ministry spokesman Hong Lei said China hopes and believes that economic relations between the two countries will continue to advance.

Hong said it is in line with the interests of both to develop economic ties. China will further promote economic cooperation with the DPRK.

He described Jang’s execution as “an internal affair” of the DPRK.

In response, the DPRK has started sending signals that Jang’s purge will not lead to any surprises. Eric Talmadge writes for the Associated Press:

The execution Friday of Jang, considered to be North Korea’s second most powerful man and a key architect of the country’s economic policies, should not be taken as a sign that the North will change its economic course or its efforts to lure foreign investment, Yun Yong Sok, a senior official in the State Economic Development Committee, said in an interview with The Associated Press in Pyongyang.

…

“Even though Jang Song Thaek’s group caused great harm to our economy, there will be no change at all in the economic policy of the Democratic People’s Republic of Korea,” Yun said. “It’s just the same as before.”

Jang’s sudden purge and execution for allegedly trying to overthrow the government has raised questions about how solid the North Korean regime is and whether it will be able to stay the course on policies aimed at raising the country’s standard of living.

…

The North has shown no willingness to abandon its nuclear weapons program to get out from under international trade sanctions. That makes investment or financing from major international organizations difficult if not impossible.

It also means the success of the zones hinges on China, North Korea’s only major ally, and Jang was seen as a crucial conduit between Pyongyang and Beijing, along with being a supporter of China-backed reforms, such as the zones, to revive the North’s moribund economy.

Jang met with top Chinese officials during their visits to Pyongyang, and in 2012 traveled to China as the head of one of the largest North Korean delegations ever to visit the Chinese capital to discuss construction of the special economic zones, which Beijing hopes will ensure North Korea’s stability.

Yun, however, downplayed Jang’s importance in policymaking and said his removal would instead speed progress on the economic front because he was a threat to the unity of the nation. He said Jang’s execution should not scare away Chinese investment, which is crucial to the success of the zones.

“By eliminating the Jang Song Thaek group, the unity and solidarity of our party and people with our respected marshal at the center has become much stronger, our party has become more determined and the will of our soldiers and people to build a prosperous socialist country has been strengthened,” Yun said. “Our State Economic Development Committee welcomes investment and business from any country to take part in the work of developing our new economic zones.”

Yun said local officials have been tasked with drawing up the plans for the zones in their jurisdictions and are likely to formally submit them for approval to his commission within the next few months.

At the same time, rumors from the South Korean media indicate that North Korean businessmen in China are returning home in large numbers. According to Yonhap (2013-12-14):

North Korean businessmen in China have been summoned back to their country in large numbers in connection with the execution of North Korea’s No. 2 man two days ago, sources familiar with the issue said Saturday.

The businessmen worked out of the northeastern Chinese cities of Shenyang and Dandong to facilitate trade between the two countries and attract Chinese investment in North Korea, according to the sources.

The top North Korean official in charge of promoting economic ties with China is believed to have been Jang Song-thaek, the once-powerful uncle of North Korean leader Kim Jong-un.

With Jang’s execution on Thursday, however, North Korea appears to be cracking down on those loyal to him by summoning them back to their country, the sources said.

Jang was executed immediately after a special military tribunal found him guilty of treason, according to the North’s state media.

“Large numbers of North Korean businessmen in Shenyang and Dandong have gone home in a hurry this week,” said one source, who declined to be identified.

“Judging from their numbers and the fact that it was so sudden, it doesn’t appear to be related to the second anniversary of (the death of former North Korean leader) Kim Jong-il on Dec. 17,” the source said, referring to the late father of the current leader.

According to another source, Norea Korea plans to summon all of its officials and staff from China in stages.

“The ostensible reason will be to educate them on the government’s policies, but (in fact), those classified as having connections to Jang Song-thaek will never be able to go abroad again and will be purged,” the source said, also requesting anonymity.

On Chinese report insinuated that Jang’s ouster could affect Chinese investment in the Hyesan Youth Copper Mine. According to Shanghai Metals Market:

 North Korea’s Zhang Chengze [Jang Song-thaek]  event might undermine Wanxiang Group’s 500-million-yuan ($81.6 million) investment in Huishan copper mine [Hyesan Youth Copper Mine], according to a report by the business magazine China Entrepreneur.

Back in 2004, Wanxiang Group’s chairman Lu Guanqiu started investing in Huishan copper mine with a joint venture company Sino-Mining International Investment Co. and added up total investments to 560 million yuan over the years, according to the report.

The mine, said to have a copper reserve largest in Asia and located just 10 kilometers from the China-North Korea border, was put into production in 2011. Yet daily operations met with many political hurdles since, the report said.

Zhang Chengze, North Korea’s young leader Kim Jeong-eun’s uncle and close aid with a pro-China view, was executed by Kim earlier this month.

Both the Rason and Hwanggumphyong Special Economic Zones have been brought to a standstill following Jang’s purge. Leaders from both projects have been called back to Pyongyang.

You can read posts related to Jang’s purge here.

Click to read posts on the Economic Development Zones and the new Law on Economic Development Zones.

Read the full story here:
N Korean Official: Purge Won’t Hurt Economic Policy
Associated Press
Eric Talmadge
2013-12-15