North Korean Economy Watch

Institute for Far Eastern Studies (IFES)
2013-9-12

After North Korea’s launch of a long-range rocket in December 2012 and third nuclear test in February 2013, China endorsed UN sanctions against North Korea. Consequently, North Korea appears to be increasing its economic cooperation with Mongolia and Russia.

On September 6, the 7th annual Northeast Asia joint high-level forum was held in Changchun (Jilin Province), China. Ku Bon Tae of the DPRK Ministry of Trade is reported to have been present and to have delivered a presentation on North Korea’s recent economic cooperation activities.

Ku stated, “Currently, cooperation between North Korea and Mongolia is making positive progress,” and “the international freight transport coordination issue and Mongolian corporate investments, telecommunications and other cooperation issues at the Rason Special Economic Zone are at the final stages of agreement.”

He added, “We hope more Northeast Asian nations will actively take part in the Rason Special Economic Zone.”

In May, a Mongolian oil companies HB Oil JSC acquired 20 percent stake in North Korea’s state-run Sungri oil refinery. In July, the two countries signed an agreement on information and communication cooperation and exchanges. In addition, Mongolian experts in the field of livestock are said to be involved in North Korea’s Sepho tableland (Gangwon Province) reclamation project, which seeks to create a large stockbreeding complex.

As for economic cooperation with Russia, the Khassan–Rajin railway — part of an international container rail transport line connecting Russia and North Korea and linking Northeast Asia to Europe — has its opening ceremony scheduled for this month after having received extensive reconstruction. Russia also has a long-term lease on Rajin Port’s pier No. 3. Russia has been renovating the pier, and renovations are expected to be completed by the end of this year.

North Korea and Russia plan to develop Khassan–Rajin rail line and Rajin Port in order to transport cargo from Asia to Europe: as containers arrive at Rajin Port, they are moved to the Khassan-Rajin railway and then transferred to the Trans-Siberian Railway (TSR), headed for Europe.

Ku further added, “After the projects are completely finished friendly cooperation between Russia and North Korea and international transport pathway will be opened connecting Asia to Europe through the development of economic and trade relations between the two countries.”

In Ku’s speech, the public economic cooperation with regards to China was covered briefly, and exclude the recent progress made. He commented only on the establishment of Joint Management Committees in Rason and Hwanggeumpyeong economic zones and that banks of the two countries are in the process of negotiating the usage of Chinese renminbi as the currency of trade.

Ku emphasized, “As with our past, our Republic hopes to promote independence, peace and friendship between Northeast Asian countries in the future, based on our foreign policy and will make every effort to further develop and expand this friendly cooperative relationship.”

The 9th China–Northeast Asia Expo opening ceremony was also held (in Changchun) on the same day as the forum. Political and business leaders from China, South and North Korea, Russia, Japan, and Mongolia were present at the event.

According to Yonhap:

A joint venture between North Korea and Switzerland will open its first chain drugstore in a provincial city in the communist country by the end of this year, according to the company’s website Sunday.

The new store will be situated in Pyongsong, South Pyongan Province, where many of the North’s well-off people who can afford medicine live, the Pyongsu Pharma J-V Co. said.

Launched in 2004 as a joint venture between Parazelsus, a Swiss investment and management company with a focus on healthcare, and Pyongyang Pharmaceutical Factory under the North’s health ministry, Pyongsu Pharma has since opened nine chain stores in Pyongyang to provide North Koreans with essential medicine, such as aspirin and digestive aids.

Pyongsong, located just north of Pyongyang, is the capital of North Pyongan Province. It was developed into a science-research city, housing many research institutes in the 1960s, but now is a hub of logistics for distributing everyday goods all over the country.

Last month, the North Korean authority opened the city to foreign tourists, according to a Chinese tourism agency specializing in tours to the North.

“Since medicine is as precious as rice in North Korea, Pyongsong will be crowded with people coming to buy medicine from other parts of the country if a drug store opens in the city, which has a relatively well-developed traffic network with other cities,” a source well informed on North Korea said.

Read the full story here:
N.K.-Swiss joint venture to open drugstore in N.K. provincial city
Yonhap
2013-9-8

According to KCNA (2013-8-28):

The Democratic People’s Republic of Korea is directing big efforts to developing tourism as one of major industries.

In this regard, KCNA met Jo Song Gyu, director of the International Travel Company of the DPRK.
Jo said:

Consistent is the policy of the Workers’ Party of Korea and the DPRK government to develop tourism in the country.

Abundant in tourism resources, the country has a bright future to develop tourism.

Regular air route will be opened between Pyongyang, Lake Samji and Wonsan for local and foreign tourists.

The country also plans to open air routes between Pyongyang and Chinese cities like Shanghai and Yanji.
Air services will also be available for people in Southeast Asia and Europe to come to DPRK for sightseeing.

Wonsan and Mts. Paektu and Chilbo areas are likely to be linked with other countries and regions by air services.

Economic development zones to be built in each province will serve as tourism destinations.

Hotels in Pyongyang City are being renovated at the world’s level.

A number of fitness centers, service complexes and souvenir and duty-free shops will be built for tourists.

The government will allow foreigners to launch independent business or joint venture in the country to invest in tourist resorts and economic development zones and construct and manage hotels, shops and other tourist facilities.

It will render preferential treatment to foreign businesses which come to the DPRK before others so that they can begin making profits as early as possible.

It is also inviting foreign tourist experts for development of tourist resorts and operation of hotels, restaurants, etc.

Read the full story here:
DPRK to Develop Tourism as One of Major Industries
KCNA
2013-8-28

UPDATE 1 (2013-8-27): Chinese auto manufacturer announces plans for Rason plant. According to Yonhap:

A major Chinese automaker has expressed its intention to invest in a project to build a car manufacturing factory in North Korea, the North’s media said Tuesday.

FAW Group Corp., a Chinese state-owned automotive manufacturing firm, signed a letter of intent last week with North Korea’s Rason regional government to invest in the construction of the factory, the North’s Korean Central News Agency (KCNA) reported.

The agreement is a preliminary step to conclude an official deal for the investment.

The deal was made during the third round of the exhibition for international goods held in the North Korean city last week, according to the KCNA.

The impoverished communist country designated Rason, located on its northeastern tip, as a special economic zone and has been actively seeking an overseas investment in the region.

During the exhibition, China’s Heilongjiang regional committee on trade promotion and Rason’s economic committee signed an agreement to boost cooperation. Heilongjiang province is located in the northeastern part of China.

Stressing Chinese firms’ investment in the Rason region, an unidentified official from the Chinese body vowed “to transport goods from its region to Shanghai via Rason ports,” according to the report.

ORIGINAL POST (2013-8-21): According to KCNA:

3rd Rason Int’l Trade Exhibition under Way

Pyongyang, August 21 (KCNA) — The 3rd Rason International Trade Exhibition is going on in the Democratic People’s Republic of Korea.

The exhibition in the Rason Economic and Trade Zone bordering China and Russia is attended by more than 120 entities from countries and regions, including the DPRK, China, Russia, Germany, the U.S., and Japan.

On display at the exhibition are some 78 000 items of exhibits in 410 kinds, covering machinery, steel, electrical, electronic and chemical products, foodstuffs, medicines, building materials, vehicles and sundries.

In this regard, KCNA met Hwang Chol Nam, vice-chairman of the Rason City People’s Committee.

Hwang said:

The Rason City has laid definite institutional guarantee and legal foundations for jointly developing the economic and trade zone and has made a big stride in building infrastructure, paving a way for foreign businesses to smoothly carry on production and trade in the zone.

During the days of the exhibition, foreign businessmen will witness the situation of the developing zone.

Ho Myong Ho, director of the Rason Exhibition Corporation, told KCNA that the current exhibition is the biggest in scale and he believes that it will serve as an occasion for making the trade in the zone gain momentum.

The exhibition will run until August 23.

The Rason Economic and Trade Zone is a special economic zone in the DPRK, where preferential treatment is available.

The zone has developed into a hub for transit transport, trade and investment and financial and tourism service.

2013-8-20 evening news coverage of the opening ceremony can be seen here.

Dr. Bernhard Seliger posted the application form for the trade fair:

Previous posts on the Rason International Trade Fair can be found here.

According to Yonhap (via Global Post):

Foreign direct investment (FDI) in North Korea has steadily increased over the past three years, but the investment amount still remains at one of lowest levels in the world, a news report said Thursday.

North Korea attracted US$79 million in FDI in 2012, up 41 percent from a year earlier, the Washington-based Voice of America said, citing an annual world investment report by the United Nations Conference on Trade and Development.

In 2009, a total of only $2 million flowed in to the North, but the number jumped to $38 million the next year, according to the report.

Despite the latest three-year growth, the amount marks one of lowest levels in the world and the majority of the FDI inflow represents investment from China, by far North Korea’s biggest ally, the report said.

A few countries in sub-Saharan Africa or small countries in the Oceania and the Caribbean logged FDI smaller than North Korea, the report noted.

As of the end of 2012, the total inflow of FDI to the North stood at $1.61 billion, it also said.

Although the article does not mention it, the information comes from the “World Investment Report: 2013” (PDF).  Some of the data comes from a table on page 214. The report was published by the United Nations Conference on Trade and Development.

Lots of other economic statistics on my Economic Statistics Page.

Read the full story here:
Foreign direct investment in N. Korea gains for 3rd year
Yonhap (via Global Post)
2013-7-4

Pictured above (Google Earth): The Victory (Sungri) Refinery in Rason, North Korea.

UPDATE 2 (2016-3-25): NK News reports that HBOil refutes the claim in the Joong Ang Daily:

“HBOil JSC … hereby refutes the South Korean publication known as ‘KOREA JOONGANG DAILY’, for irresponsible reporting and dissemination of erroneous news on 23 March 2016; asserting that HBOil JSC has withdrawn from its joint venture in the Democratic People’s Republic of Korea,” the statement read.

HBOil also confirmed, “that it remains fully committed to its joint venture with Korea Oil Exploration Corporation (“KOEC”) of the DPRK, and continues its tenacious efforts to progress the joint venture’s ambition for exploration and development of hydrocarbon resources onshore North Korea.”

HBOil entered into a joint venture with North Korea in 2013 and has attempted to make inroads into North Korea’s undeveloped oil and gas sector.

The company has since invested in projects that could give it access to upstream oil and gas production and downstream refinery capacity in the coming years. However there has not been much reported movement on their North Korean project, and the outlook will not have been improved by a 70 percent drop in oil prices since last year.

While the statement affirmed HBOil’s belief that North Korea represents an “exceptional business opportunity” it also stated that the company are reviewing the implications of the recently adopted UN Security Council resolution against the country.

UPDATE 1 (2016-3-23): The Joong Ang Daily reports that HBoil is pulling out of North Korea:

A Mongolian oil company recently decided to withdraw from North Korea, a South Korean government source said, amid growing pressure from the international community after North Korea recently conducted nuclear tests and long-range missile launches.

HBOil JSC, an oil trading and refinery company based in Ulaanbaatar, Mongolia, acquired 20 percent of the North Korean entity Sungri refinery in June 2013, valued at roughly $10 million. In May 2014, the company opened a joint venture in Pyongyang.

The ex-communist country established bilateral ties with the North in 1948, but after this recent decision, the already impoverished North Korea will be further isolated from the international community.

“Mongolia is sending a message to North Korea: don’t fall down the wrong path,” said Nam Sung-wook, professor at Korea University’s Department of North Korean Studies.

North Korea formerly attracted foreign investment to resume operations of the Sungri refinery, which stopped running in 2009, in order to push for economic development. The deal with Mongolia, begun almost three years ago, was taken as evidence that North Korea wass seeking further investment partners-in addition to China.

However, the North Korean government continually delayed the inland oil development project, failing to provide reasonable explanations. Mongolia may therefore have concluded that there was no practical benefit to continuing the project.

Bilateral ties between the two countries recently turned bitter when Mongolian president Tsakhiagiin Elbegdorj said Mongolia could not endure the North’s tyranny forever, a remark made during his speech at Kim Il-sung University in Pyongyang at the end of October 2013.

“No tyranny lasts forever. It is the desire of the people to live free, that is the eternal power,” the president said in his speech. After his remarks, North Korean leader Kim Jong-un expressed disappointment and refused to hold meetings with the Mongolian president.

ORIGINAL POST (2013-6-13): Clarification:   “HBOil has 20% of a state-dominated joint venture called Korean Oil Exploration Corp. International, and a formal commitment with Sungri has yet to be made. Another option is to invest in a refinery on the west coast of the DPRK.”

According to Bloomberg:

HBOil JSC, an oil trading and refining company based in Ulaanbaatar, Mongolia, said it acquired 20 percent of the state-run entity operating North Korea’s Sungri refinery, according to an e-mailed statement yesterday. It intends to supply crude to Sungri, which won’t be fully operational for up to a year, and export the refined products to Mongolia.

“Mongolia has had diplomatic relations with North Korea for many years,” Ulziisaikhan Khudree, HBOil’s chief executive officer, said in a June 12 interview in Ulaanbaatar. “There are certain risks, but other countries do business with North Korea so I am quite optimistic the project will be successful.”

The investment comes as ex-communist Mongolia seeks to power its mining-led boom while offering sanctions-hit North Korea a bridge to economic reforms. Since Swiss-educated Kim Jong Un took over the leadership of the totalitarian regime in December 2011, Mongolia has pledged to help its Soviet-era ally implement an economic transition similar to its own of the 1990s.

…

Under the transaction, worth as much as $10 million, the Mongolian Stock Exchange-listed HBOil would swap shares for full ownership of Ninox Hydrocarbons (L) Berhad, a private Malaysian company that owns 20 percent of KOEC International Inc., and issue convertible notes to fund investment at Sungri.

The rest of KOEC International is held by North Korea’s national oil company, Korea Oil Exploration Corp., which also has oil production and exploration rights in North Korea.

“This is a chance to take an equity holding in a foreign entity, and will allow us to import petroleum products, which could be lower than the current price,” said HBOil’s Khudree.

HBOil jumped by the daily limit of 15 percent to close at 253 tugrik (18 cents) on the Mongolian stock exchange today.

The deal will be the first purchase by a Mongolian-listed company of a foreign asset, according to Joseph Naemi, chief executive officer of the Ninox parent, Ninox Energy Ltd. The company is in compliance with international sanctions levied against North Korea, he said.

“If the sanctions change, and if they target the oil and gas industry, that would put us out of business, and we will have to comply,” Naemi said. “That is a risk one takes.”

Naemi said he had briefed his North Korean partners on the transaction and that “they are supportive.” No one was available to speak about the deal at North Korea’s embassy in Ulaanbaatar, which is in the middle of a renovation.

North Korea has three onshore oil basins with “proven working petroleum systems” and the country is conducting exploration for new fields, BDSec brokerage, Mongolia’s largest and the underwriter of the bonds HBOil plans to offer, said in a note to investors yesterday.

The Sungri refinery, located in the Special Economic Zone of Rason City in North Korea’s northeast, has a refining capacity of 2 million tons a year and is connected to the Russian railways system, HBOil said in its release.

Read the full story here:
Mongolia Taps North Korea Oil Potential to Ease Russian Grip
Bloomberg
Michael Kohn and Yuriy Humber
2013-6-18

According to the Wall Street Journal:

On a vast construction site outside this northeastern Chinese city, engineers are working around the clock on a project that could transform the economic—and geopolitical—dynamics of the region: a 223-mile, high-speed rail link to the North Korean border.

The $6.3 billion project is one of three planned high-speed railways designed to bring North Korea closer into China’s economic orbit, even as Beijing supports sanctions aimed at Pyongyang. China is also sinking millions of dollars into new highways and bridges in the area, and the first cross-border power cable.

China’s vision for closer economic integration with North Korea runs counter to a U.S. strategy aimed at piling pressure on Pyongyang to abandon its nuclear-weapons program and refrain from further threats.

(more…)

According to Yonhap:

The number of mobile phone owners in North Korea has exceeded the 2 million level, a report said Friday, indicating that one out of every 12 North Korean citizens are using wireless telephone services.

Washington-based Radio Free Asia reported the information, citing a statement released on Wednesday by Naguib Sawiris, the chairman of Orascom Telecom Holding.

The number of wireless phone users stood at around 100,000 in 2009 and 500,000 in mid-2011 before jumping to the 1 million level in February 2012 and the 1.5 million mark in November of the same year.

The Egyptian firm currently provides third-generation wireless service covering 15 major North Korean cities, including Pyongyang, as well as 100 other smaller cities in the communist country with a population of about 24 million.

Read the full story here:
Number of N. Korean mobile phone users tops 2 mln: report
Yonhap
2013-5-31

UPDATE 2 (2013-5-24): South Korea has again requested that the DPRK repay past food loans. According to Yonhap:

South Korea again called on North Korea Friday to repay millions of dollars in loans provided in the form of food since 2000, the Unification Ministry said.

The impoverished North missed the June 7, 2012 deadline to repay South Korea US$5.83 million in the first installment of the $724 million food loan extended to the North in rice and corn. The latest call is the South’s fifth demand made on the North to repay its debt.

Seoul’s state-run Export-Import Bank (Eximbank) sent a message on Thursday to Pyongyang’s Foreign Trade Bank, calling for the repayment, Unification Ministry spokesman Kim Hyung-suk said in a briefing.

The South Korean bank also sent another message the same day, notifying the North of its forthcoming June 7th deadline to repay the second installment of $5.78 million, the spokesman said.

“North Korea should faithfully abide by what they previously agreed to with the South,” Kim said, calling for the repayment of food loans.

Amid a conciliatory mode under the liberal-minded late President Kim Dae-jung, Seoul started to provide food loans to the famine-ridden country, providing a total of 2.4 million tons of rice and 200,000 tons of corn from 2000-2007.

Under the deal, the North is required to pay back a total of $875.32 million by 2037.

Read the full story here:
S. Korea again asks North to repay food loans
Yonhap
2013-5-24

UPDATE 1 (2012-7-15):  South Korea claims the DPRK missed a deadline for explaining how it intended to repay South Korean “loans”. According to Yonhap:

North Korea missed the deadline Sunday for notifying South Korea of how it will repay millions of dollars in loans provided in the form of food in 2000, resulting in Seoul having the right to declare Pyongyang has defaulted on its debt, an official said.

South Korea sent the North a message on June 15 that the communist nation was supposed to have paid back US$5.83 million in the first installment of a 2000 food loan worth $88.36 million by June 7. The North was required to respond to the message in 30 days.

That deadline passed on Sunday with the North remaining silent, giving South Korea the right to declare the North has defaulted on the debt, according to a government official in Seoul.

But South Korea is unlikely to go ahead with the declaration any time soon as it would have little effect on the North. The communist nation remains largely outside of the international financial system and the prospect of national default is unlikely to force it to repay its debt.

Officials said they are considering sending Pyongyang a message again calling for debt repayment.

Widespread views are that it won’t be easy for the North, which is still struggling with food shortages, to pay back its debt, but officials said the country could repay the debt in kind as it did before. In 2007 and 2008, the North repaid some debt with $2.4 million worth of zinc ores.

After the two Koreas held their first-ever summit in 2000, South Korea provided the North with a total of US$720 million in loans of rice and corn until 2007. Including interest accrued on the loans, the North is required to repay some US$875 million by 2037.

Such aid has been cut off after the South’s President Lee Myung-bak took office with a pledge to link any assistance to the North to progress in international efforts to end Pyongyang’s nuclear weapons programs.

The Daily NK also covered the story.

ORIGINAL POST (2012-6-8): According to Yonhap:

North Korea has not shown any signs of repaying the loans South Korea extended in food grains since 2000 although the initial day of the scheduled repayment passed as of Thursday. The South Korean government provided North Korea grain loans worth US$725 million for seven years until 2007, including 2.4 million tons of rice and 200,000 tons of corn. The total principal and interest North Korea should repay for the next 20 years is estimated at $875.32 million.

North Korea was scheduled to pay South Korea $5.83 million by Thursday for the loans extended to it in 2000. Korea Eximbank, which is in charge of trade finance with the North, notified its counterpart the Chosun Trade Bank of North Korea of the repayment obligation Monday but North Korea had not responded of Friday.

The former South Korean governments led by President Kim Dae-jung and Roh Moo-hyun provided an estimated 1 trillion won (US$850 million) to North Korea from 2000 to 2007 under the sunshine policy. South Korea provided an additional 1.37 trillion won to North Korea to finance the construction of a light water reactor in order to suspend North Korea’s nuclear development. All the loans to the North were taxpayer’s money.

…

North Korea should show sincerity in the repayment of these loans for the sake of its future. If it fails to do so, the North will encounter substantial difficulties in accessing further loans from the international community. North Korea also has failed to repay loans it borrowed from the old Soviet Union. Russia reportedly had to reduce 90 percent of the Norths loans, worth $11 billion.

If North Korea has difficulties repaying its debts to South Korea in cash, it should sincerely discuss alternative measures to repay the loans with the South Korean government.

The South Korean government should positively consider measures to get the money back in kind, such as in mineral resources. North Korea should understand that if it fails to show the minimum sincerity on the repayment of its debts, it will experience much more difficulty in attracting economic assistance from the outside world.

The Choson Ilbo reports this additional information:

In 2007 and 2008, South Korea also gave the North $80 million worth of raw materials to produce textiles, shoes and soap. At the time, North Korea repaid 3 percent of the loan with $2.4 million worth of zinc ingots. Repayments of the remaining $77.6 million become due after a five-year grace period, so North Korea must start repaying $8.6 million a year every year for 10 years starting in 2014.

Seoul also loaned Pyongyang W585.2 billion (US$1=W1,172) from the Inter-Korean Cooperation Fund so it could re-connect railways and roads with the South that were severed in the 1950-53 Korean War. And it provided W149.4 billion worth of equipment to the North. The North must repay that loan in 20 years with a 10-year grace period at an annual interest of 1 percent.

It also seems unlikely that South Korea will be able to recoup W1.37 trillion plus around W900 billion in interest it provided North Korea through an abortive project by the Korean Energy Development Organization to build a light-water reactor.

The loans amount to a total of around W3.5 trillion, which the South will probably have to write off.

The Daily NK also reported on this story.

Read the full story here:
North Korea should show sincerity in repaying South Korea loans
Yonhap
2012-6-8

N.Korea Misses 1st Loan Repayment Deadline
Choson Ilbo
2012-6-8

According to Martyn Williams in PC World:

North Korea’s sole 3G network operator has managed to double its subscriber base in a little over a year and is about to hit 2 million users.

Koryolink launched service in the final days of 2008 and has become one of the most visible foreign partnership success stories in the country.

The network operator is jointly owned by Egypt’s Orascom Telecom Media and Technology Holding (OTMT) and North Korea’s Ministry of Posts and Telecommunications. Orascom holds a 75 percent majority stake with the remainder in the hands of the government.

Before Koryolink’s service began, mobile phones were an unusual sight in Pyongyang, but that has changed in recent years. Visitors speak of seeing scores of citizens talking and texting from mobile handsets.

2 million subscribers is approximately 8.3% of the North Korean population.  The majority of subscribers are likely to be in Pyongyang but we do not have any data on the internal distribution of subscriptions. All subscribers are paying in hard currency, though none of it has been repatriated from the DPRK.

More information available at North Korea Tech.