North Korean Economy Watch

Kim Jong-un ditched the new year “Joint Editorial” of the Kim Jong-il era and has personally taken on the role of reading a new year speech (appx .5 hrs)–as was done by his grandfather, Kim Il-sung. Here is a video of the speech (in Korean..no subtitles):

KCNA published the text of the full speech. Here is the English version. Here is the Korean version.

Having read it all, I can understand why Kim Jong-il did not want to give these speeches.  If I had absolute power I would not want to either.  Here is some analysis that others have provided:

The New York Times highlighted Kim jong-un’s softening tone towards South Korea:

“A key to ending the divide of the nation and achieving reunification is to end the situation of confrontation between the North and the South,” Mr. Kim said. “A basic precondition to improving North-South relations and advancing national reunification is to honor and implement North-South joint declarations.”

He was referring to two inter-Korean agreements, signed in 2000 and 2007, when two South Korean presidents, Kim Dae-jung and Roh Moo-hyun, were pursuing a “Sunshine Policy” of reconciliation and economic cooperation with North Korea and met Mr. Kim’s father in the North Korean capital, Pyongyang.

And on economics:

In his speech, Kim Jong-un, echoed themes of previous New Year’s messages, emphasizing that improving the living standards of North Koreans and rejuvenating the agricultural and light industries were among the country’s main priorities.

But he revealed no details of any planned economic policy changes. He mentioned only a need to “improve economic leadership and management” and “spread useful experiences created in various work units.”

The Daily NK issued this commentary:

According to the Ministry of Unification in Seoul, “Overall there was no new policy; they stuck to the existing line.”

In last year’s New Year’s Joint Editorial, the Kim Jong Il era equivalent of this morning’s address, a North Korean regime conscious of the risks of succession emphasized little more than the need to adhere closely to the last instructions of Kim Jong Il as a means of promoting social stability. Kim Jong Il’s name was mentioned a total of 34 times in that editorial.

This year, Kim Jong Eun focused on propagating the accomplishments of his first year, predominantly the December 12th rocket launch success, which he set up as an example for all sectors of the North Korean economy to promote growth. He even put forward a rocket-inspired slogan for 2013, calling for overall economic development based on the “spirit that conquered the universe.”

Cho Bong Hyun, a researcher with IBK’s economic research arm, told Daily NK today, “The core characteristic of this year’s New Year’s Address was emphasizing the Unha-3 launch and linking it to the economy. Kim Jong Eun seems to be planning to use the success of the rocket launch as a tool with which to vitalize the economy.”

However, the list of major achievements mentioned in the address included the military parade that marked the 100th anniversary of Kim Il Sung’s birth, the completion of Huichon Dam and its affiliated power plant, and the construction of athletic facilities around Pyongyang. It is hard not to regard such projects as indicators of North Korea’s fundamental economic weakness rather than strength.

Kim made references to reunification and improving relations with South Korea as well, but did not appear to offer a compromise position that could spur dialogue. Indeed, he appeared also to confirm that Kim Jong Il’s military-first political line is set to continue in 2013 and on into Kim Jong Eun’s rule.

Regarding the softer tone with South Korea, the Daily NK had this to say:

The message for South Korea in North Korea’s statement for the New Year was considerably more gracious than that of last year. Kim Jong Eun stated in his address, as per the subsequent official translation, “An important issue in putting an end to the division of the country and achieving its reunification is to remove confrontation between the north and the south.”

Despite the fact that the “unity of the Korean people” has been a constant theme of North Korean discourse over several decades now, the reaction to Kim’s words was abnormally enthusiastic. Some experts even believe that the speech revealed Kim Jong Eun’s ardent wish to restore inter-Korean relations, and say that North Korea is sure to put more weight on dialogue with South Korea going forward. The state-run Korea Institute for National Unification (KINU) concluded that North Korea has returned to a gentler South Korea policy.

Yet the reality is that North Korea has been going back and forth between dialogue and provocation over many years. This was even true under the left wing Kim Dae Jung and Roh Moo Hyun administrations. Lest we should forget, at the launch of the Lee Myung Bak administration in 2008, the first conservative administration for ten years, North Korea expressed great anticipation that progress in inter-Korean relations was impending.

At that time, North Korea called for the creation of “a new history of peaceful prosperity” and the promotion of legal and institutional mechanisms to prepare for unification. However, as inter-Korean relations went astray and Kim Jong Eun moved closer to the driving seat, North Korea embarked on a set of extreme provocations. Mind you, even then North and South were still discussing the possibility of a summit behind the scenes.

North Korea has chosen to limit its attacks on the new administration for one major reason; to test it. This happened in the 2003 and 2008 addresses (then known as the New Year’s Joint Editorial); indeed, it happens each time a new administration is launched down in Seoul.

The Daily NK also reports that the new year speech’s treatment of economic issues is nothing new:

[…] Promoting the development of light industry has been a key feature of a number of recent New Year’s Joint Editorials, the keynote editorial carried across North Korea’s three main publications; Rodong Shinmun (for the Chosun Workers’ Party), Chosun People’s Army (for the military) and Minju Chosun (for the Cabinet).

Evan Ramstad at the Wall Street Journal highlights a similar theme.  In his article, “North Korea’s Message: New Style, Similar Script“, he very cleverly compares 2013, 2012, 2011 publications. They are very similar.

Stephan Haggard confesses to being worn down (as am I), but offers some thoughtful comments nonetheless:

The basic economic message seems to be “do everything,” which is really equivalent to not prioritizing anything at all. But it is possibly worse than that. The slogan for the year is “Let us bring about a radical turn in the building of an economic giant with the same spirit and mettle as were displayed in conquering space!” This approach suggests that the regime’s thinking is still locked into the idea of leapfrogging, “100 day battles,” and monumentalism; indeed, the first reference to economics in the speech is to “Juche-oriented and modern factories and enterprises and reconstructed major production bases in key industrial sectors on the basis of advanced science and technology…”

If there is any logic to the speech—a big assumption—it sounds like heavy industry comes first. (“By adopting decisive steps to shore up the vanguard sectors of the national economy and the sectors of basic industries, we should develop coal-mining, electric-power and metallurgical industries and rail transport on a preferential basis and provide a firm springboard for the building of an economic giant.”) This is disheartening to say the least, but who knows? In the next section, the speech says the country should concentrate on people’s livelihoods, agriculture and light industry “too,” and also with the increasing emphasis seen in recent speeches on “science and technology” as a panacea.

Haggard followed up with these comments:

We see three things in the speech, editorials and posters that are discouraging. The first is the ongoing confusion between ends (being a strong and prosperous nation) and the strategy of getting there (heavy industry first, technological leap-frogging, vague injunctions to focus on people’s livelihoods). Second, the emphasis on technology as a form of economic deliverance is everywhere (“Today’s era is an era of science and technology, and we should open up an epoch-making phase in building an economically powerful state with the power of science and technology. The key to crushing the sanctions and blockades by the imperialists and leaping forward into an economically powerful state lies in science and technology.”) A single-minded focus on technology can put a missile in space, and the launch has to be seen as an achievement. But a single-minded focus on technology can’t produce economic growth in the absence of policies that promote ongoing innovation and provide incentives to using technology in an efficient way.In our humble opinion, it is a greater–if more mundane–achievement to grow at 3-4 percent a year than to waste hundreds of millions of dollars on a non-functioning satellite and military posturing.

Which brings us to the final problem: what we call the exhortatory approach to economic growth. The endless exhortation in important speeches is not coincidental. In the absence of meaningful incentives, the only way to squeeze more juice out of the workforce is hope that they respond to nationalist appeals by increasing effort. But a country’s workforce can work very hard and remain poor if what it is doing destroys value, as forced-march economic campaigns typically do. As we know from past socialist collapses, a surprising share of the capital stock in the former Soviet Union and Eastern Europe was essentially worthless when the final reckoning came. Effort cannot substitute for fundamentals, if anyone is even paying attention to these campaigns any more.

Evans Revere, writing for Brookings, made some interesting observations:

Kim Jong-un’s choice of venue for the New Year’s speech was important. He delivered his remarks at the Korean Workers’ Party (KWP) Central Committee building, a site selected to reinforce another theme of his year-old leadership: the primacy of the Party over other institutions and the role of the KWP as the main vehicle for his rule. It was no accident that the Party flag was displayed prominently next to Kim as he spoke.

Having sought to convey that he is a leader in his grandfather’s mold, and having reminded the nation (particularly the military) that the Party under his leadership is in the driver’s seat, Kim spent much of the speech holding forth on another central theme of his reign: economic growth. Looking through this section of the speech, one is hard pressed to find details about future economic plans or concrete new ideas aimed at boosting the DPRK’s anemic economy. In fact, its hortatory calls for making new “advances,” “building an economic giant,” and “breaking through the cutting edge” resemble the timeworn, empty exhortations of past New Year’s editorials. Thin gruel indeed.

Andray Abrahamian at Choson Exchange picks up on a similar theme:

For those of you with an interest in empirical measurements, Kim Jong Il’s “Songun” only got six mentions this year. Kim Il Sung’s “Juche” got 13. But as much as the content of Kim’s speech is important, the very fact that he made a speech at all demonstrates his continuing efforts to associate himself with the pre-Songun era of his grandfather. Implicit in Kim’s style is a return to the relative stability and prosperity that Kim Il Sung oversaw.

The Institute for Far Eastern Studies issued two reports on the new year speech:

Kim Jong Un’s New Year’s Address Stresses Continuous Economic Management and Improvement
2013-1-4

In the New Year’s address delivered by Kim Jong Un, emphasis was placed on easing the hostile inter-Korean relations and implementation of the June 15 inter-Korean joint declaration.

An intriguing point of this year’s speech was its format, as Kim Jong Un’s delivery of the New Year’s Address was televised — a rare occurrence, considering the last one to be televised was that given by Kim Il Sung in 1994, some nineteen years ago. The Korean Central News Agency and Korean Central Television broadcasted this year’s speech.

The highlight of the speech was Kim Jong Un’s declaration, “To end the state of division of the country and achieve reunification, we must remove confrontations between North and South.” He added, “Respecting and thoroughly implementing the north-south joint declarations is a basic prerequisite to promoting the inter-Korean relations and hastening the country’s reunification.”

This can be interpreted as an effort by the North as a hopeful message to the newly elected South Korean president Park Geun-hye for improved relations and to urge her administration to depart from her predecessor’s North Korea policy and implement the June 15 and October 4 Joint Declarations.

In the 2008 New Year address, North Korea made a similar statement encouraging the then Lee Myong-bak administration to fulfill the joint declarations.

As for North Korea’s foreign relations, Kim stressed that it will expand and develop relations with those countries that are friendly and cooperative to North Korea and affirmed to “strive actively to realize independence in the world and safeguard peace and stability in the region.” However, there was no mention of North Korea’s position on the nuclear issue or US-DPRK relations.

As for the economy, Kim stressed that “the entire Party, the whole country and all the people should wage an all-out struggle this year to effect a turnaround in building an economic giant and improving the people’s standard of living.” The importance of economy and the improvement of the lives of its people were reiterated and agriculture and light industry was named as frontline industries.

Similarly, last year’s New Year joint editorial called for revolution in light industry and agriculture. This year’s message stressed that economic guidance and management must be improved to reflect the realities of development. It also stressed that the North “hold fast to the socialist economic system of our own style, steadily improve and perfect the methods of economic management on the principle of encouraging the working masses to fulfill their responsibility and role befitting the masters of production, and generalize on an extensive scale the good experiences gained at several units.”

In 2012, North Korea announced its ‘June 28 policy’. There is speculation that changes are taking place in various parts of the country to pilot changes in its economic system.

The New Year address also emphasizes the military. “The military might of a country represents its national strength; only when it builds up its military might in every way can it develop into a thriving country and defend the security and happiness of its people.” Kim Jong Un also emphasized that “The sector of defense industry should develop in larger numbers sophisticated military hardware of our own style that can contribute to implementing the Party’s military strategy.”

South Korean government showed a lukewarm response to North Korea’s New Year address. While the format of the address was relatively novel in that it was televised, most North Korea watchers see the content and format of the joint editorial as similar to past addresses. Kim Jong Un placed heavy emphasis on the economic sector, but the method of improvement revealed no major changes from the current policy. Likewise, no concrete measures were suggested for the improvement of inter-Korean relations except for a general suggestion to open the doors for dialogue.

and…

North Korea’s National Science and Technology Council calls the New Year’s Address, “A Shortcut Measure to Become an Economic Powerhouse”
2013-1-11

In the 2013 New Year speech by Kim Jong Un, plans to strengthen the National Science and Technology Council can be noticed to serve as a driving force for the future economic construction of North Korea.

According to the Chosun Shinbo, a pro-North Korean newspaper in Japan, the National Science and Technology Council assessed the New Year speech to substantiate, “The teachings of our leader Kim Jong Un, to stipulate the power of science and technology in order to provide a shortcut in constructing a strong economic nation.”

The news evaluated 2012 as a year of revolutionary achievement for succeeding in the satellite launch as it was the last year of the “Third Five-Year Plan” of scientific and technological development.

According to the newspaper, the National Science and Technology Council was acclaimed as an esteemed mechanism in conducting scientific research contributing to the nation’s economic development and in creating a new foundation for various scientific research sectors to carry out its projects.

As a result, the news claimed noteworthy achievements were made in state-of-the-art scientific research, with over hundreds of studies conducted in reconstruction and modernization projects in factories and enterprises across the country.

The 2013 marks the first year of the “Fourth Five-Year Plan of Scientific and Technological Development” and the National Science and Technology Council outlined its major goals and tasks of this year: “Our scientists and technicians will carry out the tasks put forth by the New Year speech to realize the modernization of our economy and build a strong nation from advancement in science and technology.”

The Presidium of the Supreme People’s Assembly decided last month to award the Medal of Kim Jong Il to the Korean Committee of Space Technology (KCST) for the successful launch of the Kwangmyongsong 3-2 satellite and commended it as the “paramount event and celebration in our national history of 5,000 years and of our people.”

The successful launch of the long-range rocket was lauded as a major national achievement to North Koreans, with the opportunity to embark on the building of a new satellite named “Kim Jong Un.”

In addition, Rodong Sinmun, the official newspaper of Workers’ Party of Korea, declared that the era of President Kim Il Sung and Kim Jong-il should be known as the “100 Years of Juche,” while the newspaper referred to Kim Jong Un’s era as the “new 100 Years of Juche.”

For Kim Jong Un, it is critical that his regime improve the North Korean economy in order for him to fully consolidate his power and win the hearts of the North Korean people. Kim is likely to continue to push forward with economic development efforts in 2013, through promoting political stability.

In this year’s New Year’s message, the year 2012 was named as the “year of the people” while agriculture and light industry were said to be major fronts for economic construction of a kangsong taeguk, or strong and prosperous nation. Food shortage and livelihood of the people were also named as major challenges to be resolved to realize kangsong taeguk.

From this year, “June 28 Policy” is likely to continue and already, pilot measures were implemented in selected rural areas to improve economic management and expand autonomy of factories and work sites. Depending on the outcomes of the pilot measure, changes in economic policy is likely to occur this year.

Some new measures likely to take place are as follows: in the agricultural sector, the expansion of farmers’ right to dispose of grain yield; in the industrial sector, the increase of incentives via increasing the autonomy of each company.

Alexandre Mansourov wrote extensive comments on the DPRK’s 2012 in 38 North.

According to Yonhap:

Production at the Kaesong Industrial Complex grew 17.5 percent last year from a year earlier as South Korean firms employed more North Korean workers, which raised output, Seoul’s Unification Ministry said Thursday.

The total output by the 123 South Korean firms operating in the inter-Korean economic project zone is estimated to have reached US$470 million during the one year period, according to data released by the ministry handling inter-Korean affairs.

The total number of North Korean workers employed at the industrial park in the North Korean border city of Kaesong, rose to 53,507 as of the end of 2012, up from 49,866 a year earlier, according to the data.

You can read the full story here:
Output from Kaesong complex jumps 17.5 pct on-year in 2012
Yonhap
2013-1-10

Pictured Above (Google Earth): Pyeonghwa Motors Factory in Nampho. Recent additions highlighted in Yellow.

UPDATE 1 (2013-1-22): In a later interview, the head of Pyeonghwa Motors revealed more information on his compan’y relinquishment of Pyeonghwa Motors, and described their future ambitions.

ORIGINAL POST (2012-12-3): According to Yonhap (via Korea Times):

The source said, “As far as I know, Pyeonghwa Motors is seeking to sell its factory in Nampo for about US$20 million in order to end its auto business.”

…

“The (South Korean) president of the auto firm appears to be eyeing the distribution sector” in North Korea, an official at the foundation said, adding the president may move to a new industry after liquidating the auto business. “But nothing has been determined so far,” the official said.

Pyeonghwa Motors president Park Sang-Kwon is widely expected to hold discussions with the North over the business shift during a North Korean visit scheduled for mid-December, to mark the first anniversary of the death of late North Korean leader Kim Jong-il, who died on Dec. 17.

According to the Wall Street Journal:

The North Korean government is a 30% partner in the car manufacturer.

A unit from the church’s business arm spent about $55 million to build the Pyeonghwa factory in Nampo, a port city on North Korea’s west coast about an hour or so outside of the capital Pyongyang. After the factory was completed in 2002, workers there completed partially built cars, in a form called knockdown kits, that were imported from manufacturers in Italy and China.

But the company appears to have rarely been profitable. In 2009, the firm earned about $700,000 from the sale of 650 cars. About $500,000 of that was remitted to its parent operation in South Korea. The South Korean government noted then that it was the first time a South Korea-based company repatriated profits from North Korea.

The Pyeonghwa Motors web page does not contain any information on this development.  You can view the web page here (english). The last published press release was on 2011-1-11:

The web page does have production and sales data (if you choose to believe it):

No revenue or profit numbers are given on the web page, but it does mention that the factory’s capacity is 10,000 units per year. If these numbers are correct, in 2011 (the most productive year in terms of output) the factory was only running at approximately 19% capacity.

The Pyeonghwa Motors web page also offers a grand vision of the factory’s future (100,000 unit capacity):

However, as Google Earth satellite imagery shows, this plan has yet to come to fruition.

Previous posts on Pyeonghwa Motors here.

Read the full stories here:
Unification Church to wind up auto venture in NK
Yonhap (via Korea Times)
2012-11-28

End of the Road for North Korean Auto Maker?
Wall Street Journal Korea Real Time
Evan Ramstad
2012-11-27

Pictured Above (Google Earth): The Hyesan Market (L) and a street market (R).

According to the Daily NK:

The authorities in Hyesan have embarked on an experiment that permits multiple traders to utilize each stall in the city jangmadang (market).

A source from the Yankang Province city told Daily NK on the 30th, “Hyesan Municipal People’s Committee has been struggling for a while to decide what to do with all these traders in the streets outside the market. So, they’ve decided to try and co-opt them by restarting stall-sharing arrangements. Any trader, even ones who used to trade in the streets, can now operate inside the market as long as they are ready to pay.”

“The traders rotate six days a week, and on Sundays the original stallholder gets to decide who trades there,” the source went on.

However, many of the original stallholders are reportedly angry at the move, according to the source, with many asking why they are being stopped from trading for almost half the week.

“But,” she said, “the Market Management Office is having none of it, so they have little choice but to oblige.”

The idea of stall-sharing has been tried before in Hyesan, but with little success. “Just last year they ordered the same thing to happen,” the source recalled, “but it wasn’t long before things went back to normal.”

That being said, she went on, “Now because the order has come from the Upper (Central Party), they are really trying to do it.”

Defectors from the city and others with experience of trading directly in the market say the measure has far more to do with controlling traders working illegally on the city streets than improving the efficiency of the market itself. In fact, they say the measure is likely to have a deleterious effect on market operations.

Seo Ok Ran, a 42-year old defector now living in the Dongdaemun area of Seoul pointed out, “Last year when they did this I had a hard time finding the right stallholders for the items I needed. At the end of the day, it just reduces trade.”

It is unclear whether the new rules are being applied nationwide, or are restricted to the area under the remit of Hyesan Municipal People’s Committee.

Read the full story here:
Stall-Sharing Returns to Hyesan
Daily NK
Kang Mi Jin
2012-12-1

Institute for Far Eastern Studies (IFES)
2012-11-30

North Korea has focused on developing Rajin Port, located in the North Hamgyong Province, with the aim of attracting foreign investments.

China and Russia have already secured usage rights to these ports and Mongolia has expressed itsinterest in this endeavor. This indicates a rising popularity and competition to use these ports.

Mongolian parliamentary speaker, Zandaakhuu Enkhbold,met with the DPRK’s Supreme People’s Assembly Chairman and Korean Workers’ Party Secretary Choe Tae Bok on October 19 on his four-day visit to Ulan Bator, the capitol of Mongolia. The officials from both countries agreed on the future possibilities of bilateral trade and cooperation in the fields of information technology and human exchanges. Mongolia is landlocked and expressed interests in cooperating for port leaseswhile Chairman Choe expressed enthusiasm in cooperation in harbor, coal, and mining industries.

The day after the two leaders met, Choson Sinbo, Pyongyang’s mouthpiece in Japan, directly reported on the results of the talk, exposing North Korea’s positive reaction to leasing ports to Mongolians. According to the newspaper, “Rajin Port is the most convenient sea route for Mongolia.”

Mongolia’s and North Korea’s bilateral cooperation on Rajin Port has been received positively as it fits the economic interests of these two countries. For Mongolia, they are interested in exporting coal and other underground resources overseas, as the country is rich in underground resources such as coal, copper, gold, and uranium. However, these resources arecostly to export since Mongolia has to rely on Chinese and Russian railway systems.

Once it is able to obtain lease rights to the Rajin Port, Mongolia should be able to significantly reduce itsshipping costs. Thus far, Mongolia has exported coal mainly to China, but may intend to diversify exports to other countries once it is able to use the port at Rajin.

Furthermore, once freight trains between Hassan in the Far East region of Russia and Rajin begin to operate, it will make it possible for Mongolia to transport coal directly to Rajin Port.

North Korea is most likely to lease Pier No. 2 and Sonbong Port to Mongolia, which are currently not being usedby China or Russia.

More importantly, North Korea is turning to South Korean participation in the development of future Rajin Port development. Choson Sinbo reportedin an article on October 21 (under the title, “Hwanggumpyong and Rason”)that “We (North Korea) sincerely want North and South to cooperate for mutual prosperity through communication and join forces to advance economic cooperation larger than neighboring countries.”

Once inter-Korean relations improve and South Korea joins China, Russia, and Mongolia in the development of Rajin Port, other economic cooperation between these five countries is likely.

Stephan Haggard posts some economic data from the Kaesong Industrial Zone. I repost most of it here for archival purposes:

According to the MOU, the average monthly wage at KIC has reached $128.3 as of the first half of 2012. This marks a steady increase from $68.1 in 2006, $71.0 in 2007, $74.1 in 2008, $80.3 in 2009, $93.7 in 2010, $109.3 in 2011. One source of the increase is a built-in escalator clause on the minimum wage payment, which started at $50 and has increased 5% a year over the last six years. But that only gets you to about $67 for this year.

The remainder of the observed increase is apparently the result of additional payments for overtime, which has been rising dramatically. Average weekly working hours were already 55.2 hours in 2006 but now stand at 61.6 in 2012 (up to July). If we knew that these additional hours were the result of the free choices of hard-working, upwardly mobile workers we would still probably find it a little excessive. But of course, the advantages of working in Kaesong are such that North Korean authorities have absolute power to hire and fire at will. There is no way of knowing whether workers would choose this regimen if they were organized or not.

But the story is much worse, of course, because we don’t ultimately know what share of these wage payments actually end up in the hands of the workers in the complex. Wages are paid in U.S. dollars to the North Korean authorities by the South Korean companies operating in the complex. 45% of the wage bill–15% for “social security” and 30% for “socio-cultural policy entitlements”–flows into the regime’s coffer, while the remaining 55% is supposedly given to the workers in either DPRK won or coupons.

But not so fast. A crucial question is the exchange rate at which workers are paid and the value of the “coupons” they receive. We hardly need to state the obvious: North Korean workers are not getting paid the won equivalent of their dollar salaries at anything resembling the shadow-market exchange rate that reflects actual scarcities. At least in the Yonhap report, the MOU makes no mention of what the real dollar equivalent of won payments are using a realistic exchange rate. But given the country’s high inflation and rapid depreciation of the exchange rate—see my colleague Marc Noland on this—the dollar value of what North Korean workers actually receive could be only a small fraction—even a very small fraction—of the stated dollar wage .

Why has Kaesong stayed open? The answer lies in a pretty straightforward political economy calculus on both sides. For the South, Kaesong is industrial policy for labor-intensive firms. For North Korea, it is a cash cow that even hardliners have been loath to push the way of the Mt. Kumgang project. Since 2004, total wage payments for North Korean workers in the KIC has totaled $245.7 million, rising from $380,000 in 2004 (the first year of operation) to $61.76 million in 2011 and $45.93 million in the first half of 2012. For Pyongyang, even hardliners can see that this is a no-brainer.

UPDATE 2 (2012-11-19): Writing in 38 North, Kyung-Ae Park offers some more details on the program which brings these North Korean students to Canada:

The UBC program has been hosting North Korean professors since 2011 as part of a long-term knowledge sharing exchange initiative. For its inaugural effort, KPP hosted six North Korean scholars, five from the Kim Il Sung University and one from Wonsan Economic University. The scholars, who arrived in early July and studied at UBC through December 2011, took English courses during the summer and business and management courses from September focusing on international trade, management, finance, and economics. The curriculum consisted of regular, unmodified courses also attended by UBC students. As part of the curriculum, participants completed a group research project with faculty supervision on an aspect of international trade/finance stemming from their studies at UBC. In addition, they had opportunities to take field trips, and meet with leading individuals in Canada’s financial, business, and legal communities, as well as fellow academics.

Now in its second year, KPP is hosting another group of six participants, this time from Kim Il Sung University, the University of National Economy, and the Pyongyang University of Foreign Studies. As in the previous year, these scholars will be provided with an in-depth education of the international economy and policies implemented by other countries. With this second year of the program well underway, UBC has emerged as a leader in academic engagement with North Korea. There is great optimism that KPP will serve as a possible model for other educational institutions interested in exploring knowledge sharing programs with North Korea in the future.

Read the full story here.

UPDATE 1 (2012-7-20): Yonhap reports that the the Canadian-run program of bringing North Koreans  to the University of British Colombia to learn about economics is continuing. According to the article:

Six professors of leading North Korean universities are staying in Vancouver to study capitalism at a Canadian university on a six-month program, the program director said Friday, drawing fresh attention to the North’s possible transition under its Swiss-educated young leader.

The economics professors from three North Korean universities arrived in Canada earlier this month to take courses at the University of British Columbia (UBC) in the fall semester, which begins in September, after a two-month language course, Professor Park Kyung-ae, director of the Center for Korean Research, said.

“They will mainly study international business, economics, finance and trade,” Park told Yonhap News by phone, without giving further details of their identifications.

The elite universities include Kim Il-sung University, the top university named after the country’s founding leader, the People’s Economics University and the Pyongyang Foreign Language College, Park said. All the institutions are located in the North’s capital, Pyongyang.

They are the second group of visiting professors to take the courses under the Canada-DPRK Knowledge Partnership Program, which Park helped launch at UBC last year. DPRK stands for North Korea’s official name, the Democratic People’s Republic of Korea.

A group of six professors, five from Kim Il-sung University, attended the program in the fall semester last year, which included meetings with CEOs of Canadian law firms, banks, insurance companies and energy firms.

“There was no such long-term program related to North Korea in the past,” said Park, who visited the communist state last month. “The professors who completed last year’s course did their best and had good relations with other professors and faculty members. As they successfully finished the course, we were able to continue the program this year as well.”

ORIGINAL POST (2011-8-18): Just as Canada tightens sanctions on the DPRK, news comes out that the Canadians are running a very worthwhile program–teaching economics to North Korean professors! Let’s hope this program can be expanded!   According to Yonhap:

Six North Korean professors are studying economics and other related subjects at a university in Canada on a months-long program initiated by the school, the program director said Wednesday, opening a rare opportunity for the people of the repressive regime.

Professor Park Kyung-ae, director of the Center for Korean Research at the University of British Columbia, told Yonhap News Agency the North Koreans arrived last month to study international business, international economics, finance and trade. Five of the visiting professors teach these subjects at Kimilsung University, the elite North Korean institution named after the country’s founding leader, while one teaches at a university of economics in the eastern city of Wonsan, she said, declining to give further details.

The Japanese newspaper Asahi Shimbun reported earlier that the six professors from Kimilsung University were studying on an MBA course at the university in Vancouver. In fact, Park said the North Koreans will study four subjects at the undergraduate and postgraduate levels starting in September, after completing a two-month English language course.

The visiting professors are the first group to have been invited under the Canada-DPRK Knowledge Partnership Program, which Park helped launch at UBC last year. DPRK stands for North Korea’s official name, the Democratic People’s Republic of Korea.

“The program is very unusual in that it allows North Korea’s college professors to conduct research (overseas) on a long-term basis,” Park said, saying the professors will stay for a total of six months. “Other universities in North America are paying close attention to the program, and through it, I plan to push for exchanges between university officials of the two countries.”

Park, who has traveled to Pyongyang on several occasions since the mid-1990s and hosted North Korean delegation visits to Canada, said she believes educational exchanges are an important mechanism through which the two countries can improve ties. She noted that North Korea and Canada established diplomatic relations in 2001, but their ties have faltered over Pyongyang’s nuclear weapons program.

Since the 1990s, the North Korean regime has been known to send a selected few, mostly government officials, to study the market economy in Switzerland and other countries. However, these people have only been allowed to stay for several weeks, apparently due to fears they will try to escape the control of their repressive regime.

Although KoryoLink’s corporate performance no longer appears in Orascom shareholder reports, Naguib Sawiris has given an interview in Forbes in which he offers some business details:

Sawiris has a 75% stake in Koryolink via his Orascom Telecom Media & Technology (OTMT) unit, with the remainder held by a company under the Ministry of Post & Telecommunications. He says revenues in 2012 should reach around €186 million ($145 million), with an average revenue per user of €8.6. The network only permits domestic calls and locally hosted data services. A separate cell network is available for foreigners in North Korea.

…

FORBES: How many subscribers does Koryolink have? How extensive is your coverage in DPRK?

NAGUIB SAWIRIS: Koryolink currently has more than 1.5 million subscribers. Coverage includes the capital Pyongyang in addition to 15 main cities, more than 100 small cities, and some highways and railways. Territory coverage is around 14%, and more than 90% population coverage. The subscriber base has been increasing at a very healthy rate from 950,000 at [year-end] 2011 to an estimated 1.7 million at [year-end] 2012.

FORBES: Under your joint venture with the Ministry of Telecommunications, when will Koryolink lose its exclusivity? What will happen after this period ends?

NS: Exclusivity was granted for a period of 4 years from launch. After the expiry of exclusivity in Dec. 2012, Koryolink received written confirmation that for an additional period of 3 years (until 2015) no foreign investors will be allowed in the mobile business. However, we are continuing to expand our network and services to further solidify our position [in order] to be ready for any possible competition.

FORBES: What is your role in the construction of the Ryugyong Hotel? What other real estate interests do you have in DPRK?

NS: This is a special investment that we are maintaining through our banking subsidiary in the DPRK, where Orascom has the right to operate this facility. The construction, repair and facade installations have all been completed last summer. We are planning to relocate Koryolink headquarters into the tower very soon to bring life to the building. There are no other real-estate investments in the DPRK, however, Orabank, our banking arm in DPRK, is actively working towards developing mobile-related businesses and projects.

Chris Green offers some great information (about which I have long wondered)  on the process required to acquire a cell phone:

First, the individual wishing to obtain a cell phone must go to his or her local Communications Technology Management Office (통신통화관리국 or CTMO; in provincial capitals only) or a subordinate arm of the same (in smaller cities) to obtain a three page application form. This form, once filled in, must be stamped by the Ministry of Public Security officer assigned to the individual’s workplace or, for those without official workplaces, attached to his or her local people’s unit.

Having paid off the public security official in cigarettes or cash (more often the former, according to this author’s sources, because it arouses less friction) he or she must submit the stamped form to the CTMO or equivalent, whereupon it is sent, with all the speed one would expect of the North Korean transportation network, to the Ministry of Communications in Pyongyang. At this point there is little else to be done but go away and pitch the proverbial tent, because at best it takes a month for the staff in the revolutionary capital to process the application.

Assuming, and it should not be assumed, that those checks done in Pyongyang don’t yield any incriminating evidence of wrongdoing (don’t forget, the North Korean legal system makes every adult a criminal in one way or another, something which can come back and haunt any individual whenever “rents” are desired), the individual will eventually be ordered back to his local communications office, whereupon he will be handed a payment form. He or she must then take this form to a bank, and engage with the separate, and no less inefficient, bureaucracy therein in order to pay the majority (though not all) of the cost of a phone and Koryolink network activation fee.[1]

The payment form, duly stamped by a functionary at the bank, must then be taken back to the CTMO or equivalent, whereupon it can be exchanged for half the stamped application form originally sought from the ministry in Pyongyang. Here, finally, the individual reaches a watershed moment: this form can actually be exchanged for a cellular telephone!

However, the pain is actually quite a long way short of being over. In a moment of uncharacteristic efficiency, the actual cell phone shop is often directly outside the communications office, but in a moment of karma-balancing inefficiency, it doesn’t open much, carries a limited amount of product and is pitifully understaffed. As a result, queues are long, as are waits. Assuming an individual lives long enough to reach the front of such a queue, he or she is finally offered the opportunity to hand over another $70-$100 and depart the scene with a brand new phone.

Writing in the Daily NK, Kim Kwang-jin explains how people are getting around this burdensome regulatory process:

Therefore, the source said, “Middlemen in larger cities are getting multiple phones activated in random people’s names and then taking them to smaller cities to sell. Alternatively, households that don’t have any problem getting that kind of approval are mobilizing the names of their entire families to get phones, which they are then selling on to the middlemen.”

“The end users are buying these cell phones for $300 to $500 from the middlemen or from private sellers. This saves them having to go to the trouble of applying to Koryolink,” he added.

A basic Koryolink phone can be purchased officially for roughly $270- $300, excluding bribes and extraneous costs. The price of one of these semi-legal phones depends on duration of use and model. The best product, the T1, a clamshell design, is the latest and costs more than $500. The next mid-range model is the T3, another clamshell; there is also a similarly priced phone with a slide design. The budget offerings are the T95 and T107. Differences in price are mostly attributable to differences in sound quality rather than the designs, sources assert.

In addition, there are also phones available for use within individual provinces. These products, which are similar to the so-called “city phones” that were briefly permitted in the late 90s but soon got withdrawn, cost just $70 at the time of writing.

Geoffrey See of Choson Exchange also offers some insight on Ora Bank’s mobile-related business projects:

However, it appears that Naguib, Chairman of Orascom, might have other ideas. In his words, “Orabank, our banking arm in DPRK, is actively working towards developing mobile-related businesses and projects.” The 3G network provides a platform for a range of other services that emerging market economies would need including remittances and payments through mobile banking and mobile payments. Given the primitive development of the services sector, mobile provides an opportunity for Orascom to upend the services industry in North Korea.

This was something I was originally looking at in North Korea. Payments are currently messy in the country. On a previous trip, I remembered an account of a North Korean trying to pay the handphone bill. Apparently the payment went to the wrong account, and the North Koreans spent the morning calling and shouting at some people to make the mistaken beneficiary return the money so that the payment could go to the right account. For what mobile banking and payments could potentially look like in North Korea, check out M-pesa.

Read the full story here:
Pyongyang Calling For Egyptian Telecoms Tycoon Naguib Sawiris
Forbes
Simon Montlake
2012-11-18

Institute for Far Eastern Studies
2012-10-25

Recently, eight companies in the Kaesong Industrial Complex (KIC) informed that they received tax collection notices, a unilateral decision made by the North Koreans.

The Ministry of Unification and KIC reported that out of the 123 companies, 8 companies were informed by the North Korean authorities to pay about 160,000 USD in total in taxes.

Two companies out of the eight notified companies already paid close to 20,000 USD to the North Korean tax authorities.

On top of taxation, 21 companies were notified to submit additional tax documents. This may be to collect additional information for future tax collection purposes.

The tax authorities are also requiring companies to submit documents related to show proof of purchase of raw materials, and submit cost analysis documents and a copy of bank statements showing the history transactions.

Last August, the Central Special Direct General Bureau (CSDGB) notified the Kaesong Industrial District Management Committee of new tax bylaws, which enforces a fine up to 200 times the amount of accounting manipulation and abolish the retroactive taxation system while increasing the number of documents for submission. Furthermore, the North is threatening to restrict access to the KIC, if companies fail to pay owed taxes or do not submit requested documents.

In addition to imposing fines for tax frauds, new tax bylaws demanded by the CSDGB included enforcement of additional taxes in the name of corporate income tax, sales tax, and other taxes.

The unilateral decision by the CSDGB to amend bylaws is a violation of Kaesong Industrial District Law, which requires any revision of the laws must be negotiated between the North and the South. Another problematic issue is that tax imposed on the companies is based on North Korea’s own estimation rather than tax reports submitted by the companies of the KIC.

For the first time last year, tenant companies in the KIC recorded an average operating profit of 56 million KRW, finally operating in the black after years in deficit.

UPDATE 2 (2012-10-18): Yonhap and the Korean Times pass along details of the tax increases in the Kaesong Zone:

North Korea has unilaterally imposed hefty taxes on South Korean firms operating in the joint Gaeseong inter-Korean industrial complex in the North while employees there are demanding the firms provide more severance pay, a Seoul government official said Thursday.

“The North imposed the taxes including corporate income and business taxes on some of the companies operating in the Gaeseong complex in accordance with a new tax enforcement regulation (enacted) and delivered by the North last August,” the official said.

The imposed taxes were unilaterally drawn based on the North’s estimation of business activities by the South Korean firms, according to the official. About 10-20 firms out of the total 123 South Korean firms operating in the complex located in the North Korean border city of Gaeseong were reportedly slapped with the heavy taxes.

The amount of taxes imposed and whether the firms paid them are not clearly known, but some of the companies are said to have paid the taxes amid increasing pressure from the North.

The North unilaterally issued the new tax regulations in August, which also allow the country to levy heavy fines if a South Korean firm is found to have accounting irregularities. The regulations allow fines as heavy as 200 times the amount involved in potential accounting fraud by South Korean firms.

As part of efforts to extract taxes, the North is reportedly threatening a ban on the movement of goods and people in and out of the complex if the taxes are not paid, other sources said.

South Korean firms there are protesting the levies, saying “they may thwart normal corporate activities,” but the North may not budge on the decision, they said.

In addition, North Korean employees at the Gaeseong complex are demanding that South Korean firms provide severance pay even if employees voluntarily quit.

Under the current labor terms in Kaesong, South Korean firms are required to offer severance pay only when North Korean employees are involuntarily laid off after at least one full year of employment.

As of end-August, a total of 52,881 North Korean workers were employed by South Korean firms operating in the Gaeseong complex. About 500 to 1,000 employees leave South Korean employers every year, citing health reasons or marriage.

Meanwhile, the South Korean firms continued to register an annual net loss from their operations in the Kaesong complex, the Unification Ministry handling inter-Korean issues said. The combined net loss of 119 firms out of the total 123 stood at 14 million won ($12,681) in 2011, decreasing from net losses of 134 million won and 272 million recorded in 2010 and 2009, respectively, according to the ministry.

Nearly 37 percent of the 119 firms surveyed by the ministry said they feel the North’s interference with their corporate activities is severe, the ministry said. Inability in hiring or firing North Korean workers is the most frequently cited complaint among the 119 firms polled, followed by difficulties in Internet connection and a shortage of North Korean labor.

Read previous posts on this topic below.

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