North Korean Economy Watch

According to the GPI web page (PDF):

Exploring new business opportunities
European trade & investment mission to North-Korea
(11 – 18 September 2010)

Rotterdam, 29 June 2010
The Democratic People’s Republic of Korea (DPRK, also known as North-Korea) finds itself at a new era of international economic cooperation, and it especially welcomes business with Europe. The DPRK is offering various products and services to export markets, while the country is also in need for many foreign products and investments.

In the current financial and economic situation, European companies face many challenges. They must cut costs, develop new products and find new markets.

In these fields, North-Korea is an interesting option.

It established several free trade zones to attract foreign investors and there are several sectors, including renewable energy, textile, shipbuilding, agro business, fishing, horticulture, logistics, mining, stone processing, restaurants and Information Technology, that can be considered for trade and investment. DPRK is competing with other Asian countries by offering skilled labour for very low monthly wages. In particular companies with production facilities in China, where the wages are rising fast, are currently investigating alternative options in North-Korea.

Do you want to explore new business opportunities for your company? From 11 to 18 September 2010, GPI Consultancy will organize again a trade & investment mission in order to investigate these business opportunities. This tour is open for business participants from all European countries. Note: in case this date is not convenient for you, other trade missions will take place in 2011.

Our previous economic missions to Pyongyang were informative and successful. The participants found the program, with tailor made business meetings and company visits, interesting and well-varied. In addition, there were many opportunities for informal meetings. A report of such a mission can be found at: www.gpic.nl/NK-report2009.pdf

During our upcoming trip in September, the annual Autumn International Trade Fair in Pyongyang will be held. A visit to this interesting trade fair will be included; participation with a booth is also possible.

Business mission September 2010: short overview
Members of our business delegation will be able to discuss trade opportunities in several areas, including light industry (e.g. textiles, garments, ceramics), agribusiness, fishing, mining, energy and Information Technology / Business Process Outsourcing. We will also receive information about investment opportunities in a number of sectors, and several projects will be offered.

Taking part in a business mission is a very informative way to explore business opportunities in DPRK in detail, and to meet new potential business partners. Participation is also useful for those European companies already doing business with DPRK, since it gives them an easy option to meet their Korean trade partners personally.

Itinerary
Saturday 11 September: Departure of European participants to Beijing (note: departure at an earlier date is possible).

Sunday 12 September: The participants will meet; informal welcome reception and dinner at a local restaurant. Introduction to the studytour.

Monday 13 September: In the morning: visa collection at the DPRK Embassy in Beijing. Receiving Air Koryo airplane tickets. Afternoon: available for individual program. Tentative: the seminar: “Doing business with DPRK” takes place. The event, with several speakers, will address various aspects of doing business in DPRK.

Tuesday 14 September: Transport from the hotel to the airport will be provided. Departure from Beijing to Pyongyang, using the national airline Air Koryo. Upon arrival, we meet representatives of the DPRK Chamber of Commerce. Transport will be arranged to the hotel. Schedules of business meetings will be handed out to the participants, after which a welcome dinner will take place.

Wednesday 15 – Friday 17 September: In the mornings, business meetings with representatives of North-Korean companies will commence in the hotel. These meetings will be arranged, on request by the participants, by the DPRK Chamber of Commerce. In the afternoons, the delegates can visit firms in and around Pyongyang from a range of sectors, including agriculture, textiles and garments, ceramics, computer software, art, animation and cartoons.

A visit to the 6th Pyongyang Autumn International Trade Fair is included. This fair takes place from 13 – 16 September and is organized by the Korea International Exhibition Corporation. In addition, we meet members of EBA (European Business Association): European business people working and living in DPRK.  There is also some time available for informal activities, such as a citytour in and around Pyongyang, a visit to an art gallery and the spectacular Arirang Massgame.

Saturday 18 September: In the morning, departure from Pyongyang to Beijing. Upon arrival, participants can take a connecting flight to Europe, or decide to spent more time in China.

According to the Korea Times:

The number of North Koreans with a state-approved cell phone topped 185,000 as of the end of June, operator Orascom Telecom said Thursday, as more citizens have mobile access after a recent government expansion of services.

Egypt’s Orascom, which operates the mobile operator Koryolink in partnership with the North Korean regime, said in a first-half report that services have expanded to several cities other than Pyongyang and that 184,531 subscribers had signed up as of June 30.

Sixty percent of citizens now technically have access to the services, the firm said. But the network reportedly excludes cities near the border with South Korea as authorities fear the proximity could allow cross-border communication.

The number of subscribers has increased by some 60,000 since March and almost quadrupled from the same month last year, the report said, making a significant contribution to Orascom’s first half customer base growth.

It also showed an increase in usage, with the average mobile phone user spending 16 more minutes on the phone per month in the second quarter of the year than the first.

According to the Egyptian firm, foreigners, middle-class citizens and young people are all taking advantage of the new services.

But Radio Free Asia said Wednesday that North Koreans have to pay a steep price to go mobile. Customers must pay up to the equivalent of $250 for a phone in addition to high-priced prepaid minutes, it reported, citing sources in the North.

Still, Orascom’s numbers suggest that legal cell phone use could be gaining its strongest foothold yet.

In late 2002, a limited mobile service was launched, but citizens were banned from using them again just eighteen months later.

But in a major industry surprise, Orascom was awarded a 3G license in 2008 and started commercial operations in 2009.

The firm is also completing the construction of a towering hotel in the North ahead of the 100th anniversary of the birth of the country’s late founder, Kim Il-sung, through its construction arm.

Read the full story here:
Cell phones become more popular in N. Korea
Korea Times
Kim Young-jin
8/13/2010

According to the Choson Ilbo:

North Korean leader Kim Jong-il seems to be putting the priority on his impoverished country’s economy as it groans under international sanctions and foreign currency supplies dry up, analysis of his so-called on-the-spot guidance tours reported in the North Korean media suggests.

Kim made a total of 77 of these trips in the first half of this year, the same as in the corresponding period last year, and 33 of them had to do with business, according to the Unification Ministry analysis. The number was 27 last year. He also made 21 trips to military installations, down from 27 last year.

The senior official who accompanied Kim Jong-il most was his sister Kim Kyong-hee, the head of the Workers Party’s light industry department, with 56 times. She was followed by her husband Jang Song-taek, vice chairman of the National Defense Commission (45 times); Kim Ki-nam, secretary of the party’s Central Committee (40 times); and party secretary Choe Thae-bok.

Kim Kyong-hee was not among the top 10 aides last year. A South Korea security official said her role “appears to have expanded as Kim Jong-il concentrates on the economy.”

The North Korean media report Stakhanovite success stories every day. Korean Central Broadcasting claimed power production during the first half of the year increased more than 1.2 times over the same period last year, while the official Korean Central News Agency said several factories are producing above target.

“North Korea’s frequent references to the economy paradoxically indicate its economic woes,” said Prof. Kim Young-soo of Chungang University. “But Kim Jong-il insists on self-reliance in dealing with them.”  A Unification Ministry official speculated a food shortage in the North due to cold weather and unrest in the aftermath of the botched currency reform last year seem to have prompted false propaganda in an attempt to mitigate public grievances.

Some similar information was recently published by IFES.

Read the full story here:
Kim Jong-il Turns Attention to Economy
Choson Ilbo
8/16/2010

According to Yonhap:

Inter-Korean trade soared to a record high in the first half of this year despite escalating tensions caused by the sinking of a South Korean naval ship in late March, a government report said Thursday.

Two-way trade jumped 52.4 percent on-year to US$983.2 million in the January-June period, according to report by the Korea Customs Service (KCS). It also represents a six-fold increase from the $161.6 million tallied in the same period in 1999.

Outbound shipments spiked 66 percent on-year to $430.5 million, with imports from the North surging 44 percent to $552.7 million for a deficit of slightly more than $122.2 million.

The report, however, said that with most cross-border exchanges being cut off by Seoul in retaliation for the sinking of the South Korean warship Cheonan, inter-Korean trade is expected to drop about 30 percent on-year in the second half.

A Seoul-led multinational investigation team found the North responsible for the sinking of the 1,200-ton warship that resulted in the deaths of 46 sailors. The North countered that it was in no way in involved.

Only the Kaesong Complex, located just north of the DMZ that separates the two countries, has not been affected by the fallout from the ship sinking. The complex accounts for roughly 70 percent of all inter-Korean trade and is home to 120 South Korean companies that make products with the help of North Korean laborers.

The customs office, meanwhile, said trade between the two Koreas rose from $328.6 million in 1999 to $1.08 billion in 2005 and peaked at $1.82 billion in 2008. Last year, the trade volume fell to $1.66 billion after Pyongyang detonated its second nuclear device.

According to the Choson Ilbo:

In spite of strained inter-Korean relations following the March sinking of the South Korean Navy corvette Cheonan, trade volume between the two Koreas hit a record high in the first half of this year.

According to data from the Korea Customs Service, the total value of exchanged goods reached over US$983 million in the January to June period, up more than 52 percent from $645 million a year ago.

The latest figure tops the previous record of $885 million in 2008, and is six times higher than the $162 million recorded in 1999.

The South’s cross-border exports jumped 66 percent to $435 million, and inbound shipments 44 percent to $553 million.

Amid the ever-changing atmosphere on the Korean Peninsula, inter-governmental efforts to spur North-South trade and the expansion of the joint Kaesong Industrial Complex have fueled a gradual yet continuous growth in trade activity.

The annual trade volume, which amounted to nearly $329 million in 1999, peaked at over $1.8 billion in 2008 before dropping slightly to $1.67 billion in the wake of North Korea’s second nuclear test in 2009.

Experts, however, forecast the trade volume to drop by as much as 30 percent on-year in the second half of this year, reflecting Seoul’s suspension of all trade with Pyongyang, except for operations at the Kaesong Industrial Complex, in response to the sinking of the Cheonan.

Much attention is focused on the future of business at the industrial park, which produces 70 percent of the goods traded between the two sides.

Read the full stories here:
Inter-Korean trade hits record high in H1: report
Yonhap
8/12/2010

Inter-Korean Trade Reaches Record High
Choson Ilbo
8/13/2010

According to Reuters:

China said Thursday it had offered to help North Korea tackle cross-border crime — two months after North Korean soldiers killed three suspected Chinese smugglers, raising tensions between the allies.

Beijing, Pyongyang’s most important ally and trading partner, said it had handed over military equipment to North Korea’s National Defence Commission during a visit by China’s Deputy Public Security Minister Liu Jing on Sunday.

China said in a statement that it was willing to work with North Korea in cracking down on cross-border crime and building up its law enforcement forces.

The statement gave o details of what type of equipment China had provided or which type of crimes could be targeted.

Read the full story here:
China offers to help N.Korea crack down on crime
Reuters
8/12/2010

Institute for Far Eastern Studies (IFES)
NK Brief No. 10-08-09-1
8/9/2010

This year, North Korean leader Kim Jong Il has been very active in giving on-site guidance at economically-important venues. As recently as July 31, Kim visited the Ganggye and Huicheon areas of Jagang Province, inspecting and providing instruction at a number of facilities, including the Ganggye Tractor Complex, the Jangja River Construction Instrument Factory, the September Textile Factory, the Jangja Mountain Food Complex, and the Ganggye Basic Foods Factory. Between August 2-5, Kim Jong Il spent several days visiting venues in South Hamgyeong Province, including the February 8 Vinalon Complex, the Ryongseong Instrument Complex Military First Foundry, the People’s Consumables Exhibit Hall, and the Geumya River Power Station Construction Office.

Just by looking at Kim Jong Il’s public outings, one can see that he is focusing his efforts on economic recovery. From the beginning of the year until August 5, Kim has made a total of 90 public appearances, with 42 (46.7%) being to economic venues, 23 (25.6%) to military venues, 19 (21.1%) to theaters or other performance halls, and 6 (6.6%) to reception halls or other venues for foreign guests and dignitaries. Compared to the same period last year, Kim has made 4.7 percent more public appearances, and visits to economic venues increased by 7.2 percent. In 2009, he made 34 (39.5%) visits to economic venues, 23 (26.7%) to military installations, and 4 (4.7%) visits related to foreign diplomacy. The other 25 (29.1%) visits were to various other facilities. Reviews of artistic performances were down 8 percent (29.1%  21.1%) and inspections of military facilities fell 1.1 percent (26.7%  25.6%), while appearances at foreign diplomatic venues were up 1.9 percent (4.7 6.6%).

Kim Jong Il’s focus on the economy comes in a year in which the Workers’ Party of Korea celebrates its 65th anniversary (October 10), and the WPK party representatives are expected to meet in September for the first time in forty-four years, increasing pressure on Kim for visible economic improvements. Furthermore, reviving the stagnant economy is essential to providing a stable succession system for his third son, Kim Jong Eun. In the spirit of the movement, North Korea’s mass media outlets have also joined the campaign, encouraging the residents of North Korea to put forth more effort daily. An editorial in the WPK newspaper, Rodong Sinmun, on August 2 urged all the people of North Korea to strive harder to achieve the goals set forth in this year’s New Year’s Joint Editorial, and tied this to the upcoming “historic” WPK representatives meeting and the 65th anniversary, encouraging “glorious efforts” worthy of such political milestones.

On a different note, Kim Jong Il also launched a ‘good health’ campaign in the second half of July, inspecting health and wellness-related sights and promoting better health for all North Koreans. Kim has been making frequent site visits, but the fact that they have been only in a relatively limited area has raised questions as to just how healthy the leader is. Last month, after travelling frequently during the first two weeks, Kim’s travels toward the end of the month slowed down, with him making only three visits, all to artistic performances. Some wonder if it is not poor health that has slowed him down.

According to Yonhap:

North Korea has reopened a South Korean-built hotel and restaurant in Mount Kumgang on its eastern coast and has started to receive visitors, a pro-Pyongyang daily published in Japan said Saturday.

The Choson Sinbo said Hotel Kumgangsan and the Mokrangwan restaurant opened for business July 20 and will offer services to both foreign and local guests.

However, the Choson Sinbo reported that none of the visitors has spent the night at the 215-room hotel.

“All the tourists so far have stayed overnight at Wonsan and only visited the mountains during the day,” it said. Wonson is located further north in South Hamgyong Province.

The hotel was built and operated by South Korea’s Hyundai Asan Corporation and had been used by tourists from the South until 2008, when a North Korean guard shot and killed a female tourist at a nearby beach.

Since the fatal shooting, Seoul has banned tourists from the mountain report, with Pyongyang taking steps in early October to freeze all Hyundai assets and start its own independent operations. Hyundai employees at the site were also expelled from the resort.

The tours to Mount Kumgang — hailed as a symbol of reconciliation between the countries — began in late 1998, and nearly 2 million South Koreans visited the zone before they were suspended.

South Korean’s Unification Ministry said local companies invested an estimated 420 billion won (US$374 million) to develop the border resort that includes a golf course, several restaurants and a 157-room floating hotel called the Haekumgang.

A group of Chinese diplomats recently visited Kumgang.

Read the full story here:
N. Korea reopens hotel, restaurant on scenic Mount Kumgang: newspaper
Yonhap
8/7/2010

Institute for Far Eastern Studies (IFES)
NK Brief No. 10-08-06-1
8/6/2010

Over the last five months, regular food rations have not been provided even to those in the capital city of Pyongyang, indicating the severity of food shortages in North Korea. According to the ROK Ministry of Unification, rice and corn were added to the list of goods with controlled prices in at least one market in Pyongyang. A list of controlled goods with state-set upper price limits has been distributed to each market throughout North Korea since 2003. While prices may vary slightly, comparing them with earlier price caps gives a good indication of the availability of goods.

The July appearance of rice and corn on the list of restricted goods, neither of which has been on the list even as far back as February, when strict market controls were enacted in the aftermath of failed currency reform measures, indicates that the ration system is not operating normally, even in Pyongyang. It also means that not only are officials not receiving normal rations, but that average residents are relying more on markets for their food. One Unification Ministry official stated, “Rice was on the list of controlled goods in markets outside of Pyongyang in February, but couldn’t be found in markets in the capital city…in July, rice and corn emerged [as items with price caps] in Pyongyang markets.” The official also explained that as the food ration system collapsed even in Pyongyang, the issuance of price caps on rice and corn was an indication that more people were turning to the markets to buy these staples.

Looking at other goods on the list, it appears that agricultural goods cost 3~7 times more in July than in February, and manufactured goods were as much as 7 times more expensive. Necessary goods, both agricultural and manufactured, have grown considerably more expensive in North Korea over just five months. More specifically, beans were up 3.6-fold; chicken, 3.3-fold; lettuce, 3-fold; apples, 6.3-fold; rice and corn, 2-fold. Ball-point pens and other daily-use items were up 5~6-fold. In July, rice sold for 550 won per kilogram, while corn was priced at 280 won per kilo.

The price caps are upper limits set by North Korean authorities, but the reality is that goods are often sold at higher prices. The shortage of agricultural goods, and the fact that the Chinese Yuan has appreciated 3-fold since February, has led to these record price-hikes. On May 26, Workers’ Party of Korea (WPK) authorities issued a decree, “Regarding Korea’s Current Food Situation,” calling for residents to fend for themselves. As prices skyrocketed on agricultural goods, one measure adopted by North Korean authorities has been to more than double exports of iron ore from Musan, North Hamgyong Province to China, while drastically increasing the import of corn. This increased import of corn has brought down the price of rice from 1,200 to 900 won per kilogram in Musan, while corn itself has fallen from 600 to 500 won. On the other hand, the drop in the foreign currency exchange rate in mid-July caused a shortage of dollars, driving the price of rice up to as high as 1,200 won per kilogram in some regions.

According to Yonhap:

Inter-Korean trade has fallen more than 30 percent since the South cut almost all business relations with the North after Pyongyang was blamed for torpedoing one of its naval ships in late March, the customs office here said Friday.

According to data provided by the Korea Customs Service, the trade between the two Koreas came to US$123.06 million in June, down 32 percent from April, when they still kept their ordinary business relations despite a probe into the naval disaster.

…

South Korea’s exports to the North amounted to $56.88 million in June, down 27 percent from April, while imports decreased 36.5 percent to $66.18 million over the same period, the data showed.

Inter-Korean trade also dropped 21 percent from May, with its exports to and imports from the North falling 4 percent and 32 percent, respectively.

Despite such a sharp shrinkage, the customs office said the decline was not as steep as expected thanks to the Kaesong complex, which takes up most inter-Korean trade.

“The reason why the decline was not as sharp as expected is because we still keep a trade channel open in the Kaesong complex, which accounts for around 70 percent of total trade with the North,” a customs official said.

South Korea is the North’s second-largest trade partner after China. A suspension of inter-Korean business would cause a significant impact on the efforts of the reclusive communist nation to secure cash, according to experts.

Earlier, a state-run think tank here said inter-Korean trade suspension could cost North Korea about $280 million annually, adding to pressure on the North’s cash-strapped regime in governing its country.

Read the full story here:
Inter-Korean trade falls more than 30 pct amid heightened tensions
Yonhap
8/6/2010

According to Yonhap:

South Korea has agreed to raise the minimum monthly wage for North Korean workers by 5 percent at the two countries’ joint factory park in the communist state, an official said Friday.

The latest increase, which was agreed to Thursday and will be effective over the next year, is in line with the 5 percent annual hike in the preceding three years, Unification Ministry spokesman Chun Hae-sung said in a briefing, adding the minimum wage for North Korean workers now stands at US$60.775.

North Korea has demanded wage hikes for its workers in the border town of Kaesong since early this year. About 120 South Korean firms operate there, employing 44,000 North Korean workers to mainly produce labor-intensive goods. The estate has been considered the last remaining symbol of reconciliation between the sides that remain technically at war.

“Our companies agreed to allow the increase, and we have also agreed it would be appropriate to increase the minimum wage by 5 percent, after hearing opinions from the firms,” Chun said.

Under an agreement with North Korea, South Korea may increase the minimum wage by up to 5 percent each year. The new raise will be effective for one year starting Aug. 1, Chun said.

The increase comes as tension simmers between the two countries, which fought the 1950-53 Korean War that ended in a truce that has never been replaced by a peace treaty.

…South Korea has halved the number of its nationals staying in Kaesong due to safety concerns since May, when it warned it would not tolerate any North Korean threat or harm to them.

The Kaesong complex began operating in 2004 after being agreed upon by the leaders of the Koreas in a summit four years earlier. The companies there have expressed concerns that the erosion in inter-Korean relations was affecting their businesses, calling for eased regulations on their operations.

Yonhap does not mention that nearly all of the wages paid to Kaesong workers are deposited with the North Korean government.

UPDATE via the Daily NK:

In addition to the wage rise, the spokesman also announced measures to combat a concern of the companies in the Complex; that of autonomy over staffing decisions.

“Every company contains North Korean workers’ representatives, and these representatives have tended to mastermind changes to work team arrangements as they saw fit,” the spokesman explained.

However, he went on, “We have added measures so that, in future, workers’ representatives will not be involved in this area, and workers will be organized according to the independent judgment of the companies.”

So it appears that the DPRK did not simply win a unilateral pay increase.  South Korean firms apparently gained some managerial control as well.

Read the full story here:
S. Korea agrees to pay raise for N. Korean workers at joint complex
Yonhap
Sam Kim
8/6/2010