North Korean Economy Watch

UPDATE 13-August 28:   Yoon Man-jun stepped down as CEO of Hyundai Asan over the July 11 killing of the 53-year-old South Korean woman by a North Korean soldier at the North’s Diamond Mountain resort, the company said in a statement. The company quoted Yoon as saying that he wanted to take “moral responsibility” for the death. (ETN news)

UPDATE 12-August 8: Despite bringing a halt to tourism in Kumgangsan, South Korea sent arrears to the DPRK.  From the Choson Ilbo:

Despite stalemate over the shooting death of a South Korean tourist at North Korea’s Mt. Kumgang, tour operator Hyundai Asan made its July payment for tours to North Korea.

Asan said Thursday it paid US$675,250 to North Korea to cover costs accrued by 10,380 South Korean tourists who visited the mountain resort on July 1-11, until the tours halted after a South Korean tourist was shot and killed by a North Korean soldier at Mt. Kumgang.

Update 11-August 8: DPRK to expel all remaining ROKs from Kumgnag starting August 10.   

UPDATE 10-Auguts 4: KCNA issues statement. 

UPATE 9-August 3: Though no date was given, North Korea intends to expell most remaining South Koreans from Kumgang (Yonhap):

North Korea’s official media said earlier in the day that Pyongyang will expel all “unnecessary” South Korean personnel from the Mount Geumgang resort, where a South Korean tourist was shot dead by a North Korean soldier last month.

More than 260 South Korean workers are stationed at the scenic resort, according to Hyundai Asan, the South Korean tour organizer. 

UPDATE 8-July 26: North Korea succeeds in preventing shooting concerns from being mentioned in official summary of ASEAN meeting.

UPDATE 7- July 23: South Korean government prevents South Korean civic groups from visiting DPRK until the North’s government agrees to participate in shoting investigation. (Donga Ilbo) 

As of Tuesday, six organizations had been offered invitations to visit the DPRK (Donga Ilbo):

One hundred members of the Korean Teachers and Educational Workers’ Union applied for permits to visit North Korea during August. In addition, 120 South Gyeongsang Province officials including Governor Kim Tae-ho are reportedly planning to visit the regime.

Humanitarian organizations such as Good Neighbors International, Nanum International and the Korean Sharing Movement will reportedly send 40-150 delegates to the North in August (for the former two) and September. In addition, North Korean officials invited around 120 members of Peace Three Thousand, and the representatives of the two will meet in Gaesong on Saturday to discuss the invitation.

These organizations [would] stay two to four days in North Korea and [] attend joint meetings with the North Korean Teachers’ Union, visit North Korean industrial facilities, tour Mount Baekdu, and attend an Arirang performance – a play propagandizing the regime.

UPDATE 6- July 21: Suspension of the Kumgang Tours will cost the DPRK $20 million per year.  If South Korea suspends the Kaesong tours (to the city, not the industrial zone) it will cost the DPRK government $15 million. (Choson Ilbo)

Maybe these numbers are sinking in. According to the Donga Ilbo:

North Korean officials recently followed one after another in expressing their perplexity regarding the incident, and fell over themselves to invite a horde of South Korean civic groups in August. These recent moves by the North have led some to believe that the North Korean authorities have somehow changed its stance towards the South.

An American source who recently met with North Korean officials in China and a working-level official at a South Korean civic group also said, “North Korean authorities told us that the shooter was a ‘very young’ person.”

The source added, “North Korean authorities told us that the incident equally took them aback. They added that especially at a time when the South Korean authorities are anxious to give them 50,000 tons of corn, those who thought the incident was intentional simply do not know anything about their regime.”

Unification Ministry spokesman Kim Ho-nyun also confirmed the Dong-A Ilbo’s report that North Korea invited a large group of South Korean visitors to Mount Baekdu and Pyongyang.

The Choson Ilbo remains skeptical. 

UPDATE 5 – July 17: The North’s story has changed.  DPRK rejects South’s inspectors. Seventy percent of officials of the United Front Department who were in charge of foreign affairs with South Korea were expelled from their positions early this year. It seemed to be an initiative step for taming the Lee administration and controlling the South’s policy (Daily NK).

UPDATE 4 – July 15: South Korea ups the ante by threatening to suspend tours of Kaesong unless the DPRK participates in the Kumgang shooting investigation (Bloomberg). 

NKeconWatch analysis: Suspending tours to Kumgang is relatively expensive for both North and South.  Hyundai and the South Korean government spent a lot of money developing the facilities, and by this time, the North Koreans who were earning from the project have grown accustomed to the cash flow.  The tours of Kaesong are different, however.  The South invested relatively little capital in the Kaesong tours, so suspending them idles few of their resources but hits the pocketbooks of the North Koreans who sponsor the program.  Could the Kaesong Industrial Zone be turned into a bargaining chip? 

UPDATE 3 – July 14: South Korea officially casts doubt on North Korea’s portrayal of events leading up to the shooting based on CCTV video and an eyewitness account. (Choson Ilbo) 

UPDATE 2: This story in the Korea Times (h/t ROK Drop) seems to indicate that there was a witness to the shooting and that there were no substantial barriers or warnings that vacationers could wander into a restricted military zone.   

UPDATE 1: The North Koreans expressed regret for the shooting, but says the responsibility lies entirely with Seoul.  They also refuse to cooperate with the South Korean government in an investigation of the incident citing that they have already sorted things out with Hyundai Asan. Although South Korea’s President Lee Myung-Bak ignored the situation in a parliamentary speech he gave shortly after the shooting, the Unification Ministry has now publicly stated that the shooting was “wrong by any measure, unimaginable, and should not have occurred at all.” 

ORIGINAL POST:Tourism numbers at the Kumgnag resort were up this year, despite high political tensions. 

From the AP:

A North Korean soldier fatally shot a South Korean tourist Friday at a mountain resort in the communist North, prompting the South to suspend the high-profile tour program just as South Korean’s new president sought to rekindle strained ties between the divided countries.

The news of the unprecedented shooting of a 53-year-old woman at Diamond Mountain resort emerged just hours after new President Lee Myung-bak delivered a nationwide address calling for restored contacts between the two Koreas, which have been on hold since he took office in February.

Kim said South Korea would suspend future Diamond Mountain tours until it completes an investigation. The other some 1,200 tourists already at the resort are to complete their tours as scheduled by as late as Sunday, said Hyundai Asan, the South Korean company that operates the resort.

Links to full stories below the fold:

(more…)

From the BBC:

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

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

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

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

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

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

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

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

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

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

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

North Korea’s agricultural and food markets suffer from a number of permanent constraints that prevent their efficient operation.  Rail transport is slow and/or unreliable, internal travel restrictions for “ordinary” merchants, and poor road conditions limit the distance food can travel before it goes bad.  Restrictions on communications and lack of a futures market makes it difficult to know how much food is available in each location, or what is expected to be available in each location.  This leads to hoarding, volatile prices, and a mismatch between local supply and demand.  Compounding these basic problems is a poor business environment characterized by collective farming practices, corruption, bribery, poor property rights protection, poor contract enforcement, and ex-post expropriation of profits.  Given these constraints, it is amazing agricultural and food markets work at all. 

In addition to these factors, the DPRK’s food markets suffered a number of adverse supply shocks this year from flooding, China’s restrictions on food exports, and a decrease in expected food aid from China, South Korea, and the US (See the effects on prices in this chart by Noland/Haggard/Weeks here). The arrival of food aid has since brought some of these prices down.

This week, the Daily NK reports on two other causes of price increases in the DPRK: Anti-corruption campaigns and restrictions on farming private plots.

Anti Corruption campaigns (more here and here)

He reported that “From March to late April, for almost 40 days, inspections were undertaken nationally. In Hwanghae Province, the inspection groups under the Central Court came down and confiscated food which the cadres in farms had embezzled. In some cases, they confiscated 500-1000kg of rice and grains from cadres’ households by searching with metal sticks in their backyard.”

The Director of the Ministry of Administration of the Chosun (North Korea) Workers’ Party Jang Sung Taek and his inspection group went to Shinuiju and inspected persons in charge of trading.

No. 112 Land System

The No. 112 land system operates whereby the authorities offer a certain width of fallow lands, which are different by grade of food distribution amount, to national public servants and clerical workers, given in order to make them solve their food problem by farming instead of relying on distribution. Ishimaru explained that “However, the new Kim Young Il cabinet abrogated this system and banned them from planting seeds on those fields.” 

Read the full story here:
Intensive Inspections in March and April a Direct Reason for Rise in Food Prices
Daily NK 
Kim So Yeol
7/4/2008  

Incredible! 

Burger Chain ‘Rebuffed N.Korean Overtures’
Choson Ilbo
7/10/2008
 
Influential North Koreans tried to bring McDonalds into the country, but the fast-food chain declined citing lack of profitability, Radio Free Asia reported Wednesday. RFA quoted Nancy Mazeska at MacDonald’s International Franchise Division as saying the person who contacted the chain probably had “political connections” and a “history of success in North Korea.” But due to the poor infrastructure and distribution network and probable lack of demand, McDonalds decided to take a rain check.

McDonalds at one point thought about letting its franchise in South Korea handle North Korean operations, she said. She did not comment further on who the businessman was and when he contacted the company. According to North Korean press, mass-produced hamburgers were distributed in universities in Pyongyang in September 2000 at the orders of North Korean leader Kim Jong-il.

Many thoughts are running through my head:

1.  Can you imagine?  The “golden arches” right next to the Arch of Triumph in Pyongyang.  Of course the North Koreans would make sure that their “golden arches” were the largest in the world—3 meters taller than the ones in America.

2. Rumor has it that no two countries with a McDonald’s in them have ever attacked each other…with one recent exception: the bombing of Serbia in the 1990s.  Despite the fact that McDonald’s is frequently targeted by anti-American activists, the opening of a franchise in Pyongyang would in fact be a great symbol of hope.

I remember visiting the first McDonald’s in the Soviet Union just after it opened in Moscow.  I stood in line for hours to eat food that tasted exactly like it did in America (of course I was living in England at the time and their food didn’t taste much better than the Soviets’).  The reason I stood in line for so long is because so many Russians wanted to try it as well, and it was finally considered politically acceptable.  The same would probably be true of Pyongyang residents, and the line out the door would be telling.

3.  The hamburger is not entirely unknown to North Koreans.  All outbound flights on Air Koryo serve a hamburger (or at least it is some kind of meat patty in a much larger bun with a piece of lettuce).  In business class, you get it on a plate.  I don’t think it is that great, but it is made in the DPRK.  Here is a bad photo I took of the alleged burger.

UPDATE: 4. ROK Drop wonders if they would have used US beef! 

According to the Korea Times, the end of official North-South dialogues has put plans on hold to expand housing for workers in the Kaesong Industrial Zone. 

From the article:

Officials at the complex expressed concerns that South Korean companies intending to set up operations there may be unable to do so as a lack of housing will likely see manpower shortages.

According to the Gaesong Industrial District Management Committee, the number of North Korean workers at 72 companies operating in the site totals 30,084 and the figure could reach 40,000 by late this year.

Besides, approximately 80,000 to 100,000 workers would be needed by 2010 when 450 companies are expected to settle in the industrial park.

However infrastructure projections show that less than 60,000 North Korean workers will likely be able to commute to the industrial site.

Currently, North Korean workers head for their workplaces by 88 commuter buses and bicycles and the authorities promised to provide an additional 100 buses until the year’s end.

South and North Korea agreed last December to build dormitories to accommodate 15,000 North Korean workers.

The two sides were to conduct a geological survey early this year and start construction work in the first half of the year following the agreement but the suspended talks have hindered the plan.

After conservative President Lee Myung-bak vowed a tougher line toward the North, the communist North kicked South Korean officials out of its territory in March and cut off official communication channels.

The Seoul government recognizes the lodging problem as urgent. Yet, it admitted it cannot find a solution at the moment since the North is rejecting any talks.

Read the full story here:
Gaeseong Complex Lacks in Lodgings for N. Korean Workers
Korea Times
Kim Sue-young
7/9/2008

Some enterprising Swedes are attempting to manufacture and export jeans from North Korea.  As far as western countries go, Sweden has been one of the leaders in commercial interaction with the DPRK.  Although, according to Erik Cornell, they were frequently burned. 

The project, Noko Jeans, would be the first jeans manufacturer in North Korea.  Here is some info from their website:

Noko Jeans – jeans from North Korea

Noko Jeans began with an e-mail sent to North Korea, fueled by the enthusiasim of being able to contact the country directly. We thought Noko Jeans would end there, before it even began. It didn’t. Instead, and despite our lack of experience in international trading, it swiftly grew to a much more serious level.

Initiated and managed by three Swedes with a background in advertising and PR, Noko Jeans is our attempt to approach and get closer to North Korea, and it is our attempt to answer the question: is it possible to do what no one has ever done before? Is it possible to design, produce and import jeans from North Korea?

Greetings from North Korea!

After months of research, loads of headache and, lastly, several meetings with North Korean government representatives, we are finally allowed into the country. As official visitors, and by invitation of the state. Take off: 27th of July.

We are just now beginning to sense that this experiment actually might come true. Please stay with us as we tell you the unique process – and story – that is Noko Jeans.

From the European Business Association (EBA) web site:

4th Pyongyang Autumn International Trade Fair
September 22nd – 25th, 2008, 9:30am-6:00pm
Further details here

Information flyer here: eba.pdf
Registration flyer here: registration.doc

The European Business Association (EBA) in Pyongyang issues this bulletin in order to inform about special conditions for participation by European businesses in the upcoming international trade fair in Pyongyang.

EBA Pyongyang and Korea International Exhibition Corporation (KIEC) will co-organise a special collective booth to host European businesses for the third time.

European companies interested in taking advantage of this opportunity are invited to visit the EBA website www.eba-pyongyang.org to see reports about the EBA booths in October 2007 and May 2008, which both were very successfull. Please also click through to membership and consider becoming a member of EBA.

The collective EBA booth has proven to be a convenient and cost-effective way to introduce European companies to the North Korean market. The participation fee is 600 or 700 Euro.

According to Yonhap (citing a Ministry of Unification report), trade volume between the two Koreas increased 23% to US$880 million (up from $718.2 million) in the first half of 2008.  This is due to an increase in commercial trade (not official exchanges), which were up 47% to $823.6 million from $558.7 million.  Commercial trade comprises 94% of trade volume, up from 78% last year. The number of firms conducting inter-Korean trade reached 526, up from 324, and and they manufactured 736 items (up from 686).

Goods traded in larger volume than a year ago: plate glass, clams, brackens and textiles from the Kaesong complex.

(UPDATE) Much of this is due to brisk activity in the Kaesong Industrial Zone, which employs 30,084 North Koreans (as of July 4, 2008), up from 225 in 2004.  The zone comprises 72 South Korean firms. 

Total production at the complex has been on a steady rise from US$15 million at the end of 2005 to $373.8 million as of the end of May, up 147 percent from last year, the Kaesong Industrial District Management Committee said.

“Such a rise in production is notable in that 33 of the 72 firms in the complex are start-ups operating there for less than one year,” said Kim Min-kyong, a public relations official of the committee.

To learn more, read the full articles below:
Number of N.K. workers at Kaesong complex tops 30,000
Yonhap
Shim Sun-ah
7/8/2008

 Inter-Korean trade rises sharply in first half despite political chill
Yonhap
Shim Sun-ah
7/7/2008

Institute for far East Studies (IFES)
NK Brief No. 08-7-4-1
7/4/2008

It appears that the number of people involved in handmade goods manufacturing, trading, and other small-scale, individual businesses is steadily increasing among North Korean citizens.

According to a source inside North Korea on June 30, ever since North Korean authorities announced the ‘Market Stimulation Measure’ in March 2003, the number of small-scale private businesses employing between 1~8 people has continued to grow as citizens in the North have taken to markets aggressively in order to earn money,

As the North’s economic woes continue to stretch over time and the government is unable to provide basic living necessities, the people are looking for other ways to support themselves.

In March of 2003, North Korea expanded farmers’ markets into general markets, allowing not only the sale of agricultural goods, but of manufactured goods as well. At the same time, the state introduced ‘market use fees’ for vendors wishing to rent space to hock their wares, thus bringing about a tax-like ‘state payment’.

Small-scale commercial and industrial businesses took on the form of family manufacturing or collaboration between factories, enterprises and engineers working together, but ‘Chinese-model’ small enterprises hiring just one or two workers also appeared.

In-home food preparation or handmade goods manufacturing, restaurants, bus services, repair work and other service-related industries grew. There also appeared examples of those leasing import rights from organizations or enterprises and making a living through trade.

Authorities have given these businesses tacit permission to operate, recognizing their role in increasing public revenue and supplying the people with daily necessities, but at the same time, they have laid down some restrictions, criticizing those “bitten by the capitalist bug, working only to make money for themselves.”

Small-scale private commerce and industry has the positive benefit of expanding the provision of daily necessities and absorbing unemployed labor in the North, but on the other hand, anti-socialist side effects such as the increasing gap between the rich and the poor and mammonism are also on the rise.