North Korean Economy Watch

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

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…)

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

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

Excerpt from Yonhap:

A South Korean factory operating in the joint industrial complex in Kaesong has been closed for nearly 20 days over a feud with a North Korean controller, government and company officials said Monday.

The company, which employs around 300 North Korean workers, took the measure on June 12 after South Korean employees and North Korean officials scuffled over supplies, they said.

The firm demanded the North Korean authorities replace the North Korean controller who allegedly assaulted South Koreans in the fight, but the demand was not met.

It was not known exactly what caused the fight.

A total of 28,277 North Koreans were working for 70 South Korean labor-intensive manufacturers in Kaesong as of the end of May, according to the Unification Ministry.

Read the full article here:
Factory in Kaesong complex closed down over dispute
Yonhap
Shim Sun-ah
6/30/2008

Via Interview Blog:

UPDATE: Here is an interview with Jürgen Bein about the Kaesong Industrial Zone (In German)

Klaus-Martin Meyer: Mr. Eloesser, you recently became the President of Nosotek Joint Venture Company in Pyongyang, the capital of North Korea. In which the field of business is Nosotek operating?

Volker Eloesser: We do general IT outsourcing. This includes data base applications, 3D technology development as well a games production. Nosotek’s customers come from all over the world and some of our products are even used in the US.

Klaus-Martin Meyer: According to your CV, before you were heading to North Korea, you’ve been the general manager of Elocom, a subsidiary of a German Joint Venture between News Corporation (NWS.A) and Verisign (VRSN). It’s quite unusual for a high-ranking manager of a US based public company to move to North Korea.

Volker Eloesser: That’s true. But I don’t see my job as a political mission. At Elocom, I was managing a company producing mobile phone software technology. Neither my old job nor my new one is a political one.

Klaus-Martin Meyer: What’s your opinion about the demolition of the nuclear cooling tower in Yongbyon and the announcement of the US President George W. Bush to remove the country from the terrorism blacklist?

Volker Eloesser: This was great news. I think that both parties, the Korean and US government, took wise decisions which hopefully help giving peace a chance through diplomacy. For our business, lifting the sanctions will have a very positive impact, as well as for the People in the DPRK. North Korean Companies, domestic and foreign-invested, were suffering a lot under the sanctions. Foreign trade was very difficult and many potential customers feared to get trouble when making business with the DPRK.

Klaus-Martin Meyer: When did you first get interested into the DPRK? Did you already do active business with North Koreans before?

Volker Eloesser: Of course I did. In the beginning of 2005, I held lectures at the Pyongyang Business School. The Korean participants of my lectures were great people really interested into international business.

Klaus-Martin Meyer: Who are the shareholders of Nosotek? Is it a state-run company?

Volker Eloesser: Nosotek is a joint-venture between a European owned private holding company and the General Federation of Science and Technology of DPRK, a non-government organization.

Klaus-Martin Meyer: Along being the president of Nosotek, you are Chairman of the Supervisory Board of Next Generation Entertainment N.V. (NGE), a Dutch public company. Are there any links between NGE and North Korea?

Volker Eloesser: NGE’s management is highly interested in investing into the DPRK software industry. The CEO Dr. Stefan Heinemann believes that the DPRK will become a very important sourcing market in the near future, which has many advantages over China and India. Having this in mind, it makes a lot of sense for NGE to have a board member with experience in dealing with North Koreans.

Klaus-Martin Meyer: How would you describe the difference of outsourcing software in the DPRK compared to China or India?

Volker Eloesser: The DPRK’s software industry is already very well developed, but only for the demands of the domestic market. Although the skill level of the engineers is as high as the skill level in China or India, most DPRK software companies never made successful international business in large scale. The Korean engineers usually have no experience with western culture, habits and taste. But of course you’ll experience the same, when working with some small Indian or Chinese companies. One major advantage of the Korean engineers is that they don’t move to a new job frequently, like the Chinese. In this matter, you can compare the Koreans with Japanese staff, who usually never leave the company to move to another job. The result is obvious: the experience and knowledge stays within the company and there is no risk of IP leak.

Klaus-Martin Meyer: Are you personally living in North Korea or can you do your job remotely?

Volker Eloesser: It’s definitely required to have western management in a company dealing with western customers. Every attempt of people trying to do this remotely has failed. I’m planning to live in Pyongyang most of the year. I have a nice apartment in the city centre.

Klaus-Martin Meyer: Living in Pyongyang sounds hard. How are the living conditions for foreigners in Pyongyang? What about your family?

Volker Eloesser: Well, it’s not as hard as western readers may think. Of course the hardest thing is to live separated from my wife, but she promised to visit me frequently. Generally, the living conditions for westerners in Pyongyang are good: The air is totally clean, there is no risk of becoming a crime victim, there is a lot of green in the city and the Korean people are generally very friendly .

Klaus-Martin Meyer: Usually, western media has almost no idea about the real working and living conditions of the people in North Korea. Can you tell us something about the working conditions of your local staff?

Volker Eloesser: One of my goals is to achieve working conditions according to German standard. The staff is equipped with the latest computer hardware and enjoys a lot of incentives from the company to make their live comfortable. For example, the company is providing free lunch for the whole staff, which is delicious and nutritious. I myself have lunch together with my engineers every day, and I like it very much. Additionally to the large number of public holidays, the company even sponsors a one-week holiday trip. This is the way we appreciate the performance on the job.

Klaus-Martin Meyer: What are the most difficult obstacles, western managers are facing in the DPRK? Do you stuffer from political pressure?

Volker Eloesser: I’ve not yet experienced any political pressure, but of course you need to get used to the local security regulations and bureaucracy. When you behave politely, don’t do derogative statements about politics and respect the Korean culture, you won’t face any serious problems. The most difficult obstacle is the absence of international experience of the software engineers, combined with the cultural differences typical to Asian countries.

Klaus-Martin Meyer: How many European businesspeople like you have discovered the DPRK as tomorrow’s sourcing market?

Volker Eloesser: Actually, not many so far. The European community in Pyongyang is very small. After a few weeks, you know every foreigner. Most Europeans who do business in the DPRK are organized in the European Business Association. But I feel that the community is growing since business managers are more and more recognising that doing business in and with the DPRK is of course working with a frontier framework but also with a great potential of highly-skilled people with an impressive work ethic and an attractive cost-performance ratio – and also an emerging domestic market.

Klaus-Martin Meyer: What drives you personally to go there and build up an internationally operating company?

Volker Eloesser: Leading a foreign invested company in North Korea is a great challenge for me. During my lectures at the Pyongyang Business School, I realized that the skilled North Korean IT engineers have a huge potential for successful software development. This potential is almost unrecognized in the world and therefore unused. I like to be the pioneer who builds up this new outsourcing destination. I believe that economic progress will lead to a general improvement of the people’s living conditions and IT business is a key to economic progress. If you ask me, I would tell you that my work will have a greater impact on improving the North Korean living conditions then just sending bags of rice.

Klaus-Martin Meyer: Do you experience economic progress or political changes in North Korea?

Volker Eloesser: The question about political changes should better be answered by the politicians. But indeed you can see economic progress: Compared to my first visit in 2005, there are now much more cars in the street and the number of foreign investment seem to have significantly grown. A group from Hong Kong is building a large shopping and business area along the Taedonggang river and Orascom from Egypt is continuing the Ryugyong Hotel construction as well as investing into a modern mobile phone network. And recently the German-based Prettl Group (Automotive industry) announced that it will be the first foreign non-Korean company to build a factory in Kaesong.

Klaus-Martin Meyer: Nosotek is located in Pyongyang. Do you think things could be easier for companies operating out of the Kaesong free trade zone?

Volker Eloesser: I’ve never been in Kaesong myself. From what I’ve heard, the free trade zone, which has been build with ROK investment, is a modern factory area, mostly targeted to low-cost production of shoes or textile. I don’t know of any software development in Kaesong. Pyongyang, being the economic and cultural centre of the DPRK with large universities, offers a huge number of qualified engineers.

Klaus-Martin Meyer: What are your plans for Nosotek’s future? How do you see your company in five years? What is your strategy?

Volker Eloesser: My plan for Nosotek is a constant growth. First of course, everybody in Nosotek has to understand the demands of our customers; not only the technical demands but also the usual communication style and habits of the western world. At the moment, we’re only fifty people and I’m starting to build up a powerful middle management, who knows their customer’s expectations. After this has been done, we can begin scaling the business volume.

Klaus-Martin Meyer: Are there other western IT companies having operations in the DPRK?

Volker Eloesser: Nosotek still is the only one. But according to Paul Tjia of GPI Consultancy who organizes business missions to the DPRK, the number of people interested into software development in the DPRK is constantly growing. I hope that Paul will bring more people here to operate software companies. With other Foreigners here, working in the same or similar field of business we together can help strengthening the DPRK to become a better known source for software development. Bangalore is still far, but I’m sure the quality delivered by the Korean IT engineers will be convincing, not only to grow Nosotek, but also to grow the country itself as an outsourcing destination.

Klaus-Martin Meyer: Mr. Eloesser, thank you for the interview.

According to Michael Rank in the Telegraph: 

North Korea is planning to recycle waste that is so polluted other countries refuse to handle it.

Through a Chinese-language website (lik here) the country is seeking supplies of plastic and electronic waste which “can be processed in [a North Korean port] but which other countries and territories are restricted from dealing in”, reflecting the country’s dire economic plight and its scant regard for international norms.

Isolated and desperately poor, North Korea is a beginner so far as toxic waste is concerned, although in 1996 it signed a deal with Taiwan to dispose of its nuclear waste from atomic power plants.

South Korea reacted furiously to the deal and Taiwan was eventually forced to back down and cancel the agreement.

North Korea also offered to recycle the North Sea Brent Spar oil storage platform, which Royal Dutch Shell had proposed dumping in the deep Atlantic in 1995.

This caused an environmental furore, with Greenpeace claiming that the structure was full of oil and burying it at sea would result in serious pollution.

An enterprising young North Korean official in London unexpectedly offered to come to the rescue, suggesting that his country could dispose of the structure, saving Shell and the British government from further embarrassment.

The offer was turned down as Shell didn’t want to be seen turning to a regime as dubious as North Korea, but Greenpeace’s own reputation took a serious knock when it was forced to admit that it had enormously over-estimated the amount of oil remaining in Brent Spar’s storage tanks.

North Korea’s waste recycling plans are part of a much bigger, £5 million ($10 million) project to enlarge a port on its west coast and develop it into an export base including a duty-free zone.

“There are no limits, any business taking advantage of [North] Korea’s low labour costs for intensive processing is welcome,” the website states.

Although the port is not named, it is almost certainly Nampo, which is close to the capital and is the largest harbour on North Korea’s west coast. The development covers 30,000 square metres (320,000 square feet) and is “expandable”.

The port currently accepts vessels of up to 10,000 tonnes but the plan is to increase this to 50,000 tonnes.

The project is pitched at Chinese companies, and interested parties are asked to contact a firm in the Chinese city of Dandong on the North Korean border.

A deal with China would help to counterbalance a recent agreement with state-owned Russian Railways to build a £50 million ($100million) container terminal on North Korea’s east coast as part of a £1.5 billion ($3 billion) plan to create a rail corridor linking South Korea with Europe via North Korea and Russia.

Russian Railways wants to turn the port of Rajin into a hub capable of handling 320,000 containers a year for shipment from South Korea to Europe.

Russia and China have fought bitterly over rights to refurbish Rajin. A few years ago China appeared to have won out when a 50-year deal was announced with the Chinese border city of Hunchun, but this came to nought and Russia was the ultimate winner in the battle to revitalise the north-eastern port and ultimately link it with Europe.

Update: Chinese language website (source) here. 

To read the full story click here:
North Korea in bid to recycle toxic waste
Telegraph
Michael Rank
6/30/2008

After China and the USA made high-profile food donations to North Korea, the Russians finally joined the game.  Russia’s Foreign Minister claims that by the end of June his country will have sent 3,000 tons of flour to UN World Food Program distributors in North Korea. The first aid deliveries arrived in North Korea by train on June 11.

I am surprised Russia waited so long to get into the game.  Russia has been prodding North Korea to link its Trans-Siberian rail traffic to South Korea, and they want to make sure the Chinese don’t squeeze them out of North Korea’s Raijin Port (which does not freeze in the winter).  Food aid might not have helped these processes along, but waiting so long to jump on the bandwagon can’t have helped. 

In March of this year, the Russians inked a deal to renovate the railway lines between their border and Raijin (the tracks are different gagues).

Read about the aid here: 
Russia to deliver 3,000 tons of flour to North Korea
Novosti
6/9/2008

Russia sends food aid to North Korea
Associated Press
6/19/2008

The DPRK’s golf facilities are all easily recognizable from Google Earth:  There is the 18 hole course half-way between Pyongyang and Nampo; there is a smaller 9-hole course next to the Yangakdo Hotel; there is a driving range in the Sosan sports district; and there is even a three hole course east of town just south of the Ponghwa Barrage on the Taedong River (This area could be the Ponghwa Executive Apartments mentioned in Kim il Song’s North Korea).

According to Yonhap, the DPRK has successfully expanded their number of golf holes by 60%–increasing them from 30 to 48:

The “Kumgang Ananti Golf and Spa Resort,” including a 18-hole golf course, will open to the public Wednesday after nearly four years of construction, Emerson Pacific Group, a Seoul-based leisure firm, said.

Built on about 1.7 million square meters of land, the resort also has a spa, a hotel and restaurants that provide nice sea and mountain views, according to Kim Min-jeong, a publicity official of the company.

The golf course has already drawn media attention over its 929-meter number three hole, the world’s longest.

The facility, however, will be operated on a membership-only basis for the time being, Kim said, adding that the company plans to open the facility to individual tourists around next year.

Emerson Pacific is waiting for Pyongyang to give the company permission to employ about 200 North Koreans, including 60 caddies, at the resort, the official said.

Read the full story here:
Golf course to open at North Korea’s Mt. Geumgang
Yonhap
5/27/2008

The most authoritative map of North Korea on Google Earth
Download it here

This map covers North Korea’s agriculture, aviation, cultural locations, markets, manufacturing facilities, railroad, energy infrastructure, politics, sports venues, military establishments, religious facilities, leisure destinations, and national parks. It is continually expanding and undergoing revisions. This is the tenth version.

This version includes: Expansion of infrastructure (railroads, electricity grid, elite areas, political monuments, burial mounds, dams, military facilities, and factories) in Hamhung, Chongjin, Sariwon, Raijin-Songbon (Rason) and other cities. Updates in Pyongyang: Pothonggang Exhibition Hall, Ssuk Island, Patriotic Martyrs Cemetary, Ostrich Farm, Kang Pan Sok Revolutionary School, Kumsong School, Manyongdae 1,000 Seat Restaurant. Specific manufacturing facilities and companies: Wonsan Rolling Stock Factory (RR manufacturer), Songnim-Hwanghae Iron and Steel Complex, Bukchang Thermal Power Plant, Sunchon Cement Factory, Namhung Youth Chemical Complex, Feb 8 Vinalon Complex, Hamhung Wood Carving Factory, Chongjin Chemical Fiber Complex, Unjong-ri Cooperative Farm, Sariwon Chicken Farm, Kanggye Chicken and Duck Farm, Hungju Youth Power Station, Korea Rason Taehung Trading Corporation. Updated Cultural Locations: Paeksang Pavilion (Anju), site of the DPRK’s first cricket game (2008), Sariwon Folk Village, Sinpha Revolutionary Site, International Friendship Exhibition, Paeksang Pavilion, Lake Sijung. Other locations: air force test bombing range, Kyo hwa so 1: Kaechon (overlay). Additinoally, most canals were eliminated from this version except the major projects on the west coast.

Disclaimer: I cannot vouch for the authenticity of many locations since I have not seen or been to them, but great efforts have been made to check for authenticity. These efforts include pouring over books, maps, conducting interviews, and keeping up with other peoples’ discoveries. In many cases, I have posted sources, though not for all. This is a thorough compilation of lots of material, but I will leave it up to the reader to make up their own minds as to what they see. I cannot catch everything and I welcome contributions.