North Korean Economy Watch

Although the article did not offer much new or probing analysis, there were a few data points that I thought it was important to highlight: 

Despite its isolation and prisonlike feel, the Kaesong Industrial Park is booming with construction. The park’s operator, a South Korean developer, Hyundai Asan, hopes to expand it into a minicity over the next 12 years, with high-rise apartments and hotels, an artificial lake and three golf courses.

By that time, the company hopes there will be about 2,000 factories here employing 350,000 North Koreans and producing $20 billion worth of goods a year.

That compares with a manufacturing output of only $366 million in the first half of this year, according to South Korea’s unification ministry.

In the six months through June, the flow of goods in and out of the industrial park accounted for 42 percent of the $881 million in trade between the two Koreas, the ministry said.

and

[…] 72 smaller South Korean companies have already built factories here, looking to tap the North’s supply of low-cost, Korean-speaking labor. So far, only one foreign company has come [–German auto parts maker Prettl Group is building a factory. Two Chinese companies will begin operations soon[, b]ut most companies here continue to be smaller South Korean firms, producing low-tech goods, from frying pans to running shoes, largely for domestic consumption.] (NKeconWatch combined two different paragraphs here)

The piecemeal brand of change is seen in the experiences of SJ Tech, a South Korean maker of car and cellphone parts that built a $4 million factory here four years ago. The company’s first North Korean employees had never even seen a keyboard, much less a computer, said Yoo Chang-geun, SJ Tech’s president. SJ Tech has spent so much time teaching them things like machinery operation and management concepts that Mr. Yoo jokingly calls his factory “North Korea’s first business school.”

But the North Koreans were eager learners, sketching keyboards on paper to teach themselves typing. Now, SJ Tech’s 430 North Korean employees have learned enough to run the factory without South Korean supervisors.

In a telling sign, they have also changed their haircuts to look more like their South Korean colleagues.

Andrei Lankov seems optimistic on the project’s political goals, stating “When North and South Koreans can interact on a daily basis, it is a chance for the North Koreans to see with their eyes that their own propaganda doesn’t make sense.”

A few described how the South Korean-run industrial park was improving lives by paying its workers the equivalent of about $60 a month, three times the average salary in the rest of Kaesong. […]

The South Korean government, which spent more than $150 million subsidizing the park, provides low-interest loans and insurance to companies to offset the risks of investing in the unstable and still hostile North.

Mr. Yoo of SJ Tech said his North Korean employees’ monthly salaries of $75, in contrast to the $2,000 he pays South Koreans, made investing in North Korea entirely worthwhile, despite any risks.

The article seems to take worker compensation claims at face value, but in reality Kaesong workers do not take home their allotted wages.  The DPRK government keeps most of them in taxes and administrative fees.  However, other non-monetary benefits make the jobs highly envied among North Korean workers.  Rumor has it that North Korean workers pay hefty bribes to get these jobs. 

Read the full article here:
Big Dreams for North Korean Industrial Park
New York Times
Martin Fackler
8/20/2008

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 eleventh version.

Additions include: Mt. Paegun’s Ryonghung Temple and resort homes, Pyongyang’s Chongryu Restaurant, Swiss Development Agency (former UNDP office), Iranian Embassy, White Tiger Art Studio, KITC Store, Kumgangsan Store, Pyongyang Fried Chicken Restaurant, Kilju’s Pulp Factory (Paper), Kim Chaek Steel Mill, Chongjin Munitions Factory, Poogin Coal Mine, Ryongwun-ri cooperative farm, Thonggun Pavilion (Uiju), Chinju Temple (Yongbyon), Kim il Sung Revolutionary Museum (Pyongsong), Hamhung Zoo, Rajin electrified perimeter fence, Pyongsong market (North Korea’s largest), Sakju Recreation Center, Hoeryong Maternity Hospital, Sariwon Suwon reservoir (alleged site of US massacre), Sinpyong Resting Place, 700 Ridges Pavilion, Academy of Science, Hamhung Museum of the Revolutionary Activities of Comrade Kim Il Sung, South Hamgyong House of Culture, Hamhung Royal Villa, Pork Chop Hill, and Pyongyang’s Olympic torch route. Additional thanks go to Martyn Williams for expanding the electricity grid, particularly in Samjiyon, and various others who have contributed time improving this project since its launch.

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.  Additionally, this file is getting large and may take some time to load.

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

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.

Institute for Far Easter Studies (IFES)
NK Brief No. 08-5-22-1
5/22/2008

Earlier this month, the South Korean government announced that it would seek to relax regulations concerning cooperative ventures and exchanges with North Korea. Currently, South Korean companies, organizations or individuals wishing to enter into business agreements with North Korean partners were required to get government permission not only for the project, but for the individuals involved in the project.

On May 8, the Ministry of Unification announced plans to abolish the system granting (or denying) permission to individuals involved in these ventures, and to maintain only the system through which it grants authority to carry out specific projects.

Cross-border traffic faced similar red tape, as permission was required not only for goods being imported or exported, but for the importers and exporters themselves. The new plan includes measures for these import and export regulations to be loosened so that it is only the goods that need review, not the people involved in the trade. In addition, trucks and other equipment used to carry goods across the border will be certified for a period of five years, more than twice as long as the current two-year licensing system.

The government is also moving to ease requirements calling for South Korean citizens to report all contact with North Koreans, and instead to require reports on conversations only if the topic falls outside that of the approved project.

Reflecting the growing amount and diverse nature of inter-Korean cooperative projects, and the ROK government’s policy of encouraging such exchange, this new proposal is aimed at reducing the red tape and paperwork hassles necessary to launch and carry out these projects by reducing the amount of information required by the applicant and the volume of cross-checking required by government offices. At the same time, the proposal calls for the introduction of fines for those found to be filing false applications or reports.

If this proposal does not get mired in the Cabinet or other committees, it is expected to reach the floor of the National Assembly sometime in June.

UPDATE: Although the Daily NK originally reported stellar growth rates in 2008 for Hyundai’s North Korea projects, today the Choson Ilbo highlights that profits are still elusive:

According to the Financial Supervisory Service on Sunday, Hyundai Asan suffered a net loss of W9.64 billion (US$1=W1,041) in the first quarter this year, three times greater than the W3.34 billion in the corresponding quarter last year.

Despite the large number of tourists, which, at 125,000 as of mid May this year, nearly doubled since last year, it is the largest loss reported since the tours to Mt. Kumgang began in 2004. Over 45,000 people have traveled to the North Korean city of Kaesong since the tour program began in December 2007, and it is almost certain that the company would reach its goal of 100,000 tourists for this year.

So what is the explanation given for this?

The reason for such struggle is the weakness of the won against the U.S. dollar, since North Korea charges admission fees to Kaesong and Mt. Kumgang in dollars — US$ 100 for one and $80 for the other per person for three days and two nights. As the dollar has risen more than 10 percent since the beginning of the year, from W940 to W 1,040, so has the initial cost. The tour program to Kaesong has reportedly gone into the red already. Moreover, Asan has to pay off $200 million of North Korean foreign debt in return for the license to develop Mt. Kumgang granted in 1999.   

ORIGINAL POST
From the Daily NK:

According to the Ministry of Unification, despite the stalemate between North and South Korea, cooperation and exchange at the civilian level have increased rapidly in the months of January to April compared to the previous year.

Compared to the same period last year, North-South trade increased by 37% (corresponding to USD 410.099 million the same period last year) and the coming and going of people and the tour of Geumgang Mountain increased by 144% and 76% respectively, contributing to a significant rise in civilian cooperation and exchange.

Related to the North-South trade, following the expansion in economic cooperation, commercial transactions (regular trade + processing of brought-in materials + economic cooperation) increased by 53.3% (to USD 531,960,000) compared to the same period last year (USD 346,990,900). Only, uncommercial trade decreased by 53.8%, recorded at USD 29,570,000 according to the reduction in aid to North Korea.

69 enterprises are operating in the Kaesong Industrial Complex as of April 2008 and 44 of them seem to be constructing factories. It is anticipated that 100-some enterprises will be operating by the end of the year.

The first quarter production volume increased 71% or by USD 6,770,000 compared to the same period last year. The export amount declined 58% to USD 13,280,000. The total number of North Korean workers is 26,885 and South Korean sojourners 1,018, the latter rising by 52.6% from the previous year, despite the evacuation of South Korean personnel.

The Mount Geumgang and Kaesong tours, compared to last year, are maintaining a huge growth rate. The number of Mt. Geumgang tourists have increased 76% to 100,510 and the Kaesong tour, which began in December of last year, logged 40,525 visitors thus far.

The number of coming and going of people, excluding the Mt. Geumgang and Kaesong Complex tourists, increased by 144% within the year to 93,019 and such a growth rate seems to have originated from the hike in visitors related to economic cooperation and North-South trade as well as the Complex itself. Only, the number of visitors related to aid to North Korea was reduced from 2,935 to 1,129.

Although the increase in tourism numbers was expected, the positive spin put on the Kaesong Zone contradicts earlier reports.  

Read the full stories here:
North and South, Politics at a Stalemate, Economic Cooperation Is Bright
Daily NK
5/14/2008
Jeong Jae Sung

Hyundai Asan Losses From N.Korea Tours Mounting
Choson Ilbo
5/19/2008

Although business seems to have stalled in the Kaesong Industrial Zone, Hyundai Asan’s tourism projects have picked up this year.

From Yonhap: 

As many as 100,300 South Koreans toured Mount Geumgang so far this year, up from 58,000 a year earlier, according to a spokesman for Hyundai Asan, Hyundai Group’s arm dealing with business with North Korea.

Hyundai Asan officials expect more than 500,000 South Korean to visit the North’s mountain resort this year alone, up from last year’s 350,000.

A total of 40,090 South Koreans also visited the North’s medieval capital city of Kaesong during the first four months this year, Hyundai officials said, adding they recently increased the daily quota for South Korean visitors to Kaesong to 500 from 300.

Read the full article here:
More South Koreans toured North Korea despite chill in ties
Yonhap
5/4/2008