North Korean Economy Watch

According to an article in the Associated Press today (reprinted in the Washington Post):

The U.S. has recently stepped back from its demand for a detailed declaration addressing North Korea’s alleged secret uranium enrichment program and nuclear cooperation with Syria; North Korea has denied those allegations. Washington now says it wants North Korea to simply acknowledge the concerns and set up a system to verify that the country does not conduct such activities in the future.

How can any uranium enrichment verification plan be implemented in the DPRK?  One solution was proposed to me by Glyn Ford, a member of the European Parliament, when I met him in Beijing last March.  His idea was this: Any uranium enrichment program would require a colossal amount of electricity delivered at a consistent voltage.  So one way the west could monitor if such a program was taking place would be to keep tabs on the North Korean power grid for suspicious spikes in activity or to build voltage fluctuations into the power supply.

Read the full article here:
US official to travel to NKorea
Associated Press (Printed in the Washington Post)
Foster Klug
5/6/2008

North Korea is intensively planting trees across the country to provide badly needed oil from their berries.

According to Yonhap:

The North, which suffers from a chronic oil shortage, has created Tetradium tree forests covering tens of thousands of hectares in several regions near the western and eastern coasts during the national tree-planting season, according to the North’s Korean Central News Agency (KCNA).

Some provincial administrations have set up offices to help residents properly understand the economic value of the trees and how to grow them, it added.

Fully mature Tetradium trees, also known as Evodia or Bee Bee trees, can each produce 7-10 kilograms of small berries composed of 38 percent oil. North Koreans use the oil, traditionally used as lamp oil, to make cooking oil, drugs and soaps, according to the KCNA.

Read the full article here:
N. Korea planting trees for fruit oil
Yonhap
4/30/2008

UPDATE: Here is the CIA video that was released (YouTube).

From today’s Washington Post:

A video taken inside a secret Syrian facility last summer convinced the Israeli government and the Bush administration that North Korea was helping to construct a reactor similar to one that produces plutonium for North Korea’s nuclear arsenal, according to senior U.S. officials who said it would be shared with lawmakers today.

The officials said the video of the remote site, code-named Al Kibar by the Syrians, shows North Koreans inside. It played a pivotal role in Israel’s decision to bomb the facility late at night last Sept. 6, a move that was publicly denounced by Damascus but not by Washington.

Sources familiar with the video say it also shows that the Syrian reactor core’s design is the same as that of the North Korean reactor at Yongbyon, including a virtually identical configuration and number of holes for fuel rods. It shows “remarkable resemblances inside and out to Yongbyon,” a U.S. intelligence official said. A nuclear weapons specialist called the video “very, very damning.” (Washington Post)

What has been the level of cooperation between Syria and the DPRK?

But beginning today, intelligence officials will tell members of the House and Senate intelligence, armed services and foreign relations committees that the Syrian facility was not yet fully operational and that there was no uranium for the reactor and no indication of fuel capability, according to U.S. officials and intelligence sources.

David Albright, president of Institute for Science and International Security (ISIS) and a former U.N. weapons inspector, said the absence of such evidence warrants skepticism that the reactor was part of an active weapons program.

“The United States and Israel have not identified any Syrian plutonium separation facilities or nuclear weaponization facilities,” he said. “The lack of any such facilities gives little confidence that the reactor is part of an active nuclear weapons program. The apparent lack of fuel, either imported or indigenously produced, also is curious and lowers confidence that Syria has a nuclear weapons program.”

U.S. intelligence officials will also tell the lawmakers that Syria is not rebuilding a reactor at the Al Kibar site. “The successful engagement of North Korea in the six-party talks means that it was unlikely to have supplied Syria with such facilities or nuclear materials after the reactor site was destroyed,” Albright said. “Indeed, there is little, if any, evidence that cooperation between Syria and North Korea extended beyond the date of the destruction of the reactor.”

Syria denies it was building nuclear facilities.

Read the full article here:
N. Koreans Taped At Syrian Reactor
Washington Post
Robin Wright
4/24/2008; Page A01

The Donga Ilbo reports that the DPRK going to supply water to the the Kaesong Industrial Complex by diverting it from a river that flows into South Korea:

North Korea is confirmed to be trapping water behind the walls of the Hwang River Dam in the upper stream of the Imjin River, something which will lead to a water shortage in certain parts of South Korea.  

The multi-purpose dam has a water storage capacity of 300 million to 400 million tons, much more than that of the Hantan River Dam (270 million tons), the Paldang Dam (244 million tons) and the Cheongpyeong Dam (180 million tons).

North Korea is expected to supply water for industry and drinking to the Gaesong Industrial Complex from the Hwang River Dam via the Ryesong River.

North Korea can directly control 420 million to 520 million tons of water with the Hwang River Dam in addition to its fourth “April 5 Dam,” which can store 30 million tons of water in the upper stream of the Imjin River.

The (South) Korea Water Resources Corp. said, “When North Korea suddenly traps or discharges water, South Korea cannot respond to such actions with just the Gunnam Flood Control Dam and the Hantan River Dam.”

Rad the full article here:
N.Korean Dam to Cause Water Shortage in S.Korea
Donga Ilbo
4/22/2008

UPDATE: Yonhap reports that the food shortage was also discussed at the cabinet meeting:

North Korea has recently convened a Cabinet meeting to discuss food shortages, China’s Xinhua News Agency said Sunday, as international concerns grow over the North’s economic woes.

The North’s Cabinet recently held an enlarged session and decided to address the chronic shortages of food and consumer goods, the news agency said, citing a recent edition of the cabinet daily Minju Joson.

DPRK budget expenditures grow 2.5% this year
Institute for Far Eastern Studies (IFES)
NK Brief No. 08-4-16-1
4/16/2008

On May 9, the sixth round of North Korea’s 11th Supreme People’s Assembly opened, at which this year’s budget expenditures were announced to be 2.5% greater than last year. It was also reported at the assembly that the Cabinet would pursue a new 5-year plan to develop the nation’s science and technology sector by 2012.

Despite officially holding a seat on the Assembly, General Secretary Kim Jong Il did not attend this year’s assembly meeting. In addition, there was no mention during the assembly of inter-Korean, U.S.-DPRK or other foreign relations.

Cabinet Deputy Prime Minister Roh Doo-chul announced this year’s budget, stating that “this year, in order to strengthen national defense, and while building strength, to decisively advance the people’s economy and existing industry as well as improve the lives of the people, the national budget expenditure plan will be expanded to 102.5% of last year.”

According to this statement, this year’s budget is estimated to be 451.5 trillion won (3.2 billion USD). An estimated 15.8%, or 71.3 billion won (510 million USD), is slated for national defense. Last year’s national defense budget was 15.7%, or 69.2 billion won (490 million USD), of the national budget.

North Korea has also decided to increase budget allocations for energy, coal, and metal industries as well as the railway sector by 49.8% as compared to 2007, and will focus investments on staple industries. In the past, the North had stressed the importance of the ‘four main sectors’ of improvement in the people’s economy, including energy, but this year the government will actually focus investment on these sectors.

Cabinet Prime Minister Kim Young-il stated, “From this year until 2012, we will proceed forward with a new 5-year plan for the development of national science and technology…As we systematically increase national investment in this sector, we will raise the sense of responsibility and the role of technicians and raise the level of science and technology development as quickly as possible.”

In 2012, North Korea will celebrate the 100th anniversary of the birth of national founder Kim Il-sung, and has set a goal of constructing an economically powerful nation by that year.

Read the Yonhap story here:
N.K. discusses food shortage in Cabinet meeting
Yonhap
4/20/2008

From Yonhap:

A North Korea-registered cargo ship carrying coal arrived in South Korea’s port city of Ulsan Sunday amid increased cross-border tensions, according to maritime police.

The 2,496-ton freighter Changseong carrying a 29-member crew docked at the port, South Gyeongsang province, around 10:20 a.m. earlier in the day.

The ship carried 4,000 tons of coal, the first batch of 12,000 tons to be delivered by April 25, the police said.

And how much are they paying? IFES has the answer…

North Korea, in keeping with rising international coal prices, appears to have hiked up the export price of heating briquettes twice in the last three months. A North Korea insider in Shenyang, China recently reported, “North Korea’s Trade Bureau Price Control Division raised export prices at least twice as this month came around, so the export price soared up to 50 USD per ton,” and, “As the rising international coal price trend continues, there is a high probability that North Korean heating briquette prices will also rise further.”

Last year, North Korean heating briquettes were exported at 30 USD per ton, but as 2008 rolled around and international prices suddenly shot up, DPRK coal prices rose by over 50 percent, putting a significant burden on Chinese importers. However, Chinese importers still prefer DPRK briquettes as shipping costs from alternatives such as Vietnam or Indonesia still make North Korean imports relatively inexpensive.

It has been reported that the DPRK Trade Bureau has approved the export of briquettes to China at below-official prices of 44~45 USD per ton in cases in which there is Chinese capital or equipment has been invested in the coal mine. These charcoal briquettes are North Korea’s largest export item, with China importing 170 million USD-worth in 2007 alone.

So if South Korea was lucky enough to get China’s price (an assumption that might not be the case): 12,000 tons (by April 25) x USD$50/ton= $600,000

Read the full articles here:
N. Korean cargo ship visits Ulsan  
Yonhap
4/13/2008

DPRK coal briquet export prices jump this year
Institute for Far Eastern Studies (IFES)
(NK Brief No. 08-4-10-1)
2008-04-10

(Posted from Shanghai, China - I am on vacation, so this is just a quick note)

While in Beijing a few days ago, I ran into Glyn Ford giving a talk in conjunction with the release of his new book, North Korea on the Brink.

Mr. Ford was on his way to Pyongyang to pitch an idea he believes could resolve the HEU (Highly-Enriched Uranium) impasse, which is bogging down implementation of the most recent version of the Agreed Framework.

His idea is this:

Even if the North Koreans have an HEU program it would require a colossal amount of electricity delivered in a consistent fashion.  So one way the west could monitor if such a program was taking place would be to keep tabs on the North Korean power grid for suspicious activity, or to build in fluctuations to the power supply so that the machinery which does the enriching is not able to function.

If both sides can know that there is currently no HEU program underway, then maybe they can avoid the politicalty trecherous waters of determining whether such a program once existed–allowing us all to move on to the next phases of the agreement.

Institute for Far Eastern Studies (IFES)
NK Brief No. 08-3-24-1
3/24/2008

North Koreans, long suffering from a chronic engergy shortage, are now putting forth efforts to solve even this electrical issue on their own.

The Daily NK, a South Korean-based human rights organization, has learned from interviews with North Korean residents that these days, even in farming villages, families with regular incomes are relying on batteries to light their houses and power their televisions.

Many batteries are being imported from China, and there are also many households using bicycle-mounted generators to produce electricity to overcome energy shortages. Despite the fact that these North Koreans are living in a Socialist country that fails to provide them electricity, they are coming up with their own methods for solving problems.

According to these North Koreans, there is a difference in the way they are solving the electrical shortages in the cities and in the farming communities. In the cities, many are using rechargable car batteries. There, power is provied from around 8:00am to 1:00pm, and then again in the evenings from around 8:00pm until 11:00pm. During these times, batteries are recharged and then used later for lighting and watching television.

In order to use these batteries to watch television or videos, direct current needs to be transformed into 220-volt alternating current, requiring a small power converter. The prohibitive cost of such a converter means that in farming commuities, the use of batteries to power households is difficult.

This has led many in rural areas to find a slightly different method of solving their energy needs. In farming villages, small generators attached to the rear wheel of bicycles so that ‘human power’ is used to produce electricity.

The cost of a used car battery in North Korea is around 70,000 won, while a new battery could run as much as 120,000~160,000 won*. Batteries produced in China are of high quality, but if there is ever a problem, it is difficult to have them repaired. Therefore, ‘Daedong River’ car batteries produced in North Korea are preferred.

* The current black-market currency exchange rate is approximately 2,500 DPRK Won/ USD.

Institute for Far Eastern Studies (IFES)
NK Bfrief No. 08-3-13-1
3/13/2008

International fuel and food prices are skyrocketing, while the cost of Chinese goods continues to rise, so that this so-called ‘triple-threat’ is sending shockwaves through the North Korean economy. In this year’s New Year’s Joint Editorial, North Korea championed the banner of a ‘strong and prosperous nation’, and declared that this year would focus on the economy, however this ‘triple-threat’ will likely make it extremely difficult for the North to meet its policy goals.

With oil prices peaking at over 110 USD per barrel, if these high oil prices continue, North Korea, which imports crude and refined oil from China, Russia and other countries, will face a growing import burden. In accordance with the February 13th agreement reached through six-party talks, South Korea, the United States and others will provide some heavy fuel oil, and the agreement stipulated the amount of oil to be delivered, rather than the value, so this will not be affected by rising prices. However, this oil does not cover all of the North’s needs, and as for the remaining portion, either the amount imported will have to be reduced, or the North will have no choice but to invest considerably more in fuel. In addition, as a large portion of North Korea’s oil is imported from China, Pyongyang’s trade deficit with its neighbor will also grow.

According to the Korea Trade Investment Promotion Agency (KOTRA), North Korea imported 523,000 tons of crude oil from China in 2005, 524,000 tons in 2006, and 523,000 tons last year, each year accounting for approximately 25 percent of total oil imports. North Korea’s trade deficit with China has shown a steadily growing trend, reaching 212,330,000 USD in 2004, 588,210,000 USD in 2005, and 764,170,000 USD in 2006. With grain prices also skyrocketing, and North Korea depending largely on China and Thailand for rice and other grain imports, the burden on the North’s economy is growing, and this is one factor in the instability of domestic prices in the DPRK.

According to the Chinese Customs Bureau, North Korea imported 81,041 tons of rice and 53,888 tons of corn last year, increases of 109.9 percent and 37.4 percent, respectively. North Korea’s corn, rice and oil imports from China are subject to market price controls, so that rising international prices directly affect the North’s cost burden. Last year, the price of Chinese goods rose 4.8 percent, recording the largest jump in ten years, and this trend extends to a wide variety of goods. 80 percent of disposable goods in North Korea are produced in China, and rising Chinese prices are directly reflected in North Korean import costs, which is passed on to DPRK citizens.

As North Korea emphasizes the building of its economy, it appears unlikely that residents will feel any direct effects of Pyongyang’s promise to prioritize the stability of its citizens’ livelihoods.

Anyone who has spent time visiting North Korea on Google Earth will have noticed the acute shortage of trees.  I am not alone in this observation.  Dr. Lankov recently reported that South Korean tourists to Kaesong also sense this.

Donating trees to the North might sound like a particularly harmless form of aid–all the symbolism of inter-Korean cooperation without the messy politics of monitoring food aid or investment.  But the reality is far more pragmatic:

[H]elping North Korea to plant more trees is one of President Lee’s campaign pledges.

He said the South will send seedlings to the North but no details were given as to whether or when the two Koreas will meet for the forestry project.

The spokesman said when the Kyoto Protocol takes effect, the South can buy the right to emit CO2 from North Korea.(Korea Times)

The South Korean government is not alone in hoping to make money off increasing North Korea’s stock of trees.   Singaporean entrepreneur Richard Savage started a tree farm in the DPRK back in 2002:

Richard Savage kneels in the rich brown earth of a field on the outskirts of Pyongyang and reverentially spreads out the broad, green leaf of a young paulownia tree. The saplings have been in the ground for only a month but already they are a meter high; the first harvest could take place in just five years. Eyes shaded by his black cowboy hat, the Singaporean native gazes down the rows of juvenile trees, each worth thousands of dollars at maturity, with a satisfied grin. The experimental lumber crop has survived the harsh North Korean winter and is flourishing in the loamy soil. “The paulownia loves this,” he says. Glancing at another leafy plant, a new hybrid, he confides, “We’re going to let the Dear Leader name it.” (Time)

UPDATE 2002 (Via Werner Koidl):

The IHT wrote on Oct. 27th, 2006:
“Richard Savage, executive director of Maxgro, a company based in Singapore, is probably one of the most ambitious foreigners in North Korea. He is developing a hardwood plantation on 1,500 hectares, or 3,700 acres, manufactures Snow Pine cigarettes for the local market and is building an eight-story financial center in Pyongyang in a joint venture with the government and other investors.”

Even the North Korean government, though, has noticed that the forests are not as dense as they used to be.  Bradley Martin reported in Bloomberg that Kim Jong il has been pushing a reforestation program for some time:

North Korea’s deforestation program dates back to a 1961 speech by Kim Il Sung. In a mostly mountainous country, he proclaimed, “it is necessary to obtain more land through the remaking of nature.” Not only tidelands but “hills throughout the country and plateaus” should be “brought under the plough,” he said.

“The hills and mountains still had trees, and I never heard of floods,” said Hiroko Saito, a Japanese woman who moved with her Korean husband to North Korea in 1961. Her husband joined one of Kim’s vast mountain work teams in the early 1970s, said Saito, now 66 and back in Japan.

…

Following Kim’s death in 1994 — just before a flood-linked famine gripped the nation — his son and successor Kim Jong Il continued the sacrifice of forest cover until 2000, when he began encouraging reforestation. But the shift hasn’t reversed the damage, and some analysts warn that another famine, close to the scale of the 1990s disaster that may have killed millions of people, might occur as soon as next year.

The government’s agricultural policies launched a cycle of events that lead to greater and greater numbers of trees being culled.  Clearing the forests contributed to seasonal flooding.  The floods exacerbated the food shortage, and pushed people to adopt coping mechanisms to meet their minimum caloric intake for survival.  These coping mechanisms take a toll on what remains of the forests–which exacerbates the flooding.  Repeat annually. This  cycle of destruction has seemingly frustrated Mr. Kim’s plans to bring back the forests:

“For the past few years, I have been telling you to work hard afforestation and have encouraged you at every opportunity.”

“However, an forestation has not met the criteria of authorities and is not going according to plan.”

What Kim Jong Il is trying to say is that, “The reason afforestation is not working is because of the people’s reckless slash-and-burn cultivation, as well as the inefficiency of officers unable to block it.”

After the food crisis in ’95, people uprooted vines and trees to suffice their underfed diets, as well as cultivating illegal farms for food. Further, to save themselves from freezing to death, people used trees as firewood.(Daily NK)

Spontaneous coping mechanisms aside, efforts at increasing forrest cover might prove more difficult than the government expects.  Even if it resolves the food shortage (which does not seem likely in the near term), it has seemingly lost control of its technocrats who have no problem selling DPRK lumber overseas:

…Oh Moon-hyuk, branch manager of the Ruengra 888 trading company in Yunsa, North Hamkyung Province, was executed after being implicated in the smuggling of timber. The trading company was responsible for the export of timber, and operates under the control of the Party’s accounting bureau. The inside contact stated that because of this incident, North Korean authorities carried out further inspections, leading in October of last year to the dismissal of one official receiving vice-minister pay, and the broadening of the inspections nationwide. (Institute for Far Eastern Studies)

The full articles can be found here:
S. Korea to Help N. Korea Plant More Trees
Korea Times
Kim Yon-se
3/5/2008

Kims’ Clear-Cutting of Korean Forests Risks Triggering Famine
Bloomberg
Bradley Martin
Hideko Takayama
11/21/2007

Cause of Barren Mountains: Imperialism-Natural Disaster-Officers
Daily NK
Han Young Jin
3/16/2007

Institute for Far Eastern Studies (IFES)
NK Bfrief No. 08-2-5-2
2/5/2008

Light from the North?
Time
Donald MacIntyre
8/11/2002