North Korean Economy Watch

Korea Times (h/t Tim Beal)
Lee Hyo-sik
9/4/2007

Shares of companies engaging in an array of inter-Korean economic cooperation projects have shot up this week, following the news on Sunday that North Korea agreed to dismantle its nuclear weapons development program by the end of the year.

Most firms, which will take part in sending electricity to the Stalinist country in return for the dismantlement of its nuclear reactors, saw their stocks rise to their daily limit up over the past two trading sessions.

Also, shares of those companies operating in the Gaesong Industrial Complex have rallied on expectations that easing of geo-political tensions associated with North Korea will further boost economic cooperation between the two Koreas.

But analysts cautioned that investors should refrain from purchasing inter-Korean project related stocks at the moment as share prices will likely fall once the North Korean hype subsides.

After two days of negotiations with his Pyongyang counterpart Kim Kye-gwan in Geneva, U.S. Assistant Secretary of State Christopher Hill told reporters Sunday that North Korea had agreed to declare its nuclear stockpile and disable its atomic weapons programs by the end of this year.

Also, North Korea’s Foreign Ministry said Monday that the U.S. had decided to remove Pyongyang from its list of states sponsoring terrorism.

Shares of Ewha Technologies Information, a power equipment maker, hit its daily limit up on Monday, rising nearly 15 percent to 1,965 won from last Friday’s close of 1,710 won. Ewha shares rose 1.78 percent to close at 2,000 won in Tuesday’s trading session.

Romanson, a wrist watch manufacturer, which operates plants in the Gaesong Industrial Complex, saw its share price increase 14.9 percent to 3,400 won on Monday from 2,960 won last Friday.

“North Korea related stocks went up sharply early last month after the announcement of the second inter-Korean summit. And now, the latest development surrounding the reclusive state is providing a further boost to those shares,” said Lee sun-yup, an analyst at Goodmorning Shinhan Securities.

He said a large number of investors are snatching up shares of companies involved in North Korean economic projects when the local stock market has lost its directions amid volatile investor sentiment in the wake of U.S. subprime loan default risks.

He said investors should be picky, as it will take time before these companies’ profits will benefit from the easing of tension between the North and South.

“It’s risky to jump on the bandwagon at the moment as such shares will likely come down soon as in the past when the North Korean hype dies down and the market regains solid upward momentum,” Kim said.

He advised investors to choose North Korea related shares based on their corporate earnings and long-term prospects.

Washington Post
John Ward Anderson
9/3/2007; Page A10

Deal Would Disable Programs, U.S. Says

North Korea agreed to disclose all of its nuclear activities and disable its nuclear programs by the end of the year, a senior U.S. official said Sunday after negotiations this weekend in Geneva.

Assistant Secretary of State Christopher R. Hill said details of North Korea’s agreement would be worked out later this month in meetings sponsored by China and involving Russia, Japan and South Korea, in addition to the United States and North Korea.

“One thing that we agreed on is that the DPRK will provide a full declaration of all their nuclear programs and will disable their nuclear programs by the end of this year, 2007,” Hill said, using the initials for North Korea’s formal name, the Democratic People’s Republic of Korea. Hill said it was the first time North Korea had agreed to a timeline to end its nuclear programs.

In separate remarks, the head of the North Korean delegation, Kim Gye Gwan, said his country had agreed to declare and dismantle its nuclear facilities, but he did not mention a deadline.

“We made it clear, we showed clear willingness to declare and dismantle all nuclear facilities,” Kim said, the Associated Press reported. “We are happy with the way the peace talks went.”

Hill, who described the talks as “very good and very substantive,” said the agreement included disclosing and dismantling any uranium enrichment programs, which the United States fears could be used to make nuclear weapons but North Korea previously had not acknowledged having.

The discussions this weekend also focused on North Korean demands to normalize relations with the United States, Hill said. In particular, North Korea wants to be removed from the U.S. list of states that sponsor terrorism, a listing that imposes a ban on arms-related sales to the country and restricts economic aid.

Closer ties with the United States will be built “step by step, with the understanding that we’re not going to have a normalized relationship until we have a denuclearized North Korea,” Hill said Sunday before the talks ended. “To the extent that we can move quickly to denuclearization, we can move quickly to normalization.”

Japan also has refused to forge warmer relations with North Korea until it provides an accounting of what happened to Japanese citizens who were kidnapped by North Korean security services in the 1970s and ’80s.

Negotiations over North Korea’s nuclear programs and normalizing relations with the xenophobic, communist country have been fitful for years.

Last October, while talks were stalled, North Korea announced it had conducted its first underground nuclear test. In February, the United States and North Korea agreed to a sweeping deal to restore diplomatic and economic relations and end the country’s nuclear programs. In July, North Korea closed its main plutonium reactor at Yongbyon after receiving 50,000 tons of heavy fuel oil from South Korea — the first installment of 1 million tons pledged as part of the February agreement.

Reuters
(Hat tip DPRK Forum)
8/29/2007

Nigeria will send a high-level delegation to North Korea to discuss attracting investment in Nigerian energy and natural gas, President Umaru Yar’Adua has said.

Nigeria is the fifth largest oil supplier to the United States and an ally of Washington, but it also maintains warm relations with the secretive Stalinist state as a fellow member of the Non-Aligned Movement.

“I will direct the minister of state for energy to visit your country for discussions on energy and gas, a sector where we have an emergency,” Yar’Adua told the outgoing North Korean ambassador to Nigeria, King Pyong Gi, on Tuesday.

Yar’Adua, who took office in May, intends to declare a state of emergency in energy and power to accelerate development of the sector, which has been mismanaged and starved of investment for decades.

Yar’Adua promised to encourage high-level visits between the two countries, the state-run News Agency of Nigeria said.

In 2004 North Korea, which tested a nuclear device for the first time in October 2006, offered to share missile technology with Nigeria as part of a wide-ranging military cooperation agreement. It is unclear if it went ahead after Washington opposed it.

Ambassador Pyong expressed North Korea’s support for Nigeria’s bid for a permanent seat at the U.N. Security Council, the agency said.

The most authoritative, publicly available map of North Korea
Version 4: August 29, 2007

Download it here 

This map covers North Korea’s agriculture, aviation, cultural locations, 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 fourth version.

Additions to the latest version of “North Korea Uncovered” include the city of Manpo along the Chinese border, KEDO, Kumgang Resort expansion, Kaesong Industrial Zone, as well as a few more parks, antiaircraft sites, dams, mines, canals, etc. I have also added more links in the menu which will tell the viewer a bit about the locations themselves. I have also changed the color scheme to make the collage easier to view.

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.

I hope this map will increase interest in North Korea. There is still plenty more to learn, and I look forward to receiving your additions to this project.

Joong Ang Daily
You Sang-won
8/27/2007

GS Caltex Corp., South Korea’s second-biggest oil refiner, plans to open a gas station near the Kaesong Industrial Complex as its first North Korea project.

To that end, the company signed a memorandum of understanding with Jiudau, a South Korean firm that has received the right to use land in Kaesong from the North Korean government, Jiudau said.

According to Jiudau, a service company specializing in events for inter-Korean cultural and sports exchanges, GS Caltex will spend 17 billion won ($18 million) to build a gas station in the 6,611 square meter (71,160 square feet) site.

Jiudau said North Korea had approved the gas station plans. After approval from South Korea’s Unification Ministry set for next month, Jiudau and GS Caltex will begin construction and open the station in the first half of next year.

Kim Kwang-soo, managing director of GS Caltex, only said, “We are considering a gas station near the Kaesong Industrial Complex as our first North Korea business project.”

Jiudau said that once the Kaesong station is running well, GS Caltex will open stations in other North Korean cities, including Pyongyang.

Hyundai Oilbank, another South Korean oil refiner, is already operating a gas station in the Kaesong Industrial Complex and selling gasoline at $1 per liter.

Institute for Far East Studies (IFES)
NK Brief No. 07-8-22-1

The Bank of Korea released a report on August 17 that details economic estimates on a variety of sectors in North Korea. Overall, North Korea’s Gross Domestic Product (GDP) fell 1.1 percent during 2006, the first time since 1999 that the North has failed to increase its GDP. Inclement weather was one factor that played into a fall in agricultural production, and there also appears to have been little progress in the construction of public works in the country. Overall, North Korean GNI was 2.9 percent of that in the South, with per capita GNI at 1,108 USD, 6 percent of the 18,372 USD per capita GNI in South Korea.

The entire economy of the DPRK is approximately 1/35th that of the South, with the Gross National Income (GNI) a mere 1/17th the level seen in the ROK. This shows a growing divide between the two Koreas, as the comparisons in the previous year were 1/33rd and 1/16th, respectively. Due to the North Korean nuclear issues and other foreign relations problems faced during 2006, a worsening of diplomatic relations with other countries, energy shortages and other economic woes befell the North, putting the entire economy in a difficult situation.

The North showed a weakening of the agricultural and forestry industries, increasing production by a mere 2.4 percent, 2.6 percent down from 2005. Corn and other cereal production grew by 7 percent, but rice was down 6.4 percent, and bean production was down 6.6 percent from the year before, leaving overall grain output down 3.6 percent. On the other hand, shellfish and crustacean harvests grew by 1.5 percent, while timber and livestock harvests remained unchanged.

On the mining front, coal and other non-metal mined resources showed promising increases, but production of lead, zinc, and copper fell by 1.7 percent, compared to the 3.5 percent growth posted in the previous year. Despite promising increases in production of manufactured goods and growth in the chemical and heavy industries in 2005, last year North Korean production growth rates in these fields fell flat at a mere 0.4 percent, increasing production rates of fibers, clothing and shoes, but turning out less kitchenware and food-related products. Coal and fuel products looked favorable, but fabricated metals and machine parts, as well as nonferrous metal products grew at a rate of 1.1 percent, down from 5.4 percent.

Gas-fired electrical generation was up 17 percent, while hydroelectric power grew only 2.7 percent, falling from 4.4 percent in 2005. Other infrastructure projects were also on the decline, with only 49 km of road paved in 2006.

The number of foreign tourists declined, with visitors to Kumgang Mountain falling from 366,000 in 2005 to only 265,000 last year, adding to the 21.8 percent decline in the food and lodging sector, but the transportation and communication sector grew by 5.1 percent, leading to an overall gain of 1.1 percent in the service industry.

The gap in overseas trade between the two Koreas increased from 182-fold to 212-fold as North Korean foreign trade fell off 5.2 percent. Imports in the North were up 2.3%, although seafood imports were down 48.4 percent. The slack was made up by a 34.1 percent increase in the import of plastics, a 31.2 percent increase in imported chemical goods, and a 12.4 percent increase in imported machinery.

During 2006, inter-Korean exchanges grew 27.8 percent, reaching 13.5 billion USD. South Korean exports to the North grew 16 percent as Seoul increased rice and fertilizer aid, and exports to the Kaesong Industrial Complex grew. On the other hand, North-South cooperative projects grew 52.7 percent as South Korea increasingly imported North Korean zinc, sand, and other natural resources.

In order to give some perspective to the North Korean economic data, the Bank of Korea offered the following comparisons:

DPRK/ROK/Ratio
Population (thousand) 23,079/48.297/2.1
Economic Growth (2006) -1.1%/5.0%
Nominal GNI (100 million USD) 256/8,873/34.7
Per Capita GNI (USD) 1,108/18,372/16.6
Exports (100 million USD) 9.5/3,254.6/343.8
Imports (100 million USD) 20.5/3,93.8/151.0
Coal Production (10,000 tons) 2,468/280/0.11
Electrical Use (10,000 kW) 782/6,551/8.4
Electrical Production Capacity (100 mill. KW) 225/3,812/16.9
Petroleum Imports (10,000 bbl) 384/88,843/231.4
Cereal Production (10,000 tons) 448.3/530.0/1.2
Rice Production (10,000 tons) 189.4/468.0/2.5
Seafood Harvest (10,000 tons) 92.3/303.3/3.3
Iron Ore Mining (10,000 tons) 504.1/22.7/0.05
Nonferrous Metals Mining (10,000 tons) 8.6/187.7/21.8
Automobile Production (10,000) 0.44/384.0/872.8
Steel (10,000 tons) 118.1/4,843.3/41.0
Cement (10,000 tons) 615.5/4,920.9/8.0
Fertilizer (10,000 tons) 45.4/318.3/7.0
Chemical Products (10,000 tons) 2.9/145.7/50.2
Railways (km) 5,235/3,392/0.6
Roads (km) 25,544/102,061/4.0
Port Loading Capacity (10,000 tons) 3,700/69,213/18.7
Shipping Capacity (10,000 tons) 90.4/1,180.2/13.1

Institute for Far Easter Studies
NK Brief No. 07-8-14-1

The second inter-Korean summit meeting is coming up soon, scheduled to open on August 28 in Pyongyang, and interest is building regarding discussion on economic cooperation. It is true that the North is prioritizing political and military issues in order to shore up its government by normalizing relations with the United States. However, considering its serious economic woes, the ability of South Korea to offer a ‘gift package’ can significantly influence the success or failure of this summit.

It is not yet clear how economic cooperation will fit into the agenda, but Seoul and Pyongyang have been constantly discussing this issue, so some insight has been given. In particular, the ‘consumer’ North has been referring to domestic and international cooperation, and through Pyongyang’s requests, some clarity has been added to what goals could unfold during the upcoming meeting.

Energy Sector

The North Korean economy is saddled with severe shortages of electricity and fuel oil, causing production to slow and therefore stagnating consumption, putting the country into an ongoing vicious circle of economic depression. North Korea possesses facilities to produce 7.7 million kW of steam- and hydro-electric power, but in reality is incapable of operating these facilities at more than 30%.

The opinion that expansion of North Korea’s electrical infrastructure is necessary, not only for the North, but also for South Korea, is gaining strength. South Korean projects to develop North Korean mines and import its coal have been delayed due to a lack of electrical power. In the future, enterprises looking to set up in North Korea will also require a steady supply of electricity.

In what way the two Koreas will cooperate on energy is not yet known, but North Korea is sticking to its demand for light-water nuclear reactors. If construction were restarted on the reactors begun by the now-defunct Korean Peninsula Energy Development Organization (KEDO), North Korea could quickly have not only the energy production amount currently available, but an additional 2 million kW, as well.

North Korea’s power facilities are in a state of deterioration, but the number of facilities in the North are adequate for the current state of the economy, so a plan for the restoration of generation and transmission facilities, or the 2 million kW of electrical power offered by the South Korean government two years ago could be considered sufficient.

Natural Resource and Infrastructure Development

One other highly probable agenda item on inter-Korean economic cooperation will be development of natural resources. This is because a model in which North Korea’s relatively abundant underground natural resources are developed, and in which these resources being used by South Korean businesses, would create a ‘win-win’ result for both Seoul and Pyongyang.

According to a report given by the Korea Resources Corporation at a conference last year, North Korea possesses upward of forty different valuable minerals, including iron-ore. Analysis of these North Korean resources shows that a considerable amount of South Korea’s 40 trillion won (430 billion USD) worth of mineral imports per year could be brought in from North Korea instead.

As development projects in North Korea’s graphite mines are already underway, and the import of North Korean anthracite is being considered in order to meet quickly growing demand for charcoal in the South, cooperation in the natural resource sector appears to be one of the core points to inter-Korean economic cooperation.

As for North Korea’s railways, the heart of the country’s distribution infrastructure, completion of the section of track on the Kyungui Line between Kaesong Station and Moonsan Station, as well as the section of the East Sea Line between Mt. Kumgang Station and Jejin Station, means that the infrastructure for regular service between the two countries is now in place, although talks regarding the details of such regular service are not being held.

If regular service on these two lines between North and South Korea can be achieved, expensive transportation costs can be reduced, and of course, in the future, connection of the railway with continental rail networks such as the Trans-Siberian Rail and the Trans-China Rail would help to enable the Korean Peninsula to emerge as the hub of North East Asian distribution.

Furthermore, considering the fact that North Korea’s mining facilities and technology, as well as its ports, loading facilities, and other transportation infrastructure, are severely lacking, a plan linking development of natural resources to projects developing infrastructure also appears viable. It is also already known, to some extent, the nature of North Korean needs in its infrastructure sector, and if this upcoming summit closes successfully, it is expected that an inventory of these needs will become more concrete.

Vitalizing Kaesong Industrial Complex

The Kaesong Industrial Complex (KIC) is also an important undertaking. At the moment, a problem has arisen concerning the construction of a second KIC, but even if only the originally planned 26.4 million square-meter complex is built, the fact is that currently the first 3.3 million square-meter stage is complete, and considering that it employs North Korean labor, this is no easy feat. Companies moving into the KIC are asking that easy communication with South Korea and simplified import procedures be prioritized.

Yonhap
Lee Joon-seung
8/13/2007

Repairing North Korea’s existing power generation infrastructure is an effective way to help North Korea cope with its chronic power shortage, a South Korean state-run think tank said Monday.

The Korea Energy Economic Institute (KEEI) said refurbishing North Korea’s existing infrastructure may be a more effective way to boost electric power than building new thermal generators and nuclear reactors.

Korea Times
Ryu Jin
8/9/2007

South Korea is expected to propose a large-scale investment plan in social overhead capital (SOC) in North Korea in the inter-Korean summit late this month to help the impoverished state revive its economy, according to officials on Thursday.

Officials in Seoul said that the package proposal will likely include the provision of electricity, renovation of the Pyongyang-Gaeseong highway, improvement of facilities in Nampo port and establishment of a fertilizer factory.

President Roh Moo-hyun and North Korean leader Kim Jong-il are set to meet in Pyongyang Aug. 28-30, seven years after Roh’s predecessor, Kim Dae-jung, met with the reclusive North Korean leader.

While the Roh administration finds itself in a difficult position to give direct assistance to the North, such as provisions of rice and fertilizer — not to mention cash — it appears to have opted for “indirect’’ SOC investment, according to the sources.

Former President Kim Dae-jung won the Nobel Peace Prize for the first-ever summit in June 2000, but his achievement was partly tainted by later revelation that Seoul had secretly transferred $500 million to Pyongyang to foster the historic summit.

Roh, who has put more weight on transparency in North Korea affairs, often stressed the need to help North Korea repair its devastated economy with its own hand and get out of its economic slump.

In February, the Unification Ministry drew up a roadmap for a large-scale economic cooperation, focusing on “what the North really wants.’’ Seoul will likely make some offers to Pyongyang in the upcoming summit, according to government sources.

Dubbed “Roadmap to Hope,’’ the ministry plan includes as many as 16 items such as the provision of 2 million-kilowatt electricity, worth some $900 million every year, and renovation of the 170-kilometer Pyongyang-Gaeseong highway ($307.7 billion).

Other items include the improvement of facilities in Nampo port, the construction of a 330,000-ton fertilizer plant and installation of tree nurseries in Pyongyang, Gaeseong and Hamheung.

“We are sorting out items that could be offered,’’ a high-profile government official said on condition of anonymity. “I think our proposal for the SOC investment could be discussed in the working-level preparatory talks in Gaeseong next week.’’

Experts estimated that the aid package could reach 9 trillion won to 13 trillion won ($9.7 billion to $14 billion) in the coming several years, if major items such as the highway renovation are included on top of the ongoing supply of heavy fuel oil.

Seoul is expected to demand the establishment of liaison offices across the border and the regularization of military talks headed by the defense ministers from the two sides in return for the economic incentives, according to the sources.

But the large-scale economic assistance is expected to trigger fiery debate in the South, as conservatives, represented by the opposition Grand National Party (GNP), have often lashed out at the government’s “single-handed’’ assistance amid the nuclear standoff.

Deputy Prime Minister and Minister of Finance and Economy Kwon O-kyu, who is to accompany Roh to Pyongyang, stressed on Thursday that the aid package would be offered “transparently’’ in close coordination with the international community.

“South-North Cooperation Fund, operated under the endorsement of the National Assembly, could be used first,’’ he told reporters. “I think we should also try to create a favorable environment for the inter-Korean economic projects in close cooperation with the World Bank and the Asian Development Bank.’’

Yonhap
Byun Duk-kun
8/8/2007

North Korea wants to receive various types of assistance, including development-aimed investment, in return for disabling its key nuclear facilities under a landmark denuclearization deal signed February, but it understands and agrees that the benefits could come a bit later than its steps to disarm, a South Korean official said Wednesday.

The North’s apparent concession removes a major hurdle to completing the denuclearization process before the end of the year, as the other countries in six-nation talks on ending North Korea’s nuclear ambition long believed the communist nation would never agree to get rid of its nuclear facilities unless incentives were provided before or simultaneously.

“The North Korean side said that even if its denuclearization steps are carried out in a short amount of time, and the provision of the promised energy and economic assistance takes relatively longer than its denuclearization steps, it will understand there can be a difference of time required and will exercise flexibility based on mutual trust,” a South Korean official told reporters, requesting that he remain anonymous.

North Korea took the position at a working meeting of delegates from South Korea, the U.S., China, Japan and Russia that opened at the inter-Korean border village of Panmunjom on Tuesday for a two-day run.

The talks resumed earlier Wednesday after the North’s delegation, headed by the country’s deputy chief of mission to the United Nations in New York, Kim Myong-kil, crossed the heavily fortified border to the South Korean side of the joint security area.

The main focus of this week’s meeting was to figure out how to ship by the end of the year the 950,000 tons of heavy oil or equivalent aid promised to the impoverished North in the February accord, a timeline insisted upon by the U.S., even though the communist nation has a storage capacity of only 200,000 tons a year.

Under the February agreement, signed by the two Koreas, the U.S., Japan, China and Russia, North Korea can receive energy assistance equivalent to 950,000 tons of heavy fuel oil in exchange for disabling its nuclear facilities at Yongbyon and submitting a complete list of its nuclear programs.

South Korean delegates earlier said that the first day of talks provided an opportunity to hear what North Korea wants, and that they anticipated more “in-depth” discussions with the North on what is within reach and how far the North should move toward denuclearization to get rewards.

North Korean delegates on Tuesday said their country wants to receive the promised oil, as well as what South Korean officials call “investment-based” assistance to help rebuild its dilapidated energy industry.

Pyongyang’s demand became clearer Wednesday, according to the South Korean official who spoke on condition of anonymity.

The North Koreans said their country wants to continue receiving 50,000 tons of heavy fuel oil each month, apparently until the end of the year, and the rest in “support and equipment for repairing and maintaining the North’s energy-generating facilities,” the official said.

South Korea has provided 50,000 tons of heavy oil to the North for shutting down the Yongbyon facilities as the first phase step in the February agreement, while Beijing, the host of the six-way nuclear disarmament talks, has reportedly offered to soon begin shipping the first 50,000 tons of the promised 950,000 tons in the second phase.

Pyongyang has said it will not completely denuclearize unless it is provided with enough benefits — including nuclear power plants.

South Korean officials who attended the two-day working meeting here said the subject never came up during the course of what the chief North Korean delegate, Kim, called “very productive and serious discussions.”